International Funds Focus Quarterly | October 2024
Published on 14th Oct 2024
Regulatory developments for fund managers in the UK and across Europe
Welcome to this year's autumn edition of our quarterly International Funds Focus.
The UK has strengthened its status as an international hub for asset management with its new "overseas funds regime" enabling a streamlined access for global funds – initially from the European Economic Area (EEA) – to raise capital from UK retail investors. The good news didn't stop over the quarter though with this development, with the Financial Conduct Authority (FCA) also finalising its plans to liberalise payments of investment research.
In July, the new government took office with a commitment to take forward all Financial Services and Markets Act 2023 reforms that are currently "inflight". The UK financial sector has been in "wait and see" mode on what the impact of Labour's election victory will be on the timing of this policy work. Meanwhile, members of the Financial Services Regulator Initiative Forum have been considering since May when it might be best to publish an update on the regulatory pipeline and initiatives.
Focusing on Europe, we provide analysis of what we see as the most substantial changes brought by the Alternative Investment Fund Managers Directive, known as AIFMD II, particularly for fund managers who use an EU "host" alternative investment fund manager (AIFM) or hold an EEA AIFM authorisation.
Meanwhile, the European Securities and Markets Authority (ESMA) has issued comprehensive guidelines for funds that use environmental, social and governance (ESG) or sustainability terms in their names. Beware, as the guidelines go further than you might assume.
Osborne Clarke's investment management, fund formation and regulatory experts are well placed to advise you further on any of the rapidly changing developments covered in this edition of our International Funds Focus.
For further information please contact the experts mentioned in the articles or one of our funds partners: Helen Parsonage, Alison Riddle, Tim Simmonds and Simon Thomas.
The overseas fund regime has arrived in the UK
The overseas funds regime (OFR) gateway is now open for new schemes. This is available for all non-UK funds, subject to an equivalence determination issued by HM Treasury, unless they are in the FCA's temporary permissions regime, which was established to bridge the gap for EEA funds marketing into the UK pre- and post-Brexit.
The OFR provides streamlined access for certain types of investment funds domiciled outside the UK. The regime enables the marketing of these funds to retail investors in the UK, provided that they meet specific regulatory standards and obtain the necessary recognition from the FCA.
UK financial regulator introduces payment optionality for investment research
The FCA has finalised its plans for a new way to pay for investment research, which aims to give UK buy-side firms greater control over how they can purchase investment research. Provided that certain safeguards are in place, such as budgeting, valuation and client disclosure requirements, it will permit the "bundling" of payments for third-party research and execution services.
The new payment option has been available since 1 August.
Loan origination regime launches with pan-European reach
What are the key changes introduced by AIFMD II and what do Europe's fund managers need to know about the new loan origination regime? What requirements does the regime introduces when AIFMs carry out any loan origination activities? What requirements apply for funds dedicated to loan origination?
Guidelines to take effect on the use of ESG or sustainability-related terms in fund names
The final guidelines on the use of ESG or sustainability-related terms in the names of funds will come into force on 21 November.
The guidelines aim to unambiguously regulate the use of words or acronyms that are indicative – or merely allusive – of sustainability-oriented investment strategies within the names of investment funds.
They include substantive provisions that will have a direct impact on how to manage in-scope fund portfolios, including a minimum 80% net asset value investment requirement.
In addition to EEA AIFMs, UK managers using the services of host AIFMs from Luxembourg or Ireland, for example, will also need to consider the implications of these guidelines.
