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Ten things for asset managers to note if there is a no-deal Brexit

  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Financial services



With a no deal Brexit on 31 October now appearing to be increasingly likely, with all of the political noise, it is easy to forget the technical regulatory aspects of a no-deal Brexit as they apply to the asset management industry. We have set out, in no particular order, ten points for asset managers to remember or action.

1. Clearing across the UK-EU border will continue as now

ESMA has given 12 month temporary recognition to the three UK CCPs LCH Limited, ICE Clear Europe Limited and LME Clear Limited (to read the ESMA press release, click here). ESMA has also given 12 month temporary recognition to the UK CSD, Euroclear UK and Ireland Limited (to read the ESMA press release, click here).

HM Treasury has set up 12 month temporary recognition regimes for EEA CCPs and CSDs under which those EEA CCPs and CSDs that have given notice that they want to participate in the regime will be recognised after Exit Day (to read the Bank of England information, click here). See also point 9 below.

2. Delegation of fund management functions across the UK-EU border will continue as now

Memoranda of understanding entered into between the FCA, ESMA and the EU27 national competent authorities permit the regulatory and supervisory co-operation necessary for delegation of fund management functions in accordance with Art 20 AIFM directive and Art 13 UCITS directive (to read the ESMA press release, click here).

To read our client briefing, click here.

3. ESMA guidance remains persuasive in the UK

Under the EU (Withdrawal) Act 2018 guidance and other non-legislative material produced by ESMA and the other ESAs does not become part of UK law. The EU laws that give the ESAs power to give guidance are, however, ”onshored”.

In Policy Statement PS19/5 the FCA confirmed that, “we consider that the EU non-legislative material will remain relevant post-exit day to the FCA and market participants in their compliance with regulatory requirements, including provisions in our Handbook.” (Appendix 3, para 8)

To read PS19/5, click here.

4. Immediate compliance or 15 month grace period with new UK regulation?

Under the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019, HM Treasury has the power to permit the FCA, Bank of England and the PRA to make transitional provisions if the UK leaves the EU without an agreement in place, known as the temporary transitional power (“TTP”), to make modifications in respect of firms newly subject to UK regulation.

15 month grace period

In PS19/5 the FCA have announced that they will use their TTP powers to waive or modify changes to regulatory requirements which have been amended under the EU (Withdrawal) Act to give firms newly subject to UK regulation following exit day a period of 15 months to comply with those regulations.

The FCA has said that,

“If the UK leaves the EU without an agreement, we intend to use this power broadly to ensure that firms and other regulated entities can generally continue to comply with their regulatory obligations as they did before exit day for a temporary period.”

“We intend to use [the TPP] so firms and other regulated entities do not generally need to prepare now to meet new UK regulatory obligations. In most cases, we plan to allow firms a period of 15 months to adapt to these changes.

Immediate compliance

“There are some areas where it would not be consistent with our statutory objectives to grant transitional relief. In these areas only, we expect firms and other regulated persons to begin preparing to comply with changed obligations now.”

These are:

• Firms subject to the MiFID II transaction reporting regime, and connected persons (for example approved reporting mechanisms)

• Firms subject to reporting obligations under EMIR

• EEA issuers that have securities traded or admitted to trading on UK markets

• Investment firms subject to the BRRD and that have liabilities governed by the law of an EEA State

• EEA firms intending to use the market-making exemption under the Short Selling Regulation

• Firms intending to use credit ratings issued or endorsed by FCA-registered credit ratings agencies after exit day

• UK originators, sponsors, or securitisation special purpose entities (SSPEs) of securitisations they wish to be considered simple, transparent, and standardised (STS) under the Securitisation Regulation

Even in respect of those regulations with which the FCA expects immediate compliance, such as transaction reporting, there is some leeway,

“we expect firms and other regulated entities to undertake reasonable steps to comply with the changes to their regulatory obligations by exit day. Firms that are not able to comply fully with the regime on 29 March 2019 will need to be able to back-report missing, incomplete or inaccurate transaction reports as soon as possible.” (Para 3.5, PS19/5)

To read the FCA press release, click here.

To read the Regulations, click here.

5. UK UCITS can still invest in EEA assets

In Consultation Paper CP18/28 the FCA proposed allowing UK UCITS schemes to continue to have the freedom to invest in EEA (non-UK) assets, and asked for stakeholders’ views. PS19/5 confirmed that eight respondents to the question agreed. Some stakeholders asked for further freedoms to be given to UK UCITS,

“however, our current exercise focused purely on correcting deficiencies arising from Brexit in the Handbook and in BTS. A change to the investment powers of UK UCITS beyond those of UCITS before Brexit is outside the scope of the Brexit onshoring exercise.” (Para 6.21, PS19/5)

To read CP18/28, click here.

