On 6 December 2017, the Government published the UK Investment Management Strategy II report (the “Report”), which lays out the strategy and long term approach to build on the competitiveness of the UK asset management industry that will inform future government policy for the asset management industry. This Report updates and builds on the original Investment Management Strategy report published in 2013 and focuses on strengthening the asset management industry to enable asset managers to take advantage of new innovations, like FinTech and green finance, and opportunities in skills development by setting up asset management Centres of Excellence across UK universities. Chris Cummings, Chief Executive Officer of the Investment Association commented that this new strategy should provide a “roadmap to success through Brexit and beyond” for asset management firms.
The overarching objective in the Report is to ensure the UK asset management industry continues to thrive and that it can take advantage of new opportunities to deliver the best outcomes for consumers, businesses and the UK economy. This is great news for asset management firms as the initiative addresses some of the main concerns voiced by UK asset managers, ie. providing a dedicated asset management taskforce to tackle fears surrounding the UK leaving the European Union in 2019.
In its Report, the Government has laid out the following 6 key long term objectives:
- Strengthening the UK’s investment management talent pipeline
The Government is committed to supporting the industry’s access to best talent available and will be establishing new Centres of Excellence at UK universities across the country to support the talent pipeline. The centres will help to address the current skills shortage by upskilling the domestic workforce to create a pipeline of talent for the UK asset management industry. The centres will serve as teaching centres to facilitate developing both entry-level skills as well as continue professional development. The centres will serve as a hub for research, bringing together academia, through the provision of PhDs and Fellowships, and industry to strengthen research capacity and capability into areas such as behavioural economics. Recognising the rising demand for specialist technology like FinTech in the financial industry, the centres will also focus on developing digital skills.
These new centres will build on the Government’s newly reformed Apprenticeship Schemes and work place diversity programmes. The Government believes that apprentices play an integral role in delivering the skills employers and the economy need and has introduced reforms to allow apprentices to gain a full Bachelor’s or Master’s degree. Through the establishment of Investment2020, the industry has aimed to recruit 2000 trainees by 2020. The scheme has been highly successful with 73% of 1000 trainees staying on in permanent roles.
To finance the centres, the Government along with the Investment Association will consolidate the current research budget to take advantage of benefits from economies of scale. HM Treasury will be working closely with the industry and Department for Education to establish the centres.
Moreover, to increase diversity in the workplace the Government is encouraging more firms to sign up and commit to the Women in Finance Charter that was launched in 2016 to support a better balance in the industry.
The Government is also aware that the sector employs a high number of European Union staff. The aim is to ensure there is an adequate immigration system in place to support UK industries so they can continue to attract the best and most suitably qualified people.
- Advancing the development of asset management FinTech solutions.
The Government aims to harness financial technology solutions to ensure the UK remains a world leader in FinTech solutions. FinTech provides solutions across the whole asset management value chain, for example, using blockchain to streamline disintermediation by reducing the need for separate back-office administration, increasing speed and reducing cost. In addition, the Investment Association is helping to develop the world’s first Asset Management Cyber Security Strategy with the aim of strengthening the value chain and improving response mechanisms such as to cyber threats.
Both FinTech and asset management firms are encouraged to engage with the FCA’s Project Innovate, which provides regulatory support to innovators. The project is open to all FCA regulated firms and those who wish to start up and become one.
Moreover, the FCA will be working with the industry in developing standard definitions to facilitate innovation.
Later this year, the Investment Association will launch a specialist FinTech Accelerator for the asset management industry. The new accelerator called ‘VeloCity’, is part of the asset management industry’s drive to “boost innovation and speed up the adoption of new emergent technology across the sector”. VeloCity brings together for the first time FinTech firms with ‘market viable’ technology specifically tailored to the sector, supported by industry practioners across members of the IA.
VeloCity will take on two groups a year of four to eight FinTech firms and assist them in turning their technology into business-ready solutions. The IA has proposed that these solutions are to include: machine learning and artificial intelligence, Distributed Ledger Technology, cloud-based infrastructure and big data in order to develop solutions applicable from mid and back office operations, to fund distribution and marketing.
- Continued coordinated international engagement and trade promotion programme.
The Government will continue to work with international partners abroad to attract overseas firms to locate in the UK as well as promote UK firms overseas, particularly in the wake of Brexit.
A clear commitment has been made to enhance the global reach of UK funds by addressing the barriers to market access. This will include looking into the benefits received from Mutual Recognition of Funds agreements with overseas jurisdictions and with target market jurisdictions. Through these agreements, the Government is aiming to increase the global reach of UK funds by allowing them to benefit from a streamlined recognition process when accessing international investors. Moreover, overseas funds would benefit from this same recognition process when accessing UK investors.
- Promoting the UK’s competitive and stable tax and regulatory environment.
Currently, employees who work for foreign branches of a UK based firm and who make short business trips to the UK, are taxed on their earnings for time spent in there, while employees from firms with foreign subsidiaries are exempt under the UK’s double tax treaties. In Q1 2018, the Government will consider on whether to consult on making changes to the administrative burden for UK companies that have to account for Pay As You Earn on foreign–paid earnings for the time spent in the UK under the short term business visitor rules.
The Government’s long-term approach will ensure asset managers remain able to establish fund structures based on Undertakings for Collective Investment in Transferable Securities. This will ensure the asset management industry can continue to provide their services knowing that high levels of investor safeguards are maintained and supported by a robust and global regulatory framework.
- Enhancing Government, regulator, and industry communication.
The newly established Asset Management Taskforce chaired by the Economic Secretary to the Treasury, will host quarterly meetings to increase dialogue from across the asset management industry, the FCA, investors and regulators to inform long term policy development.
The Taskforce will be used to identify opportunities to ensure that the UK remains a global leader for asset management.
- Supporting UK asset managers to be global leaders in developing innovative investment strategies
The Government will continue to support innovation to meet changing investor demands by laying the foundations for long term growth.
After the HM Treasury’s Patient Capital Review, a consultation on the factors affecting supply of patient capital, the Budget responded by unveiling plans to invest £20 billion to finance growth in innovative firms. In the Review, HM Treasury identified barriers accessing long-term finance for growing firms and in response considered how to support long term ‘patient’ finance access to firms that needed to scale up.
To access the Report, please click here.
To access more information on the IA Fintech Accelerator, please click here.
For more information on the Report and the Government’s objectives, Cleveland & Co external in-house counsel, your specialist outsourced legal team are here to help.