“As of today, the UK should be treated like the US or Switzerland, no better, no worse, and I believe it is in fact the case. However, because of Brexit, the spotlight is now precisely on marketing and the practices that were tolerated in the past, might no longer,” according to Jerôme Wigny, partner at Elvinger Hoss Prussen.
Wigny, who was speaking at the Association of the Luxembourg Fund Industry (ALFI) European Asset Management Conference, discussed the latest trends in UK/EU cross-border distribution.
He explains: “We really need to look at the metrics of fund distribution on both sides - the EU into the UK and the UK into the EU, and we will discuss the number of proposed solutions to continue marketing post Brexit.”
It is important to distinguish between the product rules, which apply at a level of a fund, and the licencing requirements, he adds.
During the discussion, panelists inferred that it is also important to distinguish how to make funds available in another European country.
As the licencing requirements apply to the entity marketing the funds this raises the question of who has the right to market a given fund in a given country.
Taking the example of a Luxembourg fund that wants to be marketed in Germany, the protocols will determine how to make this journey of this Luxembourg fund available in Germany, either through the use of the passport, or the use of private placement rules, and questions would be raised about who has the rights.
Wigny explains that once the fund is available in Germany it can be marketed to German individuals.
It could be marketed to a German firm or a European firm using a passport, but Wigny says the whole question is, “what happens to a non-EU firm, do those UK firms still have the right market?”
European firms had the right to register for temporary permissions, which would allow them to continue to be available to UK markets but some of those funds missed the deadline of 1 January 2021.
Philip Bartram, partner at Travers Smith, says: “We had two temporary permission regimes in the UK, corresponding to product rules and firm licencing rules. In relation to the product rules, we have our temporary marketing permission regime. There's a piece of legislation going through the UK Parliament at the moment that's planning to extend that temporary arrangement for another five years so good news for those who got in.”
Regarding the temporary licencing regime, Bartram says firms will receive a landing slot from the UK regulator in order to regularise their position.
But for a fund that didn't get registered, for example, a new fund, Bartram says the first point is that all EU funds, whether they are a UCITS or an alternative investment fund are, from a UK perspective, treated as if they were alternative investment funds for the UK.
According to Bartram, this means that Luxembourg funds distributed in the UK need to register under the UK national private placement regime under the AIFMD Annex IV reporting.
“It's a quick and simple process, same day, not very many documents need to be submitted, it's very straightforward, but does, of course, subject the fund, then to Annex IV reporting, not only to the Luxembourg regulator but also to the UK regulator,” says Bartman.
Bartman later highlights that a Luxembourg manager needs to be careful, it doesn't trigger a requirement for a licence in the UK at the firm level and on the whole, it shouldn't provide that it does all of its marketing from Luxembourg, into the UK cross border, and during COVID, that's what's happening.
“But when people start to move around again after, people need to be careful that they don't arrange a deal, they don't arrange an investor subscription, as people are physically present in the UK.”