6. HMT to temporarily find EEA financial services regimes equivalent to UK financial services regime

The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 will contain a time-limited power for Treasury ministers to make directions that EEA states are equivalent for the following onshored regimes (listed in schedule 1 of the Regulations), for up to 12 months after exit day:

• Benchmarks Regulation

• Capital Requirements Regulation

• Credit Rating Agencies Regulation

• European Market Infrastructure Regulation

• Market in Financial Instruments Regulation

• Prospectus Directive

• Securities Financing Transactions Regulation

• Short Selling Regulation

• Solvency 2 Regulation

• Transparency Directive

After this power expires, and also for any third country outside of the EEA from exit day, HM Treasury must make equivalent decisions by regulations.

To read the Regulations, click here.

7. Temporary Permission and Recognition Regimes will come into force

Those firms, funds and market participants who gave notice to the relevant UK financial services regulator prior to 30 October 2019 will have the benefit of temporary permission and recognition regimes (“TPRs” and “TRRs”):








Temporary Recognition Regime

1 year


Transitional Regime

6 months

Credit rating agencies (“CRAs”)

Temporary Recognition Regime

1 year

Data service reporting providers (“DRSPs”)

Temporary Authorisation Regime

1 year

Electronic money institutions (“EMIs”)

Temporary Recognition Regime

1 year


Temporary Permission Regime

Up to 3 years depending on landing slot


Temporary Permission Regime

Up to 3 years depending on landing slot

Payment institutions “PIs

Temporary Recognition Regime

1 year

Trade repositories (“TRs”)

Temporary Recognition Regime

1 year

To read our client briefings on the TPR, click here, here and here.

To read our flowcharts on the TPR, click here, here and here.

8. Financial Services Contracts Regime (“FSCR”) will apply to those not in the TPR or TRR

The Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 will permit firms that:

• do not submit a notification to enter into the temporary permissions regime (“TPR”)

• are unsuccessful in securing, or do not apply for, full UK authorisation through the TPR route (and leave the TPR)

to continue to service UK contracts entered into before Exit Day or before exiting the TPR for a limited period.

The FSCR has been established to allow EEA-based firms to run-off existing UK contracts and to conduct an orderly exit from the UK market. Unlike the TPR, the FSCR will not allow firms in the regime to undertake any new business in the UK. The FSCR will provide that a firm is able to carry on a regulated activity only where it is necessary for the performance of a pre-existing contract (which is a contract made before Exit Day, where a firm enters the FSCR on Exit Day), along with certain other specified activities.

To read the Regulations, click here.

To read our client briefing, click here.

9. Patchwork of temporary permissions and run-off arrangements in EU27 may help UK firms providing services to EU27 clients

Although arguably the preserve of the European Supervisory Agencies (“ESAs”) and the Commission, EU27 NCAs and national parliaments have been legislating for various temporary permissions and run-off regimes for UK participants in their financial services markets. This is an evolving patchwork that addresses various national concerns in a variety of different ways. For instance, Luxembourg is concerned to ensure cross border management of assets, while Ireland has concerns about retail insurance.

10. EU27 and UK national private placement regimes are not all the same

Although each EU27 Member State and the UK have in place regimes to give effect to the investor information disclosure and various annual reporting requirements, some have in place additional registration, notification or approval requirements. This may affect the timing of any ongoing marketing from the UK into the EU27 and vice versa and highlights the need for EU27 managers to consider the TPR, to the extent that there is still time, and UK managers to consider any temporary permission regimes noted in #9 above.

Our European Brexit tracker provides a quick overview of the current position in relation to UK funds and UK fund managers seeking to sell services into EU27 countries after Brexit, and is regularly updated.

To view our Brexit tracker, click here.

Keeping clients informed about Brexit

In the FCA’s webinar on its Brexit preparations broadcast back in February (unfortunately no longer available online), one point the FCA was at pains to emphasise was that firms should ensure that they communicate to their clients the issues that Brexit poses for firms and for clients’ investments. If you need help assessing how Brexit may affect your firm and your clients’ investments and communicating that to clients, we are able to help.

How Eversheds Sutherland can help

Since June 2016, our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.

We would be happy to discuss how we can help you with your Brexit planning and execution of those plans.