As 29 March looms with uncertainty still surrounding the type of Brexit scenario that will unfold, there have been a number of regulatory developments at EU, UK and Irish level, which should provide some welcome clarity in the event of a hard Brexit. Key amongst these are recent agreements and announcements with regard to delegation, the CP86 location requirement, marketing in the UK post-Brexit, and settlement.
Both the UCITS and AIFM Directives permit third-country delegation of investment management under specified criteria and many Irish funds and management companies delegate the investment function to portfolio managers based in the UK that are regulated by the Financial Conduct Authority ("FCA"). However, Brexit threatened to disrupt this as delegation to a non-EU manager requires co-operation agreements to be in place between the relevant EU regulator and the regulator of the non-EU manager. On 1 February, the European Securities and Markets Authority ("ESMA") confirmed that it had agreed a Memorandum of Understanding, on behalf of the EU27 national regulators, with the FCA and so delegation of portfolio management from Irish funds to UK based portfolio managers can continue post 29 March, even in the event of a hard Brexit.
CP86 LOCATION RULE
On 4 February, the Central Bank of Ireland released a Notice of Intention regarding the location requirement for directors and designated persons of Irish fund management companies. This rule requires that a minimum number of directors and designated persons be EEA-resident (for example, at least half of the managerial functions should be performed by at least two EEA-resident designated persons).
The notice confirms that, in a hard Brexit scenario, the Central Bank will not immediately move to treat the UK as a third country for the purposes of this requirement.
Although the Central Bank has made it clear that this is a temporary measure while it considers the issue more fully, this confirmation that in the event of a hard Brexit it won't immediately require UK based directors and designated persons to be replaced by EEA based ones will come as a welcome clarification for the Irish management companies of international fund promoters whose UK based staff serve as directors and designated persons for those Irish entities.
UK AIFMS OF IRISH FUNDS
Additionally, the Central Bank has confirmed in the latest update to its AIFMD Q&A that an Irish authorised QIAIF will be permitted to...