Asset Management & Investment Funds – Key Issues (Jan 2021)

1. Restrictions on UK managers of Irish funds and Irish managers of UK funds
   
   UK managers of Irish funds
   Following the end of the Brexit transition period on 31 December 2020, UK UCITS management companies no longer benefit from authorisation as such and are treated as third-country AIF managers or non-EU alternative investment fund managers (Non-EU AIFMs).  While, under Irish NPPR rules, Non-EU AIFMs (including UK AIFMs) can manage Irish QIAFs, they may not manage Irish RIAIFs and, as they can no longer be UCITS management companies, may not manage UCITS.  Irish branches of UK AIFMs are similarly restricted.   As of 1 January 2021, UK UCITS are treated as non-EU AIFs.  As UK managers are now third-country managers any new appointment of a UK manager as delegate investment manager to an Irish UCITS or authorised AIF is subject to the Central Bank's regulatory review process for such appointments and in respect of existing UK managers the Central Bank has requested that a revised status notification be made to the relevant Central Bank supervisory unit.
   
   Irish managers of UK funds
   Irish UCITS management companies must be authorised under the AIFMD to manage UK non-EU AIFs (formerly UCITS).
2. Loss of passporting rights by UK managers
   
   UK managers selling Irish funds
   As and from 1 January this year, UK managers, as non-EU AIFMs of either EU or non-EU AIFs, no longer benefit from passporting rights under the AIFMD and marketing of AIFs is subject to individual Member States' NPPRs.  In respect of UCITS, NPPRs may preclude the sale of funds by UK entities without a MiFID licence.
   
   Irish funds selling into the UK
   The window for fund managers to notify the FCA that they want to continue marketing in the UK post 1 January under the Temporary Permissions Regime (TPR) closed on 30 December 2020.  While new UCITS sub-funds of previously notified umbrellas may be added into the TPR regime, new AIF sub-funds may not be similarly added but may be marketed under the UK’s NPPR.
3. Non-EU/third country restrictions to impact Irish funds' access to UK securities, markets and infrastructure – The EU-UK Trade and Co-operation Agreement of December 2020 (the Agreement) does not include any elements relating to equivalence regimes for financial services.  While the EU issued a limited number of mitigation measures in the form of targeted, time-limited equivalence decisions for the UK, numerous regulatory restrictions were triggered on 1 January as a result of the UK becoming a third country for EU law purposes, including in respect of investment in UK funds and UK traded derivatives, trading on UK markets, accessing clearing through UK CCPs, using UK-issued credit ratings, reporting to UK TRs and investing in UK benchmarks.
4. Limited Financial Services Agreement – The Agreement does not deal in any meaningful way with financial services.  It commits both parties to maintaining their markets open to establishment by operators from the other party and to ensuring internationally agreed standards in financial services are implemented and applied.  The parties also aim to agree a Memorandum of Understanding establishing a framework for regulatory cooperation on financial services by March 2021.  For now, the provision of financial services between the EU and the UK is subject to the WTO's General Agreement on Trade in Services (GATS) trade rules in financial services. The GATS rules applicable to financial services are not comprehensive and the practical effect for firms operating in sectors that lack comprehensive equivalence regimes, will be similar to the effects that would have been experienced by firms under a no-deal Brexit.
5. Regulatory divergence – Despite commitments under the Agreement to ensuring that internationally agreed standards in the financial services sector are implemented and applied, there remains a significant risk of divergence in regulatory standards between the EU and the UK over time post-Brexit resulting in complexity, cost, regulatory risk and potentially regulatory arbitrage. For example, as the UK has not comprehensively onshored the Sustainable Finance Disclosures Regulation (SFDR) it could adopt a more flexible approach to sustainable or green finance which may have knock-on effects on fund managers managing both UK and EU AIFs.
6. New requirements for the transfer of investors' personal data - As the UK is a third country for GDPR purposes and in the absence of an EU equivalence decision for the UK, measures would need to be put in place to address the UK's status prior to any transfer of personal data by an Irish fund/management company to the UK from the EEA. 

We have produced a Q&A checklist tool to assist fund promoters and managers in conducting a health-check of existing arrangements if no agreement were in place by the end of the UK/EU transition period on 31 December 2020.  The Q&A, which has been revised and updated on several occasions since its initial publication on 15 March 2019, highlights the principal impacts of no-deal in various situations, including related mitigation measures or consequences where no mitigation measures are in place.

Please click here or on the image below to download our Q&A checklist tool.