FCA publish Policy Statement and further consultation paper: Asset Management market study
The FCA has today published a Policy Statement (PS18/8) which implements the first set of remedies outlined in the Final Report (MS15/2.3) in respect of the Asset Management Market Study. The FCA has also published a further Consultation Paper (CP18/9) on fund objectives and the use of benchmarks and an Occasional Paper (OP32) in respect of the all-in fee and the possible standardisation of disclosure of fees and charges.
The FCA has also published a further Consultation Paper (CP18/9) which focuses on information provided to investors on fund objectives and the use of benchmarks. CP18/9 includes the FCA’s proposals: (i) that where a fund uses benchmarks these should be used “appropriately and consistently” against the fund’s past performance and their use should be explained and referenced consistently in investor materials; (ii) guidance for fund managers on how to express fund objectives and investment policies; and (iii) amendments to performance fees rules (performance fees to be calculated net of other fees). The deadline for responses is 05 July 2018.
However CP18/9 does not cover the all-in fee and the possible standardisation of disclosure of fees and charges. On the latter, the FCA has published an Occasional Paper (OP32), which considers the impact of different ways of presenting information on investors’ decision making and understanding. OP32 does not put forward any specific policy proposals but is designed to encourage debate and inform the FCA’s next steps.
FCA Policy Statement
We set out below the remedies as originally proposed in the Final Report and CP17/18 and the final rules detailed in PS18/8. In summary, the FCA has implemented the majority of its original proposals, however the FCA has made a significant change to its approach to “Value for Money”. This is now an obligation to conduct an assessment on whether payments out of a fund are “justified in context of the overall value delivered to unitholders”.
Final Report and CP17/18 |
Policy Statement |
Timing |
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Governance |
Proposed requirements at AFM level included:
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The proposals were implemented with some minor changes:
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By 30 September 2019 (18 month implementation) |
SM&CR |
Proposed introduction of a new prescribed responsibility through SM&CR:
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The FCA has adopted the new prescribed responsibility without change. |
At same time as the SM&CR extension (mid to late 2019) |
Value for money |
Proposed a new “value for money rule”, which would require AFMs to assess whether investors had received value for money on an ongoing basis and which would need to be documented formally on an annual basis (as part of each fund’s annual report or through a separate dedicated report). Such an assessment should consider (at least) economies of scale, fees and charges, and quality of services. |
The FCA has redrafted its proposed rules to clarify that fund charges should be assessed in the context of the overall value delivered, rather than using the term “value for money”. In particular the FCA has clarified that:
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By 30 September 2019 (18 month implementation) |
Box profits |
Proposed new rules:
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The FCA has implemented its proposed rules with minor changes to allow flexibility for the allocation of risk-free box profits (to the fund or to the investors). |
By 01 April 2019 (12 months implementation) |
Switching share classes |
Proposed certain modifications to the FCA’s Finalised Guidance: Changing customers to post-RDR unit classes (FG14/4) to clarify that when dealing with unresponsive unitholders the circumstances in which the AFM can undertake a mandatory conversion. |
Final guidance introduced which requires:
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05 April 2018 (immediate effect) |
Next steps
Simmons & Simmons will host a webinar session next week for clients in order to provide more detailed commentary on the Policy Statement and the latest consultation paper.
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