UCITS Regulations 2016 Published
The Undertakings for Collective Investment in Transferable Securities Regulations 2016 (SI 2016/225) were published on 25 February 2016. These implement provisions of the UCITS V Directive (2014/91/EU) relating to depositaries and sanctions, and impose requirements on the FCA relating to information and reporting.
The changes include:
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Amendments to the Financial Services and Markets Act 2000 (FSMA) to provide that the disciplinary powers in FSMA that are exercisable against unauthorised persons, approved persons and senior managers can be applied to contraventions of the UCITS Regulations 2011 (SI 2011/1613). They also provide that the FCA can cancel an authorised person's Part 4A permission in the case of serious breaches of FSMA or of the UCITS Regulations 2011.
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Amendments to the UCITS Regulations 2011 relating to the liability of a UCITS scheme depositary for loss of financial instruments held in custody, or in respect of other losses resulting from the depositary’s negligent or intentional failure to properly fulfil its obligations under the UCITS V Directive.
The Regulations come into force on 18 March 2016.
FCA Publishes Good Practice Update on Liquidity Management
An update on liquidity management good practices for investment firms was published by the FCA on 29 February 2016.
The update follows a request from the Financial Policy Committee for the FCA to work with the Bank of England to gather information from UK asset managers about their strategies for managing the liquidity of their funds in normal and stressed scenarios. As part of this work, the FCA assessed the risk posed by open-ended investment funds investing in the fixed-income sector and met with a number of large investment managers to understand how they manage liquidity in their funds.
In the update, the FCA set out examples of good practices relating to:
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Disclosure of liquidity risks to investors.
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Liquidity risk management and oversight.
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Fund dealing (ie, the management of redemptions and transaction costs related to redemptions).
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Exceptional liquidity tools (eg, swing pricing and dilution levies) and exceptional liquidity measures such as deferred redemptions and suspension of dealing.
The FCA suggested that these good practices may help firms to improve their own liquidity management. It highlighted three areas of focus for firms to evaluate when assessing their liquidity management:
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Tools, processes and underlying assumptions: These require continuous re-assessment and updating to ensure that they remain suitable for market conditions.
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Operational preparedness: Firms should have a high degree of reassurance that tools, particularly extraordinary measures, can be implemented smoothly when required.
Disclosure: Clear and full disclosure should be given to fund investors on liquidity risks and the tools available to the fund to manage those risks, such as swing pricing, deferred redemption and suspension.
FCA Policy Statement on Access to Regulated Benchmarks
The FCA published a policy statement (PS16/4) on fair, reasonable and non-discriminatory (FRAND) access to regulated benchmarks on 8 February 2016.
The policy statement follows a June 2015 consultation paper (CP15/18) on amendments to the Market Conduct sourcebook (MAR) requiring regulated benchmark administrators to grant access to licences to use benchmarks on a FRAND basis, including with regards to price.
In the policy statement, the FCA decided to limit the application of the new FRAND provisions to benchmark users that are central counterparties (CCPs), multilateral trading facilities (MTFs) and regulated markets (referred to in the rules, collectively, as "relevant users"). This corresponds to the scope of users covered by Article 37 of the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR), with the exception of organised trading facilities (OTFs) (which is a category of firms that will not be introduced until MiFID II comes into force). The FCA comments that it has effectively brought forward to 2016 the implementation of Article 37 of MiFIR.
If the final version of the EU Benchmark Regulation contains a FRAND requirement for users not covered by the FCA's FRAND rules, the FCA will consider extending the coverage of the FRAND rules so that those users are covered.
The final rules will come into force on 1 April 2016.
