The HM Treasury has published a draft of the Venture Capital Funds (Amendment) (EU Exit) Regulations 2018; Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018; and Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018, alongside an explanatory information.
The draft statutory instruments (SIs) are intended to provide Parliament and stakeholders with further details on the HMT’s approach to onshoring financial services legislation.
These three SIs cover the following pieces of EU legislation:
- The European venture capital funds (EuVECA) Regulation provides for a type of Alternative Investment Fund (AIF) that directs investment into small and medium-sized enterprises.
- The European social entrepreneurship funds (EuSEF) Regulation provides for a type of AIF that directs investment into social investments
- The European long-term investment funds (ELTIF) Regulation provides for a type of Alternative Investment Fund (AIF) that directs investment into infrastructure and other long-term projects.
As EuVECAs, EuSEFs and ELTIFs are types of AIFs, their fund managers also need to comply with legislation relating to the Alternative Investment Fund Managers Directive (AIFMD), which is being onshored via the Alternative Investment Fund Management (Amendment) (EU Exit) Regulations 2018.
Deficiencies thes SIs remedy:
- Registration with the FCA. It would no longer be possible for UK fund managers to market qualifying funds under the EU regime, if the UK leaves the EU without a deal. UK fund managers will be able to register or be authorised with the FCA in order to market qualify long-term investment funds within the UK. Existing UK managers of ELTIFs that are registered or authorised with the FCA will be automatically transferred to the new UK regime.
- Eligible investments. EU legislation currently sets out the investment rules for EuVECA, EuSEFs and ELTIFs, which can only invest in eligible assets as defined by the relevant regulations. In some cases, EEA assets are given preferential treatment over third country assets, with the EuVECA, EuSEF and ELTIF regimes making a distinction between investment in EEA member states and investments in the rest of the world. To ensure continuity for investors, this SI will maintain the existing investment rules for EuVECA, EuSEFs and ELTIFs domicilied in the UK.
- Temporary marketing permissions (provided for in the Alternative Investment Fund Management (Amendment) (EU Exit) Regulations 2018.) If the UK leaves the EU without a deal, there will be no agreed legal framework upon which the passporting system can continue. As a result, any references in UK legislation to the EEA passporting system will become deficient at the point of exit. To ensure that UK investors have continued access to EEA funds that are currently marketed in the UK, the government announced on 20th December 2017 that it would put forward legislation to establish a ‘temporary permissions regime’. This would enable EEA funds that have notified their intention to market in the UK via a passport before exit day to continue to access the UK market for a limited period after exit day. The regime will last for three years from exit day, with a power of HM Treasury to extend the regime by no more than 12 months at a time in certain circumstances. The Alternative Investment Fund Management (Amendment) (EU Exit) Regulations 2018 sets out the design and structure of such a regime for all EEA AIFs, including EuVECAs, EuSEFs and ELTIFs.
Changes made will not take effect if an implementation period is entered following the 29th March 2019.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.
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