14 Dec 2021
How the UK can enhance its position as a leading funds domicile
Throughout 2021, the underlying ethos behind regulatory activity in the UK has been one of competitiveness and attractiveness How can we enhance the UK’s reputation as a leading jurisdiction in the global funds industry while building on its reputation for consumer protection, strong governance and market integrity?
As we look towards 2022, it is helpful to think about ways that the momentum built in 2021 can continue to be enhanced. With this in mind, we have set out our five potential policy ‘resolutions’ for the UK industry, as we prepare to commence another year of change.
1) By better promoting the UK’s strengths in fund governance, we can enhance our attractiveness as a domicile
Whilst the UK is a global centre for investment management it ranks behind a number of other leading funds domiciles. EFAMA’s March 2021 Quarterly Statistical Release showed the UK as the fifth largest domicile for UCITS and AIF funds. This position could be enhanced, in our opinion, by more proactively promoting and marketing the UK as an attractive location to domicile funds, with a more prominent focus on its high international standards of governance and investor protection. Strong, transparent, and independent governance is a key differentiator for the UK as a jurisdiction.
2) Renewed fund structures can boost the competitiveness of the industry
To meet the needs of domestic and international investors the UK must enhance its existing fund range, introduce new structures, and adapt existing ones to ensure the UK industry’s range of available product types can compete with other jurisdictions.
- LTAFs –The expansion of the scheme to other types of investors, beyond high net worth and defined contribution, with the appropriate safeguards, potentially as an advised product, can help to widen access to investment opportunities in areas such as private equity and infrastructure.
- OPFs: introduction of OPFs will further enhance competitiveness and should be targeted to allow professional and sophisticated investors to gain access to unconstrained investment strategies covering all asset classes.
- NURS regime - we support rebranding the NURS regime as ‘UK UCITS +’. Branding is important, and with the right branding NURS funds could appeal to investors wanting the investor protection offered by UK UCITS but with greater investment flexibility and some exposure to alternative asset classes, including property.
3) The funds industry can support post-Covid recovery by accelerating its own growth and investment
Investment in long-term assets can support economic recovery, particularly through proposals to increase investment in infrastructure through the outputs of the Productive Finance Working Group.
Operationally, the industry’s own growth can contribute to this agenda. As it looks to deliver greater value for end investors, we will likely see growth in locations beyond London and the South East. On this point, we speak from direct experience as a growing firm with offices in London and Edinburgh, serving clients and protecting investors across the UK.
4) The UK can be the leading global jurisdiction for responsible investment
Especially given COP26, the UK has an opportunity to build on its strengths in responsible investment to become the pre-eminent global centre for ESG, meeting increasing demand for products with a focus on sustainability, long-term value, and patient capital.
Building on this will require the Government, regulators and the industry to work more closely together to address key priorities in terms of enhancing disclosures, achieving consistency in how ESG outcomes are measured, and providing assurance of the quality of the underlying ESG data, in order to enhance investor protection.
5) There is a window of opportunity for the UK to emerge as the leading jurisdiction for technological innovation
Innovation in areas such as distributed ledger technology and blockchain represent another key area of opportunity for the UK to take the lead internationally in terms of smart contracts and fund tokenisation which can deliver efficiency and security for investors.
The Kalifa Review emphasised that “the time to act is now” if the UK is to take the lead, and for the UK to become the centre of new funds business incorporating novel asset classes and technology coupled with robust investor protection, to enable the industry to embrace these opportunities.
An inflection point
The UK’s regulatory regime continues to evolve, and we are at an inflection point at which there are now a number of opportunities to enhance the system. The UK's reputation for governance and consumer protection can be developed in tandem with measures which also promote the competitiveness and attractiveness of the jurisdiction.
The UK Budget due out on 17 November is expected to bring significant fiscal tightening in a bid to restore the government’s financial credibility
As consolidation in the alternative fund market continues, general partners are looking for other means to fund their commitments.
In this edition the FCA’s new Consumer Duty, an update on LTAF, ESG investing, ‘side pocket’ proposals and regulatory horizon scanning.