European Union: Draft UK Post-Brexit Legislation To Onshore Alternative Investment Fund Managers Directive

On October 10, 2018, HM Treasury published a draft of the Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will onshore the Alternative Investment Fund Managers Directive for Brexit.

The draft Regulations are primarily relevant for Alternative Investment Fund Managers that are already regulated in the U.K. under the Alternative Investment Fund Managers Regulations 2013 and AIFMs currently marketing EEA AIFs in the U.K. They are also relevant for fund managers that market EEA UCITS into the U.K. HM Treasury has published separately the draft U.K. legislation to onshore EU legislation for UCITS funds for Brexit.

The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario addressed in the draft Regulations involves no transitional period following Brexit and the U.K. being treated as a third-country under EU law after exit day. The changes set out in the draft Regulations will not take effect if the U.K. enters a transition period.

AIFs are funds that are not regulated at EU level by the UCITS Directive. The AIFMD has, since 2011, set out the regulatory framework for AIFMs on the management, administration and marketing of AIFs in the EEA. Currently, so-called "full-scope" EEA AIFMs (that is, those with assets under management above a specified size threshold) that are authorized in one EEA member state can benefit from a passport enabling them to market and/or manage AIFs in any other EEA member state. AIFMD also provides for a so-called "third-country passport," which is not yet operational due to its implementation having been significantly delayed. As a result, most third-country firms currently rely on the separate private placement regime in AIFMD.

The draft Regulations amend the U.K. law that implemented the AIFMD to ensure that the regime continues to operate effectively in the U.K. after exit day. This includes amendments to the AIFM Regulations 2013 and the AIFM (Amendment) Regulations 2013. The draft Regulations also make amendments to the U.K.'s onshored versions of EU delegated regulations on: (i) exemptions, general operating conditions, depositaries, leverage, transparency and supervision; (ii) the opt-in procedure for AIFMs; and (iii) determination of the member state of reference of third-country AIFMs.

The draft Regulations make the following key changes to U.K. and retained EU legislation to correct deficiencies and ensure a workable U.K. regime for AIFs and AIFMs after exit day.

  1. Meaning of "AIF." The draft Regulations will amend the definition of an AIF such that an AIF is defined as an investment fund that is not subject to the U.K.'s post-Brexit UCITS regime. The U.K.'s UCITS regime will be implemented separately pursuant to the draft Collective Investment Schemes (Amendment) (EU Exit) Regulations 2018. The effect of the new definition of an AIF is that non-U.K. funds, including EEA UCITS, will be defined as AIFs.
  2. Provision of information. The draft Regulations disapply the information and reporting requirements of U.K.'s National Private Placement Regime (NPPR) for funds that are recognized under FSMA for marketing to retail investors.
  3. EEA AIFs marketed in the U.K. via a passport – temporary permissions. The draft Regulations introduce a TPR for EEA AIFs and AIFMs that have notified the FCA, prior to exit day, of their intention to market in the U.K. via a passport to continue to access the U.K. market for a limited period after exit day (the AIF TPR). After Brexit, EEA AIFs will be subject to the NPPR to access the U.K. market, unless they have already notified the FCA to begin marketing before exit day and have applied to enter the AIF TPR. The AIF TPR will extend for three years after exit day, with discretion for HM Treasury to extend the regime by increments of up to 12 months in specified circumstances. During the AIF TPR, AIFMs will be able to market relevant funds in the U.K. on the same terms and subject to the same conditions as they did before Brexit. This includes complying with duties previously imposed on them in relation to a host member state under the AIFMD, such as providing certain information to the FCA. Once the AIF TPR expires, an AIFM can only continue marketing relevant AIFs in the U.K. if they have made a notification under the NPPR. Relevant AIFMs will be directed to make notifications by the FCA within two years of exit day. The FCA has consulted separately on its proposed approach to a TPR for EEA firms and funds.
  4. EEA AIFMs currently marketing third-country AIFs. The draft Regulations will align the treatment of EEA AIFMs with that of other third-country AIFs by requiring them to notify under the AIFM Regulations. They will then be able to access the U.K. market through the NPPR. EEA AIFMs are eligible to enter the AIF TPR.
  5. New EEA AIFs marketed in the U.K. after exit day. The draft Regulations provide that both EU and U.K. AIFMs wishing to market EEA AIFs in the U.K. after exit day will need to notify the FCA under the NPPR, as is required for the marketing of third-country AIFs.
  6. Reporting on portfolio companies and asset-stripping provisions. The AIFMD requires an EEA AIFM to report and make certain disclosures when it acquires control of an EU company and also imposes certain asset stripping restrictions on the AIFM within two years of it acquiring control. The draft Regulations will remove the EU element from these requirements, so that a U.K. AIFM will only be required to report on portfolio companies and comply with the restrictions on asset stripping when it acquires control of a U.K. company, as opposed to an EU company.
  7. Supervisory cooperation. The draft Regulations remove the AIFMD's requirements for U.K. regulators to share information with EU authorities.

HM Treasury intends to lay the draft Regulations before Parliament in the autumn. It is intended that the Regulations will enter into force on exit day in the event that there is a no-deal scenario.

The draft Regulations are available at:
  and the explanatory information is available at:

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.

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