UK funds sector at risk of losing competitiveness

DC funds

Despite the continuing strength of the industry’s global position, there is growing concern across the industry about threats to competitiveness and the potential knock-on effect for the domestic market, the IA stated in its annual survey of asset managers

UK must align itself with European Union (EU) rules and cut compliance costs to avoid its £8.8 trillion funds sector losing global competitiveness, the Investment Association (IA) industry body said on Tuesday.

Despite the continuing strength of the industry’s global position, there is growing concern across the industry about threats to competitiveness and the potential knock-on effect for the domestic market, the Investment Association stated in its annual survey of asset managers.

Assets under management (AUM) in 2022, a year of war in Ukraine, turmoil in UK pensions and increasing interest rates, dropped 12% to £8.8 trillion from £10 trillion in 2021.

This was a bigger decline than during the global financial crisis, after years of 10% annual growth. While £11 billion flowed into funds that track indices, a record £36.6 billion left actively managed retail funds.

The most important detractor in sentiment has been the incremental cost and complexity of the UK regulatory environment, the Investment Association said.

In the context of the broader pressures in the operating environment, the scale of regulatory change over the past five years is of significant concern. It has already led some companies to look differently at the role the UK plays in their global operations, it added.

Europeans account for 56% of international clients as asset managers run funds in European Union centres like Luxembourg and Dublin, which has, so far, continued after Brexit.

The EU fund regime is an extraordinary export story for the European Union and we should be very careful about diverging away from that. We should be as closely aligned as possible, one asset manager said in the survey.

UK has begun a wide ranging reform of its financial rules, including stronger consumer protection, to exploit post-Brexit “freedom” to write its own regulations.

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