In the wake of last week’s referendum result, there are obviously a number of questions regarding regulation and passporting. Bobby Johal, Managing Consultant, Cordium, comments…
UCITS funds will still be distributed across Europe, but not in quite so straightforward a manner as is the case presently. UK UCITS will lose their status (under the UCITS directive) and most likely become alternative investment funds (AIFs).
If we assume the UK is to be a ‘third country’ (the so-called WTO option: a big assumption, subject to much debate over the coming months), this will result in the loss of passporting rights and so such funds will be subject to the vagaries of the private placement rules of each of the states in which they are marketed. A significant increase in complexity and cost will result. A move to re-domicile from the UK (both the fund and management company) will be the inevitable outcome.
Third country firms do not currently have any passporting rights but ESMA is undergoing a consultation exercise to determine the feasibility of extending such rights (as per AIFMD Art 67)) to a small number of jurisdictions with financial services legislative frameworks deemed to be most closely equivalent to those of the EU. It is hoped the UK might qualify, provided we can all remain friends!