Brexit UCITS and money market funds


Brexit: UK Government consults on new equivalent regimes for UCITS and money market funds

18 March 2020

Regulatory News Alert

Context and objectives

On 11 March 2020, Her Majesty's Treasury (HM Treasury) Department of the Government of the UK launched a consultation on the proposal for a more streamlined regime to simplify the process for allowing investment funds set up overseas to be marketed in the UK (so-called overseas funds regime or OFR).

After the end of Brexit’s transition period, funds will have to gain permanent market access into the UK.[1] Considering the operational challenge for both funds and the UK Financial Conduct Authority (FCA), the proposed regime intends to establish a more appropriate basis by introducing two new regimes based on the principle of equivalence:

  1. To recognize overseas retail funds, including European Undertakings for Collective Investment in Transferable Securities (EU UCITS)
  2. To provide market access for money market funds (MMFs).

It is worth noting that retail investment funds that are not covered by the OFR will still be able to apply for recognition on an individual basis under section 272 of the of the Financial Services and Markets Act 2000 (FSMA)[2].

Equivalence for retail funds

Making an equivalence determination under the regime for retail funds will allow eligible funds to gain recognition, which means the funds can be marketed to all investors in the UK, including retail investors. In particular, with the concept of “outcomes-based equivalence”, HM Treasury must be satisfied that the regulatory regime of the other country meets the required standard on an outcomes basis:

  • A degree of flexibility: HM Treasury will grant equivalence for retail funds to an overseas country if it judges that the outcome of “equivalent investor protection” is at least met.
  • UCITS management passport: It is possible for retail funds to be managed in a different country to that in which it is domiciled, for example via the UCITS management passport. The government proposes that such arrangements may be acceptable, if, amongst other things, the overall structure satisfies the requirement to ensure equivalent investment protection.

Retail funds from a country with an equivalence determination, and which fall within the specified category of funds, will need to register with the FCA to gain recognition, which ordinarily take two months, following receipt of a completed registration form, to either confirm, or provide reasons why the fund is not eligible.

Equivalence for MMFs

Making an equivalence determination under the MMFs regime will allow eligible funds to gain access to the UK. With respect to this type of fund, the condition to grant equivalence to a country is that regulatory regime must be at least equivalent to the regulations that apply to UK MMFs. The market access granted to MMFs will depend on whether the MMF intends to market to retail or professional clients:

  • MMFs that are structured as retail funds (such as UCITS) and wish to market to both retail and professional clients must either:

Be located in a country with equivalence determinations for both MMFs and retail funds, and register for recognition under the OFR

Be located in a country with an equivalence determination for MMFs only and apply for individual recognition under section 272 of the FSMA.

  • Overseas MMFs from a country with an equivalence determination that wish to market to professional clients will only be required to submit a notification under the National Private Placement Regime (NPPR).

Next steps

All interested parties, in particular, investment managers and asset management firms, investment platforms, financial advisers, individual investors, and consumer groups should send comments for this consultation by 11 May 2020.

The UK Government also requests that asset management firms respond to the questions set out in Chapter 8 relating to the structure of the market and their own business operations.

The government will analyze responses to this consultation and bring forward a Financial Services Bill, which will include this new overseas funds regime.

How can Deloitte help you?

Deloitte has developed a systematic approach: a Brexit health check to assess potential impacts Brexit may have on your structure and organization. From there, based on both business development plans and legal realities, Deloitte can help you implement operational changes for your robust post-Brexit environment strategy.

Deloitte’s advisory specialists and dedicated services will help you design and implement your business strategy in light of the future evolution of the regulatory framework and market trends.

Additionally, within its Reporting Factory service, Deloitte can help with a range of solutions for the forthcoming investment funds reporting tailored to your business needs.

With our Regulatory Watch Kaleidoscope service, Deloitte helps you stay ahead of the regulatory curve to better manage and plan upcoming regulations.

Our Fund Registration service combines strong processes and regulatory intelligence. Deloitte will leverage on our large experience and track-record in cross-border fund registration to you with recognition in the UK under OFR.


[1] The UK Government has put in place a Temporary Permissions Regime (TPR), which will apply at the end of the implementation period (which is scheduled to end on 31 December 2020) to avoid disruption to financial services. The TPR is a grandfathering period, which will allow EEA funds that benefit from the marketing passport regime to continue being marketed in the UK while they seek permanent market access in the UK.

[2] The UK Government will propose amendments to section 272 of the FSMA to increase efficiency for the industry and the UK regulator.

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