One of the many Brexit impact questions UK asset managers are considering is whether, post-Brexit, they will be able to continue to manage their EU-domiciled funds.
In an Irish funds context alone, based on latest figures, UK based asset managers promote Irish authorised funds with asset levels of approximately US$636 billion. This represents more than 25% of all assets in Irish authorised funds and covers 1,283 funds/sub-funds across 173 different UK based promoter groups.
It is therefore imperative that arrangements are put in place, post-Brexit, to enable UK asset managers to continue to undertake portfolio management functions for Irish funds on a delegation basis.
At this stage we should be hearing some reassuring noises on the issue from the politicians and the regulators.
The bad news is that we are not hearing these noises yet and this is a concern. The good news is that this should be an easy fix.
The Central Bank of Ireland (the "CBI") already permits entities from a number of non-EU/EEA countries to manage Irish funds, including the United States.
There are two requirements prescribed in the Irish AIFMD Regulations and UCITS Regulations and the question is whether the UK post Brexit will meet both.
The first requirement is that the given manager must be subject to a regulatory regime that is comparable to the regulation applicable to EU regulated firms (e.g. the regimes for AIFMs, UCITS management companies or MIFID investment firms).
Post Brexit, there should be no concern that UK firms are not regulated to a level equivalent to EU firms. However, recent soundings that the UK may look to move away from MIFID II after Brexit would need to be carefully considered in this context. Presumably though, any revised measures would not shift the position substantively.
The second requirement is that "co-operation" between the CBI and the competent authority in the home jurisdiction of the applicant firm must be "ensured" (pursuant to Article 21(d) of the Irish AIFMD Regulations and Article 23(d) of the UCITS Regulations). In practice, this requires a memorandum of understanding ("MoU") between the CBI and the UK Financial Conduct Authority.
There has been some speculation that ESMA would lead on any EU MoU initiatives with the UK. However, no clear path has emerged on this yet. And the position remains, from an Irish perspective, that the MoU should be entered into by the CBI, albeit this could be in a pan-EU form negotiated by ESMA similar to the initial third country process for AIFMD.
There is actually an MoU already in place between the CBI and the FCA's predecessor, the Financial Services Authority, from July 1998. If that existing MoU is not sufficient to ensure cooperation between the CBI and the FCA, the firm expectation of industry is that an update can be agreed in good time, to avoid a Brexit cliff edge moment.
United Kingdom Financial Services Authority July 1998