Two think-tanks are proposing that fund managers in London who do business outside the EU should be able to negotiate an exemption from European regulation, illustrating the growing Euroscepticism among the UK’s fund management community.
The proposal from Open Europe and the New City Initiative, which represents independent asset managers running a total of £400bn in assets, will feature prominently in a paper on European fund management that the pair are planning to publish and target at policy makers early next year.
Mats Persson, director of policy think-tank Open Europe, said: “The idea is that for a certain type of fund manager you’d create an exemption from certain types of regulation. If you do limited business with Europe you should be covered by de minimis European regulation.”
Under the proposals, London-based asset managers would be regulated by the UK’s Financial Conduct Authority but be exempt from a range of European rules. This is similar to the Small Business Act for Europe, whereby such enterprises can obtain an exemption from EU legislation or introduce special regimes so as to minimise the regulatory burden on them.
Mr Persson said: “The EU has spent much of the last five years trying to restrict trade rather than facilitate it.”
Dominic Johnson, chairman of the New City Initiative, said: “Within Europe, there’s a culture of distrust on what asset management is. They see it as gambling and they don’t see the link between a good asset management industry and a successful retiring population. The two are inextricably linked.”
Fund managers are facing a raft of different European regulations, including Markets in Financial Instruments Directive II, a proposed financial translation tax and guidelines on pay that were drawn up with banks in mind.
Mr Persson acknowledged that there are lots of UK industries that would like an exemption from European regulation. He said: “It is easier to make the case for a fund manager to be exempt as opposed to a company that provides parts to a car manufacturer that exports a lot to Europe and is part of a big production chain.”
For London-based asset managers, many of their funds are domiciled outside of Europe, trade globally and market to investors outside of Europe, he said.
The Investment Management Association, the trade body for the UK fund management industry, estimates that two-fifths of the £5tn run by its members is for non-UK clients. It does not break out how much is run for European clients.
Industry observers said that while the proposals are conceptually interesting, they would be hard to implement and it is unlikely that the Europeans would allow favourable treatment to the UK, particularly for such a politically charged industry as financial services.
“It’s a bit left field and I’d be surprised if this wasn’t met with a large degree of scepticism in Europe and even dismissal,” said a lawyer in public policy at a big law firm. “It’s potentially providing a competitive advantage to Britain and skewing the so-called level playing field. Why should the UK get special treatment? That’s what you’d be likely to hear from the Europeans.”
Mr Johnson, who is also chief executive of emerging markets specialist Somerset Capital Management, said that European regulation is aimed at “behemoths not boutiques . . . The threat of regulation for UK boutiques comes from Europe, not the FCA. I see London as an aircraft carrier for firms based here but not doing business in Europe.”
Most members of the FT City Network, a forum of about 50 top financiers and policy makers, are ardently pro-Europe, reflecting the sentiment generally held by big business. But Helena Morrissey, chairman of the Investment Management Association and one of the UK’s leading fund managers, told the forum earlier this month: “The City won’t just survive but prosper if the UK leaves the EU.” She dismissed banks’ threats to abandon the City of London in the event of a UK withdrawal from the EU as “just not credible”.
Among boutique players, Euroscepticism is more evident. David Scott, the founding partner of a London-based boutique wealth manager Vestra Wealth, said: “All of my peer group would absolutely want to be out of Europe. We feel that the way European regulation is determined doesn’t reflect the way we play or the way we’re made up. We get caught up in the unintended consequences.”
Get alerts on Financial Conduct Authority UK when a new story is published