Asset Management & Investment Funds - Brexit update

The Central Bank of Ireland (Central Bank) issued a Markets Update on Thursday 7 March 2019 which clarified that, in the event of a no-deal Brexit:

  • The UK will become a third country on 30 March. This could impact investment by UCITS and Retail investor AIFs (RIAIFs) in UK investment funds and also impact the eligibility of counterparties to OTC derivative instruments entered into by UCITS and RIAIFs. In such event:
    • the Central Bank will consider whether UK UCITS, which at that point will become UK AIFs, should be identified in Central Bank guidance as a category of investment fund in which UCITS and RIAIFs may invest. For the period while this is under consideration, the Central Bank does not propose adopting a default position which would treat the UK AIFs as ineligible. Nevertheless in the case of UCITS, any investment in UK AIFs must fall within with the aggregate limit of 30% for investments in all AIFs. Such determination may be changed, including if circumstances change, and
    • the Central Bank will also consider whether UK investment firms, currently authorised under MiFID, should be a category of eligible financial derivative counterparty for UCITS and RIAIFs. For the period while this is under consideration, the Central Bank does not propose adopting a default position which would treat UK investment firms as ineligible. Such determination may be changed, including if circumstances change.
  • Irish QIAIFs with UK AIFMs (which become non-EU AIFMs) will be subject to the full AIFMD depositary regime including the AIFMD depositary liability provisions.
  • The Multilateral Memoranda of Understanding which were agreed between European securities regulators and the FCA on 1 February 2019 will facilitate delegation or outsourcing arrangements between Irish UCITS Management Companies/AIFMs/MiFID Firms and UK entities.
  • Only EEA MiFID firms can appoint tied agents. Moreover, tied agents must be persons established in the EEA.

These clarifications are most welcome at a time when clients are busy assessing the business and compliance challenges of Brexit which include marketing permissions, delegation, portfolio impact, investor disclosures, contractual changes and GDPR. They build on the developments discussed in our February Brexit Update and clarify the first issue raised in our February Question of the Month on Brexit planning implications at portfolio level for Irish UCITS.

For more information in relation to this topic please contact a member of the Asset Management & Investment Funds team.

Date published: 7 February 2019