From Bricks to Clicks. The Role of Physical Premises in the UK Facilities for OFR UCITS

The regulatory landscape for EEA UCITS seeking to market to UK retail investors has changed profoundly since Brexit. With the recent introduction of the UK Overseas Fund Regime (OFR), a bespoke framework for national recognition of so-called overseas schemes was established. For the time being that includes UCITS funds, which the UK OFR was predominantly – if not exclusively – introduced for.  

Previously benefitting from a lax authorization regime due to the existence of passporting rights, UCITS intending to gain or maintain access to the UK retail market must now comply with UK-specific requirements, including obligations around financial promotions, value-for-money assessments and heightened local investor protection rules.  

Yet, one crucial element remains firmly in place also under the new regime. The obligation to maintain UK Facilities for OFR UCITS.

Historical Context 

The concept of UK facilities is not novel. Under the former UCITS passporting regime, European fund managers marketing to retail investors in the UK were nevertheless required to designate a UK address where investors could access key fund documentation, receive guidance with subscriptions and redemptions in the funds, obtain information on fund prices and lodge complaints. 

Originally conceived in an analog era, UK facilities were essentially tied to a physical presence in the UK through brick-and-mortar premises. The prospectus of UCITS needed to list specifically a UK address where facilities for UK investors were made available. This to ensure that UK retail investors could interact directly with the UCITS representative in their own language essentially through a physical office in the UK.  

While the terminology and technology clearly evolved, the spirit of investor accessibility to fund information in their own language remains intact under today’s rules on the UK Facilities for OFR UCITS.

Digital Delivery of UK Facilities for OFR UCITS and Regulatory Divergence with the EU 

The UK FCA, via Chapter 9 of the COLL Sourcebook, articulates clear obligations regarding UK Facilities for OFR UCITS. To obtain marketing authorization under the new UK national regime, UCITS fund managers must continue to provide UK-based investors with free access to key fund documents, a channel for submitting subscription and redemption orders and a contact for lodging complaints and receiving updates on complaint resolution. These are the so-called local facilities, which do exist as a requirement to obtain a marketing authorization throughout the rest of Europe.  

One of the most notable divergences between the UK and EU post-Brexit lies in the approach to digitalization in the delivery of local facilities to UCITS investors. Propelled by the objectives of the Capital Markets Union, the EU has made significant progress over the recent past in reducing operational barriers for cross-border fund distribution. This includes a more flexible interpretation of the investor facilities obligations, with EU policymakers supporting fully digital delivery of local facilities to lower costs for small and mid-sized funds and support their distribution cross border in Europe. In contrast, the UK maintains a more cautious stance. While digital delivery of UK Facilities for OFR UCITS is permitted, it is subject to certain limitations. 

UK Facilities for OFR UCITS can continue to be provided through a physical presence in the UK. Under certain conditions, digital delivery of the UK Facilities for OFR UCITS is allowed via an electronic medium. In other cases, there can be a combination of physical and digital delivery. Digital delivery is only valid where the prospectus states that communications will be electronic and investors explicitly consent to electronic communication. All interactions must also be in English and free of charge. Where the first two conditions cannot be satisfied, UK Facilities for OFR UCITS must be made available at a physical location in the UK accessible to the public during business hours. This conservative approach is a testament to the prioritization by UK policymakers of investor access and protection, even as digital practices become more prevalent. 

Strategic Considerations for EU Fund Managers on UK Facilities for OFR UCITS

For UCITS managers seeking retail marketing recognition in the UK under the new regime, the delivery of UK Facilities for OFR UCITS remains a critical compliance checkpoint. While the electronic provision of the facilities can reduce costs and streamline investor servicing, it cannot replace the necessity of designating a local UK address in every case. 

Most UCITS managers without a local presence in the UK will continue to appoint a third-party UK facilities agent who maintains a compliant UK address. The appointed agent must be capable of fulfilling related functions, whether through digital interface, physical office, or hybrid arrangements. UCITS managers must ensure that all UK investors have consented to electronic communications where such type of delivery is intended to be adopted on an exclusive basis.  

Whilst for most part the functions under the facilities do not trigger local licensing of sort, different is the case of the involvement with subscriptions and redemptions of funds. This function is borderline with licensable activities in the UK, like arranging deals in investments. Whilst customarily UK investors, same as investors in other European jurisdictions, would normally reach out to their distributors to take care of subscriptions and redemptions, UCITS managers appointing third parties should be wary of unlicensed providers of UK Facilities for OFR UCITS offering also to deal with subscriptions and redemptions in their funds. 

Conclusions 

Another aspect of the new UK retail marketing regime that has drawn significant attention is the intersection between the obligations to provide UK Facilities for OFR UCITS and the UK financial promotion regime now applicable also to UCITS. Unlike the previous regime under passporting, EEA UCITS marketing in the UK must now ensure their financial promotions comply with UK rules. Where the UCITS manager does not have in its group an entity licensed by the UK FCA, all materials, documents and information falling under the broad concept of UK financial promotions will have to be approved by an entity specifically authorized to approve financial promotions of third parties. That unless an exemption can be claimed, which is something realistic but only in a set of rather limited circumstances.  

There is no official link between the entity providing the service of UK Facilities for OFR UCITS and the entity in charge of approving financial promotions, so these can be two separate entities.