The FCA has published a consultation paper on the implementation of the UCITS V Directive (2014/91/EU) and other changes to the Handbook affecting investment funds (CP15/27).

The paper contains three sets of proposals relating to the regulation of authorised investment funds.

Part I - Implementing UCITS V

The FCA is consulting on:

  • the requirements applicable to management companies, including the remuneration principles and the transparency obligations towards investors; and
  • changes to the regime for depositaries, including the eligibility criteria for firms acting as depositaries of UCITS and the capital requirements applicable to them.

The deadline for responses to Part I is 9 November 2015. The FCA intends to publish a policy statement based on its findings in early 2016 in order to finalise its rules and guidance for implementing UCITS V before the deadline of 18 March 2016.

Part II - Regulation on European Long-Term Investment Funds ((EU) 2015/760) (ELTIF Regulation)

The ELTIF Regulation will create a new cross-border product framework for long-term investments, which is aimed at increasing the amount of non-bank finance available to companies and projects in the EU that require access to long- term capital. In this paper:

  • Chapter 5 sets out the proposals relating to the Handbook arising from the ELTIF Regulation, including the FCA’s current rules for depositaries wishing to act for an ELTIF. It also sets out the FCA’s proposed fees for authorising and supervising ELTIFs.
  • Chapter 6 sets out the FCA’s views on the redress model that should be applied to such funds and their managers to bring them within scope of the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).

The deadline for responses to Part II is 5 October 2015. The FCA intends to publish a policy statement based on its findings by 9 December 2015. The FCA’s rules and guidance for the authorisation of ELTIFs will take effect on 9 December 2015, which is when the ELTIF Regulation becomes applicable.

Part III - Other miscellaneous changes to fund regulation

The FCA is consulting on other changes to the Handbook to ensure the rules and guidance for authorised investment funds is up-to-date which include:

  • a tailored regime for charity authorised investment funds (CAIFs);
  • the introduction of a standard reporting template for UCITS management companies, to facilitate reporting their use of derivatives;
  • enhanced requirements for depositaries of authorised funds to report information on breaches and visit reports periodically to the FCA;
  • a revised definition of feeder funds and rules allowing authorised funds to invest in feeder funds;
  • clarification of government and public securities to which the Collective Investment Schemes sourcebook (COLL) spread rules apply; and
  • changes to COLL affecting the calculation of the preliminary charge of a retail authorised fund.

The FCA also sets out its initial thinking on various matters that it would like to explore further before developing proposals for consultation. These matters include:

  • allowing fund managers to cease temporarily accepting new subscriptions into a fund to protect the interests of existing investors;
  • amending the rules about which entities can be counterparties to an over-the-counter derivative transaction in a UCITS scheme; and
  • understanding whether changes to the Handbook might enhance the attractiveness of ELTIF as a new type of fund, for both the institutional and retail markets.

The deadline for responses to Part III is 7 December 2015. The FCA intends to publish a policy statement based on its findings in 2016.


The International Organization of Securities Commissions (IOSCO) has published the findings of its review of the progress made by certain jurisdictions in adopting legislative measures in relation to the regulation of money market funds (MMFs), Peer Review of Regulation of Money Market Funds (the Report).

The Report follows a report published by IOSCO in 2012, which identified a number of areas for reform.

IOSCO surveyed the competent regulators in each of 31 jurisdictions, which cumulatively account for approximately 98 per cent of the MMF industry’s global assets under management. The Report’s key findings are:

The adoption of a definition of MMFs

The 2012 report noted that MMFs present several features that make them unique and that the term “money market fund” should therefore be expressly defined under applicable national regulations. The Report notes that, of the 31 jurisdictions surveyed, 29 have implemented measures that define MMFs. The Report notes that there are two broad approaches employed by those states that have adopted measures, either (1) defining the term by exclusive reference to specified permitted asset classes, or (2) defining the term with reference to specified investment objectives.

Limitations to asset types and risks

The 2012 Report recommended that specific limitations should apply to the types of assets in which MMFs may invest and the level of risk that they may undertake. All jurisdictions (bar one) reported having in force requirements relating to the type of assets that MMFs could invest in.


The 2012 Report recommended that MMFs should comply with the general principle of fair value when valuing the securities held in their portfolios and that the amortized cost method should only be used in limited circumstances. The new Report notes that 24 of the jurisdictions surveyed now require MMFs to comply with the general principle of fair value.

Liquidity management

The 2012 report made four key recommendations in relation to liquidity management which are addressed as follows in the new Report:

  • Know your investors - the majority of jurisdictions  had introduced this requirement (14 jurisdictions) or had progressed the introduction of such measures (8 jurisdictions).
  • Minimum liquidity - a majority of jurisdictions had introduced this requirement (15 jurisdictions) or had progressed the introduction of such measures (10 jurisdictions).
  • Stress testing - a majority of participating jurisdictions reported either having introduced requirements on MMFs to periodically conduct appropriate stress testing (20) or having progressed the introduction of such requirements (2). A commonly observed required frequency is for stress tests to be conducted on a quarterly basis.
  • Requirements to deal with exceptional market conditions - 28 out of 31 jurisdictions reported having introduced requirements on MMFs to have tools and measures to deal with exceptional market conditions and substantial redemption pressures.

MMFs that offer stable NAV

A key recommendation of the 2012 report was that “MMFs that offer a stable NAV should be subject to measures designed to reduce the specific risks associated with their stable NAV feature”.

Of the respondent jurisdictions, 12 permit stable NAV  MMFs. IOSCO has requested further information from these jurisdictions.

The use of ratings

The 2012 report made a number of recommendations aimed at reducing the use of external credit ratings by MMFs and strengthening the responsibility of managers and investors  of MMFs to undertake credit risk assessments. 22 of the respondent jurisdictions reported they had implemented requirements to strengthen the obligations of responsible entities regarding internal credit risk assessment practices and to avoid mechanistic reliance on external ratings.

Disclosure to investors

All jurisdictions reported general product disclosure requirements were in force.

The use of repos

29 jurisdictions reported having introduced guidelines on the use of repos or having progressed the introduction of such guidelines.

IOSCO notes that a further review will take place in 2016.