Access to Financial Services Markets Overseas Funds Regime Existing approach to recognising third country collective investment schemes
Prior to the introduction of the Act, an overseas scheme had to be 'recognised' before it was able to be promoted to the general public in the UK. EEA UCITS that market into the UK via the passporting regime automatically become recognised when the appropriate regulator in the relevant EEA member state notifies the FCA of the scheme’s intention to market to investors in the UK. Schemes domiciled outside the EEA must apply for recognition through a process that requires a detailed assessment by the FCA of the scheme, its operator and its trustee and depositary, if there is one. This process is set out in section 272 of FSMA. To become recognised, the FCA must be satisfied that each scheme, its operator and its trustee and depositary, if there is one, meets several tests in legislation and that adequate protection is afforded to investors in the scheme.
	The passporting regime under the UCITS Directive ended at the end of the Transition Period. In recognition of the important role EEA schemes play in the UK market, the Government established a 'temporary marketing permissions regime' (TMPR). The TMPR enables EEA UCITS to continue marketing into the UK for a temporary period, provided they had exercised their right to do so under the passporting regime before the end of the Transition Period. Existing legislation states that schemes wishing to continue marketing in the UK beyond the end of the TMPR must be recognised under section 272. The TMPR is currently scheduled to end at the end of 2023 but may be extended by one year at a time via statutory instrument. The Act will extend the TMPR to the end of 2025.
	The existing process of recognition, in section 272, is not suitable for the number of schemes that the Government expects will want to continue marketing into the UK beyond the end of the TMPR. Applications through this process are resource intensive for scheme operators and for the FCA, creating a significant operational challenge. The existing process also operates on a scheme-by-scheme basis, which is not well suited to dealing with potential changes to regulation or requirements that impact on a large number of schemes. Overall, the existing process is not fit for the purpose of recognising a potentially large number of overseas schemes.
	The Act introduces a new Overseas Funds Regime (OFR) to allow overseas collective investment schemes to be marketed to all investors, including retail investors, in the UK market on appropriate terms. It introduces two new mechanisms; one for retail collective investment schemes, and one for money market funds (MMFs), which are a type of collective investment scheme that invests in liquid assets (such as cash, government bonds and corporate debt) and represent a low risk, short term and high liquidity investment often used as an alternative to cash. Through the OFR, HM Treasury has the power to grant ‘equivalence’ to a specified category of schemes from an overseas country or territory. The Act also extends the TMPR to ensure sufficient time for the OFR to be established.