FCA consults on implementing the Overseas Funds Regime

The OFR is set to redefine how non-UK domiciled funds can be marketed to UK retail investors based on the principles of equivalence.

On 4 December, the FCA launched a consultation to implement the framework to enable non-UK domiciled funds to be marketed to UK retail investors under the OFR (OFR recognised schemes).

Who does this affect?

  • Operators of non-UK domiciled funds that either are within the Temporary Marketing Permissions Regime (TMPR), or who wish to market non-UK funds to UK retail investors.
  • Lux and Irish UCITS funds are commonly invested in by UK retail investors and so this will also be of real relevance to operators of those funds.
  • UK Distributors of non-UK domiciled funds with a retail client base.

The proposals will affect overseas fund operators and their UK distributors in different ways.

Key points for fund operators

  • OFR will only be available for certain funds within pre-approved jurisdictions that offer equivalent consumer protection to UK authorized funds.
  • Need to carefully consider fund names before making any OFR recognition application to ensure they differ from UK authorized funds.
  • May need to comply with the UK Sustainability Disclosure Requirements (SDR) – FCA will consult on extending this to OFR recognised schemes.
  • Need to engage with a UK authorized firm to communicate or approve financial promotions, which must contain disclosures on availability of redress.
  • Need to provide 30 days’ prior notice to FCA of key fund changes.

Key points for UK distributors

  • Carry out due diligence on funds to ensure they fall within, and comply with, the OFR requirements.
  • Consider the need for contractual protections in distribution agreements regarding compliance with OFR requirements.
  • Inclusion of all disclosures required under the OFR including those relating to the availability of FSCS and FOS protections in fund documents.


A key consequence of Brexit was the loss of the “passporting regime”.  As a temporary measure, the UK Government created the TMPR to enable EEA UCITS to continue marketing to UK retail investors with “UK recognized” status. TMPR is scheduled to end in 2025.

In 2021, the UK Government designed the OFR, intended to be a new streamlined framework aiming to redefine how non-UK domiciled funds can be marketed to UK retail investors based on the principles of equivalence. This means that the OFR will only be available for certain funds within jurisdictions that have been deemed by the UK Government to offer equivalent consumer protection to UK-authorized funds.

The OFR has yet to be operationalized but the consultation paper sets out the FCA’s proposals on recognition of overseas funds under the OFR if the UK Government makes any equivalence determinations. While no OFR equivalence decisions have yet been made by the UK Government, it is currently considering its equivalence decision for EEA UCITS, and it is widely anticipated that this will be granted.

Until the OFR becomes operational, the current process for new overseas funds to become individually recognized to market to retail investors in the UK remains available. However, this is a cumbersome and expensive process which requires an in-depth assessment to ensure that the funds afford adequate protection to UK investors and meet several other UK tests. 

What are the FCA’s Proposals?

There will be no automatic grandfathering for funds within the TMPR to the OFR. As part of the transition from TMPR to OFR, the FCA is expected to allocate “landing slots” to operators of TMPR funds to allow them to apply for OFR recognition using an online application system.

During the application process, the FCA intends to gather essential fund details to maintain a register of OFR-recognized schemes. This information, crucial for safeguarding the interests of UK investors, will cover both umbrella funds and their specific sub-funds intended for distribution in the UK. 

Under the proposals, operators will need to provide extensive information to the FCA when applying for fund recognition. Some of the required information includes:

  • Information for fund identification, including its name, PRN (for TMPR funds), LEI, domicile, structure, fund type and legal form. It is important to highlight that the FCA does not consider it appropriate to authorize an overseas fund which bears an identical name to that of a UK-authorized fund due to concerns over potential confusion. As many fund operators offer mirror funds in the UK and EU with the same names, such applicants would need to carefully consider changing fund names before submitting any OFR application.
  • Information on the fund’s profile, including its investment objective, policy and strategy, value of £AUM, key categories of asset classes in which it invests, use of benchmarks and derivatives, liquidity management tools, any suspension of dealing within the last five years, investment minima and any ESG focus. The information required reflects a more detailed approach when compared to notifications under the previous passporting regime and the current application process for individual fund recognition. It is also worth noting that funds under the OFR would, as things stand, fall outside the SDR, however the FCA intends to work with the UK Government, potentially extending SDR to OFR recognized schemes. While the FCA is supportive of alignment and compatibility between SDR and the EU’s Sustainable Finance Disclosure Regulation (SFDR), there nonetheless is the risk of divergence, particularly as the UK’s starting point for SDR differs from that of SFDR.
  • Information on fees and charges at both scheme and share class levels, including initial, exit and redemption fees, ongoing charges figure and performance fees.
  • Information on parties connected to the fund, including the management company, depositary, delegated portfolio manager and sub-delegates, UK representatives, the authorized person approving financial promotions on behalf of the fund and any sponsor or other person with fund influence. The proposals around approval of financial promotions reflects a fundamental shift from the status quo where currently TMPR funds are deemed to be “authorized persons” and can therefore communicate financial promotions; however, under the OFR, subject to certain exemptions, financial promotions will need to be communicated or approved by a UK-authorized firm meaning added cost considerations for fund operators as well undertaking due diligence on such third parties to ensure they have the necessary FCA authorization and permission for approving financial promotions.
  • Information on marketing and distribution, particularly around any promotional payments to third parties (for example a sponsor) as the UK rules prohibit such costs from being paid out of fund property.

