The Asset Management Market Study: The FCA release Policy Statement on final remedies

04 February 2019

On 4 February 2019, the FCA issued Policy Statement (PS19/4 – Asset Management Market Study – Further Remedies), setting out their final set of rules and remedies under the long-standing Asset Management Market Study. 

PS19/4 is the last paper covering this major change for the asset management industry, following most recently: PS18/8 which was issued last year setting out the rules for value assessment and independent directors, and of course CP18/9 which consulted on the changes covered in today’s PS. 

This latest policy statement brings together the FCA’s view on how fund managers must act to improve fund disclosures – including investment objectives and policies, the use of benchmarks and the calculation of performance fees. 

In short:
Overall, the changes are as expected and follow the proposed remedies of CP18/9.

How does this affect our clients?

The asset management industry has long been preparing for these changes and they are, largely, as expected. However, they do still represent a significant shift for the FCA which firms will need to address through: 
 
  • Amendments to Investment Objectives and Policies.

The FCA make it clear that they expect to see clearer and more meaningful fund objectives but that the new guidance reflects their expectations on how to meet existing requirements – we can therefore expect to see (as we have been seeing already) that any investment objective and policy changes from now will be seen through the prism of the new guidance.

The FCA have addressed non-financial objective (for example, ESG) and notes that these must be explained and be fair, clear and not misleading. This is a point of increasing importance for fund managers to consider. 

  • Consideration and categorisation of benchmarks.

The FCA is proceeding with the categorisation of benchmarks as “constraint”, “target” or “comparator” together with the need to explain why such benchmark has been chosen. Further, where a benchmark is not used, the FCA have confirmed, as expected, that managers must explain how an investor can assess a fund’s performance. One issue for managers has been where funds use more than one benchmark – the FCA have clarified that if more than one benchmark is used, then past performance should be shown against all of those benchmarks. 

The FCA have confirmed, as is expected given the UCITS KIID regulations are European, that there will be no impact on UCITS KIIDs at this point (though of course this may change). The new Rules in COBS 4 make clear that there are no additional obligations on firms to add further information to the UCITS KIID (or NURS-KII). 

  • Review of any performance fees.

The FCA have confirmed that performance fees must be calculated on the basis of the fund’s performance after all other charges have been deducted. In reality, this should not represent a significant change to the industry as this is already best practice. 

Timescales for implementing any necessary changes are tight with an implementation period of only 3 – 6 months; now is the time to consider what amendments might be needed to fit with the given Rules and/or the transitional provisions. There is an expectation that most managers will be seeking to makes changes to their fund ranges as a result of the PS, which will put significant pressure on depositaries and on the FCA. 

However, the FCA have stopped short of saying that investment objectives and policy changes must be carried out within this timescale but rather that the guidance can be relied on from today’s date. We expect the FCA will look to see any changes required addressed as soon as practical, and that they will pick up on any funds they think fall short in this area in the context of unrelated applications – managers should therefore be considering their changes now. 


What can we do to help?

We have been deeply immersed in the Asset Management Market Study since the outset and have been advising many clients on their implementation preparations and discussing with the FCA their approach to benchmark changes. 

We can assist with any aspect of the implementation of the PS including assisting you with the categorisation of your benchmarks, reviewing financial promotions, redrafting of your investment objectives and policies to ensure that they are meaningful to consumers and resulting communications with customers.
 
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Future Dates

* Estimated date

  • 31 December 2019

    Following PRA's policy statement (PS10/17) - operational continuity firms are expected to submit the template (PRA109) 45 business days after the first reporting period ending 31 December.

  • *2020

    The date by which all references to CRA ratings in laws and regulations relating to banks are to be removed. This will be done by the Commission based on technical advice from ESMA. EIOPA will be responsible for implementation.

  • 1 January 2020

    The EC consultation on a review of the Benchmarks Regulation closes on 6 December 2019. 

    The Commission is required to review the BMR and submit a report to the European Parliament and Council of the EU by 1 January 2020.