With regulative moves such as the UK Fund Regime pending, Jenna Lomax looks at how UK asset servicing is turning the page to paint a new picture for fund administration and regtech, particularly post-Brexit
Home to the Lake District, Snowdonia and the White Cliffs of Dover, the UK boasts a historically famous landscape, greatly shaped by the Ancient Romans, and mused over by literary greats, from Yorkshire’s Brontë sisters to Wales’ Dylan Thomas. However, at present, the UK’s socioeconomical scene is not synonymous with thoughtful rhyme or romanticised story telling, but more an Etch-a-Sketch of tangled knots as the country’s residents face a steep rise in the cost of living, amid an ongoing global pandemic that has ravaged through their ageing population, health service and economy.
When it comes to matters that may affect asset servicing more directly, however, the industry is still awaiting the finalisation of the UK Funds Regime Review, while the UK Financial Conduct Authority (FCA) also tries to help the government crack down on crypto token scams.
Though the ink is far from set on the former, and the latter remains a new-age battle, there are other places that the UK asset servicing industry can look to for more certainty, and where better to look than the country’s capital of London?
Though it has combated war, fire and plague over the course of its long and fascinating history, London still stands resolute as one of the fintech and regtech capitals of the world — after what could have been an isolative period post-Brexit for international business relations.
As the UK’s Government and population paint by numbers to create a brighter horizon ahead, the same slow but steadfast creativity may be required by asset managers and servicers as they look to face a different regulatory landscape post-Brexit — but, luckily, with some of the world’s leading fintechs at their side.
Rough sketching
At present, the UK Government is sketching ideas to crackdown on the policing of cryptocurrency, due to the rising risks associated with token assets scams. The intervention seems quite timely, as a report, published on 2 February by a group of cross-party Members of Parliament berated the UK’s current stance toward regulating and policing cryptocurrencies for being “far too lax” and allowing “pernicious scammers”.
In a similar vein, Charles Randell, chair of the FCA, also outlined the dangers of digital tokens in September last year. Randell called for a complete re-evaluation of both domestic and international crypto regulation to address the escalating problem in the coming years. He affirmed: “Online platforms should expect a future where regulation addresses the significant risks they pose in the same way as other businesses. Same risk, same regulation.”
Away from crypto, but still paving the way toward the UK’s regulative crackdown, and greatly influencing UK fund administration, in particular, is the UK Funds Regime.
The regime seeks input on issues across both tax and regulation to create a regulatory regime that increases transparency, protects investors, and facilitates responsible growth of capital markets while preserving consumer choice and assessing benefits versus implementation costs underpinned by the intention to remain competitive in a post-Brexit era.
The review started with a consultation on the tax treatment of asset-holding companies in alternative fund structures, to which the government responded in December 2020. The latest report, a wider review of the regime, was issued by HM Treasury in April last year which outlines how the UK looks to become the ‘domicile of choice’ for overseas investors and sponsors, possibly through setting up certain new types of funds.
“I cannot say I share the authors’ enthusiasm, because in some respects, the UK is 30 years behind Luxembourg and Dublin”, says Patric Foley-Brickley, managing director at Maitland Group, in reference to the consultative paper.
He adds: “It will not be sufficient just to come up to their level, we are going to need to offer something more competitive than the structures in place in other domiciles.”
Speaking more broadly on the regime and all its facets, Pat Sharman, country manager UK at CACEIS, says: “I welcome changes that strengthen the ecosystem for the UK investment funds industry and asset servicers, because it has a positive impact for all investors and pension scheme members.”
Sharman adds: “I really welcome this because it creates an important alignment with the focus on driving capital towards more sustainable and responsible investments, and this is an area that I think the UK investment funds and UK asset servicers have a big role to play. The investment landscape also continues to evolve, as do the solutions that investors are seeking, and these complexities need to be addressed through the evolution of existing fund structures or new ones.”
Funds, fund managers and fund management-related activities, including fund marketing, are regulated in the UK by the FCA. EU directives are typically implemented in the UK by statutory instruments under the Financial Services and Markets Act (2000) and changes to the FCA’s rules.
However, highlighting how the UK could offer the right expertise for fund administration specifically, and if new UK fund administration jobs would be likely to be located outside of London through the passing of the regulation, global investment manager, BlackRock says there would be “no particular barriers”.
BlackRock made this statement in relation to the April 2021 consultative paper, to which it added: “To encourage fund administrators to locate jobs in specific regions, the government can ensure that there is sufficient talent in the main skills associated with fund administration and that the specific UK regions in question are attractive places to live and work vis-à-vis London. Fostering clusters of financial services activity outside of London will help generate scale.”
Digitally enhanced
Increased digital industry activity both in and outside London is not a new phenomenon but has held steadfast since Brexit — something that can only help generate the previously mentioned scale for UK-based fund administration.
“Many firms have leveraged Brexit as an opportunity to strengthen their business processes, adopt broader, more strategic business models, and also increase localised processing to meet regulatory demands,” says Samir Pandiri, president of Broadridge International.
“This has created a huge opportunity for UK fintech firms to collaborate with financial services firms and help them navigate these changes and spotlight how technology can play a significant role in improving overall efficiency,” he adds.
Though Brexit has presented a flurry of change, fintech activity outside of London has been fundamentally changed by the work-related logistics the COVID-19 pandemic necessitated, a notion Nasser Khodri, head of capital markets at FIS, expands on.
He says: “The pandemic has proven to nearly all businesses that it really does not matter where you work day-to-day, and we expect to see this learning to be reflected in the growth of more fintech hubs outside of London in the years to come.”
The hybrid model of working seems here to stay in the UK with the traditional eight-hour day, five-day-week model showing no sign of returning to pre-pandemic levels — this is something that any future COVID-19 variants may continue to shape and dictate, of course. The introduction of hybrid working is also becoming a hiring tactic in the name of a flexible working ethos and culture — in financial services and also the wider job market. The former factor underpins fund administrator’s search for specific UK regions outside London as attractive places to live and work, as many employees, current or prospective, seek out job opportunities away from the London commute post-pandemic.
But while there are those looking purely for better work-life balance, asset managers and servicers are still aiming to find the digital solutions they may be seeking from the abundance of fintech available in the capital and beyond, as FIS’ Khodri previously alludes to.
In turn, established financial services fintech companies and start-ups can still depend on those London-based asset managers and servicers for business growth, as well as areas outside London that are becoming more popular to grow technology businesses.
“London has one of the world’s highest concentrations of financial and professional services,” Broadridge’s Pandiri highlights. “This means that demand for fintech solutions is high with a huge pool of potential clients and partner firms. And it is working — government data shows that the UK’s adoption rate is 71 per cent, which is well above the global average of 64 per cent.”
On the other hand, highlighting the regional opportunities available, Alex Di Santo, group head of private equity fund services at Crestbridge, says: “London is an established, global powerhouse for financial services and technology, consistently ranked as one of the world’s leading cities for both. However, the UK has other cities such as Manchester, Edinburgh, Cambridge and Birmingham which possess significant talent, fintech presence and investment opportunities.”
And, as FIS’ Khodri expands: “We are seeing the emergence of [fintech] clusters more recently in other cities such as Newcastle, Reading and Bristol.
In fact, it is interesting to note that more than a third of all fintechs operating in the UK are outside of London.”
