In more detail

Prior to the end of the Brexit transition period, EEA UCITS funds could be marketed to UK retail investors through the UCITS passport. Since then, EEA UCITS funds can be marketed to UK retail investors specifically via two primary routes – through registration under the Temporary Marketing Permissions Regime (TMPR), or the recognition process set out in section 272 of the Financial Services and Markets Act 2000 (FSMA). Both of these routes are relatively cumbersome – for example, it has not been possible to register new umbrella funds under the TMPR (although new sub-funds can be added to umbrella funds that have already been registered under the TMPR and, therefore, marketed into the UK). Similarly, the s272 FSMA process involves carrying out a detailed equivalence assessment on each individual fund to be marketed into the UK, including a comparison of the law applicable to the fund itself and the equivalent provisions of English law. By contrast, the OFR presents a relatively streamlined mechanism to market to UK retail investors.

UCITS ManCos will need to apply to the FCA in order to market their EEA UCITS funds under the OFR. Whilst the FCA has not yet published OFR application forms, it has set out its proposed expectations on the information that will be required in respect of each fund to be marketed, most which is relatively factual information falling into the following categories:

• Information on the scheme’s identification and eligibility (e.g., name, legal structure)
• The scheme’s investment proposition (e.g., investment objective, policy and strategy)
• Fees and charges
• Parties connected to the scheme
• Marketing and distribution strategy
• Characteristics of the units or shares that will be made available to UK investors 

Importantly, the government has confirmed that, at this time, it does not intend to require EEA UCITS assessed under the OFR to comply with any additional UK requirements as part of the equivalence determination. There had been some indications that the FCA was looking at value assessment requirements, though without further conditions imposed by the government that may be difficult for the FCA to carry forward. For more detail on the FCA's OFR proposals, see our related client alert.

Going forward, the FCA notes that application forms will be available online and whilst they will “require a certain amount of data entry from the applicant at the point of initial registration” the format will also allow firms to notify the FCA “of any material changes once the scheme has been recognised”. It is not immediately clear how quickly the FCA anticipates that it will be able to approve applications, or specifically when the OFR will become operational – the FCA had initially suggested that it would work to open the OFR from April 2024, although the FCA's consultation does not hold itself to that timeline, noting instead that it intends to issue final rules in the first half of 2024. However, preparations are continuing to get the OFR up and running soon. In September 2023 the FCA asked for UCITS operators in the TMPR to check and update their contact details with a view to the forthcoming allocation of landing slots; with the equivalence decision now made, we would expect further movement on these landing slots shortly. Draft legislation supporting OFR operationalisation was also published on 30 January 2024: the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024 make consequential amendments to various pieces of legislation to insert references to the regime, and are due to come into force on 26 February 2024.

More generally, it is worth noting that although the OFR itself encompasses two separate equivalence regimes for overseas retail investment funds and money market funds (MMFs), this equivalence decision applies only to EEA UCITS and not to those UCITS which are also MMFs (which are currently the subject of ongoing regulatory developments). Further, it is important to note that the OFR is a one-way mechanism in that it only applies to retail funds being marketed into the UK. UK funds being marketed into the EEA remain subject to both EU-level and local law rules on marketing. It also remains to be seen whether the Treasury will consider equivalence decisions under the OFR for non-UCITS EEA retail funds (for example, retail AIFs such as Irish RIAIFs) or retail funds from non-EEA jurisdictions, which would significantly widen the range of investment options for UK retail investors.

Lastly the government has also announced that it intends to extend the TMPR until 2026, which will allow funds currently marketed under the TMPR an extra year to transition to the OFR regime.