UK: FCA Publishes Annual Business Plan 2017/18 (Investment Management Brief: 20 April 2017)

Updates from the Financial Regulation team at Pinsent Masons.
Last Updated: 4 May 2017
Article by David Heffron, Elizabeth Budd, Michael Lewis and Ian Warner

Originally published 20th April 2017


FCA publishes annual business plan 2017/18

The FCA published its annual business plan [18.04.17] for the year 2017/18.  This sets out the FCA's work priorities in the coming year including six cross-sector priorities relevant to all firms. These are:

  • firms' culture and governance;
  • financial crime and anti-money laundering;
  • promoting competition and innovation;
  • technological change and innovation;
  • treatment of existing customers; and
  • consumer vulnerability and access.

The business plan lists seven sectors and identifies the FCA's priorities for each. For the Investment Management sector one of the FCA's priorities is to review its policy options regarding fund liquidity (please see our article on this topic). FCA's work in this sector is with the aim of achieving a range of outcomes including:

  • firms acting in the best interests of investors and earning customers' trust;
  • products to deliver value for money;
  • funds' performance to be reported against appropriate benchmarks;
  • fund managers implement liquidity risk management tools when investors redeem and/or they face valuation issues; and
  • investors understand the objectives of a fund they invest in.

For the Retail Investment sector the FCA's priorities include: assessing the market for investment platforms and how the FCA can improve competition; and assessing the developing market for automated advice models.  In the context of platforms, the FCA will carry out a market study into how 'direct to consumer' and intermediated platforms compete and to find out whether platforms provide investors with access to products offering value for money.

In relation to auto advice to inform their future regulatory strategy the FCA will review models that already provide advice in this way as well as new market entrants.  Some outcomes the FCA is seeking for the Retail Investments sector is increased consumer willingness to use the sector; improved access to advice and guidance for consumers and that advisers focus on value for money for consumers.

FCA consults on guidance to FAMR's recommendations

The FCA issued a Guidance Consultation [11.04.17] on four of the Financial Advice Market Review's (FAMR's) recommendations. FAMR looked at how government, industry and regulators could develop a market delivering more affordable, accessible financial advice and guidance.  FAMR's Final Report (March 2016) contained a number of policy recommendations, of these the FCA is now focussing on guidance on how to:

  • support firms offering 'streamlined advice' on a limited range of consumer needs;
  • clarify standard information types in the fact find and the key considerations to verify a fact find by third parties;
  • support firms offering services helping consumers make their own investment decisions without a personal recommendation;
  • provide a new factsheet setting out the help employers and trustees can provide on financial matters without regulation.

There will be an impact on firms advising on or distributing retail products and financial instruments to retail clients.  Comments to be sent to the FCA by two different deadlines: 23 May 2017 (non-advised services) and by 11 July 2017 (streamlined advice, fact find and the factsheet). 

FCA updates its AIFMD page

The FCA updated its AIFMD page [06.04.17] to reflect the Alternative Investment Fund Managers Directive (AIFMD) (Reporting) Instrument 2017 which comes into force on 29th June 2017. The page clarifies the following areas: assets under management calculation, master fund registration, feeder fund transparency reporting requirements, reporting requirements changes for UK AIFMs subject to semi-annual or annual reporting, reporting requirement changes for funds subject to quarterly reporting, fees and charges and that there is to be no look through to the master fund by feeder funds for data reporting purposes. 

The Legislative Reform (Private Fund Limited Partnerships) Order 2017 comes into force

The Legislative Reform (Private Fund Limited Partnerships) Order 2017 came into force [06.04.17]. It enables a limited partnership that is a collective investment scheme to be a private fund limited partnership (PFLP). It also amends various provisions of the Limited Partnerships Act 1907 as applicable to PFLPs and partners in them including so that they are not obliged to contribute capital to the PFLP and in relation to a winding up. There is also a non-exhaustive list of actions limited partners in a PFLP may take without being considered to be managing the limited partnership and thereby losing their limited liability (although it does not entitle the partners to take such actions if they would not be permitted to do so under the partnership agreement).  It also contains provisions on the application to become a PFLP.

