Daniel Behar / 19 January

January Newsletter – Brexit

Market Overview
The transition phase for the UK’s exit of the European Union finally came to an end on December 31st 2020. In this month’s newsletter, we take a look at what impact this has had or is likely to have on 4 key areas within investment management and the recruitment for roles in these areas.

Investment
The 2016 Brexit vote has had minimal impact on front office investment functions as the vast majority of these roles look set to remain in London, even after the transition phase; despite initial concerns that jobs would be relocated to mainland Europe as a result of the vote.

These initial warnings have been scaled back over the last couple of years and London has continued to remain the main hub for fund management teams in Europe. An FT survey found that nine of the world’s largest asset managers have ramped up hiring in the UK since the Brexit vote with their total combined headcount rising 35% to more than 10,000 employees over this period. A large proportion of this growth in headcount has been at large US headquartered asset managers who continue to see London as the European centre for investment teams.

Product
The department within asset management we expect to have been most impacted by Brexit is product, with product management and governance being the areas most affected by Brexit changes. There is increasing pressure on heads of product to achieve new regulatory changes brought about by Brexit.

Post-Brexit, the only way UK investment managers can continue providing portfolio management services to EU UCITS will be on a delegated basis. Given this is dependent on the company’s compliance with the UCITS delegation regime, candidates working within product teams will need to be fully abreast of new regulatory changes and jurisdictions. As a result, candidates with product governance and product management backgrounds are to be those most sought-after this quarter. Contractors are in higher demand than permanent candidates, due to the rapid need for extra help in complying with newer and stricter deadlines.

Operations
Operations is being affected by the remaining uncertainty following the EU-UK Trade and Co-Operation Agreement, particularly given there is still no decision on the equivalence issue. Despite the UK granting the EU with ‘equivalence’ for access to UK markets, it remains to be agreed as to whether the EU will or will not deem the UK standards of regulation and supervision ‘equivalent or better’ to that of the EU, which would be advantageous to the UK in retaining market access to EU financial markets with less complexity.

Should the UK not be granted equivalence by the EU, this could mean UK investment firms would have to navigate country-by-country arrangements when serving EU clients, relying on national license regimes and temporary exemptions. Not all EU countries have individual regulations in place for the UK to fall back on, which would prove even more difficult for UK firms.

As a result, workloads within BAU regulatory reporting teams have tripled in some buy-side houses, whilst in others, facilitating the smooth-running of regulatory change from a project management angle has been a key focus. The UK and the EU have agreed to a joint declaration to support enhanced cooperation of financial oversight, with the aim to agree a Memorandum of Understanding by March.

However, a general commitment to regulatory cooperation is no replacement for certainty regarding single market access for UK firms. Some UK firms have already planned for this by moving significant parts of their operations to EU cities like Amsterdam, Paris and Frankfurt starting 1st Jan. Lack of equivalence in EU markets for the UK is particularly highlighting differing approaches of the FCA and ESMA on more specific rules and regulations surrounding data management, such as need for better data segregation and split reporting. This could result in increased roles within the data management arena.

Distribution
Brexit has undoubtedly had an impact on European distribution teams within investment management. Over the past three years there has been a noticeable increase in new European offices, with the biggest growth in Frankfurt, Milan and the Nordics. This is a reflection of the shift to having more European sales people based locally, rather than London based and travelling for meetings. A key change is also locating sales support, marketing and client service staff in the regions they are supporting, rather than predominantly in London, as was the common structure pre-Brexit. This has expanded the candidate pool as firms now also have the flexibility to hire staff locally, with the key focus on employing the most qualified candidate for the job, that is often a specialist in that particular region.

Going forwards there is and will still be European focused roles based out of London, however Brexit has created more fluidity in terms of where employees can be based. This is further enhanced by the huge shift to remote working that has evolved over the past year as a direct impact of COVID-19. Many teams that were solely office based prior to the pandemic have now recognised that productivity levels have remained steady whilst working remotely. Hiring in this modern landscape of flexible working could perhaps lead to more diverse and inclusive workforces within the industry.

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