UK Confirms Equivalence of EEA UCITS – A Welcome Development
On 30 January 2024, the UK government confirmed that EEA regulated funds (subject to certain exclusions) will be eligible to be marketed to UK investors under the UK’s Overseas Funds Regime (“OFR”).
Bim Afolami, the Economic Secretary to the Treasury, made a statement to the House of Commons confirming that, following a detailed assessment, the UK government has found the EEA states, including the EU member states, to be equivalent under the OFR. This decision will apply to EEA UCITS funds except those which are also Money Market Funds (“MMFs”), as there is ongoing regulatory development in this area.
Mr. Afolami further advised that the UK government does not intend to require the EEA funds to comply with any additional UK requirements as part of this equivalence determination at this time.
Currently, EEA funds which were marketing in the UK prior to its EU exit are able to continue doing so under the temporary marketing permissions regime (“TMPR”). This regime was due to expire at the end of 2025, but it has been confirmed that this will be extended until the end of 2026, to ensure funds are able to smoothly transition to the OFR. Newer EEA UCITS funds, established since 30 December 2020, have been allowed to market in the UK where an application to be a recognised scheme under section 272 of the UK Financial Services and Markets Act 2000 (“FSMA”) has been made.
We have clarified with UK counsel the following point in relation to the requirement for assessments of value (“AoV”) to be carried out by EEA funds in light of the UK Government’s equivalence announcement this week:
- Where an EEA UCITS fund is recognised via TMPR and OFR – no UK AoV is required.
- Where an EEA UCITS fund is recognised via section 272 of FSMA – an AoV is required.
While this is welcome news for UCITS funds availing of the TMPR, those UCITS may nevertheless elect to provide an AoV-type document in response to requests from certain UK investors.
The UK government stated that it will monitor this equivalence decision on an ongoing basis, in light of UK and EEA regulatory developments.
Finally, separate to the assessment of equivalence of EEA funds, the UK government referred to ongoing regulatory developments in relation to the UK’s sustainable disclosure requirements (“SDR”). The UK government intends to consult on whether to broaden the scope of SDR to include EEA funds recognised under the OFR.
The UK’s Financial Conduct Authority (“FCA“) published a consultation paper (CP23/26) on Implementing the OFR in December 2023. The OFR consultation is open for feedback until 12 February 2024.