Asset Managers Face Moving More Senior Managers to EU on BrexitBy
Local regulators should take into account a firm’s size: ESMA
Senior management must be based in member state domicile
Investment firms in the U.K. may have to move more senior workers to the European Union following Brexit after regulators said member states need to consider the size of an asset manager’s business when approving funds and subsidiaries.
Regulators in the 27-member political bloc’s member states should also assess the business’s complexity and range of activities when making a decision on appropriate local staffing levels, the European Securities and Markets Authority said on Thursday. Earlier legislation setting out a minimum of two senior managers when authorizing firms may not be enough for larger firms, ESMA said in a report on investment management.
Regulators “should ensure that the persons effectively directing the business and other senior management and/or key function holders of applicant firms are in the member state of establishment,” ESMA wrote in a separate opinion on investment companies, “and that board members and senior managers in the EU27 have effective decision-making powers, even where the investment firm is part of a group."
ESMA, which does not have legislative powers, said that the guidance was prompted by Brexit as it seeks to avoid a race to the bottom in oversight standards. The guidelines mean UCITS managers, hedge funds and private equity firms among others will not be able to set up nameplate firms within the EU if they want to retain access to passporting, which allows managers sell financial services across the bloc.
ESMA is seeking to harmonize member states’ approach to letting U.K firms register subsidiaries and fund affiliates within the EU after Britain exits. Firms should have “appropriate human and technical resources” as well as adequate governance and internal controls for day-to-day management in the country a fund is registered in, the guidance says.
UCITS products are often domiciled in Luxembourg and Ireland, but their fund managers can be based anywhere in the world. Almost 1.1 trillion euros of UCITS fund assets domiciled in the U.K. may also be affected by the guidance.