It seems likely that Brexit could be in happening in a matter of weeks, and whatever peoples’ opinions, there is a chance that it could be without a deal with the EU. If the UK is to exit the EU on 31 October without a deal there are some potential implications. Below, I’ve highlighted some items to be aware of in the event of a No Deal Brexit. Mindful that things are constantly changing:-
1. Non UK Funds
If you are based in non UK funds, such as Dublin, including Dimensional and 7IM funds, you will all need to apply for permission to ‘passport’ over their permissions to continue post a no-deal Brexit and avoid becoming unregulated.
One further consideration is that there may be some funds held which have a large number of EU investors. In this event, the provider is likely to set up a European office and remit funds back there. The reduction in the size of the fund may cause some problems, for example liquidity of the remaining UK fund. The impact of this is likely to be small.
2. FSCS Cover
In the event of a no deal situation, offshore bonds held in the EU (e.g. Dublin or Lux) will no longer have FSCS cover. FSCS cover would normally offer cover in the event of the failure of the provider, however, this is not the value of the underlying funds, what would be at risk would be the value of the cash on the bond. Some providers have already contacted clients about this. This also does not apply to the Isle of Man.
3. Transfer of Data
There may be some initial difficulty in EU countries transferring data to the UK in the event of no deal. This may apply to, say, offshore bond providers in the EU sending information to us, but this area is still very unclear at the moment.
Clearly one of the biggest impacts could be the effect on markets. With regard to the AG Model Portfolios, it’s worth remembering that less than 5% of the portfolios are in the UK. Falls in the value of Sterling can have a positive impact on portfolio values based in the UK, as equities in the Models are unhedged, and this is only one of a multitude of factors that have a bearing on their value. There may be a greater impact on funds with a higher UK weighting, but what may happen, and what may be the consequences of what may happen are, as ever, impossible to predict. Any DFM portfolios with non UK assets are of course being dealt with by the DFMs in a similar manner.