Luxembourg to extend transition period for marketing UK UCITS

Now that the Brexit transition period has come to an end (and despite the trade agreement reached between the UK and Brussels), things are going to change for UK UCITS being marketed to investors in the EU.

For a start, UK UCITS are no longer UCITS but alternative investment funds (or AIFs). This means, among other things, that UK funds have also lost the right to make use of the marketing passport under the UCITS Directive and have to rely, in the short term, on any local temporary permissions regimes and, longer term (in the absence of any "equivalence" agreement or mutual recognition treaties), on local private placement/ marketing rules.

In Luxembourg, a transitional regime had already been agreed which allows UK UCITS to continue to be marketed to local investors within the Grand Duchy up to 31 January 2021.

A Bill introduced just before Christmas would extend this period by an additional six months, to 31 July 2021 in order to avoid "any legal uncertainty" for Luxembourg investors in UK UCITS.

The new law - which is due to be discussed by the Budget and Finance Commission of the Chamber of Deputies on 6 January - would permit a UK UCITS that is registered for the marketing of its units in Luxembourg on 31 January 2021 to continue to do so until 31 July 2021, so long as, at the time the extended transition period ends, the fund is managed by a UCITS management company which is authorised in the UK in accordance with the UCITS Directive.

This follows an announcement on 19 November 2020 by the German regulator, the BaFin, which confirmed that, although a bilateral notification procedure would have to be completed (for each fund) in order to market third-country funds after the Brexit transition period ended, UK funds would be allowed to submit notifications before 31 December 2020 so that they could continue distribution in Germany without interruption.

Not all Member States, though, are taking as helpful a stance.

In France, the local regulator, the AMF, has underlined that, from 1 January 2021, UK authorised asset managers no longer have the benefit of the UCITS Directive and AIFMD passport to provide investment services in France, so UK UCITS can no longer be marketed to retail investors in France.

Although French investors with holdings in UK UCITS as at 31 December 2020 will be able to keep their investments, they will no longer "benefit from the protective rules stemming from the UCITS Directive", according to the AMF.