INVESTMENT MANAGEMENT UPDATE
7 april 2016
07.04.2016 - FCA reminds asset managers of importance of
meeting investors’ expectations
The FCA has published Thematic Review TR16/3 entitled
“Meeting investors’ expectations”.
The FCA’s review considered whether UK authorised
investment funds and segregated mandates operated
in line with investors’ expectations as set by marketing
and disclosure material, and investment mandates. This
was assessed against FCA rules and did not focus on
fund performance. The review also considered how firms
monitored the appropriate distribution of their funds. The
review covered 19 UK fund management firms responsible
for 23 UK authorised funds and four segregated mandates.
Asset managers included in the review were generally
taking the right steps to ensure they managed funds as they
said they would. But while most funds in the sample were
investing in line with their stated strategy, the FCA did find
examples of unclear product descriptions and inadequate
governance or oversight.
Funds that were clear with investors provided a thorough
explanation of their investment strategy, as well as specific
information about the aims and asset allocation of the fund.
However, some funds were not providing a clear enough
(and jargon-free) explanation of how they were managed.
The Review comments that in order to ensure investors’
expectations are met, fund management firms must have
appropriate oversight to make sure that the fund is being
managed in accordance with its stated investment policy. The
FCA was concerned that this was not happening properly
with the funds in its sample that were no longer marketed
to consumers. None of these funds clearly disclosed
the investment strategy to customers. Firms must also
carefully monitor the distribution of their funds. This was not
happening in all cases reviewed by FCA.
The FCA is writing to all the firms included in its review to
provide individual feedback. Fund management firms that did
not effectively manage risks that could lead to poor customer
outcomes will be required to make improvements to their
practices. The FCA is already requiring the most significant
issues to be addressed.
05.04.2016 - FCA Business Plan 2016/17
The FCA has published its Business Plan for 2016/17, listing
the following seven priority objectives:
ŠŠ pensions - fair treatment for consumers, stronger
competition and a market that meets consumer needs;
ŠŠ financial crime and Anti-Money Laundering - better,
proportionate and more efficient AML controls and
consumers who are better able to avoid scams;
ŠŠ wholesale financial markets - strong controls which protect
market integrity and ensure clean, efficient and effective
markets;
ŠŠ advice - affordable, professional advice to meet consumers’
changing and complex needs. This includes moving
forward on the Financial Advice Market Review which
reported in March and recommended simplification and
clarity in the regulation of financial advice and guidance. It
also called for support for firms developing non-advised
services and “streamlined” advice services including those
delivered via automated models;
ŠŠ innovation and technology - resilient systems and new
sources of competition;
ŠŠ firms’ culture and governance - strong culture and
governance which helps competition and consumers alike;
and
ŠŠ treatment of existing customers - effective competition,
a fair deal and greater transparency for long-standing
customers.
These priorities will influence FCA decisions about its thematic
projects, market studies and core activities.
31.03.2016 - ESMA publishes final UCITS Remuneration
Guidelines and amendment to AIFMD Remuneration
Guidelines
The European Securities and Markets Authority (ESMA)
has published its final guidelines on the remuneration of
asset managers subject to Directive 2009/65/EC (UCITS
Directive), as modified by Directive 2014/91/EU (UCITS V),
entitled “Guidelines on sound remuneration policies under
the UCITS Directive and AIFMD” (ESMA/2016/411) (UCITS
Remuneration Guidelines or Guidelines). Concurrently, ESMA
has published a minor amendment to the “Guidelines on sound
remuneration policies under the AIFMD”, published in 2013
(ESMA/2013/232) (AIFMD Remuneration Guidelines).
The UCITS Remuneration Guidelines are broadly similar to the
draft guidelines published by ESMA in a consultation paper
(2015/ESMA/1172) on 24 July 2015 (Draft Guidelines). The
most notable difference between the Guidelines and the Draft
Guidelines is found in the provisions that relate to the application
of the principle of “proportionality” in determining the extent to
which the remuneration provisions of UCITS V should apply
to firms of varying sizes and complexity. The Draft Guidelines
envisaged that ESMA would adopt a similar approach to that
which it had adopted in AIFMD. Under this approach, clarity
was provided as to the aspects of UCITS V that could be disapplied by a firm where the application of such rules would be
disproportionate in light of the circumstances of that particular
firm. The rules that could be dis-applied were envisaged to
include certain aspects of the pay-out process (including variable
remuneration in non-cash instruments, retention, deferral and
ex post incorporation of risk) and the requirement to establish
a remuneration committee. The final Guidelines do not include
these provisions and so how the proportionality principle can
be applied in practice is now less clear than under the Draft
Guidelines.
05.04.2016 - ESMA publishes revised UCITS and AIFMD Q&As
The European Securities and Markets Authority (ESMA) has
published revised versions of previous Q&As dealing with
UCITS and AIFMD.
UCITS
The UCITS Q&A consolidates four previous documents
containing Q&As relating to the UCITS Directive into a single
document.
In addition, the updated document contains one new Q&A
which addresses UCITS investing into UCITS feeder funds.
The ESMA guidance in the Q&A states that, in general, as
UCITS feeder funds are required to invest at least 85 per cent
of net assets into their UCITS master fund, another UCITS
cannot invest in a UCITS feeder because this would infringe
the rule that one UCITS cannot invest in another if that other is
capable of investing more than 10 per cent of its assets in other
collectives.
