What Fund Managers Need to Know About UCITS Marketing in the UK and the Overseas Fund Regime

In the ever-evolving regulatory landscape post-Brexit, fund managers face significant challenges in ensuring their UCITS (Undertakings for Collective Investment in Transferable Securities) can still be marketed in the UK. With the Temporary Marketing Permissions Regime (TMPR) approaching its transition phase, the spotlight is now on the Overseas Fund Regime (OFR), which will provide a new pathway for non-UK funds.

This Q&A blog will break down the current status of UCITS marketing in the UK, key features of the OFR, and what fund managers need to know to stay compliant during this transitional period.

How are UCITS marketed in the UK today?   

Today, most Undertakings for Collective Investment in Transferable Securities (“UCITS”) being marketed in the UK are registered under the Temporary Marketing Permissions Regime (the “TMPR”). 

The TMPR is a framework that allows European Economic Area (“EEA”) fund managers to continue marketing their UCITS funds in the United Kingdom following the UK’s departure from the European Union. This regime is designed to provide a transitional period during which EEA-based funds can continue to be offered to UK investors without immediate reauthorization under UK-specific regulations. As of 17 July 2024, there were 89 standalone UCITS, 713 umbrella UCITS and 8,075 UCITS sub-funds registered in the UK for marketing under the TMPR.  

In addition to the UCITS marketed in the UK under the TMPR, there are small numbers of UCITS marketed under the National Private Placement Regime (the “NPPR”) and section 272 of the Financial Services and Markets Act 2000 (“FSMA”). The NPPR is governed by the UK’s implementation of the Alternative Investment Fund Managers Directive (the “AIFMD”) and allows fund managers from outside the UK to market funds to professional investors in the UK. Section 272 FSMA provides a pathway for non-UK funds not recognized under the TMPR to be marketed to retail investors in the UK. 

What is the Overseas Fund Regime?  

The Overseas Fund Regime (“OFR”) is a new gateway to allow certain investment funds established outside the UK to be promoted in the UK, including to retail clients. If a fund applies for and is given ‘recognised scheme’ status under the OFR, it can be promoted in the same way as an FCA authorised collective investment scheme established in the UK. 

Following an equivalence decision made by the UK Government, the OFR will be available to most funds established in EEA and EU member states that have been authorised under Directive 2009/65/EC (the “UCITS Directive”). The exceptions are EEA UCITS that have been authorised as money-market funds. 

When will it be possible to register a fund for marketing in the UK under the Overseas Fund Regime?

For UCITS registered under the TMPR, the FCA will allocate landing slots over a two-year period running from 01 October 2024 to 30 September 2026. UCITS will be allocated three-month landing slots within this two-year period during which they must apply for recognition under the OFR. The first landing slot, running from 01 October 2024 to 31 December 2024, is for standalone UCITS. After that, the landing slots will be allocated to umbrella UCITS by alphabetical order according to the name of the operator (being the UCITS management company, or in the case of a self-managed UCITS, the UCITS itself). The first landing slot for umbrella UCITS whose operator’s name begins with “A” runs from 01 November 2024 to 31 January 2025. 

The FCA intends to open the gateway to new UCITS (i.e., those not in TMPR) on 30 September 2024. New UCITS will be able to apply at any time from that date without a landing slot. 

What will the application process look like? 

The application will be made through Connect, the FCA’s online system for applications and notifications. There is a lot of information that the FCA will require to be submitted as part of the application. This information falls into six categories: 

1. Information identifying the UCITS. This includes details including its name, structure, domicile, name and address of the management company.  
2. Information on the UCITS’ profile for example, investment objective and policy, AUM in GBP, use of derivatives, use of benchmarks, and asset class.  
3. Fees charged at fund and share class level – for example, initial and exit charges, ongoing charges figure, performance fees, other charges, amount of the annual management charge retained by the management company. 
4. Characteristics of units/share classes – for example, their name and designation/ISIN. 
5. Parties connected to the UCITS – for example, the management company, depositary, delegated portfolio manager, UK representatives, the authorised person approving financial promotions on behalf of the scheme, any sponsor or other person influencing the UCITS’ design or management. 
6. Information about marketing and distribution – for example, details of any promotional payments to entities associated with marketing or distributing the UCITS.

