The UK has always been an attractive place of business for the asset management industry. The UK is comfortably the largest asset management centre in Europe and the second largest globally, with around £9.9 trillion assets under management.
In this article we highlight some of the reasons why the UK is such an attractive destination for investment managers seeking international expansion and the ongoing efforts to build on this success.
Ease of doing business
The English language itself is an obvious place to start. For internationally-minded investment managers, being able to communicate with local staff, service providers and counterparties and to have access to full original text of applicable regulation and law in a familiar language is a pre-requisite for success.
With an existing large asset management industry, the UK also represents a great pool of talent to be tapped.
On top of these inherent features, the FCA stands out as being amongst the most commercial, pragmatic and innovative of global regulators, maximising the appeal of the UK as a location investment activity.
- The FCA has largely been seen as one of the more commercial regulators in Europe, taking advantage throughout the UK’s membership of the EU of derogations and carve-out possibilities, unlike many of their EU counterparts, to reduce the burden of compliance
- Compared to other global regulators, the FCA exercises a more pragmatic and principles-based style, allowing firms, in many cases, to adopt a proportionate approach in the spirit of applicable regulation
- Investors as well as other regulators look to the UK regulatory framework as the gold standard, often adopting similar regimes
- Innovation thrives through initiatives like the FCA’s regulatory ‘sandbox’, allowing new ideas to come to market quickly whilst minimising potential harm to consumers and markets
A stable political, legal, fiscal and regulatory environment
With over 800 years having passed since King John signed the Magna Carta and only 50 or so less than that since an elected parliament came into being, the UK enjoys an enviable level of political stability, not to mention a system of strong property rights and broader rule of law backed up by a strong independent judiciary.
As the coronavirus pandemic has shown, there are some risks that will crystalise and have severe impacts regardless of how much planning, insurance, mitigation through robust governance and processes are put in place. With institutional investors and regulators upping the game for asset managers’ operational resilience and business continuity planning, not having to worry unduly about a breakdown of the status quo allows focus on a narrow range of risks to control and mitigate.
FCA capital requirements were revised with the introduction of new Prudential rules at the beginning of this year, in line with EU developments in mid-2020. This was the first major change since CRD IV in 2014 or even earlier for some firm types, and we do not envisage significant further changes for many years to come.
Given the obvious significance of financial services to ‘UK plc’, it isn’t surprising that we are seeing increased co-ordinated efforts from the Treasury (for example the new QAHC regime and the Department for International Trade (with whom we are liaising regularly in relation to their Global Investment Futures campaign to ensure the UK remains in and enhances its position as a world-leading investment management centre. Against this background and given the increased freedom to pursue policies independently of the constraints of EU membership, we see there being little to no risk that the long-standing fiscal rules that provide the UK with an edge over continental European asset management centres will not continue to be available in the longer term. Examples include:
- HMRC’s investment manager exemption (IME) provides a ‘safe harbour’ (on satisfaction of easy-to-meet conditions) ensuring that trading profits of non-UK fund vehicles do not fall within the UK tax net
- The ‘right to recovery’ of VAT for a UK investment firm with funds located outside the UK which, generally reduces the firm’s non-wage cost base by one-seventh
- A generous system of personal taxation for UK-resident non-domiciliaries (including the ‘remittance basis’ and reliefs for ‘detached duty’ and ‘overseas workdays’), that can significantly cut the cost of funding overseas expansion by investment managers compared to other international locations
Not just a great place to do business
The UK is well placed for those travelling from the US, Middle East and Asia, so holds real appeal for international business. The UK’s middle of day time zone allows connection to international financial markets to ease business flow, and the educated, talented, diverse and experienced workforce provides an excellent talent pool for any business. London has always ranked highly in terms of the world’s best cities, delivering with a diverse and interesting culture and a long and interesting history meaning it appeals to visitors and residents alike.
Next steps
To learn more about how Wheelhouse Advisors supports international firms’ cross-border expansion, please contact mcrisp@wheelhouse-advisors.com
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