HM Treasury calls for comment on building ETF business in the UK

Sean Tuffy, Citi

HM Treasury’s Review of the UK funds regime, January 2021, entitled ‘A call for input Defining areas of opportunity’ is a wide-ranging consultation on the fund industry in general in the UK, trying to find areas where, post Brexit, the country could build its asset management industry.

The Review says: “The government understands that embedded business practice, industry and investor familiarity, and inertia means that established fund administration hubs will have a significant incumbent advantage over the UK funds regime, even after steps are taken to address UK barriers,” and then gives the example of ETFs.

“For example, the government is not aware of any significant remaining barriers for Exchange Traded Funds (ETFs) to establish in the UK, but few have ever located here.”

The Review also comments that the government has also been told by stakeholders that ’re-domiciling’ existing funds would involve moving assets from an entity in one jurisdiction to a new entity in the UK which would be expensive for firms and could create tax liabilities for investors, meaning this may therefore be unrealistic.

The result, the Review says, is that the government has been encouraged by stakeholders to focus on proposals which would enhance the UK’s reputation as a location for the creation of entirely new funds that have not yet been set up.

As a result of this initiative, the paper asks if reforms to enhance the attractiveness of the UK funds regime should focus on appealing to the creation of entirely new funds that have not yet been set up and why firms choose to locate their funds in other jurisdictions in cases where the UK funds regime has a comparable offering, giving the example of ETFs.

“Are there steps which could help to address this following the potential reforms to the UK funds regime discussed in this call for input, and would the scope to address this vary depending on the type of fund or target investor market?” the Review asks.

Commenting on the Review, Sean Tuffy (pictured), Director, Head of Market & Regulatory Intelligence, Securities Services, Citi, says: “While Brexit has given fresh impetus to the drive to grow the UK as a fund domicile, this has been a long-standing policy goal for HM Treasury. 

“The industry will likely welcome anything that improves the international competitiveness of UK funds. However, the UK still faces challenges in pursuing its goal to become a cross-border fund domicile that competes with the established UCITS hubs of Ireland and Luxembourg. In particular for ETFs, where Ireland has grown to become the second largest ETF domicile in the world.”

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