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Client update: FAQ about Robeco’s Brexit preparations

Client update: FAQ about Robeco’s Brexit preparations

01-02-2019 | インサイト

Robeco is carefully analyzing all Brexit-related business risks. In this document, we update clients on this process.

General

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1. Is Robeco taking measures to ensure the continuity of its services that may be impacted by Brexit after the exit date of 29 March 2019?

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.

2. How is Robeco taking account of the current uncertainty with regard to the withdrawal agreement negotiations in its contingency planning?

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.

3. What is Robeco’s understanding of what a ‘hard’ Brexit would mean?

Robeco’s hard Brexit scenario assumes that: 

  • The UK would withdraw from the EU without any agreement on the future relationship with the EEA and become a third country. 
  • Robeco’s passporting rights (e.g. for investment services) would no longer be applicable for cross-border activities carried out in the UK and vice versa for the activities of UK firms (e.g. clearing members and equity brokers) carried out in the EU. 
  • In line with the temporary equivalence decision issued by the European Commission and ESMA’s intended decision to recognize individual UK CCPs, Robeco would continue to have access to UK CCPs via EEA clearing members. 
  • The UK would implement EU law (e.g. UCITS and AIFMD) ‘as is’ as explained in the HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act. 
  • The UK will continue to provide EEA asset managers access to UK clients, at least temporarily, under the UK Temporary Permission Regime (TPR). Conversely, some EEA countries (e.g. the Netherlands, pursuant to Section 10 of the Exemption Regulations under the Financial Supervision Act) will also continue to provide UK asset managers access to EEA clients on a temporary basis. 

4. Is Robeco also considering the consequences of a soft(er) Brexit?

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’s services in the UK

5. Would Robeco continue its UK wholesale fund distribution and segregated account services to UK institutional clients after a hard Brexit?

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.

Robeco’s UK counterparties

6. What measures would Robeco take in relation to derivative contracts (e.g. IRS, CDS, FX instruments, ETD instruments) with UK counterparties entered into on behalf of its funds or segregated account clients in the case of a hard Brexit?

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: 

  1. 1. transferring these legacy contracts to an EU-27 affiliate of a UK counterparty, or 
  2. 2. retaining and running off contracts with a UK counterparty, while not triggering any lifecycle event that would raise regulatory issues. 

7. What measures would Robeco take in relation to non-derivative transactions (e.g. equity-like, fixed income) with UK counterparties in the case of a hard Brexit?

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.

Central counterparty clearing

8. Will Robeco be able to continue using central counterparties (CCPs) in the UK for derivative contracts it has agreed on behalf of clients and which are subject to the EMIR mandatory clearing obligation?

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).

UK trading venues

9. Would a hard Brexit limit Robeco’s ability to trade instruments admitted to trading on a UK trading venue?

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.

Client documentation

10. Will the client be required to sign an agreement or any related documentation?

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.

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

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商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会

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