Brexit: Implications for Asset Managers

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Brexit: Implications for Asset Managers

Date: 30th July 2020

The United Kingdom (“UK”) as of the 1st February 2020, has officially withdrawn from the European Union (“EU”). Currently, EU Law still applies in its entirety to the UK. However, by the end of the year 2020 (the “transition period”) the EU and the UK shall negotiate and reach an agreement for a new partnership. After the 31st December 2020 the UK will be considered a third country as regards the application of EU Law in the EU Member States.

Asset Managers (i.e. AIF managers and UCITS management) shall assess the outcome of the negotiations and take appropriate actions. Such actions may include:

  • Obtaining an authorization to manage non-EU AIFs;
  • Informing investors of any consequences arising from the new agreement;
  • Reviewing the delegation arrangements of certain operational functions.

After the end of the transition period, the EU Directive 2009/65/EC on UCITS and EU Directive 2011/61/EU (“the EU Directives”) on AIFMs will no longer apply to the UK. This has the following consequences:

  1. UK Asset Management Activity
  • Collective investment scheme managers authorized by the UK competent authorities under the above-mentioned EU Directives will be treated as third-country AIF managers (i.e. “EU Passport” will no longer apply);
  • All collective investment undertakings authorized in UK will be considered non-EU AIFs;
  • Member States may allow the marketing of AIFs within their own territory, by AIFMs not established and authorized in the EU, under the National Private Placement regime (“NPPR”);
  • UCITS or AIF management companies authorized under the EU Directives which are subsidiaries of UK established entities are considered EU Companies and will continue to operate as UCITS or AIF management companies in the EU;
  • After the end of the transition period, branches of UK managers in the EU will be treated as branches of non-EU AIFMs and where available will be subject to the requirements of NPPRs in the Member State concerned.
  1. EU Asset Management Activity
  • UCITS and AIFs authorized or registered in the UK under the EU Directives will be considered non-EU AIFs. Companies authorized by EU competent authorities, managing those UK based UCITS and AIFs will need to obtain an authorization according to Article 6 of Directive 2011/61/EU to manage non-EU AIFs;
  • In order for EU AIFMs to manage and market non-EU AIFs, cooperation agreements for exchange of information shall be in place between EU competent authorities and the relevant third country authorities;
  • Member States under their NPPR can impose stricter rules on EU AIFMs marketing non-EU AIFs;
  • AIFMs must inform investors of the consequences of the withdrawal of the UK from the EU. Specifically, they must disclose to investors any material changes in the disclosure requirements of Article 23 of Directive 2011/61/EU. UCITS management companies must keep the important information up to date in the prospectus and the key investor information document. In addition, management companies shall assess whether changes in the legal status of the fund would impact compliance with the investment strategy already communicated to investors;
  • EU Directives do not prohibit investments in assets located outside the EU. However, there are some restrictions to fund of fund structures; (More on that contact us…)
  • Investors shall review and assess their investment criteria after the change in the legal status of the Funds (e.g. non-EU AIF instead of UCITS);
  • Service providers in the UK may undertake certain functions provided the relevant requirements in the EU Directives are complied with. Specifically, where the outsourcing concerns portfolio management or risk management, a cooperation agreement shall be in place between the competent authority of the home Member State of the UCITS management company or the AIFM and the supervisory authority of the undertaking carrying out the outsourced function in the third country;
  • Where EU Depositaries outsource safekeeping functions to a third party established in the UK, they shall demonstrate objective reasons for such delegation and obtain a legal opinion from an independent party as to the adequacy of the insolvency laws of the UK. In addition, EU Depositaries shall ensure that such third party complies with their national laws securing the benefits of asset segregation and that it communicates to the Depositary any changes to the applicable insolvency law and its application.

In case of any queries regarding the implications of the Brexit for Asset Managers you may contact us on