PwC | Global

Brexit and beyond: Assessing the impact on Europe’s asset and wealth managers

Introduction

Amid the political uncertainty that has dogged the Brexit process throughout 2019, asset and wealth managers (AWMs) have continued to prepare for the UK’s departure from the European Union. Having planned for Brexit on 29 March, many AWMs took advantage of the delay until 31 October to fine-tune their preparations, particularly as the chances of a “no-deal” Brexit began to rise.

However, AWMs are not focused solely on Day One after Brexit. They are conscious that in the absence of a final agreement on the future trading relationship between the UK and the EU — let alone a blueprint for what this will mean for their own industry — Brexit represents a starting point. There will be further changes to the operating model ahead, and in the longer term, Brexit is certain to have broader implications and unintended consequences for the AWM industry across Europe.

Five key takeaways from our research

More than three years after the Brexit referendum, there is still little clarity about the future relationship between the UK and the EU; AWMs still face a leap into the unknown. And although the EU’s equivalence regime offers a potentially powerful insurance policy against future uncertainty, AWMs may suffer collateral damage if trade negotiations become politicised.
Most AWMs we interviewed say they are ready for Brexit, helped by the interventions of Europe’s supervisory authorities, and should be able to continue operating largely seamlessly, even in the case of no deal. However, market and economic volatility is a concern. And a Brexit that introduces a transitional period enduring until the end of 2020 leaves only a tight turnaround for authorities to agree to new permanent rules and for AWMs to prepare for them.
The future for the UK’s AWM sector is now unclear. Policymakers and the AWM sector will need to focus on cementing the UK’s status as a centre of excellence for portfolio management while deciding the extent of tax and/or regulatory alignment that is a viable option for driving funds growth.
EU27 centres such as Ireland and Luxembourg now have an opportunity to consolidate and grow their substantial funds industries, but fragmentation and domestic competition pose a potential risk.
EU27 AWMs are still unclear about the best way to access the lucrative UK market, although the current outlook appears to favour a mirror funds approach. The case for mirror funds will be strengthened if such vehicles are able to access new mutual recognition of funds (MRF) regimes entered into by the UK, providing a means to enter new markets not open to UCITS.

Brexit represents a pivotal moment for Europe’s AWMs

Our interviews suggest that Brexit represents a pivotal moment for Europe’s AWMs. While their preparations for Day One following the UK’s departure from the EU are largely complete, deal or no deal, this is only the beginning of the story. AWMs are now beginning to think hard about what comes next — above all, about how to best position their businesses for future growth and profitability.