Brexit and the investment fund industry

Financial services were almost completely excluded from the Trade and Cooperation Agreement between the UK and the EU that was finalised on 24 December 2020. However, there are some specific elements that affect the legal structure and marketing of UK and EU investment funds now.

27 January 2021

Brexit has had a big impact on the financial services industry

The UK officially left the European Union on 31 January 2020, but nothing changed until the end of the transition period on 31 December. As the Trade and Cooperation Agreement between the UK and the EU was only finalised on 24 December 2020, when it became clear that financial services were almost completely excluded, there are many elements still to be determined before we know the full long-term impact on the sector.

However, there are some specific elements that affect the legal structure and marketing of UK and EU investment funds now.

UK UCITS

The UK is no longer part of the EU’s UCITS framework. However, the FCA has retained the UCITS rulebook for UK domiciled funds, thereby creating a category of fund known as UK UCITS, even though, from the EU’s perspective, they are third country Alternative Investment Funds (AIFs).

UK UCITS will continue to publish UCITS Key Investor Information Documents (KIIDs) and need to adhere to the existing rules on investment and borrowing powers.

Country Registration/Marketing Distribution

UK UCITS no longer have passporting rights into EU/EEA countries and UK UCITS management companies therefore lose the right to sell or market their funds to retail investors in EU/EEA countries. From now on every UK-domiciled fund has to comply with national private placement regimes, where applicable, or may be able to apply to financial regulators in individual member states for approval of selling/marketing activities to retail investors, subject to bilateral equivalence arrangements.

All share classes of UK-domiciled funds previously UCITS compliant and sold or marketed into an EU/EEA country will now be “restricted” to professional investors, unless fund groups advise us that they have registered them for sale in an EEA country.

Temporary Permissions Regime (TPR) and Temporary Marketing Permissions Regime (TMPR)

The FCA created the TPR and TMPR to allow EU/EEA-based firms and investment funds that previously had operations in or passported into the UK to continue operating within the scope of those previous passport permissions for a limited period after the end of the transition period, provided they had registered for the TPR/TMPR by 30 December 2020.

FE fundinfo’s Global Funds Registration (GFR) service provides information, advice and guidance on the regulatory requirements and market expectations on jurisdictions within Europe and beyond. In addition to this GFR will arrange and maintain the fund’s registrations, relieving managers of this administrative burden

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