HM Treasury and FCA Brexit proposals for investment funds

HM Treasury and FCA Brexit proposals for investment funds

HM Treasury and the FCA have published draft regulations and rules which contain their respective Brexit proposals for investment funds. These are designed to facilitate the "onshoring" of EU legislation relating to investment funds, including AIFs and UCITS funds, and to establish a temporary permissions regime following the UK's withdrawal from the European Union.  In our briefing, we discuss the key elements of each of these proposals as they relate to AIFs and UCITS funds and identify some of the resulting practical implications, but here is a short summary of the main points:

Non-EEA funds marketed in the UK

• Funds that have been notified for marketing under the UK national private placement regime (NPPR) will be largely unaffected by Brexit.
• Some minor helpful changes are being made – e.g. to confine the portfolio company and anti-asset stripping regimes to UK targets. In practice, this is only likely to help funds which are not marketed in other EEA jurisdictions because the wider portfolio company provisions will continue to apply to marketing in the EEA.

Funds marketed by EEA AIFMS

• This applies only to existing funds and sub-funds which have been validly notified or registered for marketing in the UK by an EEA AIFM prior to exit day – i.e. 29 March 2019 if there is a "no deal" Brexit, or, if there is a transitional period as part of a deal, such later date as is specified under that deal (currently expected to be 31 December 2020).
• A temporary permissions regime will permit the EEA AIFM to continue to market the fund in the UK for up to 3 years. The EEA AIFM must notify the FCA in Q1 2019 that it wishes to rely on the temporary permissions regime. Subsequently, it will be given a fixed time window during which it must apply for the fund to be registered for marketing in the UK. Once registered, the fund will be treated as a NPPR fund.
• If the AIFM fails to register for the temporary permissions regime, or fails to apply for registration under the UK NPPR during its subsequent window, it will lose the right to market the fund until it makes a new application under the NPPR. New funds or sub-funds established after exit day will also need to be registered under the NPPR and cannot benefit from the temporary permissions regime.
• Following exit day, the AIFM will need to provide relevant notifications to the FCA, as well as to its home regulator.

EEA AIFM Management Passports

• A temporary permissions regime will apply in a similar way to the AIFM management activities of UK branches of EEA AIFMs.

UK AIFM Passports

• In the absence of a deal, no similar arrangements are expected to be in place for UK AIFMs in relation to their marketing and/or management activities in the EEA.

UCITS

• The temporary arrangements for UCITS will be very similar to those for AIFs, but with some nuances reflecting the different regimes.
• After exit day, UK UCITS will have a stand-alone UK regulatory regime and are not expected to retain EEA passporting rights.
• From a UK perspective, non-UK UCITS will be treated in the same way as AIFs.

For more information, please see our longer briefing here, or contact any of us: