Paris is vying to expand its slice of the European fund management sector along with Frankfurt, Dublin and Luxembourg, raising concerns in the UK government and the Bank of England that this could become the financial front line in Brexit.
The Financial Times has learnt that ministers and BoE officials fear a French-backed move to limit access for British-based fund managers to EU funds in centres such as Dublin and Luxembourg.
“There has been a lot of focus on the impact of Brexit on investment banks, but this is becoming the key issue,” said one member of the prime minister’s Brexit team.
At the heart of the issue is so-called delegation, which allows an asset manager to set up a fund in one country and outsource the portfolio management to investment staff in another country.
Over the past three decades, Luxembourg and Ireland have become the EU’s leading hubs in which to base mutual funds, while investment decisions are typically taken in London, Paris, Frankfurt or elsewhere in the world under “delegation rules”.
The UK’s Investment Association, a trade body, estimates that £900bn is managed from the UK on behalf of funds domiciled in Ireland and Luxembourg. “Safeguarding delegation has to be the government’s key priority for the asset management industry during the Brexit negotiations,” one IA member firm said.
With the UK leaving the EU, there is a new focus on whether delegation rules are strict enough. The fear is that a large proportion of assets regulated in the bloc would be run from a non-EU country, with asset managers having only a token presence in an EU country. [...]
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