The Financial Conduct Authority (FCA) has proposed a new UK retail fund regime equivalent to the existing UK UCITS schemes as part of its post-Brexit proposals, published in two consultation papers today (Wednesday 10 October).
In March 2018, the UK and the EU agreed the terms of an implementation period, which will start on 29 March 2019 and last until 31 December 2020, during which, rules will continue to apply and access to each other's markets will continue on the current terms.
However, if the UK leaves the EU without a deal no transition period will be implemented.
The regulator has published two consultation papers setting out plans to cope with an exit without an implementation period and the loss of single market authorisation and passporting rights.
The first consultation paper will focuses on changes to the FCA Handbook and Binding Technical Standards, including amendments to the Handbook and EU derived binding technical standards (BTS) as well as its approach to EU non-legislative material.
As part of key changes to the legal and regulatory framework for fund management, the FCA has proposed creating the UK retail fund regime for existing UK UCITS schemes and UK management companies who plan to launch similar new funds in the UK.
Outside of the temporary permissions regime (TPR) - which will allow European economic area (EEA) firms to continue to operate in the UK, if the passporting regime falls away, for a set period while they seek permanent authorisation - EEA firms will no longer be able to manage UK UCITS funds.
EEA UCITS wishing to continue to market in the UK will be treated as third-country funds and will need to apply for individual recognition by the FCA, although passporting funds already recognised under the Financial Services and Marketing Act (FSMA) before exit day will be able to apply to enter the TPR.
Cross-border mergers involving a UK UCITS scheme and a scheme based in the EEA will no longer be possible using the procedure in the directive while EEA UCITS feeder funds are not expected to be allowed to invest in a UK UCITS master fund after exit day.
As such, the FCA has proposed that references in COLL to 'EEA' be amended to 'EEA and UK' to ensure the current investment powers are maintained.
However, the regulator has written off the idea of widening the range of eligible investments to treat assets from the rest of the world the same as EEA-based assets on the view it would potentially change the risk profile of funds by allowing greater investment in less well-regulated markets or less liquid assets.
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