07.04.2016 - FCA reminds asset managers of importance of meeting investors’ expectations

The FCA has published Thematic Review TR16/3 entitled “Meeting investors’ expectations”.

The FCA’s review considered whether UK authorised investment funds and segregated mandates operated in line with investors’ expectations as set by marketing and disclosure material, and investment mandates. This was assessed against FCA rules and did not focus on fund performance. The review also considered how firms monitored the appropriate distribution of their funds. The review covered 19 UK fund management firms responsible for 23 UK authorised funds and four segregated mandates.

Asset managers included in the review were generally taking the right steps to ensure they managed funds as they said they would. But while most funds in the sample were investing in line with their stated strategy, the FCA did find examples of unclear product descriptions and inadequate governance or oversight.

Funds that were clear with investors provided a thorough explanation of their investment strategy, as well as specific information about the aims and asset allocation of the fund. However, some funds were not providing a clear enough (and jargon-free) explanation of how they were managed.

The Review comments that in order to ensure investors’ expectations are met, fund management firms must have appropriate oversight to make sure that the fund is being managed in accordance with its stated investment policy. The FCA was concerned that this was not happening properly with the funds in its sample that were no longer marketed to consumers. None of these funds clearly disclosed the investment strategy to customers. Firms must also carefully monitor the distribution of their funds. This was not happening in all cases reviewed by FCA.

The FCA is writing to all the firms included in its review to provide individual feedback. Fund management firms that did not effectively manage risks that could lead to poor customer outcomes will be required to make improvements to their practices. The FCA is already requiring the most significant issues to be addressed.

05.04.2016 - FCA Business Plan 2016/17

The FCA has published its Business Plan for 2016/17, listing the following seven priority objectives:

  • pensions - fair treatment for consumers, stronger competition and a market that meets consumer needs;
  • financial crime and Anti-Money Laundering - better, proportionate and more efficient AML controls and consumers who are better able to avoid scams;
  • wholesale financial markets - strong controls which protect market integrity and ensure clean, efficient and effective markets;
  • advice - affordable, professional advice to meet consumers’ changing and complex needs. This includes moving forward on the Financial Advice Market Review which reported in March and recommended simplification and clarity in the regulation of financial advice and guidance. It also called for support for firms developing non-advised services and “streamlined” advice services including those delivered via automated models;
  • innovation and technology - resilient systems and new sources of competition;
  • firms’ culture and governance - strong culture and governance which helps competition and consumers alike; and
  • treatment of existing customers - effective competition, a fair deal and greater transparency for long-standing customers.

These priorities will influence FCA decisions about its thematic projects, market studies and core activities. 

31.03.2016 - ESMA publishes final UCITS Remuneration Guidelines and amendment to AIFMD Remuneration Guidelines

The European Securities and Markets Authority (ESMA) has published its final guidelines on the remuneration of asset managers subject to Directive 2009/65/EC (UCITS Directive), as modified by Directive 2014/91/EU (UCITS V), entitled “Guidelines on sound remuneration policies under the UCITS Directive and AIFMD” (ESMA/2016/411) (UCITS Remuneration Guidelines or Guidelines). Concurrently, ESMA has published a minor amendment to the “Guidelines on sound remuneration policies under the AIFMD”, published in 2013 (ESMA/2013/232) (AIFMD Remuneration Guidelines).

The UCITS Remuneration Guidelines are broadly similar to the draft guidelines published by ESMA in a consultation paper (2015/ESMA/1172) on 24 July 2015 (Draft Guidelines). The most notable difference between the Guidelines and the Draft Guidelines is found in the provisions that relate to the application of the principle of “proportionality” in determining the extent to which the remuneration provisions of UCITS V should apply to firms of varying sizes and complexity. The Draft Guidelines envisaged that ESMA would adopt a similar approach to that which it had adopted in AIFMD. Under this approach, clarity was provided as to the aspects of UCITS V that could be disapplied by a firm where the application of such rules would be disproportionate in light of the circumstances of that particular firm. The rules that could be dis-applied were envisaged to include certain aspects of the pay-out process (including variable remuneration in non-cash instruments, retention, deferral and ex post incorporation of risk) and the requirement to establish a remuneration committee. The final Guidelines do not include these provisions and so how the proportionality principle can be applied in practice is now less clear than under the Draft Guidelines.

