In March 2020, the government published a consultation paper inviting views on the overseas funds regime (OFR). The OFR delivers on the government’s commitment to introduce a more streamlined regime for overseas investment funds to market to UK retail investors. Specifically, the OFR encompasses two new equivalence regimes based on the principle of ‘outcomes-based equivalence’: one for retail investment funds and one for money market funds (MMFs). Equivalence determinations under these regimes will allow for streamlined access to the UK market for overseas funds. The OFR has the potential to:

  • promote the interconnectedness of financial markets and consumer choice
  • provide a more appropriate and stable basis for recognising the large number of overseas funds currently marketing in the UK
  • support bilateral agreements with other countries

Overview of Respondents’ Views

Overall, the vast majority of consultation respondents were highly supportive of the proposed regime. They welcomed a streamlined and simplified process for marketing overseas funds to retail investors in the UK, compared to the current system under section 272 of the Financial Services and Markets Act 2000 (FSMA).

In most areas, the government proposed a clear way forward and found support for its proposed approach. In relation to the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS) coverage, the consultation was seeking input from stakeholders to help inform the most appropriate way forward. In response to the consultation, the government has decided to leave the scope of FOS and FSCS jurisdiction unchanged4, so that it will not apply to overseas funds under the OFR. This is consistent with the majority of views expressed, although a small number of respondents, including the Financial Services Consumer Panel, had some concerns about the absence of FOS and FSCS coverage for overseas funds under the OFR.

Highlights of OFR Responses:

  • Outcomes-based equivalence
  • Conditions to be satisfied when granting equivalence for retail funds
  • MMF equivalence regime
  • TMPR and equivalence for existing EEA UCITS