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Tax And Regulation Threaten London’s Pre-Eminence As Europe’s Asset Management Centre

by Robert Lee, Tax-News.com, London

24 May 2005

The UK's place as a centre for asset management remains secure in the short-term due to the performance and liquidity of the UK’s capital markets, the quality of its financial infrastructure and the size of its qualified labour pool, but it faces excessive regulatory change and other centres are pro-actively challenging the UK’s pre-eminence.

A report, 'The Future of UK Asset Management: Competitive Position and Location Choice,' published jointly by the Corporation of London and the Investment Management Association and written by Oxera, shows that while UK regulation is seen as more independent than many European regimes it can also be perceived as bureaucratic and overly rigid in the implementation of EU Directives.

The very strength of the UK as the location of choice is based on a series of relationships forming a critical mass that is the UK global financial services industry. Asset management is part of that. However, it is not a single function: it operates through a value chain covering a range of functions. This is in the process of fragmenting and, as the report shows, this process looks set to continue.

The report also reveals that other potential asset management centres are creating favourable regulatory, tax and legal environments in trying to build up critical mass of their own. This can already be seen in the marketplace and longer term is a credible threat to London’s future.

Michael Snyder, Chairman, Policy and Resources Committee, Corporation of London, noted:

"This is an important piece of research which shows that London has much to recommend it as the location of choice for asset management. However, there are longer-term concerns that policy-makers might want to address now. It is clear that regulatory factors will increasingly influence future location decisions and attention needs to be turned to what measures can be taken to protect the competitive advantages of this major UK industry."

Lindsay Tomlinson, Chairman, Investment Management Association, added:

"While the overall message of the report is positive we cannot afford to be complacent. The fact that nearly a quarter of respondents said that regulation or tax already pose the greatest disadvantages to doing business in the UK suggests that this has the potential to become a crucial issue in the longer-term."

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