Beyond the cliff edge: Sale of EU27 funds in the UK post Brexit

• United Kingdom

• Brexit
• Financial services and markets regulation
• Financial services

21-08-2018

HMT recently published a draft statutory instrument setting out the mechanism for how it intends to implement its temporary permissions regime. The FCA followed this up with a statement on its website setting out its approach to the temporary permissions regime in the event that there is no deal with the EU and the UK leaves the Union on 29 March 2019. The statement covers firms which passport services into the UK post Brexit as well as EU27 funds which are sold in the UK. This briefing only considers the positions for funds.

To read the draft statutory instrument “EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018”, click here.

To read the FCA statement on temporary permissions for firms which passport financial services into the UK, click here.

Background

Under the current rules, non-UK established funds can be sold in the UK using a number of different routes, dependent on the product type. For example, non-UK UCITS can be recognised for sale using the process under section 264 of the Financial Services and Markets Act 2000. AIFs can be sold using the relevant AIFMD provisions.

In the event of a no-deal Brexit, there will be no mechanism in place for sale of such funds and so a mechanism is needed which seeks to plug this gap pending a more permanent solution – the temporary permissions regime (“TPR”).

The FCA statement is a high level summary of their proposals ahead of a formal consultation which will be published in the Autumn.

Temporary Permissions Regime

What does the temporary permissions regime for funds look like?

• Firms which wish to continue to market their funds in the UK post exit will need to notify the FCA of the relevant funds by 28 March 2019. The FCA will accept applications from early January 2019

• The FCA expects that the regime will be in place for a maximum of three years within which time funds will be required to obtain recognition in the UK

• Funds will be given a “landing slot” in which they will be expected to obtain FCA recognition. We expect that the FCA will prioritise systemically important businesses including depositories before funds managers and larger fund managers before smaller fund managers

• Any EEA domiciled UCITS or AIF can use the temporary permissions regime if the relevant notification is made

• If a notification is not made in the relevant window the fund(s) will be not be able to be marketed post 29 March 2019. There is no suggestion that failure to notify would require existing UK investors to be compulsorily redeemed

• If a notification is made then ongoing marking of the fund will be permitted. It is not yet clear what funds using the regime will have to do to regularise their position and the FCA will provide further details on this

• Funds which are permitted to continue marketing will be shown on the FCA register

• It is expected that funds in the regime will need to pay the periodic fee for 2019/2020

What should firms do now?

If you have not already done so, complete the FCA’s online survey for inbound funds (click here).

The FCA will contact all firms who have contacted them once the consultation is published.

How can Eversheds Sutherland help?

Since June 2016, our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.

We would be happy to discuss how we can help you with your Brexit planning and execution of those plans.