Financial Services Compliance Blog - Thistle Initiatives

Do you need to review your authorisation as an AIF manager? - Thistle Initiatives

Written by Thistle Initiatives - Compliance consultancy | Jul 18, 2020 11:00:00 PM

What has happened?

Asset management firms may need to seek fresh authorisation to continue to manage UK-based collective investment schemes or alternative investment funds beyond the end of 2020. They must be aware that the end of the Brexit transition period, due on 31 December 2020, will bring in obligations on investor disclosures and also that the post-Brexit change of legal status of UK funds could require EU-based managers to delegate some of their operational functions to UK-based providers.

This advice is set out in a European Commission notice which urges asset managers to assess the consequences of the end of the transition period and take appropriate action.

In a separate communication, the Commission has also confirmed that, at least in the short to medium term, it does not intend to designate the UK’s regulatory and supervisory regimes for the provision of investment services to professional clients and eligible counterparties as being ‘equivalent’ to the EU’s framework. Such an equivalence designation, under Article 47(1) of MiFIR, would make it easier for UK-based investment companies to continue marketing their services in the EU after the transition period expires.

What do you need to do?

Although many investment firms have organised their businesses so that they will not be reliant on Article 47 equivalence, there will be some who were hoping to use this option, in spite of the fact that to do so would have meant significant reporting obligations, especially once the new EU Investment Firm Directive and Regulation (IFD and IFR) come into effect.

Firms wishing to provide services into any EU jurisdiction will need to confirm the extent to which each country will permit it under local laws or consider whether the level of business means that a more permanent solution needs to be found, either by setting up a subsidiary or branch or possibly entering into a joint venture arrangement with an EU-based business.

After the Brexit transition period ends, the UK will be considered to be a ‘third country’ for the purposes of EU law, unless a different trading relationship is established via a new EU-UK free trade agreement. The result of this change is that many asset management firms will need to change the way they are structured and operate. The changes that the industry will need to respond to concern both UK-based asset managers who manage EU-based funds and EU-based managers managing UK-based assets.

From the UK perspective, the forthcoming change in the UK’s relationship with the EU means that many UK-authorised managers, who have to date been able to manage certain funds using a passporting arrangement, will no longer be able to do so from 2021, when AIF managers need to be established and authorised in the EU, to be allowed to manage and market AIFs to professional investors across the EU.

The Commission has also said that all collective investment undertakings registered or authorised in the UK will become non-EU alternative investment funds after the Brexit transition period, although it has also confirmed that EU subsidiaries of UK-authorised collective investment undertakings will be considered to be EU companies and can continue to operate on the basis of their authorisation as UCITS management companies or AIFMs in the EU after 31 December. This exception does not extend to EU branches of UK managers, however.

Many asset managers authorised in the EU but managing UK funds will be forced to obtain fresh authorisation to continue managing those non-EU funds or to continue marketing them in the EU or will need to delegate certain functions to UK-based providers.

EU-based asset managers will also face fresh investor disclosure obligations at the end of the transition period since AIFMs must disclose to investors any material change to the information that is required to be disclosed, including the legal implications of the contractual relationship entered into for the purpose of investment, and must keep up to date the essential elements of any prospectus or key investor information document. This includes information on Member States in which the management company is authorised, or where the UCITS is managed or marketed cross-border.

How can we help you?

If you’d like to know more about how we can help with your AIF marketing requirements or any other aspect of FCA compliance, our expert team is here to help. Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.