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Shaping up for summer – it’s not just fund benchmarks which need your focus

Shaping up for summer – it’s not just fund benchmarks which need your focus

  • United Kingdom
  • Financial services and markets regulation
  • Financial institutions

04-07-2019

Introduction

Following the publication of the FCA’s Policy Statement PS19/4 “Asset Management Market Study – further remedies” in February this year, there are just a few weeks left to ensure fund documents meet the new rules on benchmarks.

Authorised fund managers (“AFMs”) of UCITS and NURS funds must update prospectuses by 7 August to reflect any benchmark use (whether as a target, constraint or comparator) to comply with COLL 4.2.5(3)(c-b). Applications in relation to updates which require FCA approval must be filed with the FCA by 5pm on Monday 8 July 2019. If you need any assistance with these updates please contact your usual Eversheds Sutherland contact.

To read PS19/4, click here.

This is just one phase of the wider remedies stemming from the FCA’s Asset Management Market Study. There are three further areas which require action to be taken by AFMs – and it is not just UCITS and NURS which need to be considered; QIS funds are also in scope.

Appointment of independent directors

As part of the FCA’s focus on strengthening the rules which require fund operators to act in the best interests of their investors, AFMs will need to ensure that their boards comply with the new rules on the requirement to have independent non-executive directors (“INEDs”).

COLL 6.6.25R, and for QIS AFMs, COLL 8.5.20R, set out that AFMs must ensure that at least one quarter of the members of the governing body are independent and, if the body comprises eight members or fewer, that at least two of its members are independent. To the extent that AFM boards do not already meet these criteria action must be taken now as these rules come into effect on 30 September 2019.

Overall value assessment

AFMs need to carry out an annual assessment of value for each scheme they manage, whether a UCITS, NURS or QIS, which must consider whether the payments made from scheme property are justified in the context of the overall value delivered to investors. The rules in COLL 6.6.21R, and, for QIS AFMs, COLL 8.5.17R, set out the non-exhaustive factors which will need to be considered.

In accordance with COLL 4.5.7R(8), and, for QIS AFMs, COLL 8.3.5AR(5), annual reports relating to an accounting period ending on or after 30 September 2019 will need to include details of the annual assessment. AFMs should now be mapping out accounting periods to determine when to make updates and, especially if these are in the near future, take action to implement the annual assessment process and prepare the required disclosures.

The new Prescribed Responsibility for AFMs comes into effect at the same time as the rules extending the Senior Managers and Certification Regime (“SM&CR”) to AFMs. This will require a Senior Manager to take reasonable steps to ensure that, among other obligations, the AFM complies with its obligations to carry out this assessment of overall value.

Investment objectives and policies

As part of Policy Statement PS19/4 the FCA 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 took effect immediately and the FCA has said that it expects firms to take it into consideration when reviewing fund documentation – certainly any new funds should be prepared with this in mind.

We are working with a number of AFMs to review and update existing investment objective and policy disclosures, along with associated FCA applications. Although there is no set deadline by which to make updates, on the basis that the guidance is already effective, AFMs of UCITS and NURS who do not have an existing timeline to review disclosures and make updates should be factoring this into their project timelines now.

Further background is set out in our earlier briefings which can be found here:

• FCA’s Asset Management Market Study – remedies and changes to the handbook – Feedback and final rules, click here

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

How can Eversheds Sutherland help?

Our in depth understanding of the sector and experience in implementing governance and product changes means that we are very well placed to guide you through the implementation process, including, where required, coordinating any FCA application. We have been advising clients in relation to many of the areas covered in Policy Statement (PS18/8) “Asset Management Market Study remedies and changes to the handbook – Feedback and final rules to CP17/18” and Policy Statement PS19/4 “Asset Management Market Study – further remedies”. We can also offer bespoke training on these and related topics.

For more information contact

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