Asset Management Regulatory Roundup - August 2017, Issue 3

August 09, 2017

A compact summary of the most recent regulatory developments relevant to the UK asset management industry. This issue includes details on the extended senior manager & certification regime; the future of LIBOR; MiFiD II: FCA statement on applications; client assets: FCA policy statement and IOSCO final report; European Commission roadmap for the treatment of cross-border intra-EU investments and an article on accessing capital in Europe.


SM&C Regime: Extension to all financial services firms

The UK Financial Conduct Authority (FCA) has published proposed rules to extend the senior manager and certification regime (SM&CR) to all firms authorised by the FCA. This new SM&CR would replace the current authorised persons regime.

The FCA considers that the extension will make individuals more accountable for their conduct and competence, thus strengthening market integrity.

The proposals include five conduct rules that will apply to all financial services staff at FCA authorised firms and which will enforce individual accountability for acting with integrity, due care, skill and diligence and will ensure that individuals are open and cooperative with regulators, treat customers fairly and observe proper standards of market conduct.

The responsibilities of senior managers will be clearly defined and such persons can be held personally to account. They will be approved by the FCA and appear on its register.

Under the Certification Regime, firms will certify individuals for their fitness, skill and propriety on an annual basis, if they are not covered by the Senior Managers Regime but their positions significantly impact customers or firms.

The FCA has requested comments on its proposed rules by 3 November 2017.

Read the consultation.

Read Dechert’s OnPoint.

LIBOR: FCA speech on the future of LIBOR

Andrew Bailey, the Chief Executive of the FCA, gave a speech on the future of the London Interbank Offered Rate (LIBOR) (ie the average of interest rates leading London banks would be charged if they were to borrow from other banks). In his speech Andrew Bailey notes that the underlying market LIBOR is based on is no longer sufficiently active, which raises the question of the sustainability of the LIBOR benchmark.

Therefore, the FCA’s intention is that, subject to the agreement of panel banks, LIBOR be phased out by the end of 2021 and banks have been asked to continue submitting rates until this date. Any alternative reference rate must be “based firmly on transactions”. In April, the Risk Free Rate Working Group selected the reformed Sterling Overnight Index Average (SONIA) as a proposed alternative benchmark.

Contracts and documentation containing references to LIBOR will need to be reviewed and “future-proofed” in due course.

Read the speech.

MiFiD II: FCA statement on applications received after 3 July 2017

Firms who did not submit complete MiFID II applications to the FCA before the 3 July 2017 deadline should do so without further delay. The FCA has indicated that it will determine complete applications received after this date within six months but it cannot guarantee to do so before the new regime comes into effect on 3 January 2018. Firms will need to have contingency plans in place if they do not have the required permissions by 3 January 2018. The FCA has also warned that it may take action against firms who carry on regulated activities without the required permissions after 3 January 2018.

Read the FCA news story.

CLIENT ASSETS: FCA publishes policy statement and consultation paper on minor amendments to CASS and IOSCO publishes final report

The FCA has published a policy statement on Chapter 7A of the Client Assets sourcebook (CASS) and the special administration regime review which summarises feedback the FCA received to its January 2017 consultation on changes to CASS and includes the final rules which came into effect on 26 July 2017. The new rules are intended to speed up the distribution of client assets, and reduce the market impact in the event of an investment firm failure.

Read the policy statement.

The FCA has also published a consultation paper on minor amendments to CASS. The FCA proposes to change CASS to permit the deposit of an appropriate portion of client money in an unbreakable deposit of a maximum of 90 days (the current limit is 30 days) subject to certain conditions outlined in the consultation paper.

The FCA has invited comments by 1 November 2017.

Read the Consultation Paper.

Following its recommendations regarding the protection of client assets in 2014, IOSCO has published a final report on its thematic review of the progress participating jurisdictions have made in adopting legislation, regulation and other policies relating to the protection of client assets.

IOSCO found that the majority of participating jurisdictions have generally adopted a client asset protection regime described by its recommendations.

Read the report.

INTRA-EU INVESTMENTS: European Commission Roadmap for the treatment of cross-border intra-EU investments

The European Commission has published a roadmap on a new initiative under the Capital Markets Union (CMU): an “interpretative communication on the existing EU standards for the treatment of cross-border intra-EU investments”.

The Commission recognises that there is some complexity to, and lack of awareness of, the level of protection given to cross-border EU investors by EU law, for example when faced with discriminatory treatment, mal-administration or other adverse national measures. The communication is intended to make existing EU substantive standards clearer and help prevent individual member states from adopting measures infringing EU law relevant to investments.

Comments can be made until 22 August 2017.

Read the roadmap.

Dechert OnPoint - Accessing capital in Europe

Read Dechert’s OnPoint: "So You Want to Market Funds in Europe? Rules of the Road for Accessing Capital in Europe"

Europe is the largest market for fund products after the United States. However, despite the advances of the European single market, there remains a confusing combination of pan-European and country specific rules governing the sale of these products in Europe.

The temptation for those new to capital raising in Europe may be to think ‘I’m not going to bother, this is going to take too much effort’ or even, ‘these rules don’t really apply to me.’ However, with forward planning and guidance, the European market remains open to the rest of the world.

The question then becomes, ‘given what I have to sell and who I want to sell it to, what is the best way for me to access those target investors?’

Read additional Dechert OnPoints.

Subscribe to Dechert Updates