On 9 October 2018, HM Treasury published draft Statutory Instruments relating to UCITS and AIFs which are intended to come into effect should a no deal Brexit arise. The Collective Investment Schemes (Amendment) (EU Exit) Regulations 2018 will amend retained EU law relating to UCITS and The Alternative Investment Fund Management (Amendment) (EU Exit) Regulations 2018 will amend retained EU law in the context of AIFMD (the "Statutory Instruments"). For the purposes of this update, we have focused on the Statutory Instruments insofar as they relate to the marketing of UCITS and AIFs in the UK, though their scope extends beyond this.
As outlined in our previous client update, the FCA published information on their website concerning the temporary permissions regime for inbound passporting EEA firms and funds (the "Temporary Permissions Regime" or "TPR") in July 2018. The draft Statutory Instruments provide a legislative framework for the TPR and are accompanied by explanatory notes which outline details on the duration and scope of the TPR, how funds may avail of it, and the steps required in order for funds to continue marketing in the UK following expiry of the TPR.
In addition, on 10 October 2018, the FCA published a Consultation Paper on the "Temporary permissions regime for inbound firms and funds" which should be read alongside the Statutory Instruments and sets out further details of how the FCA expect the TPR to operate in practice, including rules which the FCA proposes should apply to fund marketing activities during operation of the TPR.
The TPR is designed to ensure that UK investors have continued access to EEA UCITS and AIFs which are currently marketed in the UK. EEA UCITS and AIFs that wish to continue marketing in the UK post Brexit must notify the FCA of their intention to do so, and this notification must be filed with the FCA prior to exit day. The TPR will last for three years from exit day, although HM Treasury have the power to extend the TPR by no more than 12 months in certain circumstances.
Availing of the TPR
EEA UCITS which are marketed in the UK via the UCITS passport regime will need to notify the FCA prior to exit day that they wish to have temporary permission to market in the UK post Brexit. In the case of umbrella UCITS, the notification must specify each sub-fund which the EEA UCITS wishes to market in the UK. Sub-funds which are not included as part of the notification or which are subsequently created may not be marketed in the UK post Brexit under the TPR. EEA UCITS that have availed of the TPR can continue to be marketed to retail investors in the UK.
Applications to market EEA UCITS in the UK post Brexit
It is worth noting that following exit day, EEA UCITS will fall within the definition of "AIF" under UK law, and will be treated as such in terms of the requirements that must be fulfilled in order for EEA UCITS to be marketed to professional investors in the UK. An EEA UCITS which does not avail of the TPR will need to be notified to the FCA under the UK's NPPR regime in order for marketing to be permitted to professional investors. Marketing to retail investors may only be carried out if the EEA UCITS applies for and is granted recognition under Section 272 of the Financial Services and Markets Act 2000 ("FSMA").
EEA UCITS leaving the TPR
Following exit day, the FCA will allocate a landing slot during which the EEA UCITS will be required to apply for recognition under Section 272 of the FSMA (for marketing to retail investors) or notification under the NPPR (for marketing to professional investors only) if they wish to continue marketing the EEA UCITS in the UK following expiry of the TPR.
Availing of the TPR
UK and EEA AIFMs who are currently marketing AIFs in the UK, either through the AIF passport regime (in the case of EEA AIFs) or the NPPR regime (in the case of non-EEA AIFs), will need to notify the FCA prior to exit day that they wish to have temporary permission to market in the UK post Brexit. During the TPR, the AIFM can continue to market the AIF in the UK based on the same terms and conditions which applied prior to exit day.
Applications to market AIFs in the UK post Brexit
In the event of a no deal Brexit, the AIF passport regime will no longer apply in the UK. UK and EEA AIFMs who do not avail of the TPR will need to complete a notification under the NPPR if seeking permission to market AIFs to professional investors in the UK. This applies both to marketing of EEA AIFs and non-EEA AIFs.
AIFs leaving the TPR
Similar to the position for EEA UCITS, the FCA will allocate a landing slot during which the AIFM will be required to complete a notification under the NPPR if they wish to continue marketing the AIF in the UK following expiry of the TPR.
UK Facilities Agent under the TPR
As outlined in Chapter 4 of the Consultation Paper, the FCA proposes to preserve the status quo so that EEA-domiciled investment funds that continue marketing into the UK under the TPR are subject to the same rules post Brexit as those which currently apply. In the context of EEA UCITS, the FCA proposal would mean that the requirement to have a UK facilities agent would be retained under the TPR. The FCA has invited comments on their proposals in Chapter 4 of the Consultation Paper. The deadline for submission of comments is 7 December 2018 and the FCA intends to provide feedback in early 2019.