44 / 72
Markets and Securities Services | Issue 46
42
In addition to the issues for home-grown fund
managers in the UK, overseas managers who
have set up in the UK and are passporting into
the EU will face the same issues. The difference
for them, and the challenge for policymakers
hoping to retain the UK as a second home for
overseas managers, is that the relocation of
their entire operations to the EU may be an
option: it is difficult to see how this would be so
for properly so-called UK fund managers.
The current position: relief for EU AIFMs
At present, where a third country firm offers
an investment service, such as managing a
segregated mandate, to an investor in an EU
Member State, that Member State’s national
rules governing the offer of non-Collective
Investment Undertaking (CIU) products should
apply. In this respect, the provisions of MiFID,
which governs an EU entity that performs any
investment service as a regular occupation or
business on a professional basis, do not govern
third country firms, either with respect to the
imposition of duties or the granting of rights.
In addition, where a third country firm provides
a MiFID investment service, such as delegated
portfolio management services to an EU
AIFM or UCITS manager under article 20 of
AIFMD and Article 13 of the UCITS Directive,
respectively, those directives will also not apply
directly to that third country firm.
Alternative Investment Fund Managers (AIFMs)
subject to the AIFMD
As is the case with so many of its provisions,
Article 6(4) of the AIFMD borrows from Article
6(3) of the UCITS Directive the principle that
the manager of a CIU should be free to provide
investment services, such as segregated
mandate management and investment advice,
in addition to CIU-related services, such as AIF
portfolio management and AIF administration.
Member States will have the power to require
a third country firm, which a UK manger will be
after Brexit if no agreements are put in place,
to become authorised if it manages an EU AIF
once the third country passport comes into
effect. Article 37(8) of the AIFMD indicates
that Chapter II of the AIFMD, which includes
Article 6(4), will apply mutatis mutandis to the
authorisation of a third country firm, subject
to certain conditions that are not relevant
here. It is, therefore, clear that a Member State
authority authorising a third country firm
under the relevant provisions implementing
Article 37 will have the power to authorise
that third country firm to offer investment
services, including segregated mandates.
MiFID II made an important amendment
to the AIFMD, making it clear that an EU
AIFM authorised to manage an EU AIF in
one Member State may provide segregated
mandates together with AIF management.
The problem, however, is that the MiFID II
amendments have not been extended to include
third country firms. In this respect, the revised
Article 4(1)(r) refers to “the home Member
State in which an
EU
AIFM provides the services
referred to in Article 6(4)” (own emphasis).
Similarly, the revised Article 33 is restricted
BREXIT, THIRD COUNTRY RIGHTS
AND SEGREGATED MANDATES:
THE CHALLENGE FOR MANAGERS
The outcome of the UK EU membership referendum (Brexit) has focused
UK managers on the so-called “third country” provisions in both the AIFMD
and the MiFID II Directive and Regulation if, indeed, “out means out”.
An alternative arrangement, whereby the UK becomes a member of the
European Economic Area (EEA), either as a European Free Trade Association
(EFTA) member or as an individual state, negotiating access to the Single
Financial Market, would bring attention back to the current arrangements,
in which case a reconsideration of the position will be unnecessary.