UK: 'No-Deal' Brexit – EU Regulators Take Small Steps To Maintain Status Quo For UK Fund Managers

Last Updated: 20 February 2019
Article by Stephen G. Sims and Greg Norman

In the middle of February 2019, Brexit continues to be debated between Westminster and Brussels, despite the rapidly approaching deadline for the United Kingdom (U.K.) to leave the European Union (EU) on March 29, 2019. With negotiations stalling, businesses are increasing their focus on the consequences of a "no-deal" Brexit. For private fund managers operating in or from the U.K. who either manage or market funds in the rest of the EU, the main regulatory concern is over the prospect of losing the "passport" that allows private fund managers to operate across the EU.

However, since the start of 2019, some European regulators have begun to take steps in an attempt to mitigate some of the effects that a no-deal Brexit would have on private fund managers. First, on January 7, 2019, the U.K. Financial Conduct Authority (FCA) opened a temporary permissions regime for fund managers currently using a passport to manage U.K. funds or to market EU funds in the U.K., effectively allowing those managers to continue their operations in the U.K. (albeit for a limited time) despite the loss of the "passport." Then, on January 31, 2019, the FCA and European Securities and Markets Authority (ESMA) announced that they had agreed a Memorandum of Understanding (MoU) covering a broad range of financial services cooperation. It is expected that such cooperation would permit fund managers that currently have delegation arrangements between entities in the U.K. and entities in the EU to continue those arrangements without a need for change. On the same day, the Luxembourg legislature introduced a bill (the Luxembourg Bill) that, if passed, would permit the Luxembourg Financial Sector Supervisory Authority (CSSF) to continue to apply the management passporting regime for U.K. fund managers managing funds in Luxembourg.

UK Temporary Permissions Regime

Alternative investment fund managers (AIFMs) established in other EU member states are currently able to manage U.K. alternative investment funds (AIFs) and market EU AIFs in the U.K. using the passports available under the Alternative Investment Fund Management Directive (AIFMD).

A no-deal Brexit would mean these passports would cease to be available; therefore, on January 7, 2019, the FCA opened a temporary regime (TPR) for AIFMs currently using a passport to manage U.K. AIFs or market EU AIFs in the U.K. In order to benefit from the TPR, AIFMs must submit a notification to the FCA before March 28, 2019. The TPR effectively will allow European Economic Area-based firms and funds currently passporting into the U.K. to continue as normal for a period of time should the U.K. leave the EU without a deal.

AIFMs can notify the FCA of their intention to fall under the TPR now, even though the relevant statutory instrument is not yet in force, and are encouraged to do so as soon as possible. There is no fee for the notification and the FCA has stressed that firms and funds should not wait for confirmation as to whether there will be an implementation period before submitting their notification. It is expected that the regime would last for a maximum of three years, by which time firms and funds would be required to obtain authorisation or recognition in the U.K.

ESMA/FCA Memorandum of Understanding

A number of fund managers operate a structure with an EU AIFM (e.g., in Luxembourg or Ireland) that delegates portfolio management (or other functions) to a U.K. entity. Following a no-deal Brexit, the U.K. entity in such a structure would become a non-EU entity and so the delegation arrangement would not be permitted under the AIFMD unless a cooperation agreement is in place between the FCA (as the U.K.'s competent authority) and the regulator in the EU jurisdiction where the AIFM is located. The MoU agreed upon between ESMA and the FCA seeks to address this. The MoU covers a broader range of financial services cooperation but it should include provisions that satisfy the requirement for a cooperation agreement pursuant to the AIFMD. Assuming the MoU is implemented before March 29, 2019, EU AIFMs will not have to change any existing delegation arrangements with U.K. entities if there is a no-deal Brexit.

The MoU still needs to be signed by regulators from each of the 27 remaining EU member states. Interestingly, the CSSF confirmed in a press release on January 25, 2019, (before the MoU was announced) that U.K. delegates would continue to be authorised to perform investment management functions and risk management activities in a no-deal scenario as long as the other existing provisions in Luxembourg legislation are satisfied. This would suggest that the requirement of member state approval should be forthcoming.

What About the Passport?

Although the steps taken by the FCA and ESMA are helpful for some fund managers, they do not help U.K. AIFMs that rely on the passport to manage and, perhaps more importantly, market across the EU. The Luxembourg Bill, if passed, should allow U.K. AIFMs to continue managing Luxembourg AIFs for up to 21 months after a no-deal Brexit. This is clearly to the benefit of Luxembourg as a major jurisdiction for establishing fund vehicles and has been proposed for the purposes of maintaining market stability. It remains to be seen whether other EU member states will take similar steps.

It is notable that the Luxembourg Bill only addresses the management passport and it would not allow U.K. AIFMs to continue to market U.K. funds to Luxembourg investors. Luxembourg is generally not considered a key jurisdiction for most funds marketing in the EU, and this may not make much difference to U.K. AIFMs. However, one of the key benefits of the AIFMD passport is the ability for AIFMs to market funds across the EU. Even if other EU member states were to open up the management passport to U.K. AIFMs, it seems unlikely that they will do the same for the marketing passport. Assuming that is the case, even with the steps taken by the regulators so far, U.K. AIFMs will find themselves at a disadvantage (at least when it comes to fundraising in Europe) when compared to their EU peers.

Trainee solicitor Eleanor Williams assisted in the preparation of this alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions