As part of its contingency plans for a no-deal Brexit, the Government has published draft regulations relating to what it terms the "onshoring" of the AIFMD and UCITS regimes. The regulations - which are still subject to change - will take effect from 29 March 2019, but only if the UK leaves the EU without securing a transitional period.
The principal AIFMD-related proposals would see:
- all funds other than UK UCITS categorised as AIFs (meaning that EEA UCITS would become AIFs);
- the establishment of a temporary permissions regime (TPR) that would allow AIFs (including those with EuVECA, EuSEF, ELTIF or MMF designations) that are marketed in the UK before exit day under the marketing passport to continue to be marketed in the UK for up to three years after exit day - to use the TPR, AIFMs will need to notify the FCA before exit day of the specific AIFs which will continue to be marketed in the UK under the TPR;
- the application of the UK's national private placement regime (NPPR) to AIFs that cannot take advantage of the TPR (e.g. because they were not marketed in the UK before exit day), although the NPPR information and reporting requirements will not apply to AIFs recognised under s.272 FSMA for marketing to retail investors; and
- the application of the AIFMD asset-stripping and associated reporting provisions limited to the acquisition of control over UK (as opposed to EEA) companies.
The principal UCITS-related proposals would see:
- the creation of a "UK UCITS" regime for funds established and authorised in the UK (since, as a matter of EU law, UK funds will cease to be UCITS after exit day);
- UK UCITS continue to be able to: (a) hold cash in accounts opened with EEA credit institutions; and (b) invest in the same types of eligible assets as immediately before exit day;
- the establishment of a TPR that would allow EEA UCITS that are marketed in the UK before exit day under the marketing passport to continue to be marketed in the UK for up to three years after exit day; the TPR will apply at sub-fund level, so only those sub-funds marketed in the UK before exit day will be eligible for the TPR; as with the AIFMD TPR, UCITS operators wanting to use the TPR will need to notify the FCA before exit day of the specific UCITS (or specific sub-funds, as applicable) which will continue to be marketed in the UK under the TPR; and
- for EEA UCITS that cannot take advantage of the TPR (e.g. because they were not marketed in the UK before exit day): (a) the application of the s.272 FSMA recognition regime if they are to be marketed to retail investors; and/or (b) the application of the UK's NPPR if they are to be marketed to professional investors.
There is a lot of detail to digest and work through in these draft regulations. However, even in their draft form, they should give some reassurance to firms that their ability to continue to market existing funds to UK investors will not suddenly evaporate on exit day, even in a no-deal scenario.