The UK government has tabled the idea of a post-Brexit ETF hub and has asked how this could be achieved, in a call for input sent to personnel in the UK asset management sector.
While stating that it “is not aware of any significant remaining barriers” to ETFs domiciling in the UK, the government acknowledged that “embedded business practice, industry and investor familiarity, and inertia” will give well-established domiciles the upper hand over the UK funds regime.
This can be seen with the use of acronyms such as ICAV (Irish Collective Asset Management Vehicles) which was coined to describe the funds industry that has established itself in Ireland, on the back of the country’s low-tax regime.
The call for input said: “The government has also been told by stakeholders that ’re-domiciling’ existing funds would involve moving assets from an entity in one jurisdiction to a new entity in the UK which would be expensive for firms and could create tax liabilities for investors, meaning this may therefore be unrealistic.”
To counter this, the government seeks to leverage the reputation of the UK’s legal and regulatory systems, while also implementing new proposals that would make the country’s regime more attractive to new ETFs and those sold in high-growth international markets.
Another issue the call for input identified is that the UK’s lack of passporting rights and EU market access could make it internationally uncompetitive in the retail funds sector.
With this in mind, the Treasury, and the Department for International Trade and UK industry, will extend their ongoing international promotion of the UK funds regime with stakeholders around the world.
The consultation also asked recipients to offer feedback on enhancing the UK’s reputation as a location for AIFs (such as hedge funds, REITs, and venture capital), with these less-regulated instruments not facing the same extent of market access issues as retail funds.
ETF industry prepares for no-deal Brexit
By creating a new hub, the government also hopes to expand the scope of the asset management industry across the UK. The call for input already reports that some 40% of the UK jobs supporting or resulting from the asset management activity are based outside of London.
“The government therefore considers that by paving the way for more fund administration jobs, enhancements to the UK funds regime can generate more jobs outside of London,” the government consultation added.