Funds and asset management regulatory news, January 2021

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Selected regulatory updates of interest to the funds and asset management sector. Among other things, this edition reports on adding a sub-fund under the UK FCA TMPR and amending a recognised EEA UCITS.

Contents

  • TMPR: FCA update on adding new sub-fund to umbrella scheme
  • Amending a recognised EEA UCITS: FCA notification form
  • Connaught Income Fund Series 1: Report of the independent review into FCA and FCA response
  • London Capital & Finance: Report on independent investigation and FCA response
  • EU UCITS: ESMA launches common supervisory action with NCAs on supervision of costs and fees

TMPR: FCA update on adding new sub-fund to umbrella scheme

The UK Financial Conduct Authority (FCA) has updated its webpage on adding a new sub-fund to an umbrella scheme in the temporary marketing permissions regime (TMPR) to add a link to the final version of the direction made under the Collective Investment Schemes (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/325), which sets out the information required to make a valid notification of a new sub-fund. The FCA has also added a link to the final version of the notification letter that must be sent by the operator of the new sub-fund to notify the FCA that they wish the new sub-fund to enter the TMPR.

Amending a recognised EEA UCITS: FCA notification form

The FCA has updated its webpage on amending a recognised fund, adding a link to a new Form TMPR CH. This form is to be used to notify the FCA of certain changes to an EEA UCITS scheme and any sub-funds that are in the TMPR, as required by regulations 65 and 66 of the Collective Investment Schemes (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/325).

The link to Form TMPR CH replaces the link to Form 264 CH (notification of certain changes to UCITS recognised under section 264 of the Financial Services and Markets Act 2000 (FSMA)) which was previously on the webpage. The FCA has also replaced references on the webpage to "recognised UCITS" with references to "previously recognised UCITS".

Connaught Income Fund Series 1: Report of the independent review into FCA and FCA response

The FCA has published the report of the independent review, led by Raj Parker, into the Financial Services Authority (FSA) and FCA's (the Regulator) handling of the Connaught Income Fund Series 1 (the Fund) and connected companies. The FCA has also published its response to the report.

In brief, the review found (among other things) that the Regulator's regulation of the relevant entities and individuals connected to the Fund was not appropriate or effective. The reviewer reached this conclusion against the background of known risks to investors posed by unregulated collective investment schemes (UCIS) in general as well as the specific information the regulator was presented with as to the risks posed to investors in the Fund.

In its response to the report, the FCA apologises for the errors it has made. It accepts and will implement all the review's recommendations.

London Capital & Finance: Report on independent investigation and FCA response

HM Treasury has published a report on Dame Elizabeth Gloster's investigation into the FCA's regulation of London Capital & Finance plc (LC&F). The FCA has published its response to the report along with a series of key actions that it will take in the next six months to address the issues raised.

The investigation considered whether the FCA discharged its functions in respect of LC&F in a manner which enabled it to effectively fulfil its statutory objectives. It concluded that the FCA did not. The review found that the root causes of the FCA's failure to regulate LC&F appropriately were significant gaps and weaknesses in the policies and practices implemented by the FCA to analyse the business activities of regulated firms.

The FCA has published a response to the report and accepted all its recommendations. It will fully incorporate the recommendations into its assessment of how effectively its current actions are delivering, as well as its action plan and ongoing transformation programme.

Nikhil Rathi, FCA Chief Executive, has outlined a series of key actions that the FCA will take in the next six months. These include:

  • restructuring the FCA to join up its policy, supervision and competition functions under two new Executive Directors so it has a better approach to translating insights into risks and warnings before taking action to tackle them;
  • undertaking a "use it or lose it" exercise, with firms that have not used their regulatory permissions to earn any regulated income for the last 12 months at risk of having their authorisation revoked. This is to reduce the risk of firms having a permission to carry out regulated activity purely to add credibility to their unregulated activities; and
  • recruiting additional prudential specialists to act as quality assurance and assess firms with complex business models, including where they combine regulated and unregulated activity, within the FCA's Authorisation Division.

EU UCITS: ESMA launches common supervisory action with NCAs on supervision of costs and fees

The European Securities and Markets Authority (ESMA) has announced the launch of its common supervisory action (CSA) with national competent authorities (NCAs) on the supervision of costs and fees of UCITS. The CSA will be conducted during 2021.

The CSAs aim is to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation to not charge investors undue costs. For this purpose, the NCAs will take into account ESMA's June 2020 supervisory briefing on the supervision of costs.

The CSA will also cover entities employing Efficient Portfolio Management (EPM) techniques to assess whether they adhere to the requirements set out in the UCITS framework and ESMA's guidelines on exchange traded funds (ETFs) and other UCITS issues.

Throughout 2021, NCAs will share their knowledge and experiences through ESMA to ensure supervisory convergence in how they supervise cost-related issues and ultimately enhance the protection of investors across the EU.

Ensuring greater convergence in the supervision of costs is an integral part of ESMA's broader efforts on the cost of retail investment products and is key to improving investors' confidence in financial markets and reducing costs associated with obtaining financial products.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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