Annex IV: Life after Brexit

19th February 2020

Following our last Annex IV update at the start of February, we received a large number of questions from clients about the impact of Brexit on Annex IV reporting. Clients are asking whether there is any clarity on what the reporting regime will look like when the transition period ends and UK whether mangers with UK funds will all be categorised as “non-EU".

As we are in the transition period until the end of the year, we fully expect all submissions for the period up to 31st December 2020 to be submitted to the Financial Conduct Authority ("FCA") as usual.

We understand that industry bodies are lobbying the UK Government for clarity on how financial services will interact post-Brexit. How AIFMD in general or Annex IV reporting specifically will be handled for the period commencing 1st January 2021, is not yet clear. 

It may well be that managers with European investors in UK AIFs will be required to submit Annex IV reports to multiple regulators in the same way that is currently required under National Private Placement Regime ("NPPR"). The extent to which any grandfathering for existing AIFs will be available, is as yet unknown. 

There are three possible scenarios managers should consider when thinking about their fund operations following the transition period, each dependent on eventual agreements with the EU.

  1. UK becoming a “third country”: Given the current political climate, this seems the most likely scenario. This will lead to the loss of the EU marketing passport and put the UK on the same footing as other non-EU jurisdictions, such as the USA, and would require future marketing to be carried out under NPPR. The extent to which this will be applied retrospectively is unknown. 
  2. UK granted financial status equivalence: Last week, it was reported that former Chancellor to the Exchequer, Sajid Javid, planned to demand that the EU sign up to a “permanent equivalence” regime for financial services for the City of London. This would ensure access to the European markets post-Brexit. However, it is highly unlikely the EU would accept such a proposal. An alternative being discussed is Britain signing up to a “selective equivalence” regime with a joint declaration of cooperation. While the idea of “equivalence” is desired by many in the City and the wider financial services sector, the likelihood of this occurring in the short term seems low. 
  3. UK given third country passport: Worth recalling is the assessment carried out by the European Securities and Market Authority (“ESMA”) on the extension of AIFMD passport to non-EU jurisdictions. The advice stated that there were no obstacles to the extension of the passport to Jersey, Guernsey and Switzerland (following the enactment of local legislation). ESMA also aimed to complete its assessments on the USA, Singapore and Hong Kong, however since the Brexit referendum in 2016, there have been no further announcements. Some considered that given the close similarity between Jersey and Guernsey legislations with the UK, this could possibly become an alternative option. Given that one of the intentions of AIFMD was that the EU passport would be open to non-EU jurisdictions, it will be interesting to see how this progresses. 

Negotiations pertaining to financial services, including equivalence assessments, were expected to be completed by June 2020. However, given recent headlines this seems unlikely. Although equivalence decisions can be taken rapidly, some have indeed taken several years to conclude. We should hopefully have a clearer indication of the likely outcomes in the second half of this year. 

Langham Hall is an award winning global provider of fund administration and AIFMD services to top tier fund managers. To hear more about how we can help, whatever the requirements, please get in touch with a member of our team.