FCA seeks views on updating asset management regulation

The Financial Conduct Authority, FCA, has published a discussion paper (DP23/2) seeking views from the asset management industry on possible ways to
– improve, streamline, and / or standardize the current asset management regulatory regime;
– modernize the framework and make it fit for the future; and
– align the framework with international standards.
The discussion paper is thereby guided by some overarching principles including the facilitation of competition, the achievement of the best possible outcome for consumers, the application of proportionality, and the maintenance of financial market stability. It is very high-level in that it does NOT include specific proposed revisions to the FCA Handbook. Instead, the FCA seeks feedback on a wide variety of issues and possible regulatory enhancements such as:
– the creation of a common framework for asset management which is currently split among UCITS asset manager, AIF asset managers, and portfolio managers and sometimes inconsistent (e.g. the application of best execution requirements, conflicts of interest requirements, diversification requirements);
– a consolidation of rules for non-UCITS retail scheme (NURS) and UCITS both of which address retail clients, but non-UCITS retail schemes are treated as AIFs;
– a subsequent new classification system for retail funds;
– a possible increase of the threshold for AIFs above which AIFs would have to fully comply with the UK Alternative Investment Fund Managers Regulations (UK AIFMR) or – alternatively – the creation of further exemptions for AIFs to benefit from the small AIF regime;
– the clarification of the roles and responsibilities of authorized fund managers (AFMs) versus portfolio managers;
– the extension of the liquidity stress testing requirements to ensure more stringent application and fewer exemptions from the obligation;
– the clarification of swing pricing so as to ensure consistent application of this anti-dilutive measure;
– the extension of the liquidity reporting requirements to UCITS;
– the alignment of the investment due diligence requirements among all types of asset managers;
– the clarification of the FCA’s expectations of depositories as regards the monitoring of investment compliance;
– a possible clarification of the 10% rule which allows fund managers to invest up to 10% of a fund’s NAV in non-eligible securities meeting – however – other relevant criteria; and
– the improvement of disclosures made in the fund prospectus.
As there are numerous other issues discussed in the paper, please refer to the original document for more detailed, comprehensive information.