knowledge 11 December 2018 |

Sub-funds, Brexit and the Temporary Permissions Regime

The TPR is designed to ensure that UK investors have continued access to EEA funds that are currently marketed in the UK in the event that the UK leaves the EU without a withdrawal agreement, usually referred to as a “hard Brexit”.  The TPR was first announced by the UK government on 20 December 2017 and will essentially serve to facilitate market access between the EEA and the UK, if the current passporting arrangements cease to be available.

On 8 October 2018 HM Treasury published draft Collective Investment Schemes (Amendments etc)(EU Exit) Regulations (the “Regulations”) and explanatory information setting out details of the TPR with regard to collective investment schemes. Under the proposed scheme, EEA funds and sub-funds that have notified the UK's Financial Conduct Authority of their intention to market in the UK before exit day will be allowed to continue to access the UK market for up to three years from the day the UK exits the EU. The Alternative Investment Fund Managers (Amendment)(EU Exit) Regulations 2018 provide a similar scheme for AIFs. 

Under the original draft Regulations, a fund manager would be able to continue to market a fund to the same category of client while in the TPR, however, it could not:

• add any new schemes to the funds in the TPR (stand-alone or umbrellas);
• add new sub-funds to umbrella schemes in the TPR; or
• change or extend the category of customer to be marketed to while a fund is in the TPR. For example, an EEA AIF in the TPR with the right to market to professional investors only (MiFID definition) could not commence marketing to UK retail investors while still in the TPR.

On 7 December 2018, the UK Treasury published an updated version of the Regulations and explanatory information, according to which UCITS sub-funds launched post-Brexit day will be able to benefit from the TPR, once the umbrella fund is already in the TPR (here). Specifically, where at least one sub-fund of an umbrella fund entered the TPR before exit day, it will be possible for new sub-funds of that umbrella fund to enter the TPR after exit day.  

According to the UK’s Financial Conduct Authority, it expects to start accepting notifications from funds that wish to access the TPR in early January 2019, and the notification period will close prior to exit day.