The UK leaving the EU would have a substantial impact on investment funds and their managers and service providers.
The existing regulatory environment in which funds and fund managers based in the UK operate is determined primarily by EU Rules and Regulations, such as the UCITS (Undertakings for the Collective Investment in Transferable Securities) Directives, MiFID (Markets in Financial Instruments Directive) and MiFID II and the contentious AIFMD (Alternative Investment Fund Managers Directive).
A majority of investments managed out of the UK take the form of UCITS, which benefit from a European cross-border passport. EU funds (other than UCITS) with UK managers can also benefit from a similar marketing passport under the AIFMD. In the short term, the impact of a UK exit on such passports under both Directives will remain to be seen. They may no longer be available to UK-domiciled vehicles and managers, which would affect their ability to market to EU-domiciled investors. Depending on the terms of an exit, future marketing to EU-domiciled investors could be contingent upon the UK becoming part of the EEA, negotiating separate treaties, or relying on private placement regimes if and where possible. Delegation and transfer of cross-border specialised management expertise within the EU may also be affected.
In the medium to long term, a number of European-focused funds, managers or banks could re-evaluate the benefits of operating from London as a financial centre without such direct access to EU investors.
On the other hand, however, increasingly prescriptive EU rules and regulations have been cited as putting London at a competitive disadvantage in comparison to jurisdictions like the US (for example with respect to remuneration restrictions). Once the uncertainties in the short term are addressed, an exit may eventually result in a more industry-friendly regulatory framework without some of the more burdensome EU provisions, thereby making the UK more attractive for management operations from the USA or from other areas of the globe.