December 10, 2018

Monday Morning Memo: U.K. Treasury Paves Way for UCITs Funds and a “No-Deal” Brexit

by Detlef Glow.

The U.K. treasury has introduced a safety net for mutual funds and alternative investment sub-funds under the UCITs regulations in case of a “no-deal” Brexit.

Contrary to its previous plans, the U.K. treasury will also extend temporary permissions to funds which are to be launched after March 29, 2019. This is as long as at least one of the sub-funds of the respective umbrella was registered for sale in the U.K. prior to that date.

This step has been taken by the U.K. treasury to ensure that investors will have access to a wide range of investment opportunities in the still-possible eventually of a no-deal Brexit. On the other hand, the European Union (EU) has taken no similar initiatives as yet.

Even though a number of U.K.-domiciled funds are registered for sale in the EU, the policymaker on the continent has warned that these respective sales permissions for U.K. funds and management companies will immediately disappear in case of a no-deal Brexit.

It might sound odd that funds which had previously been registered for sale in the EU would lose this registration (even if they fully complied with UCITs regulation). The position of the EU policymakers is understandable; they want to maintain their regulatory access on the respective management companies.

EU policy makers are also reluctant to undermine the EU position in the overall negotiations process. This is especially important as the vote on the proposed withdrawal agreement by the U.K. House of Commons takes place on December 11, 2018.

That said, we are now seeing U.K. asset managers starting to transfer their funds which are registered for sale on the continent, to one of the European international fund hubs; i.e. Luxembourg or Ireland. This will ensure a smoother transition for their continental European clients even in case of a no-deal Brexit.

It appears that a good majority of the U.K. funds management industry is well prepared for a case in which their UK domiciled funds are no longer registered for sale in the EU.

It is my view therefore, that major disruptions to U.K. fund distribution into Europe will be limited–even should there be a no-deal Brexit.

The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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