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Depositaries and the no-deal Brexit scenario

Papers published recently by HM Treasury and the Financial Conduct Authority (FCA) set out the current state of the UK's planning for a hard Brexit, if the decision is taken to exit without a deal on 29 March 2019. Here, David Price, Depositary Services Manager at Estera Depositary (UK) Limited, explains what depositaries need to know in order to prepare.

In the event that the UK opts to leave the EU without a deal at the end of this month, EU provisions that have historically been implemented into UK law will need to be amended in order to work effectively. The FCA Handbook will be updated to refer to new or revised UK legislation, rather than the EU equivalent, and references to EU law will be amended accordingly.

As far as depositaries are concerned, the UK will have implemented the guidance rules of the Alternative Investment Fund Manager Directive into UK law and, although the provisions for depositary companies will become more UK-specific, in reality they will mirror the regulations already set out by the EU and so we can expect little disruption in practice.

There will be no change in the depositary requirements for UK-registered AIFs, for example. The depositary must be incorporated in the UK, must be operated in the UK and must have a place of business in the UK. The existing AIF definition in the UK provisions will remain and depositary services for non-EU funds operated by UK AIFMs will continue as normal.

In certain circumstances, however, passporting of non-UK funds into the UK will continue for a limited period. This will apply to recognised funds before exit day that are subject to the temporary permissions regime, after which cross-border marketing using passports will cease and arrangements for individual recognition will need to be made with the FCA under section 272 of FSMA.

The UK will effectively apply the AIFMD third country rules for the marketing in of funds, so EU AIFMs' passports will cease to operate in the UK and cross-border marketing of EU AIFs under AIFMD will cease (subject in both cases to the temporary permissions regime). Once outside the temporary permissions regime, the AIFM will need to meet the relevant national private placement regime provisions in order to continue marketing in the UK.

Clients concerned about the impact on their business can click here for further information on the Draft AIFM (Amendment) (EU Exit) Regulations 2018, or get in touch with David Price or Gerry Warwick at Estera Depositary (UK) Limited for guidance.

Estera provides specialist depositary services to alternative investment funds focused on private equity, real estate, infrastructure and esoteric alternative funds investing in both developed and emerging markets. Estera Depositary (UK) Limited is an independent company within the Estera group and has assisted its clients in understanding the requirements of AIFMD. We are now working with clients to ensure a seamless transition when the UK leaves the EU.


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