Often, we take it for granted that people understand that companies selling funds internationally must follow the laws and regulations of the countries in which those funds are sold. Each country has its own restrictions and requirements for the selling of foreign funds; in some cases, restrictions are so severe that active sale is not possible.
In this article we are going “back to basics” and looking and one of the traditional markets for offshore funds – the United Kingdom.
Determining your market
It is not enough to say “I want to sell into the UK”, what is important is to determine whether your target market is purely institutional or whether registration for sale to retail investors is required.
The requirements for selling to institutional investors comes from the Alternative Investment Fund Managers Directive (AIFMD). AIFMD deals primarily with sales to “professional investors”, which includes all regulated entities, governmental bodies, large companies and can include “sophisticated” individuals. There are two Articles of AIFMD that deal with sales of non-EU/EEA funds:
Both Articles leave it to an EU country to set their own requirements for allowing fund sales to professional investors in that country under a National Private Placement Regime (NPPR).
Institutional investors – UK NPPR
The UK NPPR is a straightforward notification regime, requiring:
The form and fee will vary depending on whether the marketing will be under Article 36, Article 42 or by a sub-threshold manager. The manager will receive a notification email within a day of submitting a properly completed form – following receipt of this marketing can commence.
There are initial and ongoing disclosure and reporting requirements:
There will also be an annual fee payable.
If the manager wants to sell to fund to the public in the UK, there are a set of requirements in addition to those covered under NPPR above. Until the advent of AIFMD, there was specific recognition of Guernsey Class “A” Schemes under section 270 of the Financial Services and Markets Act 2000 (FSMA) and a designation order by Her Majesty’s Treasury. Now Guernsey Class “A” Schemes are treated the same as any other foreign funds and require individual recognition under s272 of FSMA.
Registration under s272 of FSMA includes requirements for:
In addition to the disclosures and reporting required under NPPR, there will also be the requirement for a Key Information Document (KID) under the EU’s Packaged Retail Investment and Insurance Products (PRIIPs) Regulation.
The Guernsey funds industry has one wish for the post-Brexit world – reinstatement of s270 of FSMA accompanied by recognition of appropriate Guernsey retail funds. This would put Guernsey back on par with the EU when selling retail funds into one of our largest traditional markets.
Midshore Consulting offer the Compass:Funds service, providing guidance and assistance in registering funds for cross-border sale into various markets. For further information about this service please contact us.