UNITED KINGDOM: FCA Asset Management Market Study – Feedback to CP18/9 and Final Rules and Guidance

Tuesday February 5 2019

On the 5^th February 2019, the Financial Conduct Authority (FCA) published a Policy Statement that sets out the final rules and guidance to address some of the findings of the asset management market study, focused on fund objectives and the presentation of benchmarks.

This second set of remedies is part of a package of measures which the FCA have introduced to address weaknesses identified by their asset management market study. Additionally, the policy statement responds to the feedback we received to CP18/9 (PDF), explaining the changes the FCA have made to the proposals as a result and sets out final rules and guidance.

CP18/9 sought views on changes to address concerns that fund objectives are not as clear or specific as they should be, and that fund benchmarks may not always be presented consistently and appropriately.

The new rules and guidance:

• set out how fund managers should describe fund objectives and investment policies to make them more useful to investors
• require fund managers to explain why or how their funds use particular benchmarks or, if they do not use a benchmark, how investors should assess the performance of a fund
• require fund managers who use benchmarks to reference them consistently across the fund’s documents
• require fund managers who present a fund’s past performance to do so against each benchmark used as a constraint on portfolio construction or as a performance target, and
• clarify that where a performance fee is specified in the prospectus, it must be calculated based on the scheme’s performance after the deduction of all other fees

The new Handbook rules and guidance related to benchmarks will come into force in 3 months for new funds and in 6 months for existing funds. The rules on performance fees also come into force in 6 months. The FCA expect fund managers to take the FCA’s guidance on fund objectives into consideration when reviewing fund documentation from the date of publication of this policy statement.

Who this applies to

UK authorised fund managers (in respect of their management of authorised funds).

It will also interest others in the investment management industry, including delegated portfolio managers, depositaries of authorised funds, and retail and professional investors, including advisers.

Next Steps

The FCA have set out final Handbook text in Appendix 1 and non-Handbook guidance in Appendix 2. The new Handbook rules and guidance covered in the ‘benchmarks’ section will come into force on 7 May 2019 for new funds and on 7 August 2019 for existing funds. The ules on performance fees come into force on 7 August 2019. In addition, the FCA re clarifying how Chapter 4 of the Conduct of Business sourcebook (COBS 4) applies to the key investor information document. This change will come into force on 4 February 2019.