Meanwhile, in the UK, the Financial Conduct Authority (FCA) is consulting on its preparations for the UK leaving the EU without a formal Brexit deal in place, and has provided more clarity on its temporary permissions regime (TPR). The European Securities and Markets Authority (ESMA) has also confirmed that it is ready to finalise its memoranda of understanding with the UK in the event of a no-deal Brexit situation, which is welcomed by UK managers who had concerns about the ability to delegate portfolio management activities back to the UK. This also provides welcome clarity on the ability of Irish funds to be sold in the UK post-Brexit.
If you have not yet assessed how you are impacted by Brexit, it is crucial that you do so now. If you require a licence from the CBI you will need to immediately decide what licence you require and what your model/substance will be in Ireland, and to set up a meeting with the CBI within the next week or two.
The CBI is currently reviewing over 200 licensing applications, with more continuing to arrive. It has therefore urged all new applicants seeking a licence in Ireland before 29 March 2019 to meet with it before they submit their application. This meeting is quite informative, and the CBI will provide managers with a clear indication of whether their proposed model will work at a very early stage in the process.
As a result of this new process, managers are a lot clearer at the start about what 'substance' they will need to have in Ireland and within the EU, as well as the proposed timelines and the CBI's expectations. The process has also meant applications are moving more quickly: as quickly as 12 weeks from the date a complete application is submitted in some cases.
However, it should be noted that a lot of work is required to submit a complete application. Any manager that is considering a licence but has not yet applied to the CBI needs to urgently arrange a meeting now to stand any chance of authorisation by 29 March 2019. It is already too late for more complex applications, which can take a full six months to process.
At the same time, 29 March 2019 is not the only date that managers should be focused on. Those who need to apply for a branch office passport, which can only be initiated after they are authorised, must factor in an additional two or three months for this process, whether their application is complex or non-complex.
What about Irish funds seeking continued access to the UK market?
The FCA has also provided a lot of clarity on how European funds and managers can continue to access the UK market in the event of a hard Brexit, via its TPR. Under the TPR, European firms and investment funds that are currently providing services or are registered for sale in the UK by virtue of an EU passport will continue to have access to the UK market via the TPR.
There are, however, a few important points to note. Firstly, you can only take advantage of the regime if you are already providing services or registered for sale under an EU passport. For Irish funds, this means you will need to have registered for sale in the UK via the AIFMD or UCITS passport. It should also be noted that the TPR will only cover the existing activities of a firm for which their passport operates.
Any firms or funds who do not currently use a passport to provide services into the UK should therefore consider whether they may need this at some stage in the next two or three years and, if so, passporting the relevant activities now or registering their funds for sale in the UK under the correct EU passport.
However, availing of an EU passport into the UK is not in and of itself sufficient to come within the TPR. Firms and funds will also be required to register specifically under the TPR. The FCA is expected to provide guidance and further information on how this process will work in the near future, with the registration process beginning in January 2019 and ending shortly before 29 March 2019.
If you are currently providing services into the UK, you now need to consider how you are doing this. Only Schedule 3 passported firms are eligible to rely on the TPR so if, for example, you are relying on an exemption or Schedule 5 permissions as many UCITS managers have done you will not be able to rely on the TPR for firms. You can check which type of passport you are using on the FCA register. If you are currently using Schedule 5 permissions and wish to access the TPR, you should look now to see if this can be changed to Schedule 3 permission.
As its name suggests, the TPR is a temporary, interim measure. Investment firms registering under the TPR must apply to the FCA for full authorisation to provide the relevant activities in the UK. It is not yet clear how investment funds will exit the TPR. We expect that the UK will use some form of formal recognition process.
Once registered under the TPR you will have to comply with the FCA Handbook rules, including the incoming Senior Managers and Certification Regime, so you will need to be aware of these requirements.
Gayle Bowen and Elizabeth Budd are asset management and investment funds experts at Pinsent Masons, the law firm behind Out-Law.com, based in Dublin and London respectively. A version of this article previously appeared in Irish Funds.