FCA is seeking views on what regulatory change might help the UK asset management industry while supporting investors and boosting competition. It has issued a wide-ranging discussion paper setting out possible areas that could change, and asks for feedback on the impact of potential change. It is aware that, whatever changes it decides to make, and however it prioritises them, it wants to ensure:
- the changes will better meet the needs of investors, both retail and professional and both domestic and international;
- any change will enable technological development, innovation and better use of data – FCA is looking at emerging practices in fund tokenisation, for example;
- it remains consistent with international best standards and takes account of the position in other jurisdictions; and
- it acts effectively and proportionately.
The paper looks at the current way in which regulation works, including looking at how broadly similar requirements are described with slight differences depending on the type of fund in question, and the precise management activity. FCA discusses, for instance, the conflict rules, which are materially similar, but found in many different places within the current regulatory regime. It then discusses areas where the differences are more material, not least conduct. FCA feels that in principle the conduct rules for fund managers are broadly appropriate in what they cover, and that there may therefore be a case to add to rules for portfolio managers to bring them to the same standard. It also wonders whether a consistent set of rules for management of both funds and individual portfolios might be appropriate.
The paper also discusses particular fund products, focusing on the limitations of UCITS and whether, post-Brexit, the boundary between the UCITS and NURS regimes could be set in a different place or the boundary removed entirely – or a middle ground of rebranding NURS as “UCITS plus” funds. Alternatively, there could be a new category of a “basic fund”. For professional investors, FCA feels the AIFMD regime is broadly suitable and does not plan to make many changes but it seeks views particularly on whether the small AIFM threshold is is appropriate, whether it should be moved, and how to ensure it is not abused. It is also concerned that investors do not understand the “small registered AIFM” concept and wonders how it should address this.
The paper moves on to look at improvements in the regime, focusing on the responsibilities of host AFMs, liquidity management, investment due diligence, rules for depositaries and rules for funds.
FCA asks for views by 22 May 2023. It will also hold fora and roundtables to get views and will engage individually with stakeholders as well. It plans a feedback statement later in the year, when it may also consult on some of the topics it is interested in taking forwards.