Ian Sayers blog: The Great British Break Off

Ian Sayers on the technical challenge of UK fund regulation post-Brexit

News that the Great British Bake Off will be moving to Channel 4 without Mel, Sue and Mary has caused some consternation to devotees.  Like most such surprises, the focus of attention has been on how things might change for the worse in its more commercially orientated home.

Cue fears of Ant and Dec setting this week’s quiz question (“What flour based product is most commonly used to make sandwiches?”) whilst simultaneously seeking phone votes at £1.50 a go for this week’s live ‘eviction special’.  All accompanied by dreadful puns about “who’s toast this week”.  (On second thoughts, no change there.)

Much the same can be said of the EU referendum, where the running commentary of claim and counter-claim has created a fear-laden dialogue more variable, and at times unpalatable, than the results of a dampfnudel technical challenge.

With any change, what is important is to try and preserve what we liked about the previous situation, and if possible improve upon it.  Which is where the AIC is coming from with its suggestion on how UK fund regulation should be structured post-Brexit.

What we are suggesting isn’t quite a regulatory ‘millefeuille’, but it works on the idea of a ‘layered’ system where different rules apply depending on whether, and to what extent, you want to actively market funds to EU investors.

Put simply:

  • those funds aimed exclusively at UK (and non-EU) investors would operate under a tailored UK regulatory regime.  EU investors would still, however, be able to buy investment company shares at their own initiative.
  • others could be marketed to specific EU countries, subject to those countries permitting it and with some additional rules set by the EU.
  • others would have the right to be marketed across Europe, to retail and institutional investors alike, but would have to comply with the full EU rulebook in return.

Now suggesting such a ‘pick and choose’ system might seem a bit unrealistic, but it’s difficult to see why.

EU regulators would still have control over funds which are being marketed right across the EU.  Individual Member States would have control over whether to allow other funds to be marketed in their own territory.  But importantly, the UK could tailor a ‘UK only’ regime for domestic funds which could potentially dispense with some of the unhelpful and costly EU rules that have been introduced over the past decade.

Like a Bake Off technical challenge, this is just the outline of what is required.  The full recipe will need to be carefully worked out over the coming months and years.  But it does at least attempt to find a path through a complex issue which addresses key concerns on different sides of the EU debate.

After all, as Paul and Mary demonstrate each week, it is sometimes necessary to have your cake and eat it.

Ian Sayers is Chief Executive at the AIC