ESMA sets out its reasoning for this change of approach in relation to proportionality in an accompanying letter addressed to the Commission, the Parliament and the Council. In the letter, ESMA notes that, one month prior to the publication of the Draft Guidelines, in June 2015, the European Banking Authority (EBA) had published draft guidelines in relation to remuneration under Directive 2013/36/EU and Regulation (EU) No 575/2013 (CRD IV) (Draft CRD IV Remuneration Guidelines). The EBA’s approach to proportionality under the Draft CRD IV Remuneration Guidelines, with which the Commission has concurred, does not provide for the level of specificity provided for under the AIFMD Remuneration Guidelines. ESMA notes in the letter that it ultimately decided to adopt an approach consistent with the approach taken by the EBA in the Draft CRD IV Remuneration Guidelines rather than following its own approach in the AIFMD Remuneration Guidelines. The letter states ESMA’s view that further changes to asset management legislation at the EU level would help to clarify the applicable regulatory framework as regards proportionality and to ensure greater consistency in the application of remuneration requirements by asset managers.

The Guidelines will apply as of 1 January 2017. 

Finally, ESMA has amended the AIFMD Remuneration Guidelines to acknowledge that one impact of CRD IV may be to affect the status of certain staff of asset managers which are part of a group for the purposes of remuneration rules under AIFMD. This change also takes effect as of 1 January 2017.

05.04.2016 - ESMA publishes revised UCITS and AIFMD Q&As

The European Securities and Markets Authority (ESMA) has published revised versions of previous Q&As dealing with UCITS and AIFMD.


The UCITS Q&A consolidates four previous documents containing Q&As relating to the UCITS Directive into a single document.

In addition, the updated document contains one new Q&A which addresses UCITS investing into UCITS feeder funds. The ESMA guidance in the Q&A states that, in general, as UCITS feeder funds are required to invest at least 85 per cent of net assets into their UCITS master fund, another UCITS cannot invest in a UCITS feeder because this would infringe the rule that one UCITS cannot invest in another if that other is capable of investing more than 10 per cent of its assets in other collectives.


Similarly, the AIFMD Q&A has been updated to include one new Q&A relating to AIFs issuing new units to existing investors.

The ESMA guidance in the updated Q&A states that AIFMs are not required to submit a new notification to their national competent authority if an AIF is to offer additional units, provided that the offer of the additional units is restricted to existing investors.

March 2016 - UK European Long-Term Investment Funds and FCA decision making procedure

The FCA has published its March 2016 Quarterly Consultation in which it consults on further proposed amendments concerning European Long-term Investment Funds (ELTIFs).

The proposals in the Quarterly Consultation deal with amendments to the Enforcement Guide (EG) and the Decision Procedure and Penalties manual (DEPP) in relation to the European Long-term Investment Funds Regulations 2015 (ELTIF Regulations). The FCA proposes to:

  • amend EG 19.131 to include reference to the ELTIF Regulation. The ELTIF Regulations add a new part to the Alternative Investment Fund Managers Regulations 2013 in relation to the FCA authorising and revoking authorisation of ELTIFs. The proposed amendment to EG 19.131 would reflect this change; and
  • amend DEPP 2 Annex 1 to set out the decision making process relating to the refusal of applications for authorisation and the revocation of authorisation of an ELTIF by the FCA. According to the proposal, any decision to refuse an application for authorisation of a UK ELTIF would be taken by the FCA under executive procedure. 

31.03.2016 - Financial Stability Board meeting

The Financial Stability Board (FSB) has published a press release setting out the key issues discussed at its plenary meeting in Tokyo.

Asset management and market liquidity issues

The FSB intends to launch a public consultation on policy recommendations to address structural vulnerabilities from asset management activities ahead of the meeting of G20 leaders at their Hangzhou Summit in September 2016.

The FSB highlighted the following key areas for consultation:

  • funds’ liquidity mismatch;
  • leverage within funds;
  • operational risk and challenges in transferring mandates in a stressed situation;
  • securities lending activities of asset managers and funds; and
  • the use of stress testing to assess the ability of funds to meet their redemption obligations under stressed market conditions.

Other areas discussion

The FSB also highlighted the following key issues for discussion:

  • transforming shadow banking into resilient market based finance;
  • addressing emerging vulnerabilities and the implementation of post crisis reforms;
  • emerging Market and Developing Economies Forum; 
  • climate-related financial risks;
  • strengthening the robustness of financial infrastructure; 
  • financial system implications of technological innovation; 
  • experience with macroprudential policy frameworks and tools; and
  • ongoing FSB initiatives.