2020 UK Fund Management Regulatory Outlook

I feel a bit like a broken record – for those old enough to know what that is – warning that you would be disappointed if you were hoping for a quiet year ahead, with some respite from the volume of regulatory change. But, unfortunately, it looks like the same story again this year. And that’s without considering the transition period this year under Brexit.

We are now approaching some key dates of two major topics – PRIIPs KID changes and Assessment of Value reports – even as firms are just getting to grips with last December’s introduction of the Senior Managers and Certification Regime. So, the hangover you might be suffering from may have very little to do with the Christmas and New Year celebrations!

Senior Managers and Certification Regime (SMCR)

The SMCR took effect for FCA solo-regulated firms last month, replacing the Approved Persons Regime, but the advance notice means that there is unlikely to be much leniency from the FCA for any firm not fully compliant. In case you need it, here is a link to the SMCR guide the FCA published last year.

PRIIPs KIDs review

The European Supervisory Authorities (ESAs) published a consultation paper – JC 2019 63 – in October on key aspects of the content of PRIIPs Key Information Documents (KIDs), with a deadline for responses of 13 January. Not surprisingly, the paper focuses on performance scenarios and costs, the two most contentious issues (but by no means the only ones) since long before PRIIPs KIDs were first published two years ago.

To make matters worse, UCITS KIIDs are due to disappear at the end of 2021, so whatever the ESAs decide to do with PRIIPs KIDs will need to work for UCITS as well. In fact, the paper asks whether any changes should come in when UCITS switch over to PRIIPs KIDs or whether they should apply to PRIIPs first if there is enough lead time. Bear in mind that no changes could take effect until sometime in 2021 anyway, so it may only be a few months at best between PRIIPs adopting the changes and UCITS switching over.

By the way, however relieved you may have been when the end of the UCITS exemption from PRIIPs KIDs was put back from the end of 2019 to the end of 2021, we can now refer to that new deadline as “next year”, so prepare to start work on that this year.

Click here for more on PRIIPs KIDs.

Assessment of Value (AoV)

Like the SMCR, the need to issue AoV reports also came in last year, so will have been keeping a number of fund groups busy for several months already, even though we haven’t yet seen the output. Funds of UK authorised fund managers (AFMs) with a year end of 30 September are the first affected and they have until the end of January to publish their hotly-awaited reports. I say hotly-awaited, but maybe not by end investors, as the reports need to be included in the funds’ long annual reports and I don’t know the last time an investor read one of those.

There are seven core AoV criteria that need to be considered at share class level, some quantitative and some qualitative, and the buck stops with the chair of the AFM board. They can add any further criteria they like, but the core seven are probably enough to give groups enough to do when they have no precedent to base their reports on. The FCA has made it clear that it doesn’t want a standard industry template, as competitive pressure should drive up the quality of these reports, so they clearly expect other groups to study them to see how they can improve on the early efforts.

Click here for more on Assessment of Value.

Other important updates

And if that weren't enough to keep us busy, here are a few more noteworthy updates:

the 5^th Money Laundering Directive, which takes effect in the UK on 10 January;
the discontinuation of LIBOR by the end of 2021, which has spawned a raft of new acronyms, including ARR (Alternative Reference Rates) and SONIA (Sterling Overnight Interest Average);
the requirement from 2021 under MiFID II to ask customers whether they want to consider environmental, social and governance (ESG) factors in their investments; and
the parallel running of the European MiFID Template (EMT) version 3 with the existing versions and the removal of versions 1 and 2 by December this year.

How’s that hangover feeling?