Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024

Lord Jones Excerpts

Tuesday 23rd January 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, we are grateful for the Minister’s clear and concise explanation of what this SI does and why it is necessary. I note the thorough and helpful consultation report, published as long ago as 2020. We are happy to support this instrument and have only a few questions.

The first question is to do with timing. The new OFR will come into operation only when the appropriate equivalence determinations have been made by HMT. The introduction of this new regime has been foreseen for at least two years. During that time, I am sure HMT has been working diligently to decide on the appropriate equivalence determinations. When might we expect these determinations to be published?

My second question arises from the 2020 consultation report. It makes clear the decision not to extend FOS and FSCS protection to the newly authorised funds. This is despite the recommendation of the Financial Services Consumer Panel. Can the Minister explain why these basic consumer protections were omitted?

My third question arises from the decision to reject these protections. In paragraph 2.44, the consultation report notes that:

“In general, respondents to the consultation considered that if the scope of FOS and FSCS remain unchanged, funds should inform investors through disclosures in the fund prospectus”.


The Government agreed that some form of disclosure was necessary, and in paragraph 2.46 said:

“The government will consider the appropriate framework for disclosing the absence of FSCS and FOS in the future. The FCA will also explore whether it is necessary and appropriate to require enhanced risk warnings or explicit acknowledgement from investors about the lack of availability of FOS and FSCS coverage”.


That was over two years ago. How is HMT getting on with the framework thinking? How is the FCA getting on with its exploration? Can the Minister tell us what HMT has concluded about the appropriate framework for disclosing the absence of FOS and FSCS cover and what the FSA has concluded about enhanced risk warnings? If at this late stage there is as yet no conclusion from HMT or the FCA, will she commit to write to us, setting out the conclusions when they are finally arrived at?

[Lord Jones (Lab)]

My Lords, the Minister is clearly up to speed on these detailed matters, as I know my noble friend Lord Livermore is—but I am not. I recollect that, when I was in another place, the late Lord Cecil Parkinson, a very able Minister, introduced his great City finance reforms—what we knew then in the other place as the “big bang”. Lord Parkinson was a clever and adept Minister; he rose to even higher rank in government, and was a party chair for the late Lady Thatcher. But it seems to me that, in his reforms, simplicity was not one of the ingredients. With reference to the Explanatory Memorandum, at paragraph 7.1, what are sub-funds? Might the Minister throw some light on that detail?

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing this statutory instrument. We support these regulations, as they will provide smoother market access for overseas funds that have been determined to be equivalent to the UK’s in relation to consumer protection. This SI is part of a wider set of measures to bring the overseas funds regime, or OFR, online. The regime will apply to funds from jurisdictions that the Treasury has deemed “equivalent”, so the OFR will become operational only once those decisions by the Treasury have been made.

When this SI was debated in the Commons, my honourable friend the shadow Economics Secretary asked the Minister when the Secretary expected to take the equivalence decisions that would enable overseas funds to utilise the streamlined approach envisaged under the new overseas funds regime. In his answer, the Minister was able only to say, “very soon, I hope”. Given this, is the Minister able to go any further in providing greater clarity on the timing of these equivalence decisions? Is she able to provide any indication of how many equivalence decisions the Treasury expects to make in the first instance?