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Financial Services Act 2021

Contents

Schedule 9: Collective investment schemes authorised in approved countries

Part 1: Provisions to be inserted in Chapter 5 of Part 17 of the Financial Services and Markets Act 2000

  1. This Schedule adds the following sections in Chapter 5 of Part 17 of FSMA.

271A Schemes authorised in approved countries

  1. Section 271A(1)(a)-(e) sets out the conditions which must be met before an overseas collective investment scheme authorised in a country or territory outside the UK can be a "recognised scheme" under the OFR.
  2. Section 271A(1)(a) gives HM Treasury a power to approve countries or territories outside the UK subject to certain restrictions. "Approving" a country or territory means making an equivalence determination. The way HM Treasury will exercise the power to approve countries and territories is by regulations.
  3. Section 271A(1)(b) sets out that HM Treasury has the power to describe in the regulations the category or type of collective investment schemes that are within the scope of HM Treasury’s equivalence determination.
  4. Section 271A(1)(c)-(d) are concerned with the FCA’s role. Collective investment schemes, within an approved country or territory, and which fall within a category of scheme in the regulations approving that country or territory, must apply to the FCA for recognition of the scheme. If the FCA has made an order granting a scheme’s recognition, and has not revoked or suspended it, the collective investment scheme is a recognised scheme for the purposes of marketing into the UK pursuant to section 271A(1).
  5. Section 271A(2) explains that HM Treasury can consider any matter that they consider relevant when deciding whether to approve a country or territory, subject to the restrictions set out in sections 271B and 271C.

271B Approval of country: equivalent protection afforded to participants

  1. This section sets out one of the restrictions of HM Treasury exercising the powers to approve a country or territory under section 271A.
  2. Section 271B(1)-(2) describes the equivalent protection test which must be met for HM Treasury to approve a country or territory. "Equivalent protection" means that overseas collective investment schemes do not have to be subject to exactly the same law and practice as UK schemes, but the law and practice of that country or territory must provide at least equivalent protection to investors or potential investors as that afforded to investors or potential investors in comparable UK schemes, by the law and practice of the UK under which such schemes are authorised and supervised.
  3. Section 271B(3) sets out what HM Treasury can consider to be a ‘comparable authorised scheme’ when considering whether a description of schemes within a country or territory provides equivalent protection for UK investors. The definition of ‘comparable authorised scheme’ sets out an exhaustive list of the types of comparable schemes that are authorised in the UK by the FCA.

271C Approval of country: regulatory co-operation

  1. This section also sets out a further restriction of HM Treasury exercising powers to make an equivalence determination under section 271A, specifically that HM Treasury may not approve a country or territory through section 271A unless it is satisfied that there are adequate arrangements for co-operation between the FCA and the overseas regulator. The arrangements may not have to be in place when an equivalence determination is made, but HM Treasury must be satisfied in that case that they will exist.
  2. Section 271C(2) then defines an ‘overseas regulator’ as the authority of the country or territory responsible for the authorisation and supervision of the schemes described in the equivalence determination in the country or territory.

271D Report by the FCA in relation to approval

  1. This section sets out the power for HM Treasury to ask the FCA to prepare a report on a country or territory’s regulatory regime. If HM Treasury asks for a report, this will help HM Treasury to decide whether to approve a country or territory under section 271A.
  2. HM Treasury can ask that the FCA’s report, which must be made in writing, includes information on the law and practice of an overseas country or territory under which a scheme is authorised and supervised and whether there are any existing or proposed cooperation agreements between the FCA and the overseas regulator.
  3. This is a discretionary power for HM Treasury, meaning that it can decide whether or not to ask the FCA for a report. If HM Treasury does ask for a report, the FCA is required to provide it.

