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A Brexit-related clampdown on the so-called delegation rules that underpin London’s position as a leading asset management centre would threaten the global status quo, the head of a US fund body whose members oversee $27.5tn in assets has warned.

“This is larger than the EU and Brexit. They implicate other jurisdictions — it’s about Japan, the US, Hong Kong. If you change the rules for the UK, you change the rules for everyone,” said Paul Stevens, chief executive of the Investment Company Institute, the association representing US asset managers.

“Those jurisdictions will have to re-examine their own market access rules,” he added, hinting that any alteration of market access rules for funds could prompt tit-for-tat regulatory measures elsewhere.

Britain’s vote to leave the EU has thrown open a debate among national regulators as to whether asset managers should face more stringent scrutiny over where their funds are domiciled.

Under so-called delegation they can establish a fund in one EU country, base investment managers in another and sell the product across the bloc. In practice, Luxembourg and Ireland have become the top hubs in which to base mutual funds, with much of the investment decision-making taking place in London, Paris and Frankfurt.

The UK’s impending departure has highlighted the arrangement. Some regulators fret that some asset managers may only retain a token presence in an EU country. In July, the European Securities and Markets Authority, the pan-European financial watchdog, hit out at the establishment of “letterbox” entities, which employ only a few people, in European countries.

“The Luxembourg fund industry is not [about brass] plates outside the door and nobody home,” said Mr Stevens. “It’s not a letterbox. It’s not a sham. It’s an honest-to-God industry.”

“The language in the Esma opinion can be put to the service of significantly changing the delegation regime,” he added. “Many members’ business models would be damaged.”

His voice adds to growing discord over the prospect of a shake-up of how mutual funds are governed. Last month, Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier, warned Brussels against introducing stricter regulation of mutual funds, arguing this could cause irreparable damage to the EU’s position as a global centre for the asset management industry. Megan Butler, a top supervisor at the UK’s Financial Conduct Authority, has also recently argued she sees no need for any changes to current fund rules.

But others have shown support for Esma.

The European Commission, the EU’s executive arm, has put forward proposals to beef up the powers of Esma, and the Autorité des Marchés Financiers, the French regulator, has also backed “more integrated European supervision”.

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