Brexit: Impact on the cross-border marketing of investment funds after the Brexit transition period

The United Kingdom (“UK”) left the European Union (“EU”) on 31 January 2020 and entered into a transition period until 31 December 2020, during which the EU marketing passport regime was still applicable. Since 1 January 2021, the marketing passport regime no longer applies to the marketing of funds domiciled in the European Economic Area (“EEA”) in the UK nor to the marketing of funds domiciled in the UK in the EEA.

The UK Temporary Permissions Regime (“TPR”) for inbound marketing of previously passported EEA investment funds entered into force on 1 January 2021.

Since 1 January 2021, EEA funds seeking to be marketed in the UK have to obtain permanent market access in the UK. EEA UCITS or AIFs need to obtain recognition to be marketed to retail investors in the UK or notify the Financial Conduct Authority (“FCA”) under the National Private Placement Regime (“NPPR”) to be marketed to professional investors.

The marketing of UK funds or funds managed by a UK investment fund manager in EEA countries depends on the rules and measures put in place by each EEA country.

Marketing of EEA funds in UK as from 1 January 2021: TPR and the Overseas Funds Regime (“OFR”)

Focus on OFR for retail funds

At present, foreign funds seeking to be marketed to retail investors in the UK must obtain recognition under section 272 of the Financial Services and Markets Act 2000 (“FSMA”). Section 264 of the FSMA, which implemented the UCITS marketing passport regime and thereby allowed EEA UCITS to be recognised for marketing to UK retail investors, was repealed on 31 December 2020. EEA UCITS that had been recognised under section 264 are able to benefit from the TPR while they seek permanent market access in the UK. To benefit from the TPR, a specific notification had to be submitted to the FCA before 30 December 2020.

The TPR was put in place by the UK Government to avoid disruption to financial services at the end of the transition period. The TPR is a grandfathering period, which allows EEA funds that benefitted from the EU marketing passport regime to continue being marketed in the UK while they seek permanent market access under an applicable UK regime.

Key information on the TPR:

The following overview and the document available for download focus solely on the OFR, the new equivalence regime for foreign retail investment funds as introduced by the Financial Services Bill in the UK. For more information on the TPR, recognition for retail funds under section 272 of the FSMA and marketing under the NPPR, please contact us.

The new Overseas Funds Regime:

On 29 April 2021, the Financial Services Act 2021 (hereinafter “the Act”) received Royal Assent, which means that it became law.

Amongst other amendments to the financial services regulatory framework in the United Kingdom, the Act establishes a legal framework for equivalence regimes for foreign investment retail funds and money market funds. These equivalence regimes simplify the process for overseas investment funds to be marketed in the UK. These new regimes are known collectively as the Overseas Funds Regime.

Please note that the provisions of the Act related to the OFR are not yet in force. They will only enter into force once HM Treasury so decides by regulation. Consequently, the OFR is not yet available as a market entry route for foreign retail funds seeking permanent market access in the UK.

Before the entry into force of the OFR provisions, both foreign retail and money market funds targeting retail investors seeking to be marketed in the UK, and that are not sub-funds of an EEA UCITS umbrella in the TPR, will have to obtain recognition under section 272 of the FSMA.

Marketing of UK funds in EEA countries as from 1 January 2021

Following the end of the Brexit transition period and the resulting end of the UK’s participation in the marketing passport regimes under the UCITS and AIFM Directives, the UK is now considered a third country to the European Union since 1 January 2021.

As a consequence, since 1 January 2021 UK funds and UK alternative investment fund managers (“AIFM”) which previously fell under the passport regimes lost their authorisation to market in the EEA with the relevant passport and they have to re-apply for authorisation under the procedures in place in the individual EEA countries in view of Brexit. It is our understanding that marketing activities must cease until the new local authorisation for marketing has been obtained.

Marketing to retail investors:

UK UCITS are now regarded as non-EU AIF.
Therefore, UK funds which were previously marketed to the general public under the UCITS passport and wish to continue marketing to retail investors in the EEA have to re-apply for authorisation to market to retail investors under Article 43 of the AIFMD as transposed into national law.

Please note that some EEA countries have not transposed the provisions of Article 43 AIFMD into their national law as a national private placement regime. For information on a specific country, please contact us.

Marketing to professional investors:

UK AIF and UK AIFM are now regarded as non-EU AIF and non-EU AIFM respectively.
Therefore, UK funds which were previously marketed to professional investors with the AIFM passport under Article 32 of the AIFMD have to re-apply for authorisation to market to professional investors under the relevant national private placement regimes of the AIFMD.
The same procedure applies to UK UCITS, whose targeted investors are limited to professional investors only since Brexit.

If such UK funds are managed by a UK AIFM they have to re-apply for authorisation to market to professional investors under Article 42 of the AIFMD.

If such UK funds are managed by a EU AIFM they have to re-apply for authorisation to market to professional investors under Article 36 of the AIFMD.

Please note that that some EEA countries have not transposed the provisions of Article 36 and/or Article 42 AIFMD into their national law as a national private placement regime. For information on a specific country, please contact us.

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