Considering the distinct marketing and distribution methods of ETFs, the FCA is also seeking input on whether its proposals are also appropriate for ETFs.

Application and periodic fees

To cover the costs associated with its review process, the FCA is proposing application fees for funds applying for recognition as well as ongoing periodic fees once they are OFR recognised schemes. The FCA suggests aligning these charges with those applicable to UK-authorized funds.

The proposed application fees under the OFR are as follows: £2,500 ($3,146) for stand-alone funds; and £5,000 ($6,293) for umbrella funds. Periodic fees will align with those charged to UK UCITS funds as set out in FEES 4 Annex 4. This reflects a shift from the passporting regime under which the UK did not charge an application fee for inward passport notifications, however is significantly lower than the £20,000 ($25,170) fee for umbrella funds under the current application process for individual fund recognition.

Notification of changes

The FCA also proposes to place an obligation on fund operators to inform it of any changes to crucial aspects of an OFR-recognized scheme that may impact the FCA’s assessment or modify information available to investors through the FCA’s public register. The FCA considers this key to ensuring that overseas funds continue to satisfy the conditions for recognition.

  • Changes requiring at least 30 days’ pre-event notification before implementation include changes to the fund’s name, legal structure, termination, suspension of dealing, or fundamental changes to the investment objective or policy, meaning that fund operators will need to factor this into their timelines for such planned changes.
  • Changes requiring post-event notification include changes to the fund’s operator, depositary, UK service address or if there are any breaches or anticipated breaches of the OFR requirements.

Annual confirmation that information held by the FCA is up to date will also be required.

Pre-sale disclosures and enhanced disclosures regarding the FSCS and FOS

The FCA proposes pre-sale disclosure requirements, including the lack of, or limitations on, FSCS (Financial Services Compensation Scheme) and FOS (Financial Ombudsmen Service) coverage for UK investors in OFR recognized schemes.

Following public consultation, the UK Government decided that the OFR will operate outside the scope of FSCS and FOS. That said, regulated activities provided by other FCA-authorized firms to an investor of an OFR-recognized scheme, will be in scope of the FOS and FSCS. In illustrating this, the FCA gives the example of a client of a UK financial adviser that receives a recommendation for investment into an OFR-recognized scheme could, potentially, have an avenue to raise any complaints about the advice directly with the firm and subsequently with the FOS.

The FCA’s draft rules make it a requirement that consumers should be able to clearly determine whether they can access the FSCS and FOS in relation to an investment in an OFR-recognized scheme, and whether they can access redress arrangements outside the UK. This will involve the inclusion of relevant statements in financial promotions relating to the OFR-recognized scheme, the prospectus and point of sale disclosure documents.

Refusal of recognition, suspension or revocation of recognition and public censure

The OFR empowers the FCA to refuse, suspend, or revoke recognition orders to protect the interests of UK investors. Additionally, the FCA may issue public censure statements for breaches of regulatory requirements under the OFR.

The consultation is open for comment until Monday February 12, 2024, following which the FCA intends to publish its final policy statement and rules by mid-2024, pending any equivalence determinations by the UK Government.

Contacts: Karagh Gilliatt and Aidan Campbell are partners in the Financial Services & Products team; Pippa Tasker is a partner in the Financial Services team; Sanaa Akhtar is an associate in the Financial Services Regulation team; Laura Houët is a partner in the Financial Services and Products team and co-head of ESG; and Lucy Pywell is a senior associate in the Financial Markets and Pensions team, CMS.