AIMA calls for grandfathering provision in Brexit talks

The Alternative Investment Management Association (AIMA) has warned of considerable disruption when the UK leaves the European Union unless regulators and policymakers act.

In a report published on Monday, AIMA said leaving the EU will have a significant impact on alternatives managers if the UK government fails to seek out grandfathering and mutual recognition agreements with the EU and European Economic Area (EEA) countries.

It also highlighted a number of potential problems with the way certain key regulations, such as the Alternative Investment Fund Managers Directive (AIFMD), had been transposed into UK law and urges the Financial Conduct Authority (FCA) to act to ensure a smooth transition.

AIMA’s report said there is an urgent need for grandfathering provisions with the EU, which would allow existing EEA-based investors to continue to receive communications from their fund managers for funds marketing in the EEA prior to Brexit. Without grandfathering, there could be a risk that firms are not able to talk to their own investors or that investors would have to get out of funds they had committed to.

The report also urged the full use of the transition period negotiated by the UK government, set to last from the country’s formal departure from the EU at the end of March 2019 until December 2020. During the transition period the UK will be required to continue to observe all EU rules and regulations. It said funds should be able to continue marketing throughout the transition period to give them adequate time to assess whether they wish to set up new operations in the EEA if necessary, depending on the outcome of Brexit negotiations.

The report also looks at the key issues likely to affect each of the main regulations which govern EU and UK-based AIFMs, including AIFMD, the European Market Infrastructure Regulation (EMIR), the Markets in Financial Instruments Directive (MiFID) and UCITS.

In addition, many aspects of existing UK regulations currently make reference to EU legislation where European rules have not been fully replicated in UK law. This results in numerous legal and regulatory gaps which AIMA said the FCA will need to tackle ahead of the country’s full departure from the EU.

Jack Inglis, CEO of AIMA, said: “This is a time of uncertainty for the UK’s alternative investment management industry, and our members continue to devise and implement a variety of contingency plans. With this paper, we hope to set out the clear steps that policymakers and regulators need to take to smooth the path to the new regime and prevent disruption to the UK industry and the clients and investors that it serves in the EU.”

AIMA intends to follow up this paper with another looking at similar issues from the perspective of EU policymakers and fund managers.