The Overseas Funds Regime: what does it mean for product value assessments?

05 February 2024

On 30 January 2024, the Economic Secretary, Bim Afolami, announced that EEA UCITS are deemed equivalent to UK UCITS, in regulatory terms. Therefore, managers of EEA UCITS will be eligible to apply for recognition under the Overseas Funds Regime (OFR) when the OFR begins. 

The decision was long-awaited, but many were surprised by the decision that EEA UCITS will not be subject to additional requirements applicable to FCA authorised funds (possibly excepting the Sustainability Disclosure Requirements, subject to consultation). Importantly, this means that overseas UCITS will not be subject to the annual fair assessment of value required to be undertaken by UK Authorised Fund Managers (AFM) in respect of FCA authorised funds.

However, many managers have asked us about the nuances of the rules. Some elements of the assessment of fair value might apply to EEA UCITS in certain circumstances.

  1. Funds currently in the Temporary Marketing Permissions Regime and funds subsequently approved under the OFR are not required to undertake a full AFM fair value assessment.
  2. However, UK distributors serving UK retail investors are required to undertake a fair value assessment under the Consumer Duty’s price and value outcome. This means that many EEA UCITS will be required to provide some information to help UK distributors comply with their obligations.
  3. The Consumer Duty value assessment essentially comprises three of the seven elements of the AFM fair value assessment: in relation to the nature of the product and its benefits, the limitations of the product, and the expected total price paid by the investor. These requirements are captured under the updated European MiFID Template (EMT 4.1), which requests overseas managers to confirm the expectation that fair value will be provided to the investor.
  4. Funds that have been recognised under section 272 prior to the Economic Secretary’s announcement have been asked by the FCA to comply with local UK rules including annual AFM fair value assessments. It is not clear whether the FCA will revise its position to reflect the Government’s decision on the Overseas Funds Regime.

On 1 February 2024, Macfarlanes’ Financial Services Regulation Partner, Alexandra Green, participated in a webinar with Ignites Europe and answered a range of questions related to the Consumer Duty. Listen to the webinar here.

Some elements of the assessment of fair value might apply to overseas funds in certain circumstances.