Relocations from the UK: ESMA's Opinion on asset management

On 13 July 2017, ESMA published its Opinion for the asset management sector in the context of Brexit¹ ("Asset Management Opinion"). This Opinion follows the publication in May 2017 of a more general Opinion on the supervisory approach to relocations from the UK² .

The Asset Management Opinion covers various aspects (authorisation, governance and internal control, delegation, supervision) in relation to the following entities ("Targeted Entities"):

• authorised UCITS management companies;
• self-managed investment companies; and
• authorised AIFMs.

As far as Luxembourg is concerned, it is our view that the current regulatory practice of the financial supervisory authority ("CSSF") as regards authorisation of the Targeted Entities is already in line with the fundamental principles set forth in the ESMA opinions.

This being said, the Asset Management Opinion comprises a number of points which are not in line with the level 1 and level 2 provisions of the UCITS and AIFM Directives and therefore, in our opinion, lack legal basis. The main examples in that respect are the following:

• ESMA takes the view that in the context of the management of UCITS, a management company may not delegate portfolio management and risk management at the same time. Where this is in line with the level 2 provisions of the AIFM Directive and therefore applies in relation to AIFs, it clearly lacks legal basis in relation to UCITS.
• The Asset Management Opinion seems to impose additional requirements when functions are delegated to entities established in third countries compared to delegation of functions to entities based in EU Member States. These additional requirements (other than requiring that the relevant entity must be subject to supervision and that there must be cooperation between supervisory authorities) lack legal basis.
• More generally, raising the requirements in relation to management companies delegating to or otherwise interacting with entities located in third countries generally, on the sole background of potential relocations of UK firms to an EU 27 country, is clearly inappropriate.

We will publish a more detailed newsflash in relation to this topic in due course.