Brexit fears could hit UK asset managers

Rising fears of Britain voting to leave the European Union, or “Brexit”, could be a risk for the UK’s asset management industry, the second largest in the world with significant earnings for the UK.

In a research note Morgan Stanley said that Brexit could lead to some UK-based asset managers moving their domicile to continental Europe. UK bonds and equities could also be affected by the uncertainty of Brexit fears in 2016, with opinion polls indicating that support for leaving the EU is close to that for staying in. Morgan Stanley put a 35% probability on a vote to exit, adding that this would lead to higher political risk for investment in the UK, weaker consumption slowing growth, and less likelihood of interest rate rises.

The implications of Brexit for asset managers would depend on the nature of the post-EU trading arrangements for the UK, according to Morgan Stanley. In the best case for ease of access to the single market, the UK would be part of the European Economic Area, but this would mean the UK agreeing to comply with EU laws without having any say in drafting them. Other options could lead to EU regulation having less impact on the UK, but would make access to the EU potentially more difficult for UK-based fund managers.