On 9 October 2018, there was published on legislation.gov.uk a draft of The Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018, together with an explanatory memorandum.
The draft Regulations form part of a series of draft statutory instruments that HM Treasury is publishing as part of its contingency planning for a no-deal Brexit. The statutory instruments are made by HM Treasury in exercise of its powers conferred by the European Union (Withdrawal) Act 2018.
Significantly, the draft Regulations set out the design and structure of a temporary permissions regime for alternative investment funds (AIFs) and alternative investment fund managers (AIFMs) (including EuVECAs, EuSEFs, ELTIFs and MMFs which use an AIF structure).
The explanatory memorandum to the draft Regulations explains that:
- temporary permissions will last for three years after Brexit day, with a power for HM Treasury to extend the regime by no more than 12 months at a time in certain circumstances;
- to enter the regime, an AIFM of an eligible AIF will need to inform the FCA prior to Brexit day that it wishes the relevant fund(s) to have temporary permission to be marketed in the UK. The FCA will provide further details to firms on how and when to do this. During this temporary permissions regime, the AIFM will be able to market the relevant fund in the UK on the same terms and subject to the same conditions as it could before Brexit day. To continue marketing the relevant AIF after the end of the temporary permissions regime, the AIFM must notify under the national private placement regime (NPPR). The AIFM will be directed by the FCA to make the notification within two years from Brexit day;
- the AIFM will be required to continue to comply with the duties imposed on it in relation to a host Member State by specific provisions of the AIFMD, and which were previously implemented by the home Member State. This includes notifying the FCA of any changes to the documentation for a passporting AIF, and changes to the passporting AIFM’s programme of operations; and
- the FCA will have the same power to revoke or suspend an AIFM’s entitlement to market an AIF during the temporary permissions regime as it does to revoke or suspend the entitlement of an AIFM to market an AIF under the NPPR.
Other changes introduced by the draft Regulations include:
- amendments to the definition of an AIF: an AIF will be any investment fund that is not subject to the UK UCITS regime (see the draft Collective Investment Schemes (Amendment) (EU Exit) Regulations 2018). All non-UK funds, including EEA UCITS, will be defined as AIFs;
- the dis-application of the NPPR information and reporting requirements for funds that are recognised under section 272 of the Financial Services and Markets Act 2000 for marketing to retail investors;
- align the treatment of EEA AIFMs with that of other third country AIFs by requiring them to notify under regulation 59 of the AIFM Regulations (which implemented Article 42 of the AIFMD). The draft Regulations will enable an EEA AIFM to enter the temporary permissions regime, and market the relevant fund on the same terms and subject to the same conditions as it could have been before Brexit day, before notifying and becoming recognised under regulation 59;
- a UK AIFM 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 (as opposed to an EU company); and
- the removal of provisions requiring cooperation and information sharing. However, this will not preclude UK supervisors from sharing information with EU authorities where necessary, as the existing domestic framework for cooperation and information sharing with countries outside the UK already allows for this on a discretionary basis.