On 07 December 2018, in a revised version of its Collective Investment Schemes (Amendment etc) (EU Exit) Regulations 2019 (the draft SI), HM Treasury provided the welcome confirmation that a sub-fund of an umbrella EEA UCITS would be able to take advantage of the UK’s temporary permissions regime (TPR) even if the sub-fund is notified to the FCA after Exit Day, so long as the umbrella fund is already in the TPR.
What has happened?
In a welcome move, HM Treasury (HMT) has confirmed its decision to amend its draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (the draft SI). The change made will allow an EEA umbrella UCITS which has notified the FCA of its intention to enter the UK’s temporary permissions regime (TPR) prior to Exit Day to include a sub-fund in the TPR even where the sub-fund itself was not included in the notification. Exit Day will be 29 March 2019 or such other, later date when the UK leaves the EU.
For an explanation of how the FCA anticipates the TPR will work, please see our elexica article, “The UK’s Temporary Permissions Regime (TPR) - the FCA consults”
What has changed?
The original position
Until the HMT’s move, an umbrella EEA UCITS which had notified the FCA of its intention to enter the TPR before Exit Day could do so, along with any sub-funds it notified at the same time. Entering the TPR means that the UCITS and its notified sub-funds would be temporarily permitted to continue to be marketed to UK investors after Exit Day, pending formal application for recognition under s. 272 of FSMA 2000.
The new position
However, under the original rules published by HMT, a new sub-fund which had not been included in the notification to the FCA (such as a sub-fund launched after Exit Day) could not have entered the TPR. This means that it would have to apply for recognition under s. 272 of FSMA 2000 in order to be marketed to investors in the UK. Such an application would not only take time but potentially could also have caused issues with the position of the umbrella since, ordinarily, a sub-fund would not be recognised under s. 272 in its own right - this could have led to the undesirable situation where the umbrella would have had to apply early for recognition of the entire umbrella in order to accommodate the new sub-fund or otherwise exclude the new sub fund from marketing efforts in the UK.
On 07 December 2018, following discussions between HMT and industry about these concerns, an amended draft SI was published which clarifies that such a sub-fund will, in the circumstances shown in the box below, be able to join the TPR under the already notified umbrella.
|Type of fund
||Conditions to be satisfied
Date of entering
|A stand-alone scheme
- the scheme’s operator must have notified the FCA before Exit Day that it wishes the scheme to enter the TPR, and
- immediately before Exit Day, the scheme is an EEA UCITS and is a recognised scheme under s. 264 of FSMA 2000
|A sub-fund authorised by its home state regulator before exit day
- the operator of the sub-fund must have notified the FCA before Exit Day that it wishes the sub-fund to enter the TPR, and
- immediately before Exit Day, the sub-fund is the sub-fund of an EEA UCITS and is a recognised scheme under s. 264 of FSMA 2000
|Any other sub-fund
- the sub-fund (the new sub-fund) must be authorised by its home state regulator on or after Exit Day
- at the time of the new sub-fund’s authorisation by its home state regulator, at least one other sub-fund of the new sub-fund’s umbrella scheme is a recognised scheme by virtue of the TPR
- after new sub-fund’s authorisation by its home state regulator and while at least one other sub-fund of the umbrella scheme continues to be authorised, the new sub-fund’s operator must notify the FCA that it wishes the new sub-fund also to enter the TPR, and
- such notification must be given before the start of the ‘landing slot’ period specified by the FCA in relation to the new sub-fund’s umbrella scheme.
|At the end of the tenth working day following the day on which the FCA receives the notification
The sub-fund would exit the TPR on the earliest of the following events:
- receipt of notice of:
- it having been recognised under s.272 of FSMA 2000, or
- such recognition having been refused
- the operator notifying the FCA in writing that:
- it wishes to withdraw the sub-fund from the TPR, or
- it withdraws the sub fund's application for recognition of the sub-fund under s. 272 of FSMA 2000
- the operator failing to make an application for recognition by the end of its landing slot or
- the end of the TPR.
HMT’s revision of its original draft SI is welcome - a significant issue raised by the funds industry has been resolved and EEA umbrella funds now have greater certainty that their ability to market new sub-funds to the UK can continue unhindered even should the TPR comes into effect (ie, in the event that the UK leaves the EU without a withdrawal agreement in place).
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.