An update on the FCA’s approach under the Overseas Funds Regime

The FCA has recently published a document detailing the process for making an application under the Overseas Funds Regime (“OFR”). 

The OFR is a new legislative gateway allowing certain UCITS investment funds, excluding money-market funds (“MMFs”), established in the EEA to be promoted in the UK, on a similar basis to UK-authorised collective investment schemes, on the proviso that they meet the FCA’s expectations relating to investor protection, governance and appropriate fee structures. Firms successful in meeting these criteria can apply for "recognised scheme" status with the FCA.

In its approach document, the FCA outlines the required application steps and highlights key criteria it will consider when determining if an overseas fund satisfies the recognition requirements. 

The FCA goes into detail about various stages of the application process. By way of overview, firms are required to: 

• gather the necessary information about the fund and supporting documents (including the fund’s objective, policy and strategy, costs and charges and marketing and distribution information); 
• register with the FCA Connect system, unless they have already done so; and
• proceed to submit an application and pay the required fee. 

The FCA will then have two months to make its decision, although it does aim to respond much sooner. 

While it has the right to reject an application on the basis of firms not providing the minimum information requested, the FCA has said that firms can withdraw their application at any time for various reasons including the need for additional time to address concerns or gather missing information. An application will, however, be refused if the refusal is desirable in order to protect the interests of existing and potential investors in the UK, for example if the standard for recognition is not met. 

So what does the FCA expect of firms applying under the OFR? 

The approach document provides further detail regarding its expectations, in particular where funds may exhibit certain features that are unlikely to be compatible with the FCA’s standards. Some examples include:

• Funds with unsuitable names;
• Funds that invest in or have exposure to crypto-currency;
• Funds that have substantial exposure to contingent convertible bonds;
• Liquid funds that charge permanent redemption or exit charges;
• Funds that make promotional payments to third parties out of the scheme property.

In addition (among other expectations), the FCA expects funds to be managed in the best interests of investors, hold appropriate investments that align with a clear investment objective and policy, and have good governance, transparent costs and charges, and effective risk and liquidity management.

Written by Madeleine Chambers

Asset management in the UK is a cross-border industry. The UK is recognised worldwide as a leader in the sector, consisting of approximately 2,600 firms managing around £10.9 trillion of assets. The global nature of the industry, supported by effective regulation based on strong international standards, can benefit firms, consumers, markets and global economies. The FCA is committed to strengthening the UK’s position in global wholesale markets through our strategy and business plan. We want the UK to continue to be seen as one of the leading global markets of choice when compared to other high-quality markets.

https://www.fca.org.uk/publication/corporate/fca-approach-recognition-ofr.pdf