Brexit and (continued) ambiguity about UK UCITS in Denmark

The next date of ano-deal Brexit[1] is rapidly approaching. Before the first announced Brexit in April, the Danish Financial Supervisory Authority and ESMA worked on establishing appropriate cooperation arrangements that would allow investment companies to continue to offer services in Denmark. However, there is still a regulatory ambiguity concerning British UCITS who markets its units in Denmark.

Why is this a problem?

More specifically, the problem is that UCITS is a supervised financial instrument which stems from a common European regulation (the UCITS Directive) and is not found anywhere else in the world. If Great Britain leaves the EU without an agreement by the end of October, this would mean that UCITS established in Great Britain and approved by the British regulator, the FCA, will lose its UCITS status under the UCITS directive[2]. Therefore, British UCITS will lose the right to offer cross-border services in Denmark (the so-called “European passport”).

The Danish FSA has not explicitly taken a position on what will happen to British UCITS after a no-deal Brexit and how it will, where appropriate, take certain specific measures in this respect into account. The Danish FSA has only addressed the problem of the activity of British financial undertakings in Denmark. This includes undertakings offering investment activities and services covered by the Danish Financial Business Act[3] – which are services related to securities trading.

By comparison, the Luxembourg authority, "CSSF", has established a regime for collective investment schemes hit by a no-deal Brexit, including British UCITS. Such schemes have the option of applying to become part of a transitional scheme of 12 months after a "no-deal Brexit". These are invited to submit a complete "Brexit notification form" prepared by the CSSF specifically for this purpose. The UCITS choosing to avail themselves of this scheme will be able to continue to distribute unchanged during that period in the event of a no-deal Brexit.

What does that mean?

The lack of clarity about the future concerning British UCITS in Denmark or the development of a special transitional arrangement may mean that UCITS – and their designated distributors – who currently market its units in Denmark will be obliged to cease their marketing in Denmark.

If a no-deal Brexit becomes a reality, the British UCITS will be considered alternative investment funds ("AIF") from a third country. The current Danish AIF regulation allows AIFs from third countries to be marketed in Denmark upon approval from the Danish Financial Supervisory. This process is somewhat different and more cumbersome than the process under the European passport.

Danish companies that cooperate with or provide services on behalf of British UCITS, such as, for instance, local representatives or distributors (including unit-link platforms), must be aware of this issue. If necessary, they must take this into account in their contractual relationships.

[1]The date is set to be 31 October 2019.
[2]Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

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