Ireland prepares for Brexit fund influx

The Irish central bank has begun preparations for an influx of investment managers if the UK votes to leave the EU, amid fears that fund houses will no longer be able to sell their products from London.

Gareth Murphy, director of markets supervision at the Central Bank of Ireland, which oversees more than 6,000 funds, said fund companies will want to "establish a foothold" in the EU in the event of the UK voting to leave when it goes to the polls in June.

"The firms we regulate and their counterparts in the UK are faced with a considerable period of uncertainty if Brexit were to happen," he said. "We are envisioning that there will be quite a few possible applications for authorisation in this jurisdiction."

Mr Murphy added: “The transition [if the UK leaves the EU] could be very messy. I have pressed my staff to gather as much market intelligence [AS POSSIBLE]around this issue.”

International asset management companies are expected to be among the first financial services groups to shift operations to Ireland if Britain chooses to leave the EU.

Several asset managers, including M&G Investments, the £246.1bn UK-based asset manager, have already indicated they are either considering moving or are in the process of boosting their presence in Dublin ahead of the EU referendum.

Analysts warn that fund companies are naive about the impact of leaving the EU

This assumption is naive, they said. “The chances of a ‘friendly split’ in which the UK maintains full access to the single market are low.”

Rathbones, an investment manager with £29.2bn of assets, is looking to establish a European fund range. "We might have to put boots on the ground in Luxembourg and Dublin to a greater extent than we do at the moment," said Mike Webb, chief executive of Rathbone Unit Trust Management.

Asset managers fear they would no longer be allowed to sell funds that are regulated in the UK into Europe in the event of a Brexit, forcing them to move the products to hubs such as Luxembourg and Dublin.

There are also concerns that UK-based investment staff would no longer be allowed to run funds that are registered and overseen elsewhere in Europe.

“Investors assume if Britain were to leave the UK, a deal would be struck allowing investment management to be delegated back to the UK,” said analysts at Morgan Stanley, the US bank, in a note published last month.

An influx of companies from the UK could be good news for Ireland’s economy, which is recovering from a deep recession.

However, Ireland officially wants the UK to remain in the EU, amid fears about the impact a Brexit could have on the peace process in Northern Ireland, and on the trading relationship between the two nations.

The Irish financial regulator last week sent a letter to a small number of large investment companies, fund depositaries and administrators, asking them to explain how Britain leaving the EU would affect their Irish operations.

When asked about the letter, the central bank said: “The impact of a Brexit on the Irish financial sector, and all regulated firms, could be significant if it occurred in a disorderly manner or had a large negative impact on the UK economy.”

(Copyright The Financial Times Limited 2016)