The UK financial regulator recently issued final guidance for a new funds regime that is designed to offer a new, streamlined way of offering an overseas fund to UK retail investors, if the fund is from a jurisdiction which the UK government says is “equivalent.”
Since the UK left the European Union following the 2016 Brexit
referendum, plans have been laid out to ensure that the UK
remains an attractive fund management destination and market for
cross-border funds.
There is now an Overseas Funds Regime (OFR), set up to create
more certainty for UK fund managers about existing and future
distribution needs. The system will be fully implemented by the
end of 2026.
The regime, the Financial
Conduct Authority says in its final guidance issued earlier
on 17 July, is a “new gateway” to allow certain investment
funds established outside the UK to be promoted in the UK,
including to retail clients. If a fund applies for and is given
“recognised scheme” status under the OFR, it can be promoted in
the same way as an authorised collective investment scheme
established in the UK.
The OFR will be available to new European Economic Area UCITS
structures that have not previously been marketed to UK retail
investors, as well as EEA UCITS that operate under the Temporary
Marketing Permissions Regime (TMPR) – the transitional
arrangements following UK withdrawal from the EU.
Given the potential disruption to a pan-European funds market
that Brexit posed, policymakers in the UK have worked to ease
frictions. The new regime comes as the FCA is also rolling out
ways (see a separate
story today on this news service) to make the UK stock market
more attractive as a listings venue.
“Appetite for UK market exposure remains strong – both for
European and non-European products and for both professional and
retail distribution – but many asset managers have been in a
holding pattern since 2016, when the post-Brexit route to market
became too complex for many new products. Through the OFR, the
FCA has recognised this challenge and responded with a more
efficient protocol, which will help to ensure that London remains
a key financial hub for asset managers globally,” Pierre-Yves
Jahan, head of fund distribution and listing solutions at
Carne Group,
said in a statement late last week.
“Given the strength of this pent-up demand, we anticipate a solid
pipeline of products to be launching in, or re-entering, the UK
market.” (Carne works with financial institutions to help them
handle legal and regulatory obligations of their funds and
portfolios across global markets.)
“While we still await the FCA’s full guidance on the new protocol
at the end of July, we are viewing this week’s announcement
positively and believe that the new regime will enable asset
managers to progress their UK product plans with greater ease and
conviction,” Jahan said.
“Although there remains a relatively lengthy timeline until full
implementation in December 2026, we would encourage asset
managers to begin preparations for the OFR now, and we welcome
the FCA’s plans to meet with individual fund operators during the
application review process,” Jahan added.
A series of phases of development will run into 2026, although
the current timeline might be affected by the arrival of a new UK
government and its approach to working with the European Union.
According to an article from The National Law Review (28
July 2024): “Applicant fund prospectuses will need to comply
with the same content requirements as those for UK authorised
funds (except where a UK requirement is inconsistent with home
state rules). Other pre-sale disclosure requirements cover the
availability of redress and compensation schemes (both in the UK
and in the home jurisdiction), and disclosure regarding ISA and
other tax wrapper eligibility.”
