Brexit

The UK and Luxembourg are long-standing partners in the fund industry. UK asset managers account for 17% of AuM in Luxembourg investment funds.

With the UK exiting the EU in March 2019 and the transition period ending in December 2020, the UK and EU negotiation teams are under a huge pressure to progress quickly on a file of an unrivalled complexity. The size of the UK financial sector and its predominant role for financial markets in Europe cannot be ignored in the negotiation process. Despite major progress on the draft withdrawal agreement and the adoption by the European Council of its guidelines for the negotiations on the framework for future relations between the EU and the UK in March 2018, there is no definite view at this stage on the type of mutual market access that actors of the financial sector may be granted once the UK has left the EU.

Since it is clear however that UK asset managers and investment firms will lose full market access and passporting rights in the EU, a number of institutions have worked out different solutions, either reinforcing their existing operations in Luxembourg, setting up management companies or merging their UK fund ranges into Luxembourg-domiciled funds. This move is also partly driven by calls from the Commission, European and national regulators to prepare for a no-deal scenario, as more specifically set out in the Commission’s notice to stakeholders published on 8 February 2018.

Equivalence is one possible solution that becomes more and more frequently cited as the way forward, leaving aside all other avenues that had also been discussed or envisaged, such as a free trade agreement, a Norway-type association model or a mutual recognition agreement which is, or was, the preference of the UK. The European view is that one should revisit the existing framework and work out rules on “enhanced equivalence” to protect the European acquis. UK financial actors would argue on the contrary that rules on equivalence must be improved to bridge the existing gaps, to cover all sectors and to no longer be the result of a unilateral decision-making process of the European institutions.

ALFI has been engaging in discussions with various stakeholders and meeting regularly with UK asset managers interested in learning more on what Luxembourg has to offer. It has further opened its different forums and conferences to panel discussions to foster an exchange of views and work towards the best possible solutions.

Marc-André Bechet
Director Legal & Tax, ALFI