By Matti Pekkola, Principal Consultant, UK
On 12 February 2024, the consultation period closed on the Financial Conduct Authority (FCA) draft rules on Implementing the Overseas Funds Regime (CP23/26). The investment management industry is now waiting for the FCA to publish the final rules which will allow the registration process to start later this year.
Many investment fund managers with overseas Undertakings for the Collective Investment in Transferable Securities (UCITS) fund products are eagerly waiting for the new Overseas Funds Regime (OFR) registration process to begin in the UK. This group includes firms who market overseas UCITS funds to the UK investors under the UK’s Temporary Marketing Permissions Regime (TMPR).
TMPR registration and the European Economic Area (EEA)
TMPR registration became necessary following the removal of the EEA UCITS passporting arrangements after Brexit. Some fund managers whose UCITS funds are currently outside of the scope TMPR, may be unwilling to go through the burdensome Section 272 fund recognition process, which is the other route for making their UCITS products available to UK retail investors.
In December 2023, the FCA indicated that the final OFR rules would be published during the first half of 2024. A key requirement for the OFR regime to function was the UK government’s decision to grant equivalence to EEA member states for the purposes of OFR. This equivalence decision was announced on 30 January 2024 by the government, who at the same time announced that the TMPR would be extended all the way to 2026.
The FCA consultation period for the OFR rules ended in February 2024, and the industry is now waiting for the FCA to publish the final rules so that the registration process can begin.
Once the final OFR rules have been published, we’re expecting the FCA to announce more details regarding the registration process, including when this will be available to overseas UCITS funds, either currently registered under TMPR, and/or those currently outside the scope of the TMPR.
The scope of Sustainable Disclosure Regulation (SDR)
There might be further rule changes in the future in relation to the application of the UK’s SDR to EEA funds which will be registered under OFR. Currently, the full SDR rules will not apply to any overseas funds. A concern of some UK investment managers and distributors is that this could create an uneven playing field between UK and EEA domiciled funds. The UK Treasury has announced that it intends to consult on whether the scope of SDR should be extended to include the EEA funds registered under OFR.
When will landing slots become available?
The big question in everyone’s mind is how quickly their firm can obtain a ‘landing slot’ from the FCA for fund registration under OFR. The fact that TMPR has now been extended out to 2026 gives an indication that not every firm will get their landing slot or OFR registration as soon as they would like, or even during 2024. We know that there are currently over 8,000 EEA sub-funds registered under TMPR alone, and it will likely take many months and potentially years for the first wave of OFR applications to be processed.
What should firms do now?
While waiting for the OFR registration process to start, firms whose funds are currently under the TMPR regime should ensure that their contact details are correct in the TMPR register to enable them to promptly receive their FCA landing slot-related communications. This would help to prevent instances where an eligible firm would not receive an email from the FCA when they’re ready to offer a landing slot for OFR registration, potentially making the firm miss the earliest opportunity to register their fund under OFR.
How IQ-EQ can help
IQ-EQ can assist investment managers with their fund registration and subsequent reporting requirements, including OFR registrations and National Private Placement Regime (NPPR) registrations in the UK. Contact us today.
