The Financial Conduct Authority (FCA) has launched a consultation on the rules within its upcoming Overseas Funds Regime (OFR) and how products should be recognised under the post-Brexit framework.
The consultation said while the UK government is still considering the equivalence of UCITS vehicles in the European Economic Area (EEA), the FCA is looking to operationalise the OFR in the meantime by changing its handbook to enable overseas schemes to be recognised.
It said this step will make firms aware of the new route to the UK market, “if and when any equivalence determinations are made”.
The UK watchdog’s consultation calls for feedback from issuers, investment advisers and service providers on 18 questions ranging from the unintended consequences of the OFR, potential ESG issues, data requirements, fees, timings and financial promotions.
The FCA suggested ETFs are marketed and distributed differently to other OFR recognised schemes and in turn, it asked whether there is any data that would not be appropriate for ETFs to submit as part of the recognition process.
This week’s call for input comes after FCA asset management policy lead Mhairi Jackson announced the regulator is planning to open the OFR from April 2024.
The long-term post-Brexit framework intends to allow eligible existing and new fund platforms in the EEA to market and distribute their products to all levels of UK investors.
OFR will replace the FCA’s Temporary Permissions Regime (TPR) and Temporary Marketing Permissions Regime (TMPR), which were brought in to enable existing EEA fund platforms to continue passporting existing and future sub-funds into the UK after the Brexit withdrawal date on 31 December 2020.
Firms looking to access the UK that did not secure a TMPR ‘landing slot’ have since had to undergo the onerous process of being recognised under Section 272 of the Financial Services and Markets Act 2000 (FSMA).
The FCA itself noted this process has been “lengthy and time-consuming”, with only one new ETF issuer – Circa5000 – willing to endure the delays and high costs to access the UK since the end of the Brexit transition period.
The regulator said: ”If the government grants equivalence to the EEA, we would subsequently begin to process the first OFR applications.
“We would expect to receive applications from schemes currently in the TMPR, as well as new applications from UCITS domiciled in the EEA jurisdictions.
“Pending an equivalence decision from the UK Government, operators of schemes will be given landing slots in which to apply for recognition under OFR.”
The UK watchdog added it will publish information about landing slots and the OFR application process in due course, as well as its plans for managing an orderly transition from the TMPR.
The successful introduction of the OFR will provide the basis for long-term recognition for the more than 600 ETFs currently listed for trading on regulated markets in the UK, in addition to prospective new entrants.