On 23 June 2016 the UK voted to leave the European Union (“EU”). There will be much conjecture and debate about what the consequences of this decision will be for the UK, for the EU and for Ireland, and much will depend upon the terms of the withdrawal agreement that will be negotiated between the UK and the EU. The process by which a member state leaves the EU is governed by Article 50 of the Lisbon Treaty (“Article 50”), which provides for a two year period, running from the date upon which the UK formally serves notice on the European Council, during which the UK and the EU will negotiate the withdrawal agreement. This two year period may be extended with the unanimous consent of the other 27 member states. It is difficult at this stage to predict what the terms of the withdrawal agreement may be, as this is the first time that the Article 50 procedure has been applied and there is no precedent for the withdrawal agreement.

Ireland remains committed to its membership of the EU and retains its important position as an English speaking gateway to one of the world’s largest markets. We have outlined in the table below the potential impact the withdrawal of the UK from the EU may have on Irish domiciled investment funds, depending on the structure of the fund, its level of engagement with UK service providers and its marketing strategy. 

Click here to view table.

UK Domiciled UCITS and Fund Service Providers

Post-Brexit, it is likely that it will no longer be possible to market UCITS established in the UK throughout the EU on a passported basis, and UK UCITS may not be recognised in important non-EU markets such as Hong Kong and Singapore. As a consequence, asset managers with UK domiciled funds will need to change the way in which they manage and market their funds, perhaps re-domiciling UK UCITS which rely on the EU passport to an EU member state such as Ireland. Furthermore, the UCITS Directive requires that the depositary of a UCITS is established in the UCITS’ home member state and that the UCITS has an EU management company and therefore changes to key service providers may also have to be considered in addition to the re-domiciliation of the fund.

Following the withdrawal of the UK from the EU, UK entities would not be eligible to act as depositaries of EU UCITS or EU AIFs.

Comment

There is currently little clarity on what the UK’s relationship with the EU will look like post-Brexit. Many different possibilities were discussed during the referendum campaign, with no consensus as to the best approach to take. The impact of the UK’s withdrawal from the EU on its membership of the European Economic Area and the European Free Trade Agreement will need to be agreed, but it seems unlikely that any withdrawal agreement would allow for the unaltered continuation of UK asset managers / UK funds current passporting rights under EU legislation. Relocation of fund service providers and funds themselves to EU member states such as Ireland may therefore need to be considered to ensure ongoing access to the European market. We would be happy to discuss with you any queries you may have arising from the UK vote to leave the EU.