UK domiciled funds may benefit from Brexit
0Money market funds domiciled in the UK could see increased inflows in the run-up to an increasingly messy Brexit from institutions wanting to play it absolutely safe.
Onshore funds (those domiciled in the UK) are subject to regulation by the
Financial Conduct Authority (FCA), while offshore funds fall under the supervision of the regulators in their respective countries of domicile.
Most money market funds are located in Dublin or Luxembourg. David Green at local authority treasury adviser, Arlingclose, said: “We expect regulators on both sides of the channel to permit a smooth transition, irrespective of the outcome of current political discussions.
“But treasury risk management is about preparing for the unexpected.
“So, we have advised clients to ensure that they hold some liquid funds in the UK over the Brexit date – in either one of the two UK domiciled MMFs or in a UK bank account”.
The FCA is keen to ensure there is no disruption to investors. In October it launched a consultation process on its proposals in its release “CP18/29: Temporary permissions regime for inbound firms and funds.”
The consultation closed on 7 December, with feedback and final rules scheduled for the first quarter of 2019. “The temporary permissions regime will allow EEA firms and funds to continue regulated business in the UK, if the UK leaves the EU in March 2019 without an implementation period in place”, said the FCA.
Without the passporting arrangements, EEA-based firms could suffer an abrupt loss of permission and would need to see authorisation from the UK authorities to continue to be marketed within the UK.
In March 2018 the UK and the EU agreed terms on an implementation period lasting from the date of the UK’s exit in March 2019 until at least 31 December 2019. During this period funds would have access to the same passporting arrangements as they do now.
However, the implementation period is subject to further negotiations. The temporary permissions regime is designed to allow business to carry on as normal. However, it is unclear how long the transition, which is described as being for a “limited period” will last. More importantly, it is unclear what will happen in a “no deal” Brexit.
UK local authority treasurers had £7.5bn of assets placed in money market funds as at end of September. 2018.