EU Regulatory

ESMA updates Q&As

ESMA updated its Q&As on a range of areas including:

  • data reporting [03.04.17] under the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) on:
    • Seniority of bonds;
    • Reporting inflation indexed bonds;
    • Transaction reporting where the transaction price is not available at execution (eg: net asset value for some exchange traded funds); and
    • National client identifiers for natural persons (to use in transaction reports).
  • investor protection under MiFID II and MiFIR.  These clarify aspects of:
    • best execution;
    • suitability;
    • post sale reporting;
    • inducements (research);
    • charges and costs information;
    • underwriting and placing financial instruments.
  • AIFMD: ESMA added a new Q&A [06.04.2017] to clarify that despite Member States introducing categories such as "qualifying investor", "informed investor", or "semi-professional investor" which have some of the characteristics of the "professional investor" as defined in AIFMD, the AIF marketing passport does not extend to such investors: it applies only to professional investors, as defined.  Therefore marketing to such non-professional investors must be notified and carried out pursuant to the national legislation of the AIF's host Member State. 
  • UCITS: ESMA added a new Q&A [06.04.17] to clarify that if a UCITS management company proposes to use the UCITS management company passport to carry on cross-border activities (MiFID services, collective portfolio management) then it is not required to specify in its notification letter the UCITS in respect of which it wishes to do so.  When the management company later identifies a UCITS that it wishes to manage cross-border, then it must notify the competent authorities in the UCITS' home Member State (Article 20 UCITS Directive).

ESMA study on notification frameworks and home-host state responsibilities under UCITS and AIFMD

ESMA published its report  [07.04.17] concluding its thematic study among National Competent Authorities (NCAs) on "Notification frameworks and home-host responsibilities under UCITS and AIFMD". One of ESMA's objectives is to develop supervisory convergence among NCAs and the report includes sections that survey the cross-border management and marketing activities of AIFMS and UCITS and their management companies in the EU.  ESMA identified good practices as well as other aspects of how the passports function that it will work on further, to clarify supervisory responsibilities and facilitate the administration of the passporting frameworks.

PRIIPS regulation published in the OJ

The Commission published in the Official Journal of the European Union (OJ) [12.04.17] delegated regulation of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards for the presentation, content, review and revision of key information documents (KIDs) and the conditions for fulfilling the requirement to provide such documents (EU) 2017/653.  The delegated regulation applies from 1 January 2018. There is a derogation for PRIIP manufacturers from certain requirements until 31 December 2019, if at least one underlying investment option is a UCITS or non-UCITS fund, in which case manufacturers may use the key investor information document drawn up under UCITS V to provide specific information for certain sections in the generic KID ('What is this product', 'What are the risks and what could I get in return' and 'What are the costs').

European Parliament approves new prospectus rules proposal

The European Parliament has approved a proposal for new prospectus rules to make prospectus requirements match the current environment better, benefitting issuers raising funds and ending the perceived overly great dependency of small firms on bank funding.  The aim is for investors to reach an informed view on the assets, liabilities, profits, losses and rights attached to investment products and would require prospectuses to include a seven-page summary (with up to an extra three pages where a specific type of security requires further explanation) providing:

  • key information for investors to understand risks and make an informed decision;
  • information on the issuer, the securities, the offer to the public, and admission to trading;
  • a clear warning of the risks involved, such as of losing some/all the investment.

European Parliament adopts proposal for a Regulation on MMFs

The European Parliament adopted the proposal for a Regulation on Money Market Funds (MMFs) [05.04.17]. MMFs provide short-term finance to financial institutions, corporations and government and are often used for short term cash investments.  However, MMFs may be vulnerable when there are difficulties in financial markets and could spread risk through the financial system if the value of the underlying assets the MMF is invested in fall, so the MMF is then unable to honour its commitment to redeem immediately and/or to preserve the value of its shares/units.  If there are large redemption requests, MMFs may be forced into asset sales in a falling market potentially contributing to a liquidity crisis. Consequently a Regulation is proposed on the operation of MMFs particularly with regard to their portfolio contents.  The new Regulation builds on rules for the establishment, management and marketing of UCITS and AIFs.


The Council of the European Union and European Parliament set out positions for the Brexit negotiations

The Council of the European Union issued draft guidelines following the UK's notification under article 50 of the Treaty of the European Union.  The European Council states that it wishes to have the UK as a "close partner" in future and welcomes the British Government's recognition that it cannot cherry pick as the four freedoms of the Single Market cannot be divided. The first phase of the negotiations will be to disentangle the UK from the Union providing "as much clarity and legal certainty as possible" on the immediate effects of the UK's withdrawal to citizens, businesses, stakeholders and international partners.

The agreement on the UK's future relationship with the EU can be finalised only when the UK is a third country although article 50 of the Treaty of the European Union, requires the framework of the future relationship be taken into account in the arrangements for the withdrawal.  So an "overall understanding" of that framework could be given during a second phase of the negotiations. The negotiations may also identify transitional arrangements in the Union's interest. Such transitional arrangements must be "clearly defined, limited in time, and subject to effective enforcement mechanisms".

Meanwhile, as announced in a press release [06.04.17] the European Parliament has adopted a resolution on its key principles and conditions for approving the UK's withdrawal agreement.  MEPs emphasised the importance of securing equal and fair treatment for EU citizens living in the UK and for British citizens living in the EU. It points out that the UK has rights and obligations while it remains a Member State including financial commitments that may run beyond the withdrawal date. The resolution also states that any transitional agreements cannot last longer than three years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances,

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