 This is a great deal more information than must be submitted to a UCITS’ home Member State regulator when passporting a UCITS for marketing within the EU. 

How long will the application process take? 

The FCA will only accept complete applications. The FCA will decide within two months whether to recognise the UCITS or notify the applicant that the FCA proposes to refuse recognition. The FCA will publish the details of recognised UCITS on its Register. Recognition will allow a UCITS to be promoted in the UK in the same way as a domestic UK authorised fund. 

The application fee will be GBP 2,720 for a standalone scheme and double that amount for an umbrella scheme – so GBP 5,440. The annual fees will range from GBP 80 for a standalone fund up to GBP 1,760 for an umbrella fund with more than 50 sub-funds.

Will there be any blackout periods during which it will not be possible to market new sub-funds in the UK? 

A management company of an umbrella UCITS in the TMPR can continue adding sub-funds of that umbrella to the TMPR if such sub-funds were authorised in the UCITS’ Home Member State after the UK’s withdrawal from the EU (31 December 2020) up until two weeks before the opening of such management company’s landing slot. After this cut-off point, the management company must wait until the umbrella UCITS is recognised under the OFR before additional sub-funds can be added. This blackout period could potentially last up to five and a half months. To minimise its effect, a management company should be ready to file the OFR application as soon as its landing slot opens. 

With respect to sub-funds authorised prior to the UK’s withdrawal from the EU (so-called non-TMPR sub-funds) of an umbrella UCITS in the TMPR, a management company can only apply for recognition under the OFR for these sub-funds after the umbrella and the TMPR sub-funds are recognised under the OFR. 

Finally, once a landing slot is issued, no change of management company can be carried out until the UCITS successfully enters the OFR. This blackout period can potentially last up to 7 months. 

Will a UK country supplement to the prospectus be required? What will its content be? 

In short, it will be necessary to prepare a UK country supplement, which must contain the information about UK facilities, information on access to the UK Financial Services Compensation Scheme (“FSCS”) and the UK Financial Ombudsman Service (“FOS”), and information about access to alternative dispute resolution mechanisms and compensation schemes outside the UK.  

The information about UK facilities must state the address of the UCITS’ UK facilities or explain how facilities can be accessed through an electronic medium. 

Regarding information on access to the FOS and FSCS, the prospectus of a UCITS recognised under OFR must: 

• Explain how UK investors can complain about the UCITS, its management company or its depositary; 
•  Specify if the activities of the management company and the depositary are covered by the FOS and the FSCS. If not, the country supplement must contain a clear warning explaining that a UK investor may not be able to seek redress under the UK regulatory system for a complaint, or compensation for a financial loss suffered as a result of the management company or depositary being unable to meet their liabilities to unitholders;
• Indicate if UK investors can access any alternative dispute resolution mechanism in the Home State of the UCITS, its management company or depositary. If so, further information on how investors can access this mechanism must be provided;
• Indicate if UK investors can access a compensation scheme in the Home State of the management company or the depositary. If so, further information must be provided. 

Will a UK facilities agent be required? 

The management company of a UCITS recognised under the OFR must maintain facilities where any person in the UK may (i) inspect and obtain paper copies of the UCITS’ prospectus and constitutive document, KIID, latest annual report and semi-annual report, (ii) obtain the latest unit prices or information on how to obtain the latest unit prices free of charge. 

In addition, facilities must be maintained so that UK investors may (i) subscribe and redeem units/shares in the UCITS, (ii) obtain information about how any payment due to the unitholder will be made, (iii) provide information so the management company can maintain a record of investors and (iv) submit a complaint and acquire information on the resolution of complaints. 

