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[LONDON] Leaving the European Union would bring "massive disruption" to Britain's 5.5 trillion pound (US$8 trillion) mutual funds sector, which could lose market access without gaining regulatory freedom, a top industry official told Parliament on Tuesday.
Britain is expected to hold a referendum on its membership of the EU later this year, and Parliament's Treasury Select Committee is studying the implications for the financial services industry.
Three heads of financial services associations told lawmakers that Britain leaving the EU would probably disrupt the industry, although they noted that members of their trade bodies had a range views on whether Britain should stay in the EU.
The "significant benefits" of membership outweigh the costs for investors in mutual funds, Guy Sears, interim chief executive of the Investment Association (IA), told the committee. Mutual funds are pots of money managed on behalf of investors for their retirement.
IA members manage 5.5 trillion pounds or 37 per cent of European fund assets, more than France, Germany and Italy combined, Sears said. Over a trillion pounds of that is from EU-based customers in Britain, who might pull out if Britain leaves the EU, a move dubbed "Brexit".
Leaving the EU would complicate doing business without significantly cutting compliance costs, Sears said. Under Brexit, British financial firms could only access EU markets if their rules are equivalent to EU standards. "Regulation does control your access to markets," Sears said.
"Being subject to a regulation without an ability to influence it is clearly going to be less than optimal." Customers of funds based on the continent but managed from London or Edinburgh might review these arrangements after Brexit, Sears said. Asset managers in Britain would consider expanding in Frankfurt rather than London, he said. "There would be massive disruption," Sears said.
Sears spoke alongside John Barrass, deputy CEO of the Wealth Management Association (WMA), and Jiri Krol, deputy CEO of the Alternative Investment Management Association (AIMA). Both represent hedge funds, which bet on stocks falling as well as rising.
Barrass noted EU membership lets British managers offer services across the bloc under a European regulatory "passport". Some 95 percent of mutual funds in Britain are so-called UCITS, meaning they are authorised and regulated under EU law. "If we leave Europe, then it isn't automatic our right to provide services into the EU," Sears said.
UCITS make up nearly a third of hedge funds in Britain, the world's second largest hedge fund sector after New York, and Brexit would force the sector to restructure, Krol added. "I would disagree with the fact that there is some kind of benefit to the hedge fund industry emanating from Brexit," Krol said.