European Union: ESMA Brexit Opinions – Investment Management

As flagged in our previous update, the European Securities and Markets Authority ("ESMA") has published three further Brexit focused opinions.

These "sector-specific" Brexit opinions cover the areas of:

  • Investment Management – encompassing the activities of UCITS management companies, self-managed investment funds and authorised AIFMs (together "ManCos");
  • Investment Firms – based on the MiFID framework[1] applicable to these firms; and
  • Secondary Markets – covering all types of trading venues, i.e. regulated markets, multilateral trading facilities and, under MiFID, organised trading facilities.

The opinions are addressed to the EU27 regulators, referred to as national competent authorities ("NCAs"), with the aim of ensuring a consistent interpretation of requirements relating to the authorisation, supervision and enforcement of entities relocating[2] from the UK following Brexit.

Concerns over an uneven playing field in the EU or even a race-to-the bottom to attract relocating UK entities have been raised, and the ESMA opinions have been issued to address the regulatory and supervisory arbitrage risks associated with Brexit.

The opinions assume a "hard" Brexit and that the UK will become a "third country" after its withdrawal from the EU.

This update focuses on the Investment Management opinion (the "Opinion") and we will issue further updates that will focus on the Investment Firms and Secondary Markets opinions.

How the Maples Group Can Help

Since the UK referendum on EU membership we have been working, on a collaborative basis, with our clients and their international advisers to address a wide range of complex legal and regulatory Brexit related issues.

Recent examples include working alongside UK legal, regulatory and tax advisers to help global investment banks, financial institutions and investment managers develop their contingency plans or to establish regulated entities in Ireland.

We have already assisted a large number of AIFMs, UCITS and MiFID entities to become authorised in Ireland as part of our clients' overall business as well as in the context of Brexit.

In addition, other parts of the Maples group, including MPMF Fund Management (Ireland) Limited, are able to provide dedicated AIFM and UCITS services to entities seeking to relocate to Ireland.

The Maples Group and Brexit

Further information is available on our dedicated Brexit microsite.

The Investment Management Opinion

The Opinion builds on the cross-sectoral opinion on expected standards for NCAs considering entities seeking to "relocate" to the EU27 from the UK. The Opinion explains that "relocation" covers not only an entity seeking authorisation for the first time in the EU27, but also an existing EU27 entity restructuring as a result of a transfer of activities/functions from a UK entity.

Based on the objectives of UCITS and AIFMD legislative frameworks, the Opinion sets out principles to address regulatory and supervisory risks in relation to:

  1. Authorisation;
  2. Governance and Internal Control;
  3. Delegation (including substance); and
  4. Effective Supervision by NCAs.

Key Points of the Opinion

In our previous update, we noted that ESMA's earlier Brexit opinion contained many principles that would be familiar to UCITS managers and AIFMs who have been authorised pursuant to the Central Bank of Ireland's (the "CBI") Fund Management Companies – Guidance.[3]

Our view has not changed and many of the principles set out in the Opinion are already part of the Irish regulatory landscape for AIFMs and UCITS management companies.

1) Authorisation

The Opinion re-emphasises that a relocating UK entity must undergo a full authorisation process as it would in any other circumstance, and that there are no transitional provisions. NCAs should scrutinise the group structure and location of shareholders to ensure this is not an obstacle to effective supervision, and that the choice of EU27 jurisdiction is based on objective factors (and not regulatory arbitrage).

2) Governance and Internal Control

Governance structures and internal control mechanisms of each ManCo should be calibrated to the nature, scale and complexity of the business and the activities carried out. The Opinion sets out a detailed list of criteria for NCAs to assess applicants in this regard, which are as follows:

  • Size of the ManCo's business (value of assets under management);
  • Number of (sub-)funds and share classes;
  • Complexity of investment strategies pursued;
  • Type and range of asset classes invested in (e.g. equity, bonds, derivatives, real estate, private equity, venture capital, infrastructure, debt);
  • Geographical spread of investments;
  • Use of leverage;
  • Use of efficient portfolio management techniques;
  • Frequency of investment activities;
  • Cross-border management or marketing activities;
  • Type and range of management functions that are (i) performed internally; and (ii) not performed by the ManCo itself are therefore subject to delegation monitoring;
  • Provision of additional MiFID services set out in Article 6(3) of the UCITS Directive and Article 5(4) of the AIFMD;
  • Number and type of investors;
  • Frequency of investor subscriptions and redemptions; and
  • Geographical distribution of marketing activities.

NCAs should also be able to carry out on-site visits of a ManCo without notice and meet with its senior management at short notice.

"White Label" ManCos

ManCos whose business involves setting-up platforms for third parties and delegating investment management to such third parties will likely see a spike in business that creates operational risk and the Opinion asks NCAs to consider whether such ManCos have sufficient human and technical resources.


