The statement, published on 11 December, comes as the UK government reaches a stalemate over British prime minister Theresa May’s withdrawal agreement, a House of Commons vote on which has been pushed back to January 2019, just two months before the 29 March deadline.
If the withdrawal agreement is passed, the “industry will know that it has at least until 31 December 2020 (with an option for this period to be extend by no more than one or two years) to reorganise its affairs for life after Brexit. That’s the final day of the transition period agreed in the prime minister’s deal, during which time all current legal and regulatory structures will remain in place,” PwC wrote.
Losing the vote could lead to a variety of different outcomes and a general lack of certainty, forcing asset and wealth managers “to press on with a no deal Brexit scenario business plan.”
A failed vote
PwC said that in this scenario, May has 21 days to set out the government’s plans. Regardless of what these are, asset and wealth managers should plan for a worst-case scenario. For this they should be aware that passporting rights of UK funds to EU investors will end on 29 March 2019. PwC stated:
“EU investors may have to be transferred into EU domiciled funds, though some jurisdictions may implement temporary permissions regimes. Some marketing to professional investors may be possible under the national private placement regimes (“NPPRs”) in certain countries. Investor capital gains tax and portfolio tax implications arising from fund reorganisations will need to be managed,” PwC writes.
Existing EU funds marketed to UK investors, meanwhile, will need to enter the Temporary Permissions Regime (“TPR”) by 29 March 2019. Funds launched after that date must “rely on the NPPR if they’re aimed at professional investors, or Section 272 of the FSMA in the case of retail products.” According to PwC:
“UK AIFMs, UCITS, ManCos and MiFID firms with EU funds and investors, managers may need to appoint a third-party ManCo, AIFM or super ManCo in the EU27 to ensure no break in service after 29 March 2019; in the longer term, they may choose to establish their own ManCo, AIFM or super ManCo in the EU27.”
“Assuming the FCA signs a memorandum of understanding with its opposite numbers in EU member states, firms will be allowed to delegate portfolio management back to the UK provided they comply with the substance requirements in the member state in question. Naturally, any reorganisation of contracts could change the corporate tax profile of the management group and these will need to be assessed and managed.”
“EU AIFMs, UCITS, ManCos and MiFID firms with UK funds and investors – these firms must enter the TPR by 29 March 2019 and will need the appropriate regulatory permissions from their own member state; EU AIFMs would also need to rely on co-operation agreements for the exchange of information between their national regulators and the FCA. Note that the TPR is not available for new managers established after 29 March 2019.”
In terms of immigration questions, staff coming to an EU member state from the UK would be assessed by each individual country, “although there will be no material impact for individuals currently in the UK or arriving by 29 March 2019.”
Social security
“Individuals in the UK working in other European locations will no longer be able to rely upon the European social security regulations and we await clarification with regards to the pre-existing bilateral social security agreements will be available to help mitigate against social contributions in multiple jurisdictions.”