Delegates at the PDI Germany Forum in Munich heard today from Jiri Krol, deputy chief executive of the Alternative Credit Council, that there is no turning back from Brexit and that, in a financial services context, continental Europe is already beginning to adapt.
The original phrase of U.K. prime minister Theresa May, “Brexit means Brexit”, has now been subverted to “Brexit doesn't mean Brexit”. But the reality, as highlighted by Krol, is that when polled only 21 percent of the British public said they wanted Brexit ignored or overturned in the wake of the surprise general election result that produced a hung parliament.
In anticipation of Brexit, the financial services industry has already been adapting on the mainland with third party passporting put on hold, clearing infrastructure moving from the UK to the continent, and tougher substance requirements being devised for asset managers wanting a mainland European presence. He suggested that Brexit could help to drive the further development of non-bank lending outside the U.K.
Krol cited the possibility of a disruptive Brexit as one of the risks going forward for private debt along with political turmoil in general and the possible disintegration of the EU and/or NATO.
In addition, there are concerns over European regulation being too complex and under-developed outside of the UK. Moreover, there are worries around the European Securities and Markets Association's (ESMA's) focus on shadow banking and increasing scrutiny from the European Systemic Risk Board (ESRB).
However, Krol also cited numerous reasons why private debt should continue to flourish. Notably, regulatory pressure on the banks will continue with material Basel implementation still to come. “There is a lot of unfinished business in the pipeline,” said Krol.
In addition: Investor appetite for private debt does not appear to be slowing; managers are increasingly building their own origination networks; borrowers have grown to like the relative speed, flexibility and sophistication that debt funds can offer; and the larger funds are increasingly able to compete directly with banks by offering £200 million-plus loans.