Any hope private fund managers may have harboured of a post-Brexit regulatory bonfire has been extinguished by the Financial Conduct Authority, which has continued its crackdown on the alternative assets industry.
Unlike its European peers, the UK regulator has extended some requirements of the second Markets in Financial Instruments Directive to alternative investment funds. Last month it also unveiled new investor reporting obligations applicable to all asset managers, including private fund houses, to improve transparency.
There has been criticism from the industry that the extra requirements go too far, according to regulatory lawyers. But they argue that from the FCA’s point of view, there is no reason to treat private fund firms differently from their retail counterparts they manage investors’ money.
Concerns fund managers have that the FCA’s rules will create regulatory arbitrage have also been quashed. What is written into one Directive often makes it into the next, and so the consensus among regulatory lawyers is that the agency is pre-empting the inclusion of MiFID II principles in the next incarnation of the Alternative Investment Managers Directive. Any perceived competitive disadvantage is therefore only likely to exist for a short period of time.
As for the timing of the new regulatory requirements, which will be effective as firms assess their future in the UK ahead of Brexit, legal sources say there is no “good time” to roll out new regulation. If regulation is required, as one lawyer said, it’s required. Timing shouldn’t be a factor in its implementation. The new rules are not so onerous that they will impact a firm’s decision to leave the UK, which will be squarely based on access to European investors.
What the new rules do is illustrate the UK’s position as a leading alternative assets market, and show that once again the FCA is leading the charge on implementing measures that are likely, in time, to be applicable to firms across Europe.
London’s heritage is as an international financial services hub, and years of regulation, tradition and business culture is ingrained in its DNA. For the FCA to embark on a regulatory rollback, or to stop moving forward with industry developments, would be inappropriate, not least as it has promoted a “business as usual” approach to implementing forthcoming EU regulation and encouraged regulated firms to do the same.
Firms aren’t in the UK because it’s cheap, or because of its light regulation, they’re here because of the strong and supportive infrastructure it offers in which to do business. The FCA’s recent action will help to ensure it remains that way.