271E Power to impose requirements on schemes

  1. Section 271E(1) sets out the power for HM Treasury to impose additional requirements on schemes recognised under section 271A,including schemes which are granted MMF equivalence and wish to market to retail investors. Additional requirements are intended to be used by HM Treasury in addition to an equivalence determination, where it is necessary to ensure a greater level of comparability and consistency with the regulation of schemes in the UK. Additional requirements will be set out in regulations made by HM Treasury.
  2. Section 271E(2) sets out that HM Treasury must have regard to requirements imposed on comparable authorised schemes in the UK by or under FSMA when making regulations imposing additional requirements on overseas schemes. Section 271E(3) sets out that HM Treasury also has the power to describe additional requirements in the regulations by referring to current or future FCA rules or other enactments as amended from time to time. The definition of ‘enactment’ in section 271E(10) sets out what is included.
  3. Section 271E(5) gives the FCA the power to make, amend or revoke rules if it considers it necessary or appropriate to do so for the purpose of a requirement imposed, or varied or withdrawn, by regulations made by HM Treasury under this section.
  4. If HM Treasury considers it necessary or appropriate for the FCA to make, amend or revoke a rule for the purpose of a requirement imposed by its regulations, then under section 271E(6) HM Treasury may direct the FCA to do so. References to rules which are amended or revoked in paragraphs (5) and (6) are to FCA rules made by the FCA.
  5. Section 271E(7) provides that the direction given in the previous subsection must be complied with in a time set by HM Treasury.
  6. Section 271E(9) applies section 141A of FSMA to rules made, amended or revoked by the FCA under section 271E.

271F Application for recognition to the FCA

  1. Section 271F(1) delegates power to the FCA to determine the manner and form in which applications for recognition are to be made by schemes. The legislation also requires that an application for recognition be accompanied by a UK address for service of notices, or other documents to be served on the scheme’s operator. The application must contain information, or be accompanied by this information, which the FCA may reasonably require for the purpose of determining the application.
  2. Section 271F(2) sets out that the application must provide the FCA with an explanation of how the scheme or its operator will satisfy any additional requirements if its application is granted, as these will not be a condition of the regulatory regime in the country or territory where the scheme is authorised and supervised.
  3. Section 271F(3)-(5) gives the FCA the power to require the applicant to provide further information relating to their application; to require that any additional information provided under section 271F be set out in a certain form, and to require different information for different applications.

271G Determination of applications

  1. This section sets conditions for the FCA’s power to determine applications and make an order granting a scheme recognition for the purposes of marketing into the UK pursuant to section 271A(1).
  2. Section 271G(1)(a) sets out that the conditions in section 271G(2) must be met, including that the scheme must be authorised in a country or territory approved by HM Treasury under section 271A, in order for the FCA to grant recognition to a scheme under section 271A. Section 271G(1)(b) provides that the FCA must grant recognition to the scheme, unless it is permitted or required to refuse an application due to the conditions set out in section 271G(3)-(4).
  3. Sections 271G(3) sets out the conditions under which the FCA is permitted to refuse an application under section 271A, including if the operator of the scheme has contravened requirements under FSMA. This may include an additional requirement. The FCA may also refuse a scheme’s application if the operator has given the FCA false or misleading information in purported compliance with such a requirement. Subsection (4) then sets out that even if the scheme has not contravened a requirement, the FCA must refuse an application if it is desirable for the protection of UK investors.
  4. Section 271G(5)-(6) sets out that the FCA must either issue a written notice granting recognition or a warning notice that it is proposing to refuse the application under section 271A within two months of the FCA receiving a complete application, containing all the information it requires, from the scheme operator in question. Section 271G(7) sets out that if the FCA receives an application which is not complete, it must notify the scheme operator that it does not consider that application complete and identify what further information it may need to be considered so.

271H Procedure when determining an application

  1. This sets out the procedure the FCA must follow when determining an application for recognition, including issuing a written notice if recognition is granted or a warning notice within a two month period, as set out in 271G(5) if it is proposing to refuse an application under section 271A. If after giving a warning notice, the FCA decides to refuse an application, it must give the applicant a decision notice.
  2. Section 271H also allows for an applicant to go the Upper Tribunal if it receives a decision notice from the FCA indicating that its application has been refused. This is with the exception of when the FCA has refused an application on the grounds that the scheme is not authorised in an approved country or territory or that there are not adequate arrangements for co-operation between the FCA and overseas regulator.

