Improving the UK’s asset management regime: FCA’s priorities

What's new?

On 12 October 2023, Ashley Alder, the FCA's Chair, delivered a speech which offers interesting insights into the FCA's strategic outlook for the UK asset management regime, in light of feedback to DP23/2, (the DP) - see our summary of the DP here.

The FCA has identified four key areas for reform:

• making the regime for alternative fund managers more proportionate
• updating the regime for retail funds
• supporting technological innovation and
• encouraging productive investment in the UK

The FCA will also seek to achieve proportional regulation - both in relation to a firm's size and the nature of its customer base - while promoting its statutory competitiveness objective.

Background

As we reported at the time, in February 2023, the FCA started a conversation with industry on the future of fund management regulation, noting that this was an opportunity to introduce a more modern and tailored regime for the UK.

FCA's Priorities

The FCA has set out its strategic outlook on asset management reforms in four areas:

Making the regime for alternative fund managers more proportionate
The FCA aims to

• create a single regime which would apply to all managers of alternative funds (rather than having two categories of fund managers, with different rules applying to each)
• work with HM Treasury (HMT) to create a single regime which would operate proportionately depending on the nature and scale of a firm's business
• modify the AIFMD rules which prevent a full-scope fund manager from carrying out other activities within the same legal entity
• consider changes to the AIFMD reporting obligations

Updating the regime for retail funds
The FCA is looking to

• clarify the distinction between requirements for retail funds and alternative investment funds in order to simplify the retail rules for UCITS
• continue to explore the option to rebrand non-UCITS funds to rationalise the retail funds regime

Supporting technological innovation
The FCA plans to continue working

• on a blueprint for fund tokenisation and adoption of the Distributed Ledger Technology together with the Technology Working Group (TWG), which sits under Treasury's Asset Management Taskforce. The TWG is expected to publish later this year
• on other initiatives that build extra capacity to support innovation, such as the Direct2Fund proposal
• on ensuring it takes account of international regulation standards when approaching regulatory reforms, to ensure that the UK regime is attractive, competitive and not unnecessarily complex

Encouraging productive investment in the UK
The FCA is also

• working on reforms that will help mobilise domestic finance and reverse stagnation of the UK capital markets
• developing proposals to amend its listing rules (having already broadened retail access to Long-Term Asset Funds)
• working with HMT on a joint review of the advice/guidance boundary. Through this work, the FCA aims to ensure that people receive efficient investment advice that is tailored to their needs

Next steps

The FCA intends to consult on amendments to the UK's AIFMD regime and a re-evaluation of the AIFMD rules for non-UCITS funds in 2024.

It also intends to consult on changing the reporting obligations in 2025.

The FCA will be further looking for ways to mobilise domestic finance but this will require it to address both structural and cultural impediments.