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:
- 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.
- 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.
- 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.
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