The Overseas Funds Regime (OFR) has been a big news story recently for global fund managers. It’s a piece of regulation that has made the process of marketing overseas funds to UK retail investors a little bit simpler.Â
This article explores how the OFR impacts fund managers around the world; both their opportunities and challenges, as well as finishing off with some practical advice for remaining compliant.
Opportunities Presented by the OFR
When new regulatory updates come along, many people get defensive and see them as a threat. However, the OFR has many opportunities. One big one is the potential for market expansion.Â
The regime is geared towards allowing overseas funds to access the UK market more easily, and this particularly benefits those looking to market to retail investors post-Brexit. The OFR simplifies the process compared to previous regimes like the Temporary Marketing Permissions Regime (TMPR).
The OFR's equivalence determinations are another consideration thrown into the mix by HM Treasury. These determinations spark a faster market entry for funds, but only from regions where they are deemed to have equivalent regulatory standards. So, once a fund's home country receives equivalence status, the fund can be marketed in the UK with fewer hurdles.
Increased investment inflows are another potential benefit. By lowering barriers for international funds, the OFR can attract more UK money into overseas funds. This is a symbiotic relationship which helps both the fund managers and the UK markets, with greater choice and diversity.
Successful utilisation of the OFR is expected to be evident in a few different regions. Funds from the European Economic Area (EEA) will find it simpler to market in the UK due to the slick processes introduced, and these funds will be able to attract more UK investors.
Challenges and Compliance Requirements
Despite the opportunities, there are some hurdles it presents. One such hurdle is the cost of compliance itself, which doesn’t come cheap. The application fee for recognition under the OFR is £2,500 for standalone funds and £5,000 for umbrella schemes. These costs can add up, especially for smaller fund managers with many funds.
Understanding the different jurisdictional requirements is another challenge of course, with fund managers ensuring they comply with both the OFR and their home country regulations. This complexity cannot be understated, and the time it takes, as it requires thorough understanding and careful planning.
The reporting and disclosure obligations under the OFR are fairly extensive. Fund managers need to provide a lot of accurate information about their funds, including investment strategies, fee structures and all of the key parties involved. This information must be submitted accurately and promptly to the Financial Conduct Authority (FCA).
Some fund managers have faced difficulties in adapting to the new regime, particularly in meeting the detailed reporting requirements. However, many of those who have successfully overcome the new challenges find that the opportunities make it worthwhile.
To ensure compliance, fund managers need to tread carefully and not take on the entire workload themselves. Hiring local legal experts can increase the chances of compliance and decrease the time spent on reporting, particularly if the fund manager isn’t too familiar with the UK. Using compliance software can also streamline the reporting process, but your options are limited with OFR specifically. Ultimately, mistakes need to be limited and continuous learning about the latest regulatory updates is needed.
Strategies for Leveraging the OFR
To get the most out of the OFR, the most important thing is for fund managers to adopt best practices for integrating the regime into their global operations. So, funds should meet all regulatory requirements, which involves careful planning and regular reviews.
Collaborating with local partners and advisors can provide valuable insights into regional specifics and regulatory nuances. These partnerships can help fund managers understand OFR complexities and also discuss their market entry strategies. Make it a networking opportunity.
It is also essential to partner with a UK authorised firm to issue promotions, like a website and fact sheets.
Practical Advice for Global Fund Managers
Global fund managers need to understand regional specifics and ideally partner with an expert UK partner, especially when it comes to promoting funds in the UK.. This means regular training and building an organisational culture that values compliance every step of the way (this is particularly important for avoiding marketing missteps).
Staying informed about regulatory changes is going to be important because of the frequency with which they’re updated. Fund managers should subscribe to regulatory updates and newsletters and participate in industry forums to keep up-to-date with the latest developments. Maintaining close contact with legal advisors can provide additional support.
Final Word
The demands that the Overseas Funds Regime asks may be off-putting at first, but it can quickly become an easy way to access the UK market and attract more investments. Its challenges mostly revolve around compliance costs and reporting requirements. But by adopting best practices and partnering with local Uk experts, it’s possible to stay ahead of the curve with these changes, as well as potentially make better use of the latest technology.
In conclusion, the OFR provides a valuable framework for global fund managers to expand their market reach while ensuring regulatory compliance.
