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Fears that UK-based financial services companies will lose the right to operate throughout the European Economic Area, known as passporting, have dominated business headlines since Britain voted to leave the EU in June 2016.

With the UK likely to exit the single market once Brexit negotiations have concluded, financial services companies are faced with the expensive option of establishing subsidiaries in EU countries. Alternatively, they can hope that the UK is accorded regulatory ‘equivalence’. Equivalence is a legal mechanism which allows markets to choose to recognise one another’s standards, thus facilitating cross-border trading.

The EU Commission has long promoted passporting rights as one of the key benefits for investment funds authorised under the Undertakings for Collective Investment in Transferable Securities Directive (the ‘UCITS Directive’).

However, the reality is that financial services companies have been experiencing impediments to passporting rights in certain jurisdictions even before the Brexit vote as some domestic regulators impose ‘border controls’. This can mean that fund managers need to pay fees and comply with various other requirements in order to market their funds cross-border into certain jurisdictions.

The diversity of the domestic rules makes it challenging for UCITS managers to assess the costs and various other requirements for penetrating the EU market.

CMS’s UCITS Passporting Guide provides a road map which can assist managers in understanding the costs and other requirements in the major European jurisdictions under the UCITS Directive E and domestic regulations.

The regulation of the financial services market is extremely politicised and the stakes can be high if you get it wrong when marketing funds into new jurisdictions.
Aidan Campbell, Partner, CMS Scotland

“Clients wishing to sell a particular funds product across Europe will ask us to explain how the land lies in each country on a legal and regulatory basis. Our UCITS Passporting Guide, together with our existing guides regarding passporting under the Alternative Investment Fund Managers Directive (‘AIFMD’) and the private placement of funds, give a summary of the basic need-to-know points, and we then provide more in-depth advice as and when a client needs it.”

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