On 4 December 2023, the FCA published its consultation (CP23/26) on operationalising the Overseas Funds Regime ("OFR").
Significantly the consultation does not provide any further indication as to:
- when firms will be able to start using the OFR; or
- whether additional regulatory requirements, such as the requirement to carry out a value for money assessment, will be imposed on funds using the OFR.
Both of these key aspects are outside of the FCA’s control and await the outcome of the Treasury’s equivalence decision, the expected timing of which is not specified in the consultation paper. The FCA has previously said it expects the OFR to begin between April and July 2024, however we are no closer to knowing if this is realistic.
The consultation does provide detail regarding general application and ongoing reporting requirements that would apply to funds and managers from any jurisdiction, if the Treasury decides to make a positive equivalence decision for that jurisdiction.
- the application process (which will be an online, systems-based process) and the information that should be submitted (and a specific question as to whether these requirements are suitable for ETFs);
- that an FCA authorised entity will need to approve UK financial promotions of a fund within the OFR unless an exemption applies;
- the notification to the FCA of changes to a fund, and the material changes that would trigger the need for advance notifications in order for the fund to remain recognised;
- the requirement for local facilities, which remain broadly the same as within the TMPR process;
- enhanced disclosures in fund prospectuses, KIIDs and financial promotions regarding lack of availability of the Financial Services Compensation Scheme and the Financial Ombudsman Service; and
- the process for recognition, revocation or suspension of OFR recognition, and public censure of operators of funds in the OFR.
There are two further interesting points to note:
- the FCA has indicated it would be likely to reject recognition of funds with identical names to UK authorised funds, on the basis they would cause confusion to investors; and
- the FCA will be looking carefully at fees and charges at fund and share class level, including how much of the annual management charge the management company retains, noting this will enable the FCA to understand if other parties “are being remunerated for services that may not add value” to investors. The FCA will also be looking at whether promotional payments will be paid to third parties as it does not want UK investors to bear undue costs.
The FCA’s deadline for feedback is 12 February 2024. In the meantime it is asking firms with funds in the TMPR to ensure that contact information they have previously provided is up to date and to check that the FCA Register is accurate. This will enable the FCA to start allocating “landing slots” as soon as a favourable equivalence decision is made by the Treasury.