NCAs should scrutinise the number of other directorships held by senior management (and focus additional scrutiny on individuals with high numbers of directorships), and should put in place guidance regarding aggregate time commitments of senior management.

3) Delegation

ManCos must prepare and submit to NCAs for analysis a detailed, evidence-backed explanation of the objective reasons for delegation (noting NCAs should give special attention to delegation to non-EU entities). This is not a mere notification and requires proper scrutiny by the NCA. NCAs should also consider extending delegation requirements to other critical functions like IT. Where there is delegation to non-EU entities NCAs should require detailed information on why this is objectively justified particularly where the geographical spread of investments is EU based.


The most notable provisions of the Opinion relate to ESMA's substance expectations. While the AIFMD and UCITS legislative frameworks largely focus on qualitative requirements, there is a shift in the Opinion to some quantitative criteria for relocating ManCos, based in part on the "letter-box" principle (namely delegation of investment management functions – measured at the level of each fund – cannot substantially outweigh those retained by the ManCo). ManCos should therefore have sufficient human and technical resources to perform investment management and to select and monitor/challenge any delegates. While ESMA has not set any minimum staffing/substance requirements, it does state in the Opinion that:

  • NCAs should apply additional scrutiny to applications where the ManCo has less than three full-time equivalents ("FTE")[5] (including scrutinising time commitments of senior management and staff) carrying out performance of investment management functions and/or monitoring of delegates. It should be noted that an FTE is not necessarily an employee of the ManCo but is rather a dedicated resource of the ManCo;
  • ManCos relocating from another member state ("Former MS") should transfer a sufficient amount of portfolio management and/or risk management functions to the new EU member state to avoid a scenario where (i) substantially more portfolio management and/or risk management functions continue to be carried on under a delegation back to the Former MS and (ii) the entity maintains substantially more relevant human and technical resources in the Former MS despite the relocation[6]; and
  • NCAs should be satisfied that the use by ManCos of non-EU branches is objectively justified and branches should not result in material functions/services being provided by the branch back into the EU.

Investment Advisers

NCAs should in particular review the appointment of non-discretionary investment advisers to ensure there is no circumvention of delegation requirements for investment management, and the ManCo should carry out its own qualified analysis on such advice.

Due Diligence

After the initial detailed written due diligence there should be continuous monitoring and review including on-site visits by ManCos to their delegates (whether EU based or not) and contingency planning.

4) Effective Supervision by NCAs

NCAs should consider the impact of operations in other jurisdictions on its ability to supervise a ManCo, and that initial conditions continue to be met by ManCos after authorisation. Delegation by ManCos should not impact the enforcement of legislation by the NCA nor access by the NCA to data regarding delegated functions, or access by the NCA to the business premises of a ManCo's delegates. ESMA also re-emphasises that cooperation between NCAs and regulatory authorities in non-EU jurisdictions (so-called "Third Countries") is a pre-requisite for certain provisions of the AIFMD and UCITS, including delegation of portfolio management to an investment manager in a Third Country (which would include the UK in a "hard" Brexit scenario).

Going Forward

As noted, much of the Opinion builds on existing Irish principles under CP86 and our view is that it is largely consistent with the current Irish framework. It will be interesting to see whether the CBI also interprets the new provisions and concepts as being consistent with its authorisation, supervision and enforcement regime so that only minor changes (if any) are required.

The Opinion is aimed expressly at relocating entities, and in the short term it may be that existing ManCos (which are not being upgraded for Brexit) are not in scope, but in the long term these principles and additional expectations may apply to all ManCos to avoid a "two tier" system.

External Reference Materials from ESMA

The Opinion and ESMA's press release can be found here.


[1] The MiFID framework encompasses among other things MiFID II and MiFIR.

[2] Relocation is to be understood in a broad sense and includes not only situations where an entity seeks authorisation for the first time in the EU27, but also cases where an existing entity in the EU27 is restructured (e.g. through an increase in the number of personnel) as a result of a transfer of activities and functions from a UK entity.

[3] The CBI completed a substantive review of the Irish market, introducing guidance in December 2016 (issued on foot of its consultation paper 86 or "CP86") which is "designed to underpin the achievement of substantive control by fund management companies, acting on behalf of investment funds, over the activities of their delegates." This was discussed in our previous update on CP86.

[4] Namely the functions listed in Annex II of the UCITS Directive and Annex I of the AIFMD.

[5] Please follow the link for a full definition of an FTE.

[6] ESMA notes these substance principles are underpinned by the legal requirement for all ManCos to have both their registered and head office based in the same jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Peter Stapleton
Stephen Carty
Ian Conlon
Emma Conaty
Pádraig Brosnan
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions