As 2020 drew to a close, it marked an end to the long, drawn-out process of the UK's withdrawal from the European Union. Amid the political and economic uncertainty, Wealth and Asset Managers alike continued to prepare for the UK's departure, says Lea Blinoff, head of solutions at Vestrata.
Now that a deal has been struck and the UK has officially left the EU, many are wondering what specific impact Brexit will have on the Wealth Management industry and the facilitation of cross-border wealth management advice.
The impact of the UK's departure from the EU will be substantial. Following Brexit, UK firms now must treat Europe as a 'third country'. This means that greater care and expertise is needed to onboard and distribute European products in a compliant manner.
Taking advantage of technological innovation will be key for the facilitation of cross-border wealth management advice."
Without a specific licence to facilitate business in the UK, EU firms are no longer able to operate as they previously could, and for UK firms, the same is true for each EU location.
In order to be able to retain and support their existing clients, firms will need not only appropriate licensing, but must also adapt existing frameworks to comply with the regulatory regimes of multiple regulators. They will also have to set up local entities and hire staff in both UK and EU jurisdictions, which will increase operating costs and have a visible impact on resourcing the right expertise.
That said, the post-Brexit environment also provides opportunities for wealth managers moving forward. Until 31 December 2020, the UK incorporated EU Legislation and regulatory requirements into its own regulation, and the rules are still equivalent with those of the EU. However, it is likely that over time, we will see some element of divergence.
The UK has a strong reputation for robust regulatory oversight and investor protection, and we believe it will retain its status as a well organised and controlled country within which to conduct investment business.
While the UK regulator is unlikely to loosen core consumer protection provisions, it may take the opportunity provided by Brexit to rethink certain areas of investor protection requirements, providing UK firms with some opportunities for growth. For example, allowing further segmentation of the definition of "retail investor" would enable sophisticated clients to invest in specific asset classes or product types and broaden their freedom of choice, whilst maintaining the existing controls for retail investors without those needs.
Transaction reporting requirements is another area the regulators have an opportunity to review.
HMG and the UK regulator have recognised the role of technology in partnering with the financial services industry. The recently published Kalifa Review of UK FinTech set out a bold strategy for the UK government to demonstrate leadership in the space. A key aim of the commission is to build trust in this new wave of tech-enabled products and service providers.
FinTechs will be valued partners for wealth managers, enabling them to meet growth challenges, enhance data and analytics capabilities, and provide technology solutions to navigate complex regulation. Ultimately, FinTechs will help wealth managers to improve their investment offerings and services, allowing them to thrive in a multi-jurisdictional regulatory environment.
Taking advantage of technological innovation will be key for the facilitation of cross-border wealth management advice. With the cost base for operating across jurisdictions increasing, Wealth Managers must leverage technology and specialist expertise to overcome the cost hurdles and ensure a robust multi-jurisdictional conduct risk framework.
Many of the wealth managers we speak with acknowledge that developing the technology requirements to meet multiple rule sets provides a real challenge. WealthTech platforms such as Vestrata provide a compliant suite of automated MiFID and UK risk and regulatory controls that can be easily extended to include other global jurisdictions. Coupled with automated monitoring of cross-border transactions, a platform as such provides
Wealth Managers with the confidence to operate across jurisdictions and ensure compliance with multiple frameworks - enabling firms to focus on client engagement and delivering a continued comprehensive investment service to their clients.
Additionally, top performing wealth managers are increasingly partnering with established institutional asset management partners in the development of SMA-type solutions for Discretionary Model Portfolios, instead of merely acting as a ‘funds supermarket'. Those wealth managers who develop these strategic partnerships will benefit from being better prepared for a comprehensive Brexit mitigation plan.
With the UK's exit from the EU, and all the regulatory challenges and opportunities that accompany it, now is an opportune time for Wealth Managers to evaluate their investment solutions partners, ensuring the right level of expertise to navigate complexities in this space.
By Lea Blinoff, Head of Solutions, Vestrata