The FCA allows for facilities to be provided through an electronic medium from outside the UK, if (i) the prospectus states that the management company will normally communicate with all investors and their representatives through such a medium;, (ii) unitholders have consented to communicating with the management company in this way, and (iii) services to investors are provided in English free of charge. Regarding point (ii), the FCA has clarified that management companies are not required to ask for explicit individual consent from new investors before providing online facilities, where the management company is already communicating electronically with existing investors. Similarly, where an existing investor has already consented to receive communications from the management company through electronic media, that consent is sufficient for the purpose of the new rule.  

Will it be necessary to maintain an address for service in the UK? 

Yes. The management company of a UCITS registered for marketing under the OFR must notify the FCA of an address in the United Kingdom at which notices and other documents may be served on the management company. This need not be the same address as the address of the facilities agent in the UK, nor does it need to be the same as the address of any authorised firm that may be appointed for the purpose of approving financial promotions in relation to the UCITS. 

What about point-of-sale information? 

One of the FCA’s main concerns about UCITS registered under the OFR is the lack of access for investors to the FSCS and FOS. Consequently, the FCA has introduced new rules to require firms that sell UCITS registered under the OFR to provide supplementary information about complaints and compensation. These point-of-sale obligations rest on “firms” selling UCITS registered under the OFR. These “firms” are companies licensed by the FCA to carry out regulated activities. As a result, these obligations do not, as a matter of law, lie with the management company, though we expect that firms selling OFR-registered UCITS could ask for management companies’ support to comply with these obligations. 

It should also be noted that the current point-of-sale disclosure regime is under review as part of the upcoming Consumer Composite Investments (“CCI”) regime, although the FCA intends to reflect the relevant OFR rules therein. 

Will it be necessary to notify changes to a UCITS registered under the OFR to the FCA? 

It will be necessary to notify certain changes to a UCITS to the FCA. The requirement to notify the FCA of changes is set out in the FSMA, and the FCA has also provided guidance about which changes must be notified, when they must be notified and how they must be notified. In addition, the management company must notify the FCA if it becomes aware that it has contravened, or expects to contravene, a requirement imposed on it by or under the FSMA. 

In case a change must be approved by the UCITS’ or the management company’s home Member State regulator, the management company must notify such change to the FCA as soon as reasonably practicable after the granting of approval. Other changes or events should be notified as soon as reasonably practicable. Any notification of changes should be accompanied by the effective date of the relevant change. 

Most notifications must be made via FCA Connect. However, in cases where the management company must notify the FCA of a contravention or a suspected contravention, or a supervisory sanction imposed by the home Member State regulator(s) on the management company or the UCITS, or a suspension of dealing, such notification must be made via email. 

I heard there have been some changes around financial promotions for recognised funds. Could you tell me about those? 

Under UK law it is unlawful to communicate a financial promotion unless the communication is made by an authorised person, approved by an authorised person or otherwise exempt. This prohibition is referred to as the “financial promotion restriction”.  

A financial promotion is an invitation or inducement communicated in the course of business to engage in investment activity. Examples of financial promotions include factsheets; presentations; and advertising online, in print media, on billboards, and on TV and radio. 

In simple terms, an authorised person is a firm licensed by the FCA or Prudential Regulation Authority (“PRA”). A UCITS recognised under the TMPR is deemed to be an authorised person. However, under the OFR, a UCITS will no longer be deemed to be an authorised person and therefore is not allowed to communicate financial promotions, unless the financial promotions are approved by an authorised person or exempt.  

UK law provides for many exemptions from the financial promotion restriction. One of the most significant exemptions is for financial promotions communicated to investment professionals and high-net-worth companies, trusts and unincorporated associations. This exemption would generally allow the management company or delegated investment manager to promote units of an OFR-recognised UCITS to institutional investors in the UK.  

Since February 2024, authorised persons wishing to approve financial promotions must have permission from the FCA to carry out this activity. There is an exemption from this requirement for firms approving promotions to be communicated by an unauthorised person within their corporate group. 

