The European Union said that if there is no transition agreement on the departure of the UK, then UK entities will no longer be able to manage funds and market funds in the EU on the basis of their current authorisations from 30 March 2019.

The United Kingdom submitted its notice to leave the EU on 29 March 2017 which means that, without a transition agreement, all EU primary and secondary law will stop applying from 30 March 2019. Yesterday the the European Commission published the impact of Brexit on asset management.

“The United Kingdom will then become a ‘third country,” said the report. “Preparing for the withdrawal is not just a matter for EU and national authorities but also for private parties.”

In a nutshell, the UK becomes a third country. Which means

1) All UK UCITS become non-UCITS
2) UK managers have to register under AIFMD to keep selling their UK (former) UCITS in the EU
3) EU managers who operate UK Funds will also have to register as Under AIFMD

— Sean M. Tuffy (@SMTuffy) February 9, 2018

As a result, UK UCITS management companies and UK alternative investment fund (AIF) managers will lose the ability to use the EU passport and to offer products in the remaining 27 EU member states and will be treated as third-country AIF managers. “This means that those UK entities will no longer be able to manage funds and market funds in the EU on the basis of their current authorisations,” added the Commission.

In addition, UCITS managers in the remaining 27 EU member states will need to obtain an authorisation to manage those (former) UCITS authorised in the UK.

“Therefore, UCITS management companies and AIF managers must assess whether the change of the legal status of the investment fund would still be compliant with the investment strategy of the fund as communicated earlier to investors,” said the Commission.

Olivier Guersent, director general of the Commission’s financial services directorate, said, told Politico’s Capital Markets Summit in Paris this week: “The EU has no intention of discriminating against the UK in a post-Brexit world. The US works fine in the current [third-country] framework, so I don’t see why the UK post Brexit wouldn’t.”

Andrew Bailey, chief executive of the UK FCA, said in a speech this week there are a range of operational issues arising from Brexit which could create financial stability risks and issues for both the UK and the European Union.

He urged a joint commitment by the political authorities by the end of March to a well-defined transition Period which will create the space and support for the regulators to work with firms and political authorities to put practical solutions into place.

After Brexit, he said it should be possible to have open financial markets and mutual recognition of regulatory regimes.

“The principles for mutual recognition would look a lot like the ones we already use to authorise the branches of banks from outside the European Economic Area, namely broad equivalence of regulation in terms of outcomes, supervisory co-operation and good information sharing,” added Bailey. “We would need to add on a robust dispute resolution arrangement, but this could be done. We are used to working very closely with other regulators, it is a big part of our job given London’s international role.”