FCA issues further guidance on Brexit preparations

The FCA has published a series of guidance to assist regulated firms in finalizing their preparations for Brexit, particularly in the event of a no-deal scenario when EU passporting rights will cease to exist. While some EEA regulators have plans temporarily to allow some investment activities by UK firms that currently have a passport, the FCA urges firms to speak to regulators in the jurisdictions where their clients are based and to take legal advice and understand the national law in those jurisdictions. The FCA itself has confirmed that firms will have a 15-month grace period to comply with rule changes in the event of a no-deal Brexit.

Read: The FCA information for participants in the wholesale markets operating in the UK (including … asset managers)

FCA announces MoUs with EU regulators for post-Brexit delegations to UK managers

The FCA announced it has agreed Memoranda of Understanding (MoUs) with ESMA and EU member state financial services regulators to cover cooperation and exchange of information in the event that the UK leaves the EU without a withdrawal agreement and implementation period. The MoUs in question are:

• A multilateral MoU with EU and European Economic Area (EEA) National Competent Authorities covering supervisory cooperation, enforcement and information exchange; and
• An MoU with ESMA

The MoUs are required under AIFMD, the UCITS Directive and MiFID to permit EU regulated firms to delegate/outsource portfolio management functions to UK regulated managers in the event of a no-deal Brexit. 

Read: FCA press release 

FCA and CFTC issue joint statement on derivatives trading and clearing post-Brexit

The FCA and the U.S. Commodity Futures Trading Commission (CFTC) have issued a joint statement regarding measures to ensure that Brexit will not create regulatory uncertainty as concerns derivatives market activity between the UK and the U.S. There will be continued information-sharing and cooperation arrangements for effective cross-border oversight of derivatives markets; the CFTC intends to extend to the UK the existing regulatory relief granted to EU firms, and the UK authorities have confirmed that U.S. trading venues, firms and central counterparties will be able to continue providing services in the UK in the same way that they currently do in the EU.

Read: Joint statement by UK and U.S. authorities on continuity of derivatives trading and clearing post-Brexit

FCA issues second set of new rules from its Asset Management Market Study 

Following the rules published in April last year, the FCA has published new rules and guidance to improve the quality of information available to consumers so that they can better understand how their money is being managed and make better investment decisions about the funds in which they invest.

Read: Policy Statement PS19/4

FCA chief executive notes positive impacts of MiFID II research rules

The FCA chief executive, Andrew Bailey, has spoken about the positive impacts from the implementation of the recast Markets in Financial Instruments Directive (MiFID II). One of the most debated aspects of the directive was the “unbundling” of research costs. Bailey reported that the scale of the shift to managers funding research from their own revenues has been beyond expectations. The new rules appear to be having a positive impact on the accountability and discipline of the buy-side when procuring research. Execution costs have also been positively affected. Dealing commissions have fallen, partly because managers are using more electronic, “low-touch” channels. It is estimated that there has been a £180m reduction in charges incurred by investors in equity portfolios managed in the UK, which means that future reductions of nearly £1bn can be expected over the next five years.  

Mr Bailey acknowledged that there remain challenges for asset managers and the regulator, namely regarding inducements and the failure of the regime to differentiate between research being supplied by a broker (where a conflict of interest can arise) or an independent provider. Mr Bailey stressed that the FCA will be flexible and risk-based in its supervisory approach and that independent providers could pitch for business and offer sample materials on an ad-hoc basis without it being deemed an inducement for an asset manager. To ease the potential negative impact of the rules on the research coverage of smaller companies, the FCA will:

• Allow free distribution of research that supports capital raising events;
• Allow issuer-sponsored research to be freely circulated; and
• Clarify that research made publicly available cannot be an inducement.

The FCA wants to see independent research providers continue to play a key role.

Mr Bailey said that the FCA is completing its supervisory work to assess how the new rules are bedding in and it will provide more formal feedback in the second quarter of the year.

Read: Andrew Bailey’s speech