The impact of these changes will vary depending on the business model of the individual UCITS management company or investment manager. For a large asset manager who has both a UCITS management company and a UK-authorised investment manager in its group, the fact that the management company of a UCITS registered under the OFR will not be deemed to be an authorised person will have little practical impact. This is because the UK investment manager will be able to approve financial promotions for the UCITS, even if the UK investment manager does not have permission to approve financial promotions. 

The impact of the changes around financial promotions will be much more significant for asset managers from outside of Europe who have established a UCITS to access the European market perhaps with little physical presence in Europe. For example, if an investment manager based in the USA used a third-party management company to manage its UCITS in Ireland or Luxembourg, then, unless the third-party management company’s group included an authorised person in the UK, the investment manager would likely have to appoint an authorised person with appropriate permission in the UK specifically for the purpose of approving financial promotions. 

Will there be any changes to the content of financial promotions? 

Yes. Financial promotions for UCITS registered under the OFR will generally be required to contain a statement that: (i) The UCITS is authorised overseas but not in the United Kingdom; (ii) The UK Financial Ombudsman Service is unlikely to be able to consider complaints relating to the UCITS, its management company or its depositary; (iii) Any claims for losses relating to the management company or the depositary are unlikely to be covered under the UK Financial Services Compensation Scheme; and (iv) A prospective investor should consider getting financial advice before deciding to invest and should see the prospectus of the UCITS for more information.

What about Money Market Funds – did I hear that they are being treated differently under the Overseas Fund Regime from other UCITS? 

In January 2024, the UK Government announced that it had found the EEA States, including the EU Member States, “equivalent” under the OFR in relation to UCITS funds. However, UCITS authorised as money-market funds (“MMFs”) were not in scope of the Government’s assessment and are therefore not in scope of the Government’s equivalence determination.  

As long as the TMPR remains in place, MMFs that are recognised under it can continue to be promoted. The TMPR for all EEA UCITS funds, including UCITS MMFs, is due to close at the end of 2026. The UK Government is designing a more permanent access route for overseas MMFs, and consulted on this in December 2023. The Government will consider further extensions to the TMPR as necessary to avoid any potential ‘cliff edge’ risks for these products.  

Do we know how the UK’s SDR regime will apply to funds recognised under the Overseas Fund Regime? 

The UK Government intends to consult on whether the UK’s Sustainability Disclosure Requirements (the “SDR”) and labelling regime should be extended to apply to UCITS recognised under the OFR. This consultation is likely to run from Q3 2024. If, following consultation, the UK Government chooses to extend the regime to UCITS recognised under the OFR, the FCA expects that it would need to make rules (subject to consultation processes) reflecting that decision.  

If this happens, the UK Government expects any applicable legislation to come into force in the second half of 2025 and the FCA would follow a separate process to make final rules. The UK Government and the FCA would determine how any new rules should apply to UCITS that have already been recognised under the OFR before that point in time.

As the UK reshapes its regulatory frameworks, staying ahead of developments is crucial. Understanding the nuances of the TMPR, the OFR application process, and the forthcoming landing slots is essential to ensure a smooth transition and continued market access for your UCITS. Now is the time for fund managers to prepare, meet the regulatory requirements, and avoid potential disruptions to their UK marketing activities. Staying informed will be key in navigating this new phase of fund regulation.

Are you looking to access the UK market for UCITS or ensure continued success for your UCITS distribution in the UK?

The Zeidler Legal Team and Regulatory Team are here to assist with any questions or support you may need regarding the Overseas Fund Regime. Our global professionals stay on top of the regulatory changes in the asset management industry.  

Contact us for more information. 

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🎙️ In this 2-part special of the Legal Zeidgeist podcast, we dive deep into the Overseas Fund Regime (OFR). Join us as we dissect key aspects of the OFR and its implications for fund marketing in the UK.

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