Brexit Update: Asset Management & Investment Funds

ESMA and EU Securities Regulators (including the Central Bank) agree no-deal Brexit MoUs

On 1 February 2019 ESMA confirmed the agreement of no-deal Brexit MoUs with the FCA. One memorandum of understanding (MoU) is between the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority (FCA) of the United Kingdom (UK) covering the exchange of information in relation to credit rating agencies and trade repositories. The other MoU is a multilateral MoU between national EU/EEA regulators and the FCA covering exchange of information and the delegation of portfolio management to UK authorised managers. These MoUs will only be required and come into force in the scenario of a no-deal Brexit.

The multilateral MoU will allow arrangements for fund manager delegation of portfolio/investment management to the UK to continue in the event of a no-deal Brexit.

ESMA issued a press release and has a Brexit section on its website. The EU Commission webpage which includes a notice setting out the consequences that the UK withdrawal from the EU will have on Asset management rules is also useful.

The Central Bank of Ireland (Central Bank) issued a Markets Update on 4 February noting the MoUs as part of authorities’ preparations for a no-deal Brexit scenario and noting that the MoUs are similar to those already concluded on the exchange of information with many third country supervisory authorities.

Central Bank intentions for the location requirement for directors and designated persons of Irish Fund ManCos in the event of a no deal Brexit
The Central Bank issued a Notice of Intention in relation to the location requirement for directors and designated persons of Irish Fund Management Companies. The notice reminds readers that it introduced an Effective Supervision Requirement for Fund Management Companies as part of a review of the organisation and effectiveness of Irish Fund Management Companies. The text of the requirement is set in the Annex to the Notice. Existing Fund Management Companies were required to be in compliance with the Effective Supervision Requirement as and from 1 January 2019. Fund management companies which sought Central Bank authorisation after 1 July 2017 were obliged to be organised in such a way as to comply with the Effective Supervision Requirement upon authorisation.

The Central Bank notes that, on 30 March 2019, the UK will become a third country. The Central Bank recognises that there may be considerable disruption in the event of a no-deal Brexit. The Central Bank has therefore clarified that, in the event of a no-deal Brexit, the Central Bank will consider whether the UK is a country to be determined as meeting the Effective Supervision Requirement. For the period while this is under consideration, the Central Bank does not propose adopting a default position which would treat the UK as not satisfying the Effective Supervision Requirement. After consideration of the above, the Central Bank will determine whether the UK continues to satisfy the Effective Supervisory Requirement. The Central Bank will confirm its determination by publishing a notice on its website. Such determination may be changed, including if circumstances change.

Central Bank clarifies that a QIAIF will be permitted to designate a UK AIFM as its AIFM
The Central Bank published the Thirty-First Edition of its Central Bank AIFMD Q&A which includes a new Q&A ID 1129, in relation to Irish Qualifying Investor AIFs (QIAIFs) with UK AIFMs. The Q&A clarifies that a QIAIF will be permitted to designate a UK AIFM as its AIFM. QIAIFs migrating to such an arrangement need to assess the impacts arising from the loss of the marketing passport under AIFMD including notification to investors, amendments to documentation, filings with the Central Bank or other supervisory authorities and any other operational issues.

Central Bank statement to address upcoming EMIR Refit implementation issues
The Central Bank has welcomed the recent ESMA statement on EMIR Refit implementation regarding the clearing and trading obligations for small financial counterparties and the backloading requirement with respect to the reporting obligation. The Central Bank has confirmed that, in accordance with the recommendation from ESMA and pending the entry into force of EMIR Refit, the Central Bank will apply its risk-based supervisory powers in the day-to-day enforcement of applicable legislation (i.e. EMIR’s reporting obligation, clearing obligation and MiFIR’s trading obligation) in a proportionate manner.

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.

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

Date published: 4 February 2019