Robeco is carefully analyzing all Brexit-related business risks. In this document, we update clients on this process.
We consider it an overarching responsibility to ensure continuity in the performance of all of our investment services and activities for clients. In early 2018, we closely analyzed all relevant business risks and formulated the appropriate mitigating measures (‘contingency plan’). This plan is currently at an advanced stage of implementation and covers, among other things, the repapering of derivative and non-derivative contracts with our UK counterparties.
We are fully aware that the terms of any final deal between the UK and the EU, if any, and the timing of a possible transition period, are highly uncertain. Whatever the outcome, we are making every effort to continue to service our clients seamlessly across the full range of funds and services we offer now. Our contingency plan, which is currently being implemented, is based on a hard Brexit scenario, while ensuring we will remain flexible enough and are in a position to benefit from a more favorable scenario.
Robeco’s hard Brexit scenario assumes that:
Besides preparing for a hard Brexit, Robeco is closely monitoring any relevant developments in relation to a joint withdrawal agreement that would result in a softer Brexit. In the event a softer Brexit becomes more likely, Robeco will swiftly adjust its plans accordingly.
Robeco has made a long-term commitment to the UK which is a key principle of our 2017-2021 business strategy. This would not change in any way if we lost our (UCITS/AIFMD) passporting rights to distribute funds and provide institutional services to UK clients due to a hard Brexit. In the event of a hard Brexit, the UK Government will immediately introduce a temporary permissions regime (TPR) for inbound passporting EEA firms and funds which will allow RIAM to continue operating in the UK on the same terms as it does now (both for fund distribution and segregated account services) for a maximum of three years1. This would also enable us to seek permanent authorization for the UK.
1 See the relevant FCA publication https://www.fca.org.uk/markets/eu-withdrawal/temporary-permissions-regime
To benefit from the TPR, Robeco registered with the UK Financial Conduct Authority (FCA) on 15 February 2019.
In the event of a hard Brexit, Robeco expects that its UK counterparties (e.g. sell side firms, clearing members) would essentially lose the right to provide investment services to EEA clients. To ensure the continuity of existing contracts and create a robust framework for new contracts, Robeco has proactively engaged with the relevant counterparties over the last few months.
All significant UK counterparties have established authorized entities within the EEA (‘EEA affiliates’). In preparation for a hard Brexit, Robeco is seeking to enter into new derivative contracts with these EEA affiliates.
As for existing derivative contracts that will expire post-Brexit, Robeco is taking all measures necessary to ensure the continuity of its contracts. Depending on the counterparty and type of instrument concerned, this either means:
For best execution purposes, Robeco currently trades non-derivative instruments with a variety of counterparties (e.g. equity and fixed income trading brokers), including many UK brokers. In the event of a hard Brexit, it is likely that those UK brokers would lose the right to execute the orders of their EEA clients.
Our most important UK brokers have confirmed the intended set-up of authorized EEA affiliates for trading with EEA clients. This would enable us to continue connecting with our current preferred brokers – through their EEA affiliates – as we do today and to direct the trading flow accordingly. Robeco is preparing the contractual and operational changes needed for this.
Yes. Under the European Market Infrastructure Regulation (EMIR), certain classes of derivatives must be cleared through a central counterparty (CCP) authorized in the EEA or a CCP established in an equivalent Third Country, which CCP is recognized by ESMA. The majority of the centrally cleared derivatives in the EEA are cleared through a UK-based CCP. This is also the case for the cleared trades of Robeco. We will be able to continue using UK CCPs for derivative contracts subject to the EMIR central clearing obligation. This is in line with the temporary equivalence decision issued by the Commission in December 2018 and ESMA’s intended decision to recognize UK CCPs under EMIR’s third country regime. As a precaution, we have started entering into contractual relationships with an EEA CCP and are in the process of establishing an arrangement with a second CCP. In addition, certain aspects of these arrangements have already taken effect (as regards testing, multiple processes and technologies and intermediaries).
Normally, a hard Brexit would not limit our ability to trade instruments on a UK trading venue. As long as best execution is satisfied, Robeco will continue to be allowed – via brokers – to buy or sell orders in instruments admitted to trading on a UK trading venue. There may be an exemption for EEA-listed instruments subject to the trading obligation according to MiFIR. This would mean that Robeco would have to direct orders in those instruments to an EEA broker to trade on an EEA trading venue or systematic internalizer, or a third-country trading venue if an equivalence decision is adopted by the European Commission. This may negatively impact liquidity in those shares. We are therefore closely monitoring any developments in relation to the possible adoption of an equivalence decision for UK trading venues to allow EEA asset managers to continue to trade on UK trading venues subject to the MiFIR trading obligation.
Yes. Agreements would have to be amended for some clients (i.e. derivative contracts) in the event of a hard Brexit. Robeco has recently informed all affected institutional clients with respect to the repapering with and onboarding of the new EEA hubs of our UK brokers.