RegulationFeb 20 2023

FCA starts preparing post-Brexit asset management rules

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FCA starts preparing post-Brexit asset management rules
The Financial Conduct Authority has asked the asset management industry for feedback on how regulation should be updated now that the UK has left the EU.

Asset managers, fund managers, platform providers and advisers have been asked for their ideas on how the industry should be regulated in the future.

In a 49-page consultation paper released this morning (February 20), the Financial Conduct Authority asked for feedback on a wide range of topics to do with asset management, including simplifying the Ucits regime and adjusting liquidity management and stress testing rules.

The feedback will be considered as the FCA begins to adjust its framework in light of the UK leaving the EU.

The government is in the process of repealing a number of EU laws that were retained after Brexit, and once this has happened regulators will update their rulebooks with specific changes to their rules.

The next three months should give the industry the time to fly a kite on some Brexit dividend proposalsKevin Doran, AJ Bell Investments

Camille Blackburn, director of wholesale buy-side at the FCA, said: “Given the UK’s leading role as a centre for asset management, we want to make sure our rules are fit for the future. 

“We want a UK wholesale market which supports the economy and is open to innovation, while remaining consistent with high standards of consumer protection and market integrity.” 

Managing director of AJ Bell Investments, Kevin Doran, said the release was “one of those rare birds in the industry of a genuine consultation".

“With no cemented new proposals put forward, the next three months should give the industry the time to fly a kite on some Brexit dividend proposals.”

At the top of the list will be a ‘post-Ucits’ world for UK asset managers, he said, adding that the ‘barbaric relic’ that is fund administration should also be overhauled.

Potential areas of change

The FCA proposed a number of potential changes to the Ucits regime, including authorising all funds (Ucits and non-Ucits, or Nurs funds) under the same regime, or creating a Ucits and ‘Ucits plus’ definition for funds, with the latter applying to more complex and specialist funds.

The regulator has also asked for feedback on whether certain rules that apply to fund managers, including on investment due diligence or managing liquidity, should be extended to portfolio managers, which the FCA acknowledged might have a ‘material, one-off impact’ on existing managers.

Portfolio managers could also be required to adhere to certain rules over the financial stability risks of their activities, highlighting how recent issues in the liability-driven investments have impacted the wider market.

The FCA said it was wondering whether there is a gap in the regulatory framework in this instance, and if so, how it might be filled.

It has also asked the industry whether it should amend the threshold at which alternative investment fund managers (Aifs) should apply full-scope FCA rules, and whether there are any aspects of the current Aifs regime that professional investors do not value.

Liquidity management and stress testing rules for the fund management industry may be changed as the FCA acknowledged that the fund industry has grown to a point where liquidity management in funds is also relevant to the good functioning in markets.

There might also be clarifications to the 10 per cent rule, which governs how much a fund can hold in assets that do not meet its eligibility criteria.

Other areas up for debate are:

  • Whether to make expectations on investment due diligence clearer for all asset managers
  • If the regulator’s expectations of depositaries should be made clearer 
  • The potential adjustment of rules governing a fund’s prudent spread of risk
  • If the Investment Association’s ‘Direct2Fund’ proposition should be implemented
  • What the benefits would be if authorised funds provided tokenised units for investors
  • What changes could be made to the rules for fund managers’ reports and accounts, and unit holders meetings

sally.hickey@ft.com