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It would not seem that the outcome of the election gives any greater degree of optimism that the UK investment management
industry will continue to have open access to European markets.
At the same time, EU progress on Capital Market Union (CMU), increases the importance of that access. This has been covered in our newsletter. It is ironic that we are potentially departing the single market for financial services just at the point that it is starting to make significant progress on the tasks that we as a country, via our then UK commissioner, Jonathan Hill, initiated in 2015. Improvements over the next two years for the passporting of Alternative Investment Funds and other changes under the CMU will increase the pressure on UK based financial services businesses to open or expand their operations in the EU to access the market.
At the same time, EU fears of regulatory arbitrage coupled with tax changes under the OECD Base Erosion and Profit Shifting (BEPS) action plans will mean that there will need to be greater substance in those businesses. We have covered developments in both in our recent newsletters.
Our key conclusions from all of this are:
a) Although it could go either way, on balance we are not convinced that an indecisive election outcome will result in a "softer" Brexit;
b) In a febrile ongoing election environment, we cannot see the financial services sector being the highest priority for either of the main political parties;
c) Investment management businesses will have more reason to want to access the Capital Markets Union as it develops and this will require the establishment of operations in the EU;
d) The level of substance those businesses need to demonstrate will need to increase over time.
Investment management businesses need to have a Brexit strategy and to keep it evolving.
Regular readers of our newsletters and blogs know that we like to include the occasional historical footnote. As a number of commentators have used the phrase "hoist by her own petard" to describe Theresa May's disasterous snap election, for your general education we finish with some brief historical background on petards.
As can be noted from the illustration, the petard was an explosive device for blowing the doors off, which was metaphorically, what Mrs May was trying to achieve with the snap election. Unfortunately if the doors failed to yield, the exposive effect tended to come straight back blowing the petardier sky high, or as Shakespeare put it, "hoist by his own petard". By all accounts this was a source of considerable amusement to defenders on the ramparts.
So even if you did not find the rest of the analysis any help, you have at least seen a picture of a petard in action.
