UCITS Marketing in UK Made Easier

The road for the UK to retain its position as a global financial centre in the aftermath of Brexit is filled with hurdles. The most notable one relates to ensuring continued ability for EEA UCITS marketing in UK, as part of a broader spectrum of foreign EEA financial products and services to be offered and marketed inwards in the UK post Brexit.  

We have already discussed the topic of the temporary regimes introduced for EEA firms and products and how they affect currently UCITS marketing in UK on the basis of legacy EU passport authorisations post Brexit. And by the end of February 2022, the long awaited UK Overseas Fund Regime came into force, promising to streamline the process surrounding the conversion of existing permissions for EEA UCITS marketing in UK currently under the temporary marketing permission regime. At the same time, the new regime promises to offer going forward a more convenient avenue to inward marketing in UK of foreign schemes than section 272 FSMA.    

Whilst for the UK Overseas Fund Regime to be fully operational we will have to wait for the UK authorities to commence the process to approve third countries, we are now in a much better position to take a closer look at the most important elements of the new regime.  

Get in touch here with your contacts at Veneziano & Partners to see how we can help with UCITS marketing in the UK.

A Balancing Act of Political Issues, Operational Needs and Global Ambitions

The ambition to retain its position as global financial centre and allow for a more convenient avenue for EEA UCITS marketing in the UK is one of the main drivers behind the newly introduced UK Overseas Fund Regime. But it is not the main one. 

The design of the new regime, with the introduction of specific tools for the UK FCA to be able to recognise foreign EEA UCITS marketing in UK, but also suspend or revoke recognitions, for instance, shows clearly how the new regime can lend itself to different purposes, also political in nature. As we will see further down, approval of third countries is based on a concept of equivalent protection (on this specific point we already discussed how this particular type of equivalence should be construed as outcome-based equivalence) which comes handy in ongoing and future discussion with the EU on similar issues.  

 Lastly, operational needs are involved both in the conversion of existing approvals for EEA UCITS marketing in UK, currently under the temporary marketing permission regime, but also future approvals. Whilst it seems that an automatic conversion of existing legacy permissions has been ruled out for the time being, relying simply on the recognition process under Section 272 FSMA, with up to six months lead time for approval, would have not been totally a workable approach. Even though the lead time for approval under the new regime is not immediate, the fact that the conversion will be staggered, based on landing slots to be assigned by the FCA, reduces in principle rather significantly the burden of work for UK authorities.

Investor Protection and Cooperation 

The concept of equivalence, waved for quite some time against the UK by the EU, is revived in the UK Overseas Fund Regime, this time to the UK’s own advantage. One of the main conditions under the new regime for EEA UCITS marketing in UK is that the UCITS EEA third country has been approved by UK authorities, on the basis of equivalent investor protection. In simple terms, the law and practice of that third country or territory shall provide for protection of investors that is at last equivalent to the one afforded to investors participant in comparable schemes in the UK.  

Co-operation between the authorities of the foreign investment scheme third country or territory and the UK authorities is also required in order to obtain recognition under the new regime for EEA UCITS marketing in UK. For what concerns broadly the EU, whilst it seems that a Memorandum of Understanding on the Financial Services Regulatory Cooperation between the UK and the EU was agreed, this has not been formally signed yet by the parties. However, on the specific point of the cooperation, the newly introduced section 271C makes reference to adequate arrangements on cooperation, which either exist already or will exist in the future.  

The Powers of the FCA

The FCA is also vested with powers to both suspend and revoke recognitions. And where both suspension and revocation have an element of subjectivity, related to the actual conduct of the specific operator or scheme, the main trigger for both remains linked to equivalent protection and cooperation with the third country authorities. In addition to these subjective and objective conditions, there is also an additional blanket condition, whereby suspension and/or revocation might also be resolved in other cases, where more generally it is safer to do so in the interest of participants or potential participants in the UK of the foreign EEA investment scheme. We will have to wait for some market practice to develop on this point, yet we cannot exclude that this blanket condition might again lend itself to purposes more political in nature.  

Don’t Forget the UK Facilities Agent

The new UK Overseas Fund Regime still provides for the appointment of a UK Facilities Agent as one of the obligations imposed on any authorised EEA UCITS marketing in the UK as a consequence of the application process under the new regime. Accordingly, we may want to expect that prospectuses of any such EEA UCITS to be so authorised will have to contain, same as already currently required, also a country supplement for investors in the UK with the information on the facilities agent appointed.  

Conclusions

Clearly the new regime will place the UK in a very competitive position, with approval lead times for marketing authorisations similar to the ones of other non-European fund distribution hubs, like Switzerland.  

The only incognita remains related to the approval of third countries, which is still a highly politicised subject. Meanwhile, the temporary marketing permission regime, under which EEA UCITS marketing in UK are currently operating, should have lasted in principle three years from Brexit day, up to the end of 2023. Yet, in this highly unpredictable environment, it would not come as a huge surprise if it were to be extended beyond that date.

Get in touch here with your contacts at Veneziano & Partners to see how we can help with UCITS marketing in UK.