271I Obligations on operator of a section 271A scheme

  1. This section requires operators of schemes that have been recognised under the OFR to tell the FCA if they become aware that they have or will contravene a requirement imposed on it by or under FSMA. This includes any additional requirements imposed on schemes under section 271E.
  2. Section 271I (2) sets out that the operator of a scheme must notify the FCA of any changes to its name and address, the name or address of its representative in the UK, and the name and address of the depositary and trustee. The operator must also notify the FCA of any changes to the address of the place in the UK for the service of notices and other documents relating to the scheme.

271J Provision of information to the FCA

  1. This section gives a power to the FCA to ask for information from a scheme operator, after the scheme is recognised, and to direct how and when the information should be given. The FCA can use this power only for the purpose of checking that the conditions for a scheme’s recognition and any additional requirements are met. The FCA can require the operator to present information or verify information as the FCA directs. Under this power, the FCA can require different information from different schemes or different descriptions of schemes.

271K Rules as to scheme particulars

  1. This section gives the FCA the power to make and impose new rules about scheme particulars of schemes under the OFR. The FCA can make these rules for the same purposes as they are made for authorised unit trust schemes as set out in section 248 of FSMA.

271L Suspension of recognition

  1. This section gives the power to the FCA to suspend a scheme’s recognition under section 271A, subject to certain restrictions. Revocation is permanent, while suspension is temporary. The FCA can also use its powers in sections 271L and 271N (revocation of recognition on the FCA’s initiative) in succession, so that revocation may follow a suspension. However, suspension is not a necessary prerequisite for revocation.
  2. Section 271L sets out that this suspension may be for a period of time specified by the FCA or until a specific event has happened or until a specific condition is met. It lists the reasons under which the FCA can use its power to suspend a scheme’s recognition, including if the FCA is no longer satisfied that the conditions for its recognition are met. Under section 271L(2)(d) the FCA may also suspend the scheme if it considers it is desirable to protect the interests of UK investors, even if none of the other reasons for suspension apply.

271M Procedure when suspending recognition

  1. This section sets out the procedure that the FCA must follow when suspending the recognition of a scheme under the OFR and the timelines for the suspension to take effect.
  2. Section 271M(1)(a)–(c) sets out that a suspension may take place immediately, on a day specified in the written notice or when the matter is no longer open to review. A direction may take effect immediately or on a specified day only if the FCA reasonably considers it necessary.
  3. Section 271M(3) and (4) set out that the FCA must give written notice to the operator and the trustee or depository of the scheme, if there is a trustee or depositary, setting out the details and reasons for the suspension, the timeline for it taking effect, the reasons for the timeline and the recipient’s right to take the matter to the Upper Tribunal. It also sets out the right for the recipients to make representations to the FCA within a given period. A ‘representation’ provides the recipient of the notice an opportunity to make a case to the FCA as to why the scheme should not be suspended. The notice will advise the recipients of their right to refer the matter to the Upper Tribunal. Section 271M(5) then explains that the FCA may extend the timeline for making representations, as set out in the written notice.
  4. Section 271M(6) and (7) set out that, depending on the decision by the FCA on the direction after it has considered any representations in accordance with subsection (4)(d), the FCA must give written notice to the scheme operator and, if any, the trustee or depository. If the FCA has decided to give the direction or, if it has been given, and the FCA has not revoked it, the written notice must set out the recipient’s right to refer the matter to the Upper Tribunal and the procedure for doing so. Section 271M applies to the variation of a direction as it applies to the giving of a direction by the FCA.

271N Revocation of recognition on the FCA’s initiative

  1. This section gives a power to the FCA to revoke the recognition of a scheme under the OFR.
  2. Section 271N(1)(a)-(d) states that a revocation order can be made by the FCA when it is no longer satisfied that conditions for recognition, set out in section 271G(2)(a)-(c), or any requirements by or under FSMA (including additional requirements) are met, or it appears to the FCA that the scheme operator has given false or misleading information. Even if none of these reasons apply, a scheme’s recognition can be revoked if the FCA considers it desirable in order to protect the interests of UK investors.
  3. Section 271N(2)-(3) sets out that the FCA must provide a warning notice to the operator (and trustee and depository, if any) of the scheme if it proposes to revoke scheme’s recognition and, without delay, a decision notice if it then decides to revoke the scheme’s recognition. If the FCA does decide to revoke the recognition of a scheme, the operator and trustee, or depository, if there is one, can refer the matter to the Upper Tribunal.

