Is Singapore-on-Thames the Answer?

With the UK's exit from the EU and the near simultaneous publication of ESMA's consultation paper on the Provision of Investment Management Services in the EU by third country firms (coincidence?), questions are again being asked around where the UK will stand once a trade agreement is agreed with the EU (assuming an agreement is actually reached which is by no means a certainty). The central tenant to much of this argument rests upon whether the EU will allow the UK to operate under the auspices of equivalence for the purpose of MiFiD II / MiFIR. With equivalence it would seem likely that UK firms would be given, or more accurately maintain relatively unfettered access to the EU’s financial markets - this is by no means a certainty given the recent statements by Prime Minister Boris Johnson.

So, at this juncture the case for a more deregulated, unencumbered financial system in the UK, otherwise referred to as the "Singapore-on-Thames" model appears. Creating an efficient, deregulated model that would provide the UK with an enormous competitive advantage is indeed compelling. For example, why should the UK not create a similar set of corporate structures to those of the Republic of Ireland such as the ICAV specifically designed for investment funds? Why would the UK not wish to exploit what is an opportunity to rid itself of onerous regulation that is not designed for the protection of the retail investor or for the monitoring of investment funds but instead created out of the sheer bureaucracy of the EU and a knee jerk reaction to the 2007/8 financial crisis? It is unlikely that the UK would ever look to replicate the other extreme of the regulatory spectrum such as the Cayman Islands or BVI but there is a sound argument for the creation of a more efficient system to attract (or retain as the case may be) the talent and capital that may be at risk of flight.

It remains unlikely that either the EU or the UK will dispose of the right to delegate roles which reside with Investment Managers but there are risks that the UK falls under third party rules for marketing and distribution. AIFMD 2 seems to have in part addressed this with new definitions around pre-marketing and reverse solicitation but the reality is that we are still waiting on a unified regime and with a mildly deregulated regime the UK could certainly address these issues and at the same time create an environment that would encourage new start-ups in a similar way to those in the US for smaller funds.

It seems difficult to argue against such a move by the UK although this would require some imagination by government and a pro-active and committed regulator...

So, what could the new model(s) look like?

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