UK investment funds looking to sell to Irish retail clients face a "big problem" following the country's decision to leave the European Union, a report from from Irish law firm Dillon Eustace has said.

“Without an EU passport or a local Irish head office authorisation, [funds] selling to/servicing retail clients in Ireland may face a big problem so it is worth careful consideration with your advisers,” the firm said in a four-page note to clients yesterday.

Dillon Eustace said it would be “strange” if the UK was given access to the European Economic Area (EEA) following its voters’ decision to quit the EU. The EEA offers the closest model to the single market and comprises Norway, Iceland and Liechtenstein.

“We don’t see the UK in the EEA but very little is certain at this stage other than that the UK will not be within the EU.”

Dillon Eustace said UK funds looking to access the EU marketplace in the future might want to consider “setting up” a UCITS (undertakings for the collective investment in transferable securities) management company here or establishing as an Alternative Investment Fund Manager in Ireland.

Corporate governance

It said the Central Bank’s recent proposal on corporate governance that at least two-thirds of a fund’s directors and the same proportion of its designated persons must be based in the EEA could be “another fly in the ointment”.

“If these proposals do go ahead (and if the UK does not join the EEA), we may end up with the result that from a supervisability perspective it will be okay to have your designated persons based just short of the Russian border but not in Belfast,” it said.

There were more than 160 UK-based investment managers with Irish domiciled funds as of a year ago, according to figures from industry representative group Irish Funds. The asset value of these funds was $670 billion.

In addition, some 2,000 Irish funds were registered for sale in the UK market.

Pat Lardner, chief executive of Irish Funds, said it was a time for "cool heads" in dealing with the implications of the Brexit vote. Some 14,000 people are employed in the Irish funds industry.