The Temporary Permission Regime for UCITS and AIF marketing post-Brexit received some welcomed clarity recently. On 8th October 2018 HM Treasury published two draft statutory instruments to amend relevant EU law related to investment funds and entities managing investment funds. One covers the AIFM Directive whilst the other the UCITS Directive. Find these draft instruments here. These draft statutory instruments design the Temporary Permission Regime for EEA UCITS and AIF marketing post-Brexit in the United Kingdom.
The EU (Withdrawal) Act 2018 will repeal the European Communities Act and will incorporate and convert relevant EU law into UK law on the effective date when the United Kingdom will leave the European Union. The draft statutory instruments will amend the relevant EU law that will be incorporated in UK law at the date of withdrawal. The aim of the statutory instruments is to make sure that a functioning statute book is in place in the United Kingdom following the exit from the European Union and these are applicable to a situation where the withdrawal of the United Kingdom from Europe takes place on a “no deal” basis. Of course, one of the main concerns with the loss of passporting rights is to ensure that a Temporary Permission Regime for UCITS and AIFs marketing in the United Kingdom can be in place for a certain period of time. To this end, HM Treasury have powers under the EU (Withdrawal) Act 2018 to lay out financial services statutory instruments in order to define a Temporary Permission Regime for UCITS and AIF marketing that would make sure that, in our case with the recent draft legislation, EEA UCITS and AIF marketing in the United Kingdom can continue for a definite period of time after Brexit subject to certain notification made by concerned funds and their managers in advance of withdrawal day.
The statutory instruments at issue have of course an ampler remit and cover also other aspects of the UCITS and AIFM directives, however in this post we will concentrate on the part of the Temporary Permission Regime for UCITS and AIF marketing introduced by the statutory instruments in the United Kingdom.
The Statutory Instrument on UCITS creates the Temporary Permission Regime for UCITS and AIF marketing and enable continued access to UK market for those EEA UCITS funds and their sub-funds that have been notified to the UK FCA in advance of withdrawal day from European Union. The temporary permission regime for UCITS and AIF marketing will have a limited duration in time.
To enter the regime, the promoter or manager of an EEA UCITS marketed in the United Kingdom before withdrawal day will have to notify the UK FCA of its intention to continue marketing under the Temporary Permission Regime. The notification will have to specifically include also all of the UCITS’ sub-funds intended to benefit of retaining access to UK market and shall be carried out according relevant instructions that will be provided by the UK FCA in due time. Sub-funds that are either not included or created subsequently of withdrawal day will not have the ability to be marketed any longer in the UK. The UCITS funds and their sub-funds so notified will be considered “recognised schemes” and will retain the ability to be sold to retail investors in the United Kingdom. The UK FCA, pending the TPR, will also have to continue to receive information that are either currently provided directly to the UK FCA, as the host state, or that would have been communicated directly to their EEA home state authority, for this to further share it with the FCA as a host state authority.
For UCITS that intend to market in the United Kingdom following withdrawal day and that did not avail of Temporary Permission Regime for UCITS and AIF marketing, those funds will have to be either recognised under section 272 of the Financial Services and Markets Act for marketing to retail investors or, for marketing towards institutional investors, under the national private placement regime already in place for Alternative Investment Funds (AIFs).
Alternative Investment Funds
Under the corresponding instrument for AIFMD and in a similar fashion to the Statutory Instrument for UCITS funds, prior to withdrawal day AIFMs will need to notify the UK FCA of their intention to have granted their AIFs with permission to temporary market in the United Kingdom. The notification shall be made pursuant to instructions that will be released by the UK FCA ahead of time and will grant AIFs the ability to continue marketing on the same terms that were in place pre-Brexit. At the end of the temporary permission regime the AIFM will have to complete a notification under the existing national private placement regime in order to continue marketing. Also, pending the temporary permission regime, the UK FCA will have to keep receiving the information required in order to extend its supervision activities towards AIFMs marketing AIFs in the United Kingdom. Accordingly, AIFMs will marketing AIFs in the United Kingdom will have to notify the UK FCA directly of all the information that they would have typically disclosed to their home state authority, for it to transmit to the host state, including amendments in AIFs documentation as well as changed plans of operation related to passporting.
Finally, in case of marketing of third-country AIFs carried out by EEA AIFMs, the statutory instrument will align the treatment of EEA AIFMs to the one currently granted to third-country AIFMs. Accordingly, marketing will be authorised further to notification under article 59 of the UK AIFM Regulations, which corresponds to article 42 AIFMD.
Of course, it is still uncertain whether there will be a no deal Brexit scenario, for which the temporary permission regime for marketing UCITS and AIF has been created. However, it is welcome news that sufficiently granular information has been provided on EEA UCITS and AIF marketing regime well in advance by UK authorities, in order to tackle transition efficiently and make sure that UK investors don’t lose access to EEA products post Brexit.