New Offshore Fund Regime Set to Streamline EU Fund Access to UK Investors

The UK's Financial Conduct Authority (FCA) has announced plans to launch the new Overseas Fund Regime (OFR) in April 2024, establishing a clear framework for EU investment funds to access the UK market post-Brexit. This new regime aims to provide greater certainty and ease of access compared to the current temporary measures in place.

Under the OFR, EU funds will be able to apply for authorization from the FCA to market and distribute their products to all types of UK investors, from retail to institutional. This is expected to be a more streamlined process than the existing Section 272 route which has proven time-consuming and costly for new EU entrants since Brexit. Section 272 applications can take up to 6 months at significant legal expenses, whereas the OFR aims to mimic the efficiency of the UCITS framework which can be approved in a matter of weeks.

The regime will initially apply to over 8,000 UCITS sub-funds that are currently operating under the Temporary Marketing Permissions Regime (TMPR) which is set to expire in December 2025. It will enable these funds to transition seamlessly into the OFR, providing them with continued access to UK investors.

Additionally, the OFR is relevant for any EU offshore funds looking to tap into the lucrative UK retail investor market in the future. Industry experts have highlighted that barriers to entry over the past few years have hampered new participants, so the OFR promises to remove these roadblocks. This is positive news for fund managers and platforms in EU hubs like Ireland and Luxembourg who have been mostly locked out of bringing new products to the UK.

While the FCA is still advising the Treasury on potential equivalence determinations and additional requirements within the regime, it has indicated that the authorization process will aim to be as efficient as possible. The FCA is investing heavily in streamlining its systems to support the application process. This will come as a relief to the funds industry after a period of uncertainty around long-term UK access.

Overall, the new Offshore Fund Regime delivers much-needed regulatory clarity and market access for EU investment funds post-Brexit. By providing a clear, efficient pathway for EU funds to continue servicing UK investors, it helps maintain the UK's reputation as an open and accessible funds marketplace. The regime promises to benefit fund managers, distributors and investors on both sides of the Channel.