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The post Brexit trade agreement has now been published. Although it runs to over 1,200 pages, we can comment already on what it means for financial services as this is separate half page document festively dated 25th December 2020. This is reproduced in its entirity below:
The UK is now in a much weaker negotiating position post deal so we suspect that this may resurface in the MoU / equivalence debates. We also share the IA view that this may also feature in changes to the AIFMD. The French financial services regulator, the AMF, specifically raised this as its preferred course of action in comments just before Christmas.
Investment managers will also need to consider the implications of other parts of the deal too, in particular the general provisions on services, the sharing of data, the movement of people and the recognition (or rather lack of) for professional qualifications. We will leave others to comment on these in detail.
We await with interest and some trepidation, the MoU.
It should also not be a surprise that a decision on financial services equivalence would not be in place by 1st January, The development of an MoU by March and agreeing an approach to determining financial services equivalence is a very long way off the certainty for which the industry hoped. A key concern for the industry has been the delegation of portfolio management under the Alternative Investment Fund Managers Directive (AIFMD). On Christmas Eve, the Investment Association issued a briefing on the likely agreement, which you can find here. This noted that the EU had sought to include a ‘technical headnote’ granting it the ability to limit the provision of certain services on prudential grounds, including the delegation of portfolio management activity. After lobbying by the IA of senior Number 10 Officials, this text was removed from the final version.
There will be some form of cooperation and a route to possible equivalence to be covered in a Memorandum of Understanding to be agreed by March. So we are in the dark but have jointly agreed we can light a candle.
What does this mean for the investment management industry? Hopefully by now everyone had realised that we would be losing access to the financial services single market and passporting from 1st January, so this should not have come as a huge shock. As we have been covering since the referendum, the development of the EU Capital Markets Union will increase the importance of the single market to which we will no longer have access.