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AMMS – The final rules are here, and they are in force soon

AMMS – The final rules are here, and they are in force soon
  • United Kingdom
  • Financial services and markets regulation - Briefings and articles


In April 2018, the FCA published Consultation Paper CP18/9, the second consultation on remedies following the FCA’s Asset Management Market Study (AMMS). 

On 4 February 2019 the FCA published its findings, in the form of Policy Statement PS19/4 “Asset Management Market Study – further remedies”, including the amendments made to the FCA Handbook.  The purpose of the rules is to help investors in authorised funds to get better information about what their fund manager is doing, and to understand better how they can evaluate whether their fund manager has done a good job.

To read PS19/4, click here.

To read CP18/9, click here

Policy Statement PS19/4

The Policy Statement introduces a variety of remedies which are broadly unchanged from those the FCA consulted on earlier.  In most cases the rules incorporate a short grandfathering period for existing funds but, even still, the time for implementation is extremely limited and firms whose AMMS programs are not already under way will need to take immediate steps.

  • The proposed rules on use of benchmarks in retail communications have been implemented in a similar form to the consultation and are effective from 7 May 2019 for new funds or 7 August 2019 for existing funds. See below for more information.
  • The proposed rules requiring the inclusion of benchmark information in the investment objective and policy of all UCITS and NURS are effective from 7 May 2019 for funds authorised on and after that date and 7 August 2019 for funds authorised before 7 May 2019.  See below for more information
  • The so-called ‘non-handbook’ guidance for the description of fund objectives and investment policies are effective immediately. See below for more information.

Transitional provisions

The new rules are introduced by The Collective Investment Schemes Sourcebook (Miscellaneous Amendments) Instrument 2019 (FCA 2019/6) in conjunction with Handbook Notice 62.

Given the very tight timing, firms will now need to move quickly to review all their key client facing documents against the new requirements, particularly as there may need to be FCA applications and investors communications and, in some cases, EGMs.

New rules on investment objectives and policies

The FCA has introduced rules, effective on 7 May 2019, which require firms to make a statement providing sufficient information for investors to understand the choice and use of any target benchmark, constraining benchmark or comparator benchmark in relation to the scheme.  These rules do not state that the disclosure needs to be made in the investment objective and policy, but our expectation is that the FCA will require this during the authorisation process.  In any case, the FCA does expect the investment objective and policy section of KIIDs to include this information and we would urge consistency.

A fund’s past performance disclosure will always need to be compared with the target benchmarks and constraining benchmarks it uses – even if that means showing multiple comparisons.

The FCA has welcomed the work of the Investment Association on investment objectives and policies (which is to be published in the coming days) and to which Eversheds Sutherland contributed.

New guidance on objectives and policies

The FCA has introduced non-binding guidance that sets out many relevant provisions around fund objectives and, to a limited extent, how the FCA expects those requirements might be complied with in practice - with particular focus on UCITS KIIDs and PRIIPs KIDs.  The guidance is binding immediately and the FCA has said that it expects firms to take this into consideration when reviewing fund documentation.  The guidance has hardly changed since the draft in CP18/9.

The FCA will not be publishing any further guidance on what is good and bad practice in this area, nor providing any industry wide glossary of consumer friendly terms.  The Investment Association’s work in this area will, therefore, be an important reference point.

The FCA has amplified its expectations around how investment strategies are disclosed.  Firms should include in the Prospectus and the KIID the fundamental features of how a product is managed.  An example given to illustrate this is if the manager’s strategy is only to invest in companies which have good growth prospects, this should be included.  The FCA recognises that in some cases managers have flexibility to invest differently dependent on market conditions.  They do not expect that any particular investment focus at a point in time is disclosed but that it should be clear that the strategy is flexible.

New rules on use of benchmarks in communications with retail clients

The FCA rules identify three categories of benchmark:

  • A ‘target’– A benchmark used to define the fund’s target performance or to trigger a payment from scheme property (such as a performance fee).
  • A ‘constraint’ – A benchmark which constrains the composition of the portfolio.
  • A ‘comparator’ – A benchmark is used as performance comparator for the fund (these are probably referred to more widely in the industry as a ‘performance benchmark’).

We note that new guidance at COLL 4.2.6 G indicates that the same index can serve as multiple types of benchmark.

The FCA has introduced rules in the Conduct of Business Sourcebook (COBS) on communication with retail clients which require managers to disclose, in terms consistent with the prospectus, in all financial promotions (including, for example, factsheets but not prospectuses or KIIDs), every type of benchmark used in relation to a fund. 

The FCA explains that its intention is not to force all funds to use benchmarks.  However, investors must be able to evaluate how well a fund is doing.  Therefore, if no benchmark is used, this fact must be disclosed together with an explanation of how investors can assess performance. 

All past performance disclosures in financial promotions must include the corresponding past performance of any target benchmark or constraining benchmark referenced in the prospectus and there should be a consistent of comparisons unless the prospectus is amended.  No other benchmarks can be used for past performance comparisons unless the comparison is solicited by the investor or the comparison is made during the course of interactive dialogue with the client.

These rules come into force from 7 May 2019 for new funds or 7 August 2019 for pre-existing funds (i.e. those that existed prior to 7 May 2019).

Follow ups

The FCA has stated that it will be monitoring the effectiveness of its interventions in 12 months and again in 24 months and will publish findings.  These sorts of reviews have a tendency to lead into intensive supervision and should underline the importance to firms of documenting their programmes. 

How can Eversheds Sutherland help?

Our in depth understanding of the sector and experience with the practical implementation of new governance arrangements, means that we are very well placed to guide you through the implementation process, including coordinating the FCA application process.  We are already advising clients in relation to many of the areas covered in the Policy Statement and CP18/9.  We can also offer bespoke training on the issues raised for the asset management industry.