For fund managers, the Brexit genie is already out of the bottle

Brexit, although it has yet to happen, has already brought about changes to the financial services authorisation landscape, and these changes are likely to stay in place regardless of the eventual outcome of the process. Brexit's impact is also being felt in the Republic, according to Marilyn Cooney, senior associate with Pinsent Masons.

Indeed, more than 100 financial services applications have been received by the Central Bank of Ireland since the Brexit referendum – the majority of them asset management applications.

“As the number of fund and investment management licenses issued increased significantly this year as a result of Brexit, the Central Bank has indicated that it will look to conduct a review of fund management companies operating in Ireland, which include self-managed investment funds, to ensure compliance with its rules and requirements,” says Cooney.

“For many of the larger UK-based managers, Brexit has already happened, with banks and financial services firms setting up shop overseas to ensure that they can continue to service their clients, Ireland being one of the main beneficiaries,” she adds.

Status quo

While some managers might feel that they benefited by keeping the status quo in the run-up the now October deadline, the clock continues to tick down and firms that need continued EU access after the UK leaves the European Union need to continue planning, she advises.

“Given the way that the current ‘flextension’ operates, managers need to be ready at any time to trigger Brexit plans.”

It is important for managers to realise that there is no real prospect of reverting back to the pre-Brexit situation.

"Managers need to understand is that the landscape for seeking authorisation in both Ireland and generally across Europe has changed as a result of Brexit, and this is unlikely to be altered, regardless of the outcome of Brexit," Cooney explains.

While fund managers can continue to outsource certain tasks, they can never outsource the responsibility

“The financial services model has evolved, and, in order to ensure the same standards of authorisation are applied across each member state, a lot of this is being set at European level. So even if there was a second Brexit referendum and Remain were to win, firms operating under the pre-Brexit system will still need to consider their current operating models in light of the new landscape that has emerged.”

Core debate

The core debate with respect to firms relocating to Ireland has always been around substance, she points out.

“In recent years and prior to Brexit, the Central Bank had already undertaken a significant amount of work around this issue and devised a robust set of rules to assist management companies in ensuring that control and oversight is retained in Ireland, particularly in the context of stress-testing the delegation/outsourcing model. While fund managers can continue to outsource and delegate certain tasks, they can never outsource the responsibility.”

How exactly the Central Bank intends to conduct its review of management companies remains to be seen.

“This will be no small undertaking given the volume of management company structures in Ireland,” Cooney notes. “The Central Bank has stated that in conducting its reviews, it will use the experience it has gained from assessing the recent influx of applications from firms seeking to relocate to Ireland as a result of Brexit, particularly in the context of the amount of time required by key individuals in order to carry out their functions. The challenge ahead for existing firms is how they will resource any changes required to their operating models, while also dealing with the uncertain future presented by Brexit.”

Marilyn Cooney has advised a number of prominent managers relocating into Ireland as a result of Brexit, and will be presenting at Pinsent Masons' upcoming conference in London entitled Evolution & Change: Opportunities Offered by the Irish Funds Market. Michael Hodson, director of asset management and investment banking with the Central Bank of Ireland, will be giving the keynote address.