These rules have been introduced as part of the government’s legislative preparations for the UK’s withdrawal from the EU and will amend the Alternative investment Fund Managers Regulations 2013 in the event of a 'no-deal Brexit'.
Marketing funds into EEA
The big hurdle for UK asset managers will be the marketing of AIFs across the EEA. Here the draft regulation gives us some more certainty. Here are the headlines:
UK full-scope AIFMs will lose the benefit of the EU passport. The “passporting regime” enables fund managers authorised in one Member State, to market the AIFs they manage across any other Member State without the need for additional authorisation.
This means that, post-Brexit, UK AIFMs will have tho paths to choose from when marketing funds into the EEA: a) becoming established and authorised in the EEA to manage and market AIFs to investors across the EU; or b) marketing into other Member States where feasible, through the NPPR notifications as third-country firms.
Both UK and EEA AIFMs marketing EEA AIFs in the UK will need to notify the FCA under the National Private Placement Regime ("NPPR").
Marketing into the UK
Third country status is of course a two-way street and on Exit Day, under the draft legislation, all EEA based funds which are not recognised under the UK’s UCITS regime will become third country AIFMs.
For unregulated EEA schemes, this is likely to mean applying the UK's own NPPR.
However, recognition by the FCA of certain funds appears to remain a possibility and for such founds - those "recognised" under section 272 of FSMA - the NPPR and even some reporting requirements are disapplied.
What else is changing?
There is a lot to take in the draft legislation so here are some other interesting nuances we identified:
New definition of an “AIF”: The draft rules amends the definition of an AIF so that all non-UK funds, including EEA UCITS, will be defined as AIFs.
Fewer asset stripping restrictions and reports: in a boon to many PE houses, the draft Regulations will limit how the asset stripping rules applies to full scope AIFMs in the UK, who will subsequently will only be required to report on portfolio companies and comply with the restrictions on asset stripping when it acquires control of a UK company.
Less information sharing between regulators: The draft rules remove the AIFMD requirements for UK regulators to share information with EU authorities.
The draft legislation gives a clear indication of how AIFMD will apply within the UK should the UK exit the EU without a deal. In some ways it is helpful to see that so little will change, but the marketing challenges are not being underestimated by industry.
We will be keeping a close eye on the direction of travel with Brexit and what that means for our clients. If you would like assistance in preparing for Brexit, our team is on hand to help you make meaningful preparations.