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Final countdown for Brexit

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As another Brexit deadline looms, management companies must bring the legal documentation of funds in line with the future regulatory environment. CACEIS supports its clients in this process so that they can continue to market their funds in the United Kingdom, in a post Brexit environment.

European funds currently marketed in the United Kingdom may no longer benefit from the passport system in its  current form after 31st October 2019.

It will therefore be necessary to apply for specific recognition in the United Kingdom (UK) to continue to market them. However, this situation will depend on the type of exit agreement that is concluded between the European Union (EU) and the UK. To date, two scenarios are therefore still possible:

  • The UK and the EU agree on an orderly procedure: an implementation period for the agreement would apply to the UK until the end of December 2020, during which time EU regulations would remain applicable to the United Kingdom, in accordance with the current envisaged exit agreement. If this were the case, the funds would continue to benefit from the passport until the end of December 2020.
  • The UK and the EU are unable to agree on an exit scheme (hard Brexit): to prevent this, the UK government has introduced a Temporary Permission Regime (TPR), which will allow funds to be temporarily marketed in the UK under their current authorisation (via cross-border notification) for a limited period after Brexit. This temporary regime will thus allow European asset management companies to apply for and obtain full recognition from the UK. To be eligible for this temporary scheme, asset management companies must have notified the Financial Conduct Authority (FCA) before 31st October. In the absence of this notification, they will not be able to continue to market their funds in the UK.

Yasmina Pontnau"Anticipating the risk of a hard Brexit, CACEIS Fund Structuring teams contacted clients at the beginning of 2018 and recommended that they determine as soon as possible whether they need to apply for TPR status, and if so, to notify the FCA. Most of our clients have since applied for the temporary regime. This status should last at least several months. At the end of this period, our clients will have to make sure their funds are qualified for the third country regime," specifies Yasmine Pontnau, Head of Fund Structuring at CACEIS.

For their part, EU governments have taken steps to prepare for the United Kingdom's withdrawal. These provisions are intended to facilitate players exposed to regulatory risk in the event of a hard Brexit, to make a smooth transition in the best interests of investors. The time limits granted are intended to allow asset management companies to adjust their investment strategy and assets under management in order to limit the risks of non-compliance at the end of the transition period.

For example, in France, provisions have been set up for share savings plans (PEAs) and savings plans targetting financing of small and mid-cap companies (PEA-SMEs), which will include live shares and units of British UCIs after a no deal Brexit.

French asset management companies will indeed be granted between 15 and 21 months (depending on the type of securities) in order to maintain the eligibility of their funds depending on whether or not the asset management companies decide to comply with the exposure ratios to EU companies (75% of assets).

CACEIS's teams analysed the prospectuses of the impacted funds and determined the necessary amendments, together with the clients. "In particular, we have verified the extent to which UK securities and funds will be eligible for UCITS and AIFs managed by our clients post Brexit, and the extent to which the legal documentation of the funds should be reviewed,", says Yasmine Pontnau.

As we are getting closer to an announced Brexit, CACEIS provides solutions that help management companies to continue their development.

Conversaly, CACEIS assists UK fund managers in setting up a range of funds domiciled in the European Union in order to guarantee their access to the European market and to European investors.

With its entities domiciled in the United Kingdom and other European countries, CACEIS will continue to serve its clients regardless of the final outcome of the Brexit negotiations.