UK UCITS funds warned of rising costs after Brexit

UK UCITS funds may be subject to a significant increase in cost and complexity following the UK’s Brexit according to industry experts.

Bobby Johal, managing consultant at Cordium, said that UCIT funds would be subjected to the rules of EU member states post-Brexit which would lead to an increase in costs.

“UK UCITS funds will lose their status under the UCITS directive and most likely become alternative investment funds.

“If we assume that the UK is to be a third country, this will result in the loss of passporting rights and so funds will be subjected to private placement rules of each of the states in which they are marketed.

“A significant increase in complexity and cost will result and a move to re-domicile from the UK will be the inevitable outcome,” said Johal.

A Morgan Stanley report published in November last year suggested that Brexit would have an impact on UK UCITS managers as the UK would have to formalise additional country by country distribution arrangements.

Such arrangements could be expensive to introduce despite the implementation of UCITS V regulation.

Irish and Luxembourg UCITS sub-managed by UK portfolio managers will still be UCITS.

Jennifer Wood, managing director at the Alternative Investment Management Association, also suggested there would be potential difficulties for UK based asset managers having to rely on the authority of home members states for fund approval.

“A UCITS will no longer be able to have a UK-based UCITS management company once the UK leaves the EU,” said Wood.

“UK-based asset managers may still be permitted to provide investment management services to a UCITS post-exit, but that will be dependent on the approval of the competent authority in the home member state of the UCITS which will not be the UK.”