Medium-sized and boutique UK-based fund groups without an offshore product range would face costly regulatory barriers to distributing their products more widely if Britain votes to leave the European Union, experts have warned.
In particular, they would struggle to sell their products easily on the continent as they would no longer have access to the UCITS passport system, and could even find it harder to distribute non-UCITS funds to local buyers who now favour the structure.
Stuart Alexander, chief executive of Gemini Investment Management, said: "UCITS is a fund's trading document that enables them to be sold from one country into another without question as it already abides by a pre-set legal system the EU countries are happy with.
"But, if you are a purely [UK] domestic-focused business, you will no longer be able to sell your funds into Europe as easily after an exit, which will be absolute carnage for fund groups."
Should investors fear a Brexit from the EU?
UCITS is a Europe-wide settlement that permits the UK to remain a domicile location for funds, and means fund groups can 'passport' financial products into Europe.
However, if the UK becomes independent, this will be much harder to do, and more costly. Funds that were previously sold into Europe via UCITS may have to be re-domiciled to a new EU country such as Ireland, Luxembourg or Malta, and seek new authorisation under the UCITS directive.
This is an expensive process as each of these countries requires a significant amount of capital to be moved to the country, with Luxembourg requiring groups to have €10m of capital on their balance sheet. Dublin rules stipulate only €300,000 is required by firms.
It can also take up to six months to set up a fund in Luxembourg, meaning fund groups need to act soon if they wish to continue operating in Europe.
N