271O Requests for revocation of recognition

  1. Section 271O sets out that the FCA may also revoke the recognition of a scheme at the request of the scheme’s operator and that it must give a written notice to the operator, and trustee and depositary (if any) if it decides to revoke the scheme or refuse a request to revoke the scheme.
  2. Section 271O(3)(a)-(b) sets out the reasons why the FCA may refuse a request from the scheme’s operator, including that it is in the public interest to investigate before a decision is made or that revocation would not be in the interest of investors in the scheme. In circumstances where the FCA refuses to revoke a scheme’s recognition it may nevertheless suspend recognition of the scheme under section 271L where the conditions for exercising the power are engaged.
  3. Section 271O(5) sets out the steps that the FCA must take if it decides to refuse a request under 271O, including giving a decision notice to the operator and trustee and depositary (if any) and letting them know that they may refer the matter to the Upper Tribunal.

271P Obligations on operator where recognition is revoked or suspended

  1. Section 271P sets out the obligations on the scheme operator, where the scheme’s recognition is revoked or suspended, under section 271N(3), 271O(2) or 271L(1).
  2. Section 271P(2) sets out that the operator must notify such persons as the FCA may direct about the scheme’s suspension or revocation without delay. This notification must be made in the form and manner the FCA may direct and must contain information as the FCA may direct.

271Q Effect of variation or revocation of HM Treasury regulations under section 271A

  1. Section 271Q applies to schemes that cease to be recognised as a result of HM Treasury varying or revoking regulations under section 271A. Under this section, when regulations under section 271A are varied or revoked, and a scheme ceases to be recognised, then the order given by the FCA under section 271A, granting recognition to a scheme, is automatically revoked.
  2. Section 271Q(3) gives HM Treasury the power in regulations to modify the time limits for applications under section 272 for schemes that have had their recognition revoked as a result of HM Treasury varying or revoking regulations under section 271A. The power allows HM Treasury to require an application under section 272 of FSMA to be made during a period either set out in the regulations or set out in a direction given by the FCA, and to modify the overall time limit for an application under section 272 as set out under section 275(1) and (2) for such schemes.

271R Public censure

  1. This section sets out that if the FCA considers that any rules or requirements set out in section 271R(1)(a)-(d) have been contravened, then the FCA may publish a statement to that effect.
  2. The FCA must give the scheme operator a warning notice if it intends to publish such a statement and set out what it intends to say in the statement. The FCA must also give a decision notice if it decides to publish a statement, which states that the operator may take the matter to the Upper Tribunal.

271S Recognition of parts of schemes under section 271A

  1. This section mirrors new section 282C of FSMA, inserted by section 25 of this Act.
  2. Section 271S(1) clarifies that recognition under section 271A(1) applies to parts of collective investment schemes (also called ‘sub-funds’) as it does to schemes. Subsection (2) makes it clear that the definition of a ‘recognised scheme’ in Part 17 of FSMA includes a part of a scheme recognised under section 271A, and that other references in or made under Part 17 to schemes recognised under section 271A include parts of schemes. Subsection (3) sets out that provisions made under or of Part 17 have effect in relation to parts of schemes recognised, or seeking recognition under section 271A with appropriate modifications, and subsection (4)(a) allows HM Treasury to make provision by way of regulations as to what are, or what are not such appropriate modifications.
  3. Subsection (4)(b) and (c) also give HM Treasury powers to make by regulations, provision so that relevant enactments have effect with appropriate modifications, or do not have effect, in relation to parts of schemes recognised or seeking recognition under section 271A. Relevant enactments are defined as any legislation relating to schemes recognised or seeking recognition under section 271A, which were passed or made before the day on which section 271S(1) comes into force. In making regulations under, and for the purposes set out in subsection (4)(b) and (c), HM Treasury can amend, repeal or revoke legislation.
  4. A consequential amendment is also made in Part 2 of Schedule 9, paragraph 8 to add section 271S to section 429(2) of FSMA, which means that the powers under section 271S will be exercised by the affirmative procedure.

