The FCA has published a consultation paper outlining proposed changes to the Client Assets sourcebook (CASS) and the Collective Investment Schemes sourcebook (COLL) following the adoption of UCITS V Level 2 Regulation. The paper also consults on minor changes to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) and the Investments Funds sourcebook (FUND) to reflect certain measures in the Securities Financing Transactions Regulation (SFTR).

The UCITS V Level 2 Regulation will be directly applicable to firms from 13 October 2016 and introduces the following requirements: Š

  • minimum terms in the contract between the management company and the depositary; Š
  • detailed oversight, cash monitoring and safekeeping requirements for the depositary;
  • Š types of assets that the depositary must hold in custody and segregate from the depositary’s own assets; Š conditions for the depositary’s liability for any loss of assets; Š
  • insolvency protection for assets when delegating safekeeping; and
  • requirements for independence between the management company and the depositary.

The SFTR came into force on 12 January 2016 and is directly applicable to firms and introduces: Š

  • new requirements on the transparency of securities financing transactions (SFTs), total return swaps and the re-use of financial instruments received under a collateral arrangement; and Š
  • requirements for managers of UCITS and AIFs to disclose their use of SFTs and total return swaps in the funds’ precontractual documents and periodic reports to investors.

The areas where the UCITS V Level 2 Regulation affects CASS include: Š

  • adequate organisational arrangements to minimise the risk of loss of assets as a result of fraud, poor administration, inadequate registering or negligence; Š
  • maintaining records and segregated accounts in a way that ensures accuracy, and records the correspondence with UCITS assets; and
  • Š reconciliation of records.

Minor changes to SYSC include: Š

  • Article 14b(4) of the UCITS directive requires a management company to establish a remuneration committee if the firm is significant in terms of its size or the size of the UCITS it manages, its internal organisation and the nature, scope and complexity of its activities.

Proposed changes to the Handbook resulting from the SFTR are: Š

  • from 13 January 2017 Article 13 of the SFTR requires UCITS management companies and AIFMs authorised under the AIFMD to inform investors, in the annual and halfyearly reports for UCITS and in the annual report for AIFs, about the use they make of SFTs and total return swaps; Š
  • from 13 July 2017, for funds constituted after 12 January 2016 Article 14 of the SFTR requires UCITS management companies and AIFMs authorised under the AIFMD, to specify in their pre-contractual documents the SFTs and total return swaps they are authorised to use and to include a clear statement that those transactions and instruments are used; Š
  • managers of NURS and QIS should disclose the SFTR information in the prospectus instead of disclosing it in other pre-contractual documents; and
  • Š firms which are not using, or which are not authorised to use SFTs or total return swaps, are not required to make any disclosures under Articles 13 and 14 of the SFTR.


In its May 2016 Regulation round-up, FCA has reminded wealth management firms of the importance of providing clients with suitable investment portfolios. This is an area in which the FCA has been active for some time and in December 2015, it published Thematic Review 15/12 entitled “Wealth management firms and private banks: suitability of investment portfolios”.

This month’s regulation round up emphasises that FCA expects firms to take on board its findings and put themselves in a position to demonstrate that they are delivering suitable solutions for clients.

FCA considers that many firms need to “up their game” and it will be visiting a number of firms at the end of the year to see what action they have taken.


On 18th May, the government announced a Pensions Bill in the Queen’s Speech. According to the explanatory notes accompanying the speech, the Pensions Bill is expected to address the following areas:

  • Š to provide an increased level of protection for investors in master trusts;
  •  to remove barriers for consumers who want to access their pension savings flexibly; and
  •  to restructure the delivery of financial guidance to consumers.

Master trusts

It is expected that master trusts will need to meet strict new approval criteria and that the Pensions Regulator will be granted greater authority to authorise and supervise master trusts.

Access to pension savings

The early exit fees chargeable by trust-based occupational pension schemes are likely to be capped. It is further suggested that a system will be created to “enable consumers to access pension freedoms without unreasonable barriers”.

Restructuring financial guidance

Two new UK-wide bodies are to be created to provide financial guidance to consumers. A pensions guidance body will be created, absorbing the Pensions Advisory Service, Pension Wise and the pensions services offered by the Money Advice Service. A money guidance body will be created, replacing the Money Advice Service. It will be charged with identifying gaps in the financial guidance market to ensure that consumers can access debt and money guidance.