UK gives European fund managers long-term market access

The UK government has paved the way for European fund managers to market their products to British investors on a long-term basis, removing some of the regulatory uncertainty created by Brexit.

Under the overseas fund regime, or OFR, the UK will treat the European Economic Area regulation as “equivalent” to its own, the government said on Tuesday. This will allow them to apply for permanent market access to the UK. Secondary legislation to enact the decision will follow.

EEA-based funds have also been given an extra 12 months — until the end of 2026 — to comply with the OFR.

The announcement on Tuesday is intended to create some certainty for the City of London and European fund managers in the wake of regulatory disruption caused by Brexit. The decision excludes money market funds.

Bim Afolami, City minister, said in a statement to MPs that the move showed the UK government was committed to “maintaining a safe, open and globally integrated financial system”.

He added that he wanted to facilitate international financial services transactions “by reducing barriers and frictions, where safe and practicable”.

The OFR was created in 2021 to streamline the process for overseas funds to be sold to UK investors. Afolami said Tuesday’s announcement was the result of the first equivalence assessment under the new regime and had been conducted with European partners because of “the importance of funds domiciled in the EEA to the UK market”.

The EEA covers the 27 EU member states as well as Iceland, Liechtenstein and Norway. There are currently more than 8,000 EEA-based funds with temporary access to the UK.

“The government does not intend to require the funds assessed to comply with any additional UK requirements as part of this equivalence determination at this time,” Afolami said.

According to the Treasury, Switzerland, which is not in the EU or EEA but is in the single market, is not covered by Tuesday’s announcement.

When the UK left the EU, it agreed to treat the EU’s fund regulation as “equivalent” to its own until the end of 2025, allowing EU-based funds to sell to UK investors as if Brexit had not happened.

If equivalence had ended, EU fund managers would face a range of new regulatory hurdles that could result in them not offering some products in the UK due to increased costs.

In a sign of improving relations between London and Brussels, the two agreed last June to set up the joint EU-UK Financial Regulatory Forum to discuss financial regulation and co-operation.

The forum is designed to improve co-ordination between the two sides and replicate arrangements the EU already has with other major jurisdictions including the US.