Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Legislation Published to Onshore the EU Venture Capital Funds and Social Entrepreneurship Funds Regulations for Brexit
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  • UK Legislation Published to Onshore the EU Venture Capital Funds and Social Entrepreneurship Funds Regulations for Brexit
    10/31/2018
    HM Treasury has published the draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 and the draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018, along with explanatory information. HM Treasury is also preparing draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018 and will publish these in due course.

    These draft "onshoring" statutory instruments will amend deficiencies in the retained versions of the following directly applicable EU Regulations:
    • the European Venture Capital Funds (EuVECA) Regulation, which governs funds that invest into small and medium-sized enterprises;
    • the European Social Entrepreneurship Funds (EuSEF) Regulation, which governs funds that invest into social investments; and
    • the European Long-term Investment Funds (ELTIF) Regulation, which governs funds that invest into infrastructure and other long-term projects.

    The draft regulations will create a U.K.-specific regime, which will enable eligible funds to obtain "Social Entrepreneurship Funds" (SEF), "Registered Venture Capital Funds" (RVECA) and "Long-term Investment Fund" (LTIF) designations. U.K. managers of EuVECAs, EuSEFs and ELTIFs already authorized or registered with the U.K. Financial Conduct Authority would be automatically included in the U.K. regime. The draft regulations maintain the existing investment rules for EuVECAs, EuSEFs and ELTIFs domiciled in the U.K., allowing U.K. funds to invest in EEA assets in the same way as they currently do, this being an unusual preferential treatment for EEA assets over third-country assets within the U.K.'s draft Brexit legislation.

    As EuVECAs, EuSEFs and ELTIFs are types of Alternative Investment Funds, their managers also need to comply with provisions of the Alternative Investment Fund Managers Directive, for which HM Treasury has separately published the draft Alternative Investment Fund Management (Amendment) (EU Exit) Regulations 2018 to "onshore" the AIFMD. In a "no deal" scenario where the U.K. exits the EU on exit day without a negotiated withdrawal agreement, the existing marketing passports under the AIFMD and the EuVECA and EuSEF Regulations would be lost. The government has legislated for a Temporary Permissions Regime for EEA AIF firms and AIF funds. Under this regime, EEA funds that have a U.K. passport before exit day may continue to be sold and invested by U.K. market participants for a limited period after exit day. The separately published AIFMD onshoring legislation sets out the design and structure of such a temporary permissions regime for all EEA AIFs, including EuVECAs, EuSEFs and ELTIFs.

    HM Treasury intends to lay the draft RVECA Regulations and SEF Regulations before Parliament prior to exit day.

    View the draft RVECA Regulations.

    View the draft SEF Regulations.

    View the explanatory information.

    View details of the draft AIFMD onshoring legislation.

    View details of the Temporary Permissions regime for EEA firms and funds.

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