How the UK can enhance its position as a leading funds 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.
 

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.
   

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.
 

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.
 

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.
 

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.