The FCA has released Policy Statement PS18/8 which introduces a number of significant changes for investment funds. If you are an AFM you should ensure you read this in full. The key changes are as follows:
All AFMs from September 2019 will be required to have at least 2, and no less than 25% by number, independent directors. Once the rules come into force, existing independent directors can serve for a maximum term of five years (renewed once to a maximum of 10 years). The Policy Statement contains guidance on the definition of independent and around independent directors serving multiple different companies. This will be a big change for a lot of firms and require a recruitment process and additional costs.
Movement between share classes
Many funds have legacy share classes which are more expensive than other newer classes, but are identical in all other ways. The policy statement contains guidance that AFMs no longer require investor permission to move them to an identical but cheaper share class. The firm must consider whether it is in the investors’ best interest and document their consideration.
The guidance recommends AFMs make a simple one-off notification to investors, which does not require a response, a minimum of 60 days before a mandatory conversion.
A new value for money assessment will be required in accounts with year ends finishing on or after 30 September 2019. The areas which the value for money assessment must cover are detailed in COLL 8.5.3A.
There were proposals to completely stop the payment of trail commission, however the policy statement confirms that the FCA has received feedback from both sides of the argument and is still deciding its approach to this.
Fund objectives and benchmarking
The FCA is also consulting on a number of potential changes in consultation paper (CP18/19). The paper lays out plans for all investment funds to clearly lay out their objectives in both the prospectus and KIID documents. Objectives should be in plain English and be easy to understand, covering the aims of the fund and how it will achieve its aims.
There are also proposals that benchmarking should be used in a more consistent way. The AFM should explain why a benchmark has been used for a fund and this benchmark should be consistent across all materials and documents for the fund.
New capital Requirements
In October 2017 we published an article on proposed changes to capital requirements for investment firms. While this is still in the consultation phase, if you have not looked at how this may affect you, please see the article on our website.
FCA office move
The FCA has moved offices from Canary Wharf to Stratford from 1 July 2018 so any communication with them should be with their new address:
Financial Conduct Authority
12 Endeavour Square
Brexit and EU Withdrawl
Although the details of this at time of writing are still very much up in the air at even a high level, the FCA says firms should be considering the impact on their activities. This is difficult as there’s been no real guidance yet, but current passporting rights are planned at the moment to continue until December 2020 if you are operating in Europe. Firms who are currently passporting into Europe need not apply for authorisation in those counties at this stage, until further details are decided.
The FCA will be invoicing for 2018/19 annual fees between July and September and they are encouraging you to register online in order to do this. If you haven’t already registered you can email email@example.com for help.
The FCA has consulted on plans to change the way firms report their data to them. This was as a result of a proof of concept developed at one of the FCA’s ‘Techsprints’ events. The concept is that reporting is linked and mapped directly to the data the firm holds. While this may be appropriate for large organisations, smaller regulated firms are unlikely to have this sort of real time data in their systems. It is only at the concept phase at the moment, but worth keeping an eye on.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above. If you would like advice or further information, please speak to your usual Shipleys contact.