AIFMD
Similarly, the AIFMD Q&A has been updated to include one new
Q&A relating to AIFs issuing new units to existing investors.
ESMA sets out its reasoning for this change of approach in
relation to proportionality in an accompanying letter addressed
to the Commission, the Parliament and the Council. In the letter,
ESMA notes that, one month prior to the publication of the Draft
Guidelines, in June 2015, the European Banking Authority (EBA)
had published draft guidelines in relation to remuneration under
Directive 2013/36/EU and Regulation (EU) No 575/2013
(CRD IV) (Draft CRD IV Remuneration Guidelines). The EBA’s
approach to proportionality under the Draft CRD IV Remuneration
Guidelines, with which the Commission has concurred, does
not provide for the level of specificity provided for under the
AIFMD Remuneration Guidelines. ESMA notes in the letter that
it ultimately decided to adopt an approach consistent with the
approach taken by the EBA in the Draft CRD IV Remuneration
Guidelines rather than following its own approach in the AIFMD
Remuneration Guidelines. The letter states ESMA’s view that
further changes to asset management legislation at the EU level
would help to clarify the applicable regulatory framework as
regards proportionality and to ensure greater consistency in the
application of remuneration requirements by asset managers.
The ESMA guidance in the updated Q&A states that AIFMs
are not required to submit a new notification to their national
competent authority if an AIF is to offer additional units,
provided that the offer of the additional units is restricted to
existing investors.
March 2016 - UK European Long-Term Investment Funds and
FCA decision making procedure
The FCA has published its March 2016 Quarterly Consultation
in which it consults on further proposed amendments
concerning European Long-term Investment Funds (ELTIFs).
The proposals in the Quarterly Consultation deal with
amendments to the Enforcement Guide (EG) and the Decision
Procedure and Penalties manual (DEPP) in relation to the
European Long-term Investment Funds Regulations 2015
(ELTIF Regulations). The FCA proposes to:
ŠŠ amend EG 19.131 to include reference to the ELTIF
Regulation. The ELTIF Regulations add a new part to
the Alternative Investment Fund Managers Regulations
2013 in relation to the FCA authorising and revoking
authorisation of ELTIFs. The proposed amendment to EG
19.131 would reflect this change; and
The Guidelines will apply as of 1 January 2017.
Finally, ESMA has amended the AIFMD Remuneration Guidelines
to acknowledge that one impact of CRD IV may be to affect
the status of certain staff of asset managers which are part of a
group for the purposes of remuneration rules under AIFMD. This
change also takes effect as of 1 January 2017.
2
ŠŠ amend DEPP 2 Annex 1 to set out the decision making
process relating to the refusal of applications for
authorisation and the revocation of authorisation of an
ELTIF by the FCA. According to the proposal, any decision
to refuse an application for authorisation of a UK ELTIF
would be taken by the FCA under executive procedure.
Other areas discussion
31.03.2016 - Financial Stability Board meeting
ŠŠ addressing emerging vulnerabilities and the
implementation of post crisis reforms;
The Financial Stability Board (FSB) has published a press
release setting out the key issues discussed at its plenary
meeting in Tokyo.
Asset management and market liquidity issues
The FSB intends to launch a public consultation on policy
recommendations to address structural vulnerabilities from
asset management activities ahead of the meeting of G20
leaders at their Hangzhou Summit in September 2016.
The FSB highlighted the following key areas for consultation:
ŠŠ funds’ liquidity mismatch;
The FSB also highlighted the following key issues for
discussion:
ŠŠ transforming shadow banking into resilient market based
finance;
ŠŠ emerging Market and Developing Economies Forum;
ŠŠ climate-related financial risks;
ŠŠ strengthening the robustness of financial infrastructure;
ŠŠ financial system implications of technological innovation;
ŠŠ experience with macroprudential policy frameworks and
tools; and
ŠŠ ongoing FSB initiatives.
ŠŠ leverage within funds;
ŠŠ operational risk and challenges in transferring mandates in
a stressed situation;
ŠŠ securities lending activities of asset managers and funds;
and
ŠŠ the use of stress testing to assess the ability of funds to
meet their redemption obligations under stressed market
conditions.
Contact details
If you would like further information or specific advice please contact:
Alex Amosbridget barker
DD +44 (0)20 7849 2554
DD +44 (0)20 7849 2495
[email protected]
[email protected]
tim cornickLORA FROUD
DD +44 (0)20 7849 2510
DD +44 (0)20 7849 2409
[email protected]
[email protected]
christopher good
DD +44 (0)20 7849 2524
[email protected]
stephen robinson
DD +44 (0)20 7849 2280
[email protected]
Simon Thomas
DD +44 (0)20 7849 2444
[email protected]
april 2016
Macfarlanes LLP
20 Cursitor Street London EC4A 1LT
T: +44 (0)20 7831 9222 F: +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com
This note is intended to provide general information about some recent and anticipated developments which may be of interest.
It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
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The firm is not authorised under the Financial Services and Markets Act 2000, but is able in certain circumstances to offer a limited range of investment services to clients because it is authorised and regulated by the Solicitors Regulation Authority.
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