UK finance watchdog warns EU against 'disrupting' fund industry
Fund managers are facing increased scrutiny from European regulators, particularly on their use of 'delegation' to outsource activities to companies based outside the EU – which would include the UK come 2019.

The UK's finance watchdog has warned the European Union against "disrupting" or "weakening" the investment management industry by tightening the rules on 'delegation' as Britain leaves the trading bloc.
Fund managers are facing increased scrutiny from European regulators, particularly on their use of 'delegation' to outsource activities to companies based outside the EU – which would include the UK come 2019.
"Let’s not beat about the bush, this model works – it works well for investors and for investment managers. So, why disrupt it, or put another way, must it be disrupted?" Financial Conduct Authority Chief Executive Andrew Bailey said in a speech on Tuesday evening at the Investment Association's annual dinner.
Investment managers in the UK manage just over £1 trillion (€1.1 trillion) on behalf of overseas authorised funds, of which over 80% are domiciled in either Luxembourg or Dublin.
"As my fellow-regulator in Luxembourg suggested last week, EU rules on delegation arrangements are already strict and no further strengthening of them is necessary. This is a commendable statement," Bailey argued.
"Of course it will be criticised by others, as will everything I say, as a product of self-interest. Actually, what we have done is to help to put into effect, with firms, a system that serves the public interest. Does it require membership of the EU to make this system work? No it does not."
The 'delegation' model attracted the attention of ESMA in July when it issued guidance on investment fund relocations from the UK.
This guidance warned against the creation of so-called "letterbox entities" through excessive delegation and conferred "strict conditions" on outsourcing to third countries located outside the EU.
The European Commission then put forward a proposal in September to grant greater powers over cross-border finance to the European Securities and Market Authority (ESMA), including monitoring financial firms' use of delegation.
The Luxembourg government and fund industry are preparing to fight the proposal.
"Brexit is, of course, a challenge,” Bailey added. "But it is important that we are very robust in supporting what works today, and in doing so rejecting the case that Brexit must mean a weaker European investment management sector because there is a failure of the imagination required to preserve and develop what works today."
(By Hannah Brenton, hannah.brenton@wort.lu, +352 4993 728)
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