FCA roadmap provides welcome clarity on new UK overseas funds regime

Published following consultation by the FCA, the document (10-page / 299KB PDF) sets out rules and guidance which will support the OFR – the new framework allowing funds established outside the UK to be recognised by the FCA.

The OFR is expected to go live later this year and will replace the short-term temporary marketing permission regime (TMPR) that was put in place following the UK’s exit from the EU.

A policy statement outlining the finalised rules and guidance is expected to be in place by July, giving fund managers further clarity regarding the requirements imposed on funds under the new regime. This will cover EEA UCITS funds seeking recognition under the OFR, which will need to comply with certain regulatory requirements, including disclosure requirements.

While the UK government has deemed EEA states equivalent under the OFR in relation to UCITS funds, this decision does not include UCITS funds authorised as money market funds, as they were not within the scope of the government determination.

Elizabeth Budd, a financial services regulatory expert at Pinsent Masons, said the new OFR is likely to be more fit for purpose than the TMPR – which fund managers seeking recognition by the FCA have found to be a time consuming and expensive process – and will encourage European fund managers to expand their offerings into the UK.

“Following a long period of uncertainty regarding how UCITS funds will be treated and ‘passported in’ after the UK’s exit from the EU, this roadmap provides welcome certainty in respect of next steps and timelines allowing EEA UCITS managers to plan their transition into the OFR,” Budd said.

“We have seen the FCA require EU UCITS funds recognised under section 272 of the Financial Services and Markets Act 2000 to comply with the value assessment rules, and so we look forward to the FCA’s finalised rules and guidance on how, if at all, the consumer duty and value assessment requirements will apply in the context of overseas recognised funds under this regime,” she said.

According to the roadmap, overseas-recognised funds are likely to have new UK point of sale disclosure requirements from January 2027, which are expected to be set out in the anticipated framework for consumer composite investments. In addition, consultation on a sustainability disclosure and labelling regime is expected this year, which may also apply to overseas-recognised funds.

Farah Al-Amad, a financial services expert at Pinsent Masons, said: “The new roadmap indicates that the regulatory landscape of UK overseas fund recognition is going to continue to develop until 2027 at least, due to further consultations and decisions to be made on the application of retail disclosures, SDR requirements and labelling, and data reporting to overseas funds.”

“We anticipate that the FCA will consider the practical implications when it comes to striking a balance between consumer protection and monitoring and supervising recognised funds to ensure that the requirements are manageable and not overly onerous for fund managers,” she said.