Overseas funds
Temporary Permissions Regime (TPR)
Following the UK's withdrawal from the EU, the FCA established a Temporary Permissions Regime (TPR) for EEA UCITS that had previously marketed into the UK under s264 FSMA. EEA UCITS that notified the FCA by 30 January 2020 are permitted to continue marketing those funds in the UK. For umbrella funds that had notified the FCA prior to the deadline, this includes any new sub-funds established in the interim.
Other funds wishing to market in the UK, including EEA UCITS established following the 30 January 2020 notification deadline or not notified by that date must do so via the s272 regime or, for funds marketing solely to professional investors, via the National Private Placement Regime.
The TPR is expected to run until the end of 2026.
Overseas Funds Regime
HM Treasury and the FCA are establishing an Overseas Funds Regime. In March 2020 HM Treasury launched a consultation on the proposed regime. The consultation proposed a regime operating on the basis of 'outcomes-based equivalence', based on advice given to HMT by the FCA. To grant equivalence, HMT must be satisfied that:
- The regulatory regime governing the overseas fund achieves 'at least equivalent standards of investor protection' to comparable UK authorised funds; and
- There are, or will be regulatory cooperation agreements in place between the FCA and the relevant national competent authority.
The IA responded to the consultation in May 2020.
In December 2023 the FCA published consultation paper CP23/26 on operationalising the OFR. The consultation covered how the FCA will process applications for recognition of overseas funds under s271A FSMA, the information it will require for new and change applications and and the disclosures that will need to be made to investors. Members should note that the FCA has indicated that it will be likely to reject recognition of funds with identical names to UK authorised funds, on the basis that it would cause confusion to investors. The IA responded to the consultation in February 2024.
In January 2024, the Government announced that it had found EEA UCITS regimes to be equivalent for the purposes of OFR. The announcement also extended the TPR until the end of 2026. A statutory instrument to enact this change is expected in spring 2024. The announcement confirmed that the Government does not expect funds recognised under the OFR to comply with any additional UK requirements. However, the Government will consult on whether overseas funds marketed in the UK will be brought into the scope of SDR requirements. The UK will monitor the equivalence decision on an ongoing basis, in light of regulatory developments in both the UK and EU. The IA has always advocated for a level playing field for UK and EEA funds and that while unnecessary barriers for entry should not be imposed on EU funds, UK funds should also not be at a regulatory disadvantage to funds being distributed in the same market. In this light, there is some concern that the Assessment of Value requirements will not be applied to incoming overseas funds.
The IA responded to the consultation in February 2024. To summarise:
- The IA welcomes the development of an online portal for applications for OFR recognition and offers members' assistance with testing and development,.
- Some application requirements for overseas funds go beyond those for UK funds, and create unnecessary barriers.
- More clarification is needed on the 30 day notification process, e.g. if it is an approval process.
- 30 day advanced notification for suspension and termination is not practical nor in investors' interests.
- Disclosures on complaints and compensation rights should be given in supplementary information, not in the prospectus.
- Consideration is needed on the approach to EEA UCITS which have been recognised under section 272 of FSMA can be efficiently transitioned to the OFR.
- Transparency is needed on the timetable for when the OFR will be available and on the allocation of landing slots for funds in the TMPR.
The IA continues to engage with the FCA and HMT on the practical implementation of the OFR in consultation with the IA OFR Working Group.
Contact
Peter Capper