Updating and improving the UK regime for asset management: our priorities

In his recent speech at the Investment Association’s Annual Dinner, Ashley Alder, Chair of the Financial Conduct Authority (FCA), discussed the priorities/objectives for updating and improving the UK regime for asset management. These priorities/objectives are largely based on the feedback from a discussion paper (DP23/2) earlier this year in which the FCA sought views 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.
According to the Chair, the FCA will pursue three main objectives, namely:
(1) making the regime for alternative fund managers more proportionate,
(2) updating the regime for retail funds, and
(3) supporting technological innovation.
Before providing more details on these objectives, Alder emphasized the significant role of the asset management sector in mobilizing domestic savings for productive investment in the UK to support and promote the medium to long-term growth of the economy. Proportional regulation and driving innovation are thereby key aspects to advance this goal.
Furthermore, the Chair noted and acknowledged the challenges faced particularly by globally active fund management companies in view of the changing regulatory environment of the UK. As the goal to replace all EU retained regulations (REUL) will bring about many regulatory changes, many firms may feel overloaded with compliance issues. In this context, Alder emphasized that the replacement of EU legislation is not for the sake of replacement only. In fact, the FCA plans to make targeted changes to the regulatory regime of alternative fund managers and the UCITs regime to further advance the above noted goals, bring about consistency in UK regulation, and simplify the rules to make them easy to understand and comply with.
##### The objectives of the FCA
(1) making the regime for alternative fund managers more proportionate:
Having reviewed the feedback from above noted discussion paper, stakeholders suggest to retain the core framework of the retained Alternative Investment Fund Managers Directive (AIFMD), but making it more tailored to the UK market and addressing practical issues, particularly related to the threshold of assets under management. Therefore, instead of having different rules for different categories of managers, the FCA plans to revise its regulatory framework to apply consistent rules depending on the firm’s business nature and scale. The regulator will also review AIFMD restrictions on certain activities and consider to reduce some of the regulatory reporting requirements, if the compliance cost outweighs their benefits. Proposed modifications will be published in 2024.
(2) updating the regime for retail funds:
According to Alder, there’s a need for a more distinct separation between the requirements imposed on managers of authorized retail funds and managers of alternative investment funds. In this context, the Chair notes that the regime for retail funds will be closely reviewed and simplified wherever possible to make this distinction clear to market participants. Also, the FCA will consider rebranding options for non-UCITS funds to further support this distinction.
(3) supporting technological innovation:
On supporting technological innovation the Chair stated that above noted discussion paper included suggestions for the potential adoption of distributed ledger technology (DLT) in the asset management industry for fully digitized funds. Currently, there is an ongoing collaboration with the Technology Working Group to develop a blueprint for fund tokenization which is expected for later this year. According to Alder, the FCA will engage in policy initiatives and rule changes to support innovation and create a more efficient UK fund dealing model, such as the Direct2Fund proposal.
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To conclude, Alder emphasized that the FCA’s overall goal is to establish high standards while ensuring that UK UCITS and AIF regulations align with global requirements for internationally operating firms. The focus is on proportionality, reducing unnecessary complexity in regulations, and promoting competition. This approach aligns with the UK’s objective of enhancing competitiveness and growth while maintaining market integrity, consumer protection, and competition.