Nick Evans writes that a new paper by the Independent Investment Management Initiative (IIMI), a boutique asset management think tank comprised of over 40 leading independent firms in the UK and continental Europe, has called for regulatory action and reform in several key areas where IIMI members believe the UK authorities could do more to stimulate growth in the asset management industry.
In the paper, entitled ‘Strengthening the UK’s Asset Management Industry’, the IIMI – formerly known as the New City Initiative – said its members identified four main areas where there was “significant opportunity for improvement” by the Financial Conduct Authority (FCA) and other UK government bodies.
These chiefly involve:
· Streamlining the fund authorisation process for start-up firms and new fund launches, which many firms consider to be unnecessarily slow and cumbersome.
· The FCA taking a more proactive stance to developing the UK as an asset management centre, and doing more to replicate its peers in Luxembourg and Ireland in its commitment to promoting the UK as an asset management hub.
· The UK regulator also engaging more actively with the industry about ways to strengthen and enhance the sector’s position in the global market.
· And the UK government reforming specific regulations and tax rules that would help to support the local funds industry, encourage greater re-domiciliation of funds into the UK, and create job growth across the country in asset servicing and other fund-related service activities.
“As the UK recovers from COVID-19, it is vital that the country’s highly successful asset management industry remains competitive,” said IIMI chairman Nick Mottram, an experienced global equity investor who is also chairman of Dalton Strategic Partnership LLP.
“While Brexit has thrown up a number of operational and logistical challenges for domestic asset managers marketing into the EU, the UK’s new-found autonomy does give it much greater flexibility to shape regulation and policy as it relates to funds.”
He added: “Much of the feedback received from our members did not come as a surprise. For example, a number have suggested that the time-frame for FCA fund authorisations be reduced from six months to one month, while there are also calls for firms whose target client base is wholly institutional to be allowed to engage in a certain degree of pre-marketing ahead of being authorised.”
Many of the IMII members – which comprise independent, owner-managed businesses – believe that the FCA’s slow-paced regulatory authorisation and supervisory process presents a major obstacle to firms being able to grow their businesses quickly at a time when operational costs are rising exponentially.
In addition, member firms are also calling on the FCA and the government to adopt a more proactive approach to promoting the UK as an asset management centre and taking steps to boost the competitiveness of the UK asset management industry, especially following Brexit – comparing the UK authorities unfavourably with their counterparts in Ireland and Luxembourg.
“An IIMI member highlights that in comparison to the CBI (Central Bank of Ireland) and the CSSF (Commission de Surveillance du Secteur Financier) in Luxembourg, the FCA is simply not as engaged in dialogue with the industry as it should be,” read the think tank’s report. “The member continues that it is critical the FCA communicates more regularly with asset managers in general – as this will help to promote best practices.”
In terms of specific financial services regulation reforms, the IIMI is hopeful that the UK government – now that the UK is outside the EU – is open to the idea of streamlining or amending certain EU rules that are perceived by the industry as being excessively burdensome.
These include the widely-derided Solvency II risk-weighted capital requirements regime for insurance companies – where reform could free up an estimated GBP100 billion of capital for much-needed investment into illiquid assets such as infrastructure and green energy projects, according to the IIMI – and the equally unpopular MiFID II directive, where the UK government has already implemented what the think tank calls “welcome” changes such as excluding small-cap company research from the unbundling rules.
However, III members believe that it would be “imprudent” to make any significant amendments to either the AIFMD (Alternative Investment Fund Managers Directive) or UCITS regimes – which have been transposed post-Brexit into UK law with only minor administrative alterations.
In recent years, the IIMI has been a strong supporter of the need for the UK to develop a domestic fund regime. A ‘Call for Input’ industry consultation and review initiated by the UK Treasury in 2021 has resulted in the establishment of a new Long Term Asset Fund (LTAF) open-ended fund vehicle – although there is general disappointment in the investment management industry, especially amongst private markets and alternatives fund managers, that many other ideas and initiatives have not yet been taken up.
“Looking at the bigger picture, IIMI continues to be a firm advocate for the development of a domestic UK fund regime,” said Mottram. “The UK is home to a wide range of asset management talent, best-in-class service providers, a deep pool of legal and accountancy expertise, and a solid regulatory and common law regime. As such, the country is in an excellent position to support the re-onshoring of funds and, with it, asset servicing jobs.”
He added: “Should there be widespread re-domiciliation of funds, this could have a significant impact on the fortunes of the UK economy. With the incumbent government now prioritising regional economic development, IIMI believes the asset management industry could help facilitate this.”
“If the UK is able to develop a popular fund structure, it could result in a huge increase in asset servicing roles – many of which do not necessarily need to be carried out in London. If more professional services firms – such as fund administrators – establish themselves in the regions, local economies will flourish. This is an idea which the UK government is actively exploring and we hope to see it come to fruition.”
Founded in 2010, the IIMI’s aim is to serve as an independent, expert voice in the debate over financial reform and the future of financial regulation – promoting the values and practices of owner-managed firms that align their interests with those of their clients and investors, and raising awareness of the contribution that smaller, entrepreneurial asset management firms make to the economy and to society at large.
