UK regulators must overhaul the regulatory regime for new fund management companies to “prevent the UK slipping further behind international rivals”, a working group of City experts has claimed.
Speaking at a formal meeting at the Mansion House on 22 May, the group, comprising lawyers, investment bankers and representatives from the Independent Investment Management Initiative (IIMI), demanded the Treasury and the Financial Conduct Authority (FCA) end the “excessive costs, delays, and complexity currently facing new asset management firms in the UK”.
Charles Hall, Head of Research at investment bank Peel Hunt, said: “A vibrant fund management sector is an essential ingredient for a vibrant UK capital market, but a heavy regulatory burden is putting us at a major disadvantage compared to our international rivals. If we’re serious about the growth agenda, this needs to be fixed.”
Launching a fund management company in the UK currently takes up to 18 months and costs often exceed GBP100,000 in direct fees, with total costs reaching up to GBP1 million when indirect expenses are included.
According to the group, these figures contrast with markets such as the US, Ireland, Luxembourg, and the UAE, where approval processes can be completed in weeks or days and at much lower costs.
Dani Hristova, CEO, IIMI, said: “As it stands, fund management start-ups are largely reserved for individuals with deep personal wealth. This undermines diversity, innovation and growth.”
Hristova proposes the introduction of a UK Exempt Reporting Advisor (UKERA) regime, which is based on the US Exempt Reporting Advisor regime and would enable experienced professionals to establish and operate a UK fund management company, whose products are marketed only to institutional client,) under a lighter touch initial regulatory regime.
Hristova says this would allow firms to accelerate their growth before being subject to full authorisation and the accompanying increase in regulatory responsibilities.
Restricting access to UKERAs to institutional clients will provide safeguards for retail investors – a principle the group strongly upholds, the group argues.
A second proposal is for a corresponding UK Exempt Reporting Advisor Fund (UKERAF). The group recommends that a category of funds exists, or be recategorized, that can be managed by a UKERA.
“These funds would be established with ease, enjoy capital gains tax exemptions and lower compliance hurdles. It would be designed to evolve into a fully regulated structure as the manager grows,” the group says.
According to the Group, fee pressure, career risk aversion and the consolidation of capital have eroded support for smaller or specialist funds in the UK “effectively shutting the door on innovation and diversity in the market”.
They claim that the proposed regime would facilitate faster launches, lower costs and reduce uncertainty—helping to attract new talent and capital to the UK’s asset management sector and revitalise its entrepreneurial edge.
Jamie Carter, CEO at emerging markets fund manager Variis Partners, said: “There’s a direct link between supporting fund management start-ups and enabling broader economic growth. We’re calling on policymakers and regulators to seize this moment to make the UK a more competitive and innovative financial hub once again.”
