Update to Temporary Permission Regime for UCITS marketing in the United Kingdom.
The Temporary Permission Regime for UCITS marketing has been recently updated as a consequence on recent lobbying activities of asset management industry associations. On 6th December 2018 HM Treasury published an update to the draft statutory instrument issued last 8th October 2018 to amend current law implementing the UCITS Directive in the UK. Find the updated draft statutory instrument here.
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 instrument is to make sure that a functioning statute book is in place in the United Kingdom following the exit from the European Union. Statutory instruments are applicable to a situation where the withdrawal of the United Kingdom from Europe is made on a “no deal” basis. To this end, HM Treasury have powers under the EU (Withdrawal) Act 2018 to lay out financial service statutory instruments in order to define a Temporary Permission Regime (TPR) that would make sure that EEA firms can continue to operate for a definite period of time in the United Kingdom after Brexit. Once this period has lapsed, those firms intending to retain the ability to carry out business in the United Kingdom on a more permanent basis will have to seek for authorisation from the regulatory authority in the United Kingdom.
The Statutory Instrument on UCITS creates the Temporary Permission Regime for UCITS marketing, enabling continued access to UK market for those EEA UCITS funds and their sub-funds that have been notified to the UK FCA accordingly. The Temporary Permission Regime for UCITS marketing will have a limited duration in time for up to three years.
To enter the Temporary Permission Regime for UCITS marketing, the promoter or manager of an EEA UCITS, which is marketed in the United Kingdom before the United Kingdom leaves the EU, will have to notify the UK FCA of its intention to continue marketing under the TPR. The notification will have to specifically include also all of its sub-funds that are 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. In the 8th October version of the Statutory Instrument on UCITS, new sub-funds that are either not included in the TPR notification or created subsequently of the withdrawal day will not have the ability to be marketing in the UK. The main amendment made in the 6th December version of the Statutory Instrument is to ensure that new sub funds of an umbrella fund, already notified under the TPR, will be permitted to notify the FCA to enter the TPR after withdrawal day.
More specifically, according to the new draft statutory instrument, new sub-funds of an umbrella fund are those which become authorised in accordance with the UCITS Directive by their EEA home state regulator on or after withdrawal day. For those new sub-funds to enter the TPR after withdrawal day, at least one other sub-fund of the new sub-fund’s umbrella fund must have notified to enter the TPR before withdrawal day.
The UCITS funds and their sub-funds so notified will be considered as a recognised scheme 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 their 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 TPR, 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).
The UK government has demonstrated to be highly receptive to requests voiced by the industry to ensure a smooth transition of the existing operations of EEA market participants currently authorised to carry out activities in the United Kingdom. And whilst the future of the relationship between the UK and the EU remains uncertain, we welcome the cooperation and the clarity that comes from the UK government.