Part 2: Minor and consequential amendments

  1. This Part makes amendments that are consequential on the introduction of the Overseas Funds Regime.

Financial Services and Markets Act 2000 c.8

  1. Paragraphs 2 to 8 in Part 2 of Schedule 9 relate to consequential amendments to FSMA. The key amendments are:
    1. in section 138I of FSMA, regarding consultation by the FCA, a new subsection (9A) is inserted so that this section does not apply to rules made by the FCA under section 271E relating to additional requirements. Therefore, the FCA will not be required to consult on new or amended rules made under section 271E;
    2. in section 165(7)(b) of FSMA, regarding the FCA’s powers to require specified information or documents, or information or documents of a specified description, from recognised schemes, recognised schemes under section 271A are added. Therefore, the FCA may require such information and documents from schemes recognised under the OFR. Section 165(7)(b) also clarifies that the reference to a scheme that is recognised includes a part of a scheme;
    3. in section 237(2) of FSMA, paragraph (ba) is added to the definition of ‘the operator’ in relation to a recognised scheme, so that it means the legal entity with overall responsibility for the management and performance of the functions of the scheme;
    4. in section 392 of FSMA, regarding the application of sections 393 and 394 of FSMA which relate to third party rights and access to FCA material in the context of warning notices and decision notices, an amendment is made to include notices given under sections 271N and 271R;
    5. in section 395(13) of FSMA, regarding the meaning of supervisory notice, an amendment is made to include written notices given under section 271M relating to the suspension of a scheme’s recognition.

The Alternative Investment Fund Managers Regulations 2013 (S.I. 2013/1773)

  1. Paragraphs 9 to 12 in Part 2 of Schedule 9 amend Part 6 of the Alternative Investment Fund Managers (AIFM) Regulations 2013 in accordance with the following paragraphs. Part 6 relates to the marketing of AIFs. These amendments will switch off the NPPR notification obligations for schemes which are recognised under section 271A.
  2. In regulation 57, after paragraph 1, new paragraph (1A) is inserted so that an AIF, which is recognised under section 271A, is not recognised under paragraph 1. This means that an AIFM, which manages an AIF recognised under section 271A, does not have to give written notification to the FCA before marketing in the UK.
  3. In regulation 58(1), the line "except where the AIF is recognised under section 271A of the Act" is added. This means that a small third country AIFM, which manages an AIF recognised under section 271A, also is not required to give written notification to the FCA before marketing in the UK.
  4. In regulation 59(1), the line "except where the AIF is recognised under section 271A of the Act" is added. This means that a third country AIFM that is not a small AIFM, which manages an AIF recognised under section 271A, also is not required to give written notification to the FCA before marketing in the UK. In addition, regulation 59(4A) is amended to refer to ‘AIF’ rather than ‘collective investment scheme’ for consistency.

The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325)

  1. Paragraphs 13 to 16 in Part 2 of Schedule 9 relate to the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and set out that schemes will be able to apply for recognition, either through section 271A or section 272 of FSMA, at the end of the temporary permissions regime.
  2. In paragraph 14(f), a substitution is also made in order to extend the TMPR from three to five years.
  3. Paragraph 15 removes regulation 67(2). This removes the requirement that HM Treasury may only make regulations to extend the TMPR if the FCA has submitted an assessment on the effects of extending at least six months before the end of period which is to be extended.
  4. Applications under section 271A of FSMA:
    1. the new regulation 67A requires that applications under section 271A must be made during a time period specified by the FCA. This is for the purposes of allowing the FCA to create ‘landing slots’ for funds applying to the OFR at the end of the TMPR, to allow them to manage workflow;
    2. the new regulation 67A(3) sets out that the obligation in section 271G(5) for the FCA to either issue a written notice granting recognition or a warning notice that it is proposing to refuse the application under section 271A, within two months, does not apply for applications from schemes transitioning from the TMPR to the OFR. However, the application must be determined by the FCA before the period specified in regulation 62(3)(d).

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