Overview

On 23 June 2016, the British electorate voted by a margin of 52%-48% to leave the European Union. Following this, the Prime Minister triggered Article 50 of the Treaty of Lisbon on 29 March 2017, meaning that the UK will leave the EU by 29 March 2019 unless there is unanimous agreement from Member States to extend this period.  

AIMA is actively engaging with policymakers, regulators and other industry bodies to ensure that the voice of the alternative investment management industry is heard at every stage of the Brexit process.  AIMA has established a Brexit Task Force consisting of fund manager and sponsoring partner service provider members to help guide our Brexit policy work.

In addition to undertaking a Brexit Survey mapping the exposures of members globally, the Brexit Task Force published a position paper in December 2016 intended for UK politicians and regulatory authorities that sets out our priorities for Brexit and the value of the industry to the UK.  We also propose a future UK/EU relationship based on equivalence, non-discrimination and reciprocity. In May 2017 AIMA published a detailed breakdown of the respsective EU and UK institutional negotiating positions for Brexit, as well as a paper on the Brexit related tax concerns and opportunities for hedge fund managers.

NCA responses to AIMA Brexit Transition Questions

AIMA has written to the EU27 national competent authorities (NCAs) to enquire about there answers to a series of 46 specific questions related to UK AIFMs transitioning from the transposed regimes related to the use of Articles 32, 33 and 36 of the AIFMD to use of any available Article 42 national private placement regime or to another relevant status. Please find here a table of questions and responses from the Central Bank of Ireland relating to marketing of UK AIFs in Ireland by UK AIFMs following the Brexit transition period. A list of these questions and the answers we have received so far can be accessed by members here.

FCA response to AIMA Brexit Transition Questions

AIMA has written to the UK’s Financial Conduct Authority (FCA) to enquire about their answers to a series of specific questions related to status changes that will come into effect immediately following the end of the transition period (1 January 2021 or such later date as may ultimately be agreed). At the end of this period, an AIFM could go from being an EEA AIFM (a category which will cease to exist) to being a third country AIFM. This raises a number of practical questions as set out in the letter. A list of these questions and the answers we have received from the FCA can be accessed by members here.

Brexit Surgeries

AIMA has in the first weeks of 2019 held a series of roundtable discussions devoted to the topic of Brexit and exploring how investment managers can manage its impact. Recordings of the sessions, as well as printed materials, are available here.

Documents and articles

Legal Process 

Article 50 of the Lisbon Treaty defines the process by which a Member State can leave the EU, requiring a formal notification to be made by that Member State to the European Council of its desire to leave.  This involves a two-year period during which a withdrawal agreement is to be negotiated and concluded by the UK and European Council acting by qualified majority, with the consent of the European Parliament.  Upon the entry into force of the withdrawal agreement or, failing that, the expiry of the two year period, the EU Treaties will cease to apply to the UK unless an extension is agreed unanimously by the European Council.    

Future relationship between the UK and EU 

The UK has accepted that it is unrealistic for the EU to permit full Single Market access for the UK whilst the UK does not accept all four freedoms, most importantly the free movement of persons which the UK government has confirmed will end when the UK formally leaves the EU. The UK has also set out its intention to leave the Single Market and the Customs Union in order to be able to sign bilateral free-trade agreements with other countries post-Brexit.  Despite leaving the EU, the UK government has confirmed its intention to maintain a close partnership with the EU and to remove trading frictions to as great a degree as possible. However, it is still too early to tell the precise form or shape of this future agreement. The EU is currently united in refusing to discuss the future trading relationship until fundamental matters, namely the UK Brexit financial settlement, are agreed.

The latest documents on the EU/UK negotiations can be found on the European Commission's website - here.

Implications for the hedge fund industry

There will be various direct and indirect consequences of Brexit for the alternative asset management industry, posing both risks and opportunities. Unanswered questions include:

  • the future of delegation arrangements between the EU and third-countries, and possible location policies for central clearing of Euro denominiated derivative contracts;

  • the willingness of the UK legislators and regulators to place asset management at the front of their thinking as a UK growth industry post-Brexit;

  • the willingness of the EU to grant equivalence to the UK as a third-country under various pieces of EU financial services legislation;

  • the future policy direction of existing and future EU financial services legislation, in particular the maintenance of private placement regimes under AIFMD and the Capital Markets Union project; and

  • the degree of access in the UK to skilled employees from the EU and beyond.

From the perspective of the hedge fund industry, greater legislative sovereignty for the UK government and regulatory authorities upon leaving the EU provides an opportunity for the UK to tailor its domestic fund management rules to improve their proportionality and global competitiveness, potentially by aligning them more closely with those of other international financial services centres such as the US, Hong Kong and Singapore. However, this coincides with the loss of influence over the rules applied to a significant market of potential investors.

Contact

If you have any questions in relation to AIMA’s Brexit work, please contact the Markets team on at [email protected].