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Supplements » Global Industry 2020

London roundtable: Operating in the new normal

Funds Europe – Is Brexit uncertainty having an ongoing impact on your business and how have you positioned for the UK’s departure from the EU?

Cicconetti – Our business has 15 locations in Europe, and we have more than 800 employees working from different locations. We have registered our Luxembourg fund ranges under the UK Financial Conduct Authority’s temporary permissions regime to allow EU27-based funds to continue to be offered to clients based in the UK in the event of a no-deal Brexit. We have also applied for further licences where we were not having the licence yet, so from our perspective, for the way the business is set up, we expect a very marginal impact.

Smith – Similarly, we’re all operating global businesses here, so when we talk about ongoing impact of Brexit, we’d say ‘no’, not especially. It is what it is, and we’re just working through it. Our longstanding plans will stand irrespective of the outcome. From a product perspective, we have 20 different product platforms around the world, including an open-ended investment company for the UK, and a Luxembourg Sicav for more cross-border business, so the impact of Brexit is not so great in a global context.

From an investment point of view, the conclusion of the trade talks will at least bring some clarity and certainty. As we know, markets really don’t like uncertainty. As I said, I’m a born optimist. I think before too long, we’ll see some pretty significant demand and interest from clients in the UK equity market.

Pilbeam – From our side, we do have a large headquarters in the EU in Paris, so the impact or possible impact was felt quite early on. Like a lot of businesses, we run various scenarios and hopefully have planned for one or two of those to play out. Just from a UK perspective, our business operates through a dedicated entity and that contains both domestic and offshore products, so I really think that irrespective of what does end up happening, we’ve planned to be able to continue to serve our UK clients in the same way that we do today.

Ide – We also have 18 locations across the region and we’ve been preparing, as I’m sure all of us have, almost for the worst-case scenario because that’s what we all had to do as a contingency. The advantage we have is being in lots of different markets and having the infrastructure and the locations in both Dublin and Luxembourg to deliver to our clients on the ground in each of the markets they’re in. When whatever deal is agreed or not, we will have to think about some aspects of marketing across borders from the UK, where some members of staff have typically been headquartered for US-based businesses.

Also, for investors as a whole, it’s the market liquidity impact or what we hope is going to be the minimal impact of a deal which is really important. Given London’s importance as a financial centre in Europe, it seems the mood music sounds right, but again, we haven’t got a deal yet.

Creswell – What we do need to look at is Brexit’s legacy, i.e. the Brexit uncertainty on the other side of January 1. What Brexit has allowed, when you take the UK out of Europe – and the UK has been a very effective moderator between the other two principal forces, Germany and France, in financial services – is Europe to revisit the whole delegation model.

For example, certain countries have cooperation agreements with the United States under which delegation is allowed, and those cooperation agreements are now being renegotiated; I won’t name the countries. The problem with that is the way delegation falls apart. For reasons that nobody can quite explain the centre of gravity of the fixed income specialised world happens to be in California where our headquarters is, so you’ve got a wealth of experience, you’ve got a centre of excellence, you’ve got lots of expertise in California. If you’re an institution in Asia or Europe or the UK, you really want to plug into that centre of excellence; if the delegation model breaks down, what is being requested by regulators today is that some part of that infrastructure is replicated in a European Union country.

That creates a need to employ people, build infrastructure, add trading capability and so on, all of which can be done. But the idea that you somehow replicate this centre of excellence and create another centre of gravity in Europe hasn’t been tested. The risk to our industry is that it becomes quite difficult to replicate this delegation model and that creates uncertainty. Europe has to be careful that they don’t undermine the success of the Ucits franchise.

Ide – That’s a good point. If the delegation rules were to change significantly, I think that would have an impact on the Ucits world as well, and we’ve seen some regulators around the world talking about what the breakdown of that very effective delegation regime would be.