For the delegation of portfolio management activities from KVGs (German AIFM and UCITS ManCos) to asset managers outside the EU, a memorandum of understanding (MoU) is required to be in place between the BaFin and the supervisory authority responsible for the asset manager. Most prominently, such MoUs are in place with the supervisory authorities in the United States, which allows German KVGs and their investors to use the expertise of specialised US managers.
In September 2018, the BaFin sent letters to German KVGs stating that delegation to UK asset managers will no longer be permitted after Brexit, unless an MoU has been agreed between the BaFin and the FCA. This has triggered uncertainty and nervousness amongst the KVGs and their investors and has led to projects for the restructuring of mandates to asset managers located within the EU or within third countries where the respective MoUs are in place.
Essential content of the confirmation
The BMF has now sent a confirmatory email to the BVI stating that ESMA and the BaFin are determined to conclude an MoU with the FCA. According to the BMF, the FCA had also shown great interest in concluding the agreement, with the result that concrete negotiations have begun. The BMF states that German KVGs may now plan based on ”this assumption”. Furthermore, the BMF points out that the BaFin letters of September 2018 were not intended as an announcement of supervisory measures in the event that there is no MoU. Instead, the letters should merely be understood as an explanation of the legal situation.
If an MoU were to be concluded, the outsourcing of portfolio and risk management functions to companies domiciled in the UK would be permitted after the Brexit deadline of 30 March 2019, even if the UK leaves the EU without a transitional agreement.
The BMF’s statement should give German KVGs some planning security in respect of the looming no-deal Hard-Brexit scenario. They will need carefully to consider if restructuring of mandates is the right option at the given time. The pressure to drop UK managers, which has certainly been rising over the last few months, is likely to decrease.
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