IRELAND: Funds Industry Body Issues Update on Brexit Impact for Irish Funds

Tuesday October 18 2016

The Irish funds industry body, Irish Funds (IF), has issued a further update on the impact of Brexit on the Irish funds industry.

The EU principle of free movement of services means that a manager authorised in one EU member state can manage funds established in any other EU member state. Many UK managers currently avail of this principle to manage funds domiciled in Ireland. If the UK leaves the EU then, depending on the terms of its Article 50 withdrawal agreement, a UK manager may not be able to manage funds domiciled in other EU member states and may not be able to distribute UK domiciled funds in the EU.

Areas addressed by the publication include the following:

Distribution

While UCITS and AIFMD offer a product passport, a separate licence is needed to sell the product. This is typically carried out under a MiFID passport. While MiFID 2 offers the potential of third country access, the denial of passport rights to UK firms using their MiFID passport to distribute their EU funds post Brexit would be a challenge that would have to be addressed.

Investment Management

Much of the European asset management community is based in London. This need not change post Brexit as it should be entirely possible for UK based asset managers to manage EU UCITS and AIF funds under a delegated arrangement. This arrangement is commonplace today for US, Swiss and other managers of well-regulated third country jurisdictions.

Passporting

One of the most important negotiations will be around “passporting.” Currently, the EU marketing passport allows UK managers access to the EU single market without restriction. While speculating at this early stage about the outcome of negotiations is difficult, the UK will likely negotiate to retain its passport rights throughout the EU. UK investment firms and AIFMD and UCITS funds may, however, become “third-country” firms unable to benefit from MiFID, AIFMD, and UCITS passport rights.

Non-EU domiciled funds

Traditionally, the UK has been one of the more popular countries in the EU for marketing non-EU domiciled funds. How marketing these funds will proceed is presently unclear, especially in light of the recent ESMA Advice and Opinion on the extension of the passport to non-EU jurisdictions, and the UK vote only serves to increase the uncertainty as to if and when the European Commission will make a decision on this.

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