The Financial Conduct Authority (FCA) opened applications to its Overseas Fund Regime (OFR) for new funds at the end of Q3 this year and began assigning ‘landing slots’ to existing funds, marking the end of a murky post-Brexit period.
The new regime has been broadly well received across the industry, with positive experiences from those making applications alongside good feedback from clients.
Despite this, there is still further clarity needed for fund promoters which registered through Section 272 of the Financial Services and Markets Act 2000 (FSMA) and whether they will need to secure an OFR landing slot or if they should deregister and reapply through the OFR.
One positive review of the new regime was offered by white-label provider from HANetf, which used OFR to list the Performance Trust Total Return Bond UCITS ETF (PTAM) on the London Stock Exchange (LSE).
Prior to the OFR launching, for ETFs on newly launched platforms such as PTAM, the only available route was under Section 272.
ETF Stream revealed BNP Paribas Asset Management underwent the lengthy process of entering the UK via Section 272 as it debuted four ETFs on the LSE in October.
As the route was costly, complex and rarely used, the better option for HANetf was to wait until the FCA chose to introduce a clearer process.
Manooj Mistry, COO at HANetf, said his firm submitted an application for PTAM to be distributed in the UK very shortly after the OFR opened.
Since HANetf operates as a white-label platform, Mistry said it had to clarify the roles and responsibilities of the various parties involved, particularly in relation to PTAM being the first ETF HANetf was launching on behalf of Performance Trust Asset Management.
“Once these points were clarified, the process was relatively smooth. The FCA was responsive, providing timely feedback and our legal team was even able to speak directly with them to resolve outstanding issues. Overall, it was a positive experience."
Echoing his views, Peter Capper, senior adviser for international fund regulation at The Investment Association also said the overall feedback on the OFR process has been positive so far.
“While the FCA has up to two months to approve a new scheme, some approvals have been completed in as little as a week,” Capper said.
However, he added the “stickier applications” might be for some of the existing funds.
For those existing funds that previously applied for recognition under the Temporary Marketing Permissions Regime (TMPR) – a system introduced post-Brexit to allow firms to continue passporting sub-funds into the UK - they will instead have to wait for their ‘landing slot’, which will be assigned to issuers in alphabetical order of their firm name.
Those funds that are in the first ‘landing slots’ were able to start making their applications at the beginning of November, with a three-month time frame to do so.
"So far, I am not aware of many submissions, but I expect we will see more filed around Christmas or early January. The real test will be how quickly the FCA responds and whether any significant issues arise during the review process."
Meanwhile, Stephanie Hanrahan, senior associate at Arthur Cox, said the real concern with the OFR commencing is the question mark over what happens to clients that registered through Section 272.
"Post-Brexit fund establishments marketing into the UK faced uncertainty before the OFR launched,” Hanrahan said. “These 'limbo' clients were unsure whether they would secure an OFR landing slot or if they should deregister and reapply through the OFR.
“A key frustration for funds registered via Section 272 is the costly 'value for money' assessment required for each share class in the UK, a requirement that does not apply to funds using the OFR, whether they are newly registered or transitioning through a ‘landing slot’."
