Tim Pearce and Christopher Leonard Quoted in The Hedge Fund Law Report on Impact of Brexit on Hedge Fund Managers

The Hedge Fund Law Report has quoted Tim Pearce, a partner in Akin Gump’s investment management practice, and Christopher Leonard, a partner in the firm’s financial regulatory practice, both resident in the London office, in the article “Leading Law Firms Debate Effect of Hard vs. Soft Brexit on Hedge Fund Managers.” 

In the first installment of the article, Pearce said he does not think the effects of Brexit will be felt right away, noting, “One benefit of the Article 50 negotiation process is that at least we have time to prepare.” Article 50 is the treaty that allows for a member country to withdraw from the European Union. He continued, “Once Article 50 is triggered, there is a two-year negotiation period prior to exit. While clearly we have regulatory uncertainty for a period of time, what we do have is a nice long runway to prepare.”

Given that two-year buffer, Pearce observed, regulations applicable in the U.K. to the marketing and promotion of funds cross-border have not changed and are not about to either. “The U.K. is bound to follow, and absent some other agreement will follow, all the European financial services regulations and legislation currently in place, including important things in the pipeline such as MiFID II,” he said.

The second article addresses the options available for fund managers concerned about whether they will be able to continue to market and distribute their products in the EU. While Leonard believes that a ‘soft’ Brexit—one that takes its time—is the most likely scenario, he said that even a ‘hard’ Brexit would allow for hedge fund managers based in London to continue to distribute funds in Europe. As an example, he said there may be ways in which firms operating under a MiFID license can take advantage of the new passport as of January 2018 applying to third countries.

Leonard also alluded to the fact that MiFID II will allow firms headquartered outside the European Union to provide cross-border wholesale services, as long as they register with the European Securities and Markets Authority. As part of the registration process, he said, a determination must be made that rules and conduct of the third country in question are equivalent to those of the EU.

“The argument here,” Leonard commented, “is that, if the European Commission is satisfied a country has equivalent financial regulations to that of the EU, it will grant recognition of equivalence, and firms can passport into the EU.”