On 29 March 2019, the United Kingdom's withdrawal from the EU is scheduled to become legally binding. With Brexit, the business and operating models of capital management companies, custodians and institutional investors face numerous challenges. For cross-border asset management and custody, KPMG offers strategic solutions adapted to the individual business models of the fund industry.
Consequence of Brexit: Loss of European passports
With a third-country status triggered by Brexit, UK funds and asset managers will lose the core EU27 passports for cross-border fund business. The effects of the lack of access to the European single market are manifold. For example, the UCITS status of UK-domiciled investment funds and their management companies will expire. EU27 investments in UK funds will then only be conceivable under equivalence criteria. Thus, the third-country regime of the AIFM Directive will also have to be examined in the context of product approval and marketing. In addition, reciprocal, cross-border sales to both retail and professional investors is made considerably more difficult.
Adjustment of outsourcing structures and business migration
Depending on the business model, the outsourcing structures of capital management companies come under scrutiny. It is true that the KAGB already provides for a solid outsourcing regime. However, initial insights into ESMA's administrative practice (ESMA35-45-344) could lead to more restrictive requirements for outsourcing to third-country firms. In this context, particular importance will be attached to an examination of the asset criteria for the value creation structure of UCITS and AIF management companies. In addition to numerous issues, such as the prohibition of letterbox companies, the implications of MiFID II (e.g. in the case of managed accounts) will also have to be taken into account when transferring portfolio management.
Challenges for the front office of German fund managers
With Brexit, financial instruments issued in the UK and trading venues operated in the UK will lose their European status within the meaning of MiFID II. The trading desks of capital management companies may be forced to adapt their investment portfolios, procedures and systems in accordance with the investment principles of institutional clients, insofar as these predominantly provide for investments in European financial instruments or transactions via European trading venues.
KPMG's Investment Management team provides you with comprehensive support on all Brexit-related issues.
Please get in touch with us.
Partner, Financial Services
KPMG AG Wirtschaftsprüfungsgesellschaft