29/07/24

UK: UK Funds Industry Readies For Overseas Funds Regime

As published on: wealthbriefing.com, Monday 29 July, 2024. 

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."

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Funds UK Overseas funds European Union