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Dec 06, 2018

UK’s Consolidated Post-Brexit EU Funds Legislation – Update

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UK Post-Brexit EU Financial Services Legislation

Shearman & Sterling is today making available further consolidated versions of EU legislation showing the proposed U.K. onshored versions. The batch of legislation that will be newly available today comprises consolidated post-Brexit U.K. versions of:

  • The Alternative Investment Fund Managers Directive/Alternative Investment Fund Managers Regulations 2013.
  • The Undertakings for Collective Investment in Transferable Securities Directive/Undertakings for Collective Investment in Transferable Securities Regulations 2011. 

These are found within our Brexit Resource Center website, along with the consolidated post-Brexit U.K. versions of:

  • The Bank Recovery and Resolution Directive/Banking Act 2009.
  • The Capital Requirements Regulation.
  • The European Markets Infrastructure Regulation.
  • The Markets in Financial Instruments Regulation.

We will be adding new consolidated legislation to this maintained resource in due course.

Background

The U.K. government has been publishing statutory instruments (U.K. secondary legislation) onshoring and amending EU regulations for Brexit. This is being done under the European Union (Withdrawal) Act 2018, so as to ensure a workable U.K. statute book after Brexit. This “onshoring” legislation is not intended to introduce policy changes unrelated to technically implementing the U.K.’s EU withdrawal. The purpose is to correct a limited range of deficiencies (as defined in the EU (Withdrawal) Act 2018) in the directly applicable EU Regulations that will be retained on exit and in the existing U.K. law that implements the EU Directives. However, necessarily, there are various decision points that U.K. legislators have needed to take in relation to third-country issues and relationships.
The onshoring legislation has been designed to adapt to all potential outcomes to the negotiations for the U.K.’s withdrawal. The statutory instruments have been specifically drafted so that they come into operation, either on exit day if there is a “no deal” scenario where the U.K. leaves the EU without a ratified withdrawal agreement, or at the end of any negotiated transitional, or “implementation,” period agreed as part of the U.K.-EU Withdrawal Agreement. As at the time of writing, the U.K. and EU’s negotiators have agreed in principle the technical terms of the Withdrawal Agreement.[1] However, approval of those terms must be obtained from the U.K. Parliament on December 11, 2018, which is of uncertain outcome. The onshoring legislation has largely been designed for a “no deal” Brexit. However, once any deal is finalized, it is likely to take largely the same form.

Changes to Financial Services Law and Technical Standards for Brexit

The European Union (Withdrawal) Act 2018 sets out an enhanced scrutiny procedure. Secondary legislation used to amend certain retained EU law will be subject to the affirmative scrutiny procedure which requires the approval of both Houses of Parliament before it is made. Some of the onshoring legislation has been published in draft form, while other parts have been laid before Parliament already. In the financial services sector, around 70 separate statutory instruments are expected eventually to be made to implement Brexit.

In addition, HM Treasury has delegated responsibility to the Financial Conduct Authority, the Prudential Regulation Authority, the Bank of England and the Payment Systems Regulator for correcting deficiencies in the Binding Technical Standards that supplement primary EU legislation and for maintaining them after Brexit. Amendments to such technical standards for U.K. purposes will therefore take place via regulatory rulebook changes and not by statutory instrument. In some cases a single regulator has been designated as the responsible authority and in other cases more than one regulator has responsibility. The regulators have issued their initial consultations in line with the publication of statutory instruments.[2] A number of draft “EU Exit” instruments have been published as part of these consultations and more will follow later in the year. Where multiple regulators have responsibility for onshoring the BTS, one regulator has consulted on the proposed changes, to avoid duplicative consultations. We also include links to these consultation versions on our site. However, since these are presented already as consolidated mark-ups by the regulators themselves, we do not supplement the relevant materials in our website.

Annex: Consolidated Legislation

ALTERNATIVE INVESTMENT FUND MANAGERS directive

 

EU Legislation to be Onshored

Onshoring legislation

Parties affected

 

Consolidated legislation

AIFMD Primary legislation

Draft Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018 (published 10/08/2018)

Primarily affects Alternative Investment Fund Managers that are already regulated in the U.K. under the Alternative Investment Fund Managers Regulations 2013 and AIFMs currently marketing EEA AIFs in the U.K. They are also relevant for fund managers that market EEA Undertakings for Collective Investment in Transferable Securities (UCITS) into the U.K.

Consolidated AIFM Regulations 2013

AIFMD Binding Technical Standards

Regulator responsible: FCA

 

Consultation Ongoing:

 

  • FCA CP 18/28 Technical Standards (Alternative Investment Funds Management Directive) (EU Exit) Instrument 2019

 

 

UCITS IV directive

 

EU Legislation to be Onshored

Onshoring legislation

Parties affected

 

Consolidated legislation

UCITS IV Primary legislation

Draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018 (published 10/08/2018)

Primarily affects EEA fund managers operating UCITS authorized in the U.K., fund managers marketing EEA UCITS into the U.K. and depositaries that provide services to U.K. authorized funds.

Consolidated UCITS Regulations 2011

UCITS IV Binding Technical Standards

Regulator responsible: FCA

 

Consultation Ongoing:

 

  • FCA CP18/28 Technical Standards (Undertakings For Collective Investment In Transferable Securities) (EU Exit) Instrument 2019 – Binding Technical Standards for UCITS IV are proposed to be revoked on Brexit.

 

Footnotes

[1] The following documents were published on November 14, 2018:

[2] The following regulatory consultations have been published:

BoE’s Consultation on Resolution (published October 25, 2018): View the consultation paper and appendix. 

Authors and Contributors

Barnabas Reynolds

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5528

+44 20 7655 5528

London

Thomas Donegan

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5566

+44 20 7655 5566

London

John Adams

Partner

Investment Funds

+44 20 7655 5740

+44 20 7655 5740

London

Nancy Hau

Senior Associate

Investment Funds

+44 20 7655 5636

+44 20 7655 5636

London

Edward Miles

Associate

Investment Funds

+44 20 7655 5666

+44 20 7655 5666

London

Inyoung Song

Associate

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5729

+44 20 7655 5729

London