U.K. Offshore Fund Regime News is a Big Positive for UCITS Funds

November 06, 2023
  • Investor Services
In the immediate aftermath of Brexit, the continued access of UCITS funds to U.K. retail investors became a primary concern. While temporary measures were employed, the FCA said it would soon consult industry on a permanent solution.

The regime allowing firms to market funds into the U.K. comes to an end in December 2025.1 Therefore, UCITS managers and the wider U.K. market are relieved that the Financial Conduct Authority (FCA) has finally breathed life back into the Overseas Funds Regime (OFR).

The OFR first came into focus in 20202 to permanently facilitate the transition of certain funds operating within the existing Temporary Marketing Permissions Regime (TMPR) into the OFR. However, the OFR never went live as the full requirements and procedures remained unaddressed. With TMPR only containing UCITS funds launched before the Brexit transition period concluded, the OFR was left in limbo.

The FCA has always acknowledged the industry’s uncertainty regarding offshore funds, with some requiring a more convoluted application procedure, commonly referred to as "Section 272”. This process remains an arduous, lengthy, and expensive route to market for offshore funds, especially considering UCITS used to have relatively unconstrained access to the U.K. retail market through a simple notification process. As the FCA revisits OFR, let’s look at the top takeaways:

Top 3 Overseas Fund Regime (OFR) Takeaways:

  1. The FCA will publicly consult on OFR “in a few weeks” with a view to it becoming effective in April 2024. Following a period of inactivity, the future of UCITS distribution into the U.K. looks to be heading towards conclusion. This is a positive for UCITS managers, U.K. distributors, and investors who wish to retain seamless access to the high quality and diverse range of funds that UCITS are known for. OFR may also benefit UCITS ETFs as new issuers have been largely frozen out of a primary U.K. listing.
  2. The FCA must collaborate with HM Treasury to complete the OFR and any decisions on regulatory equivalence determinations that may form part of the OFR. This could lead to slower progress than if the FCA had sole autonomy over the implementation of OFR. Since the U.K.’s decision to leave the European Union, Irish and Luxembourg UCITS funds sold into the U.K. market have been authorized and supervised through a mixture of temporary permissions and regulatory exemptions. Changes to UCITS will be mostly focused on how near or far the OFR diverges from the existing UCITS framework. ESG disclosures and annual value report assessment requirements are generally anticipated areas of regulatory divergence.
  3. The consultation is expected to clarify the process of authorization for more than 8,000 sub-funds currently under the TMPR transition to enter the OFR, in addition to more recently authorized UCITS funds that fall outside TMPR. The OFR consultation is relevant to all offshore funds wishing to access the U.K. retail investor market. However, due to their current scale in the U.K. funds market, direct UCITS impacts will be the most keenly anticipated.

Overall, the announcement and timeline hopefully ends a long period of ambiguity by delivering regulatory certainty and a sense of stability to the continued access of offshore UCITS funds to the U.K. retail market.

Abstract stream information with circles array and binary code
Up Next
Up Next

Misconceptions Surrounding U.S. T+1 Settlement

With some in the industry downplaying the impacts of the upcoming settlement shift, it’s important to consider the facts behind the myths.

1The Temporary Marketing Permissions Regime expires at the end of 2025
2Overseas funds regime: a consultation - GOV.UK (www.gov.uk)

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. Pursuant to information regarding the provision of applicable services or products by BBH, please note the following: Brown Brothers Harriman Fund Administration Services (Ireland) Limited and Brown Brothers Harriman Trustee Services (Ireland) Limited are regulated by the Central Bank of Ireland, Brown Brothers Harriman Investor Services Limited is authorised and regulated by the Financial Conduct Authority, Brown Brothers Harriman (Luxembourg) S.C.A is regulated by the Commission de Surveillance du Secteur Financier. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2023. All rights reserved. IS-09417-2023-11-03

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction