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]]>He went on to address other key topics, including Brexit – a topic that would be discussed later on in the day by part of the FCA team in charge of porting the rules and regulations out of EU legislation and into UK legislation.
There were a number of hosted panel sessions throughout the day, a summary of the ones attended are set out below.
All FCA personnel were especially careful to maintain the government’s stance on Brexit. Nothing remarkable was mentioned and there was little in the form of new insights. During the breakout session ‘Asset Management & UK Withdrawal from the EU’, it was mentioned that all existing regulations that firms are required to comply with, will have been or will be ported across from the day the UK leaves the European Union. The individuals leading the discussions were keen to mention that the FCA had teams working with the government to go through existing regulations, looking for references to European laws. Where a regulation is based on a European law, an equivalent UK law would be put in place to ensure a smooth transition.
The session also considered the subject of ‘mutual recognition’. The FCA team were asked how this concept would work in practice. In their response, they inferred that mutual recognition would in essence work in a similar way to how ‘equivalence’ works at present. Another difficult question asked of the FCA was what the regulator and government are doing to try and encourage funds/fund managers to move back and set up onshore. One attendee was keen to point out that in their opinion, due to over regulation, funds had been set up in other jurisdictions and that by bringing them onshore, it would cause job creation, both directly and in supporting industries in the UK.
The panels during the conference were refreshingly well balanced, with individuals representing large firms, small firms, industry experts, academics and the regulator and the questions posed were diverse, covering different points of view. Particular areas of interest were the varying views on robo-advice, the use of technology within firms and new technologies like Blockchain.
Panellists were keen to remark that asset management firms, as an industry sector, are only touching the tip of the iceberg when it comes to the innovative use of technologies such as Blockchain, mentioning that the industry would be at least 10 years away from seeing any meaningful usage of this technology. This is in part due to the fact that asset management is not a sector in high demand by data scientists. The leading lights within the Blockchain world (and other such technologies) are more likely to go into other sectors or industries; a sentiment echoed by all the panellists.
Another sentiment echoed by all the panellists was in relation to the shortcomings of PRIIPs. Specifically, they were quick to be critical of the need for asset managers to provide Key Information Documents (“KIDs”) and the content that should be included in them. The mindset on PRIIPs seemed universal as it was mentioned by Andrew Bailey in his keynote speech.
Another topic the panels felt balanced on was that of conduct and culture within the asset management industry. The difference in cultures between a large multi-national firm and a boutique one might be obvious due to the size difference, but it was still interesting to hear the perspectives and approaches taken to instil a compliance culture from both points of view. Understandably, the large firm in attendance was very much process driven, as a firm of that size would need to be. Their CEO said during the panel that the still wants his middle management to have the flexibility to input their own judgement.
On the other hand, the CEO of the boutique firm in attendance, talked about how (due to their much smaller size) he knew the majority of employees and was able to directly influence the culture of the firm rather than have to rely on middle managers to do so.
Refreshingly, Octavius Black, CEO of The MindGym, provided input from an academic point of view. He was able to quote studies, facts and figures that backed up both points of view.
It was not mentioned during the conference, but the FCA has listed out “Five Conduct Questions” to help a firm put a robust conduct and culture framework in place. These are:
Disappointingly, SMCR was not mentioned much during the discussions. No firm timeline was given besides the fact that final rules will be released during the summer.
The FCA were clear to indicate their priority areas for supervisory review in relation to the implementation of MiFID II. The main areas are:
It was indicated that these particular areas would be subject to thematic reviews over the coming months. Part of these thematic reviews would include a questionnaire being sent to approximately 400 firms, which would contain questions on the areas mentioned above. The FCA didn’t clarify how they had selected or were going to select the firms that would be receiving the questionnaire but said that they were aiming to get a snap shot across the sector.
If anything mentioned in this article raises questions or there is something you would like to discuss further, please get in touch with us at info@complyport.co.uk.
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]]>The post FCA publishes its Business Plan for 2018/19 first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | All firms |
The Financial Conduct Authority (“FCA”) has set out its key priorities for the coming year in its Business Plan for 2018/19, along with its annual Sector Views. Inevitably, the priority for its discretionary activity is preparing for and implementing the changes resulting from European Union withdrawal (“Brexit”).
Additionally, seven priorities cut across different financial sectors and the other priorities listed relate to the seven specific financial sectors the FCA regulates.
This year’s Business Plan reflects the high level of resource the FCA needs to dedicate to Brexit to carry out the following priorities:
In addition, the FCA intends to advance some aspects of work to introduce a new duty of care provision for firms, beginning with the launch of an initial Discussion Paper, Feedback Statement and final version of its ‘Our Approach to Consumers’ paper in summer 2018.
The annual Sector Views issued by the FCA cover all the markets it regulates and give an overall view of how each sector is performing, based on the data held by the FCA and its view as at mid-2017.
The FCA describes the sector, the need the sector seeks to fulfil, the issues and developments the FCA are seeing and the impact of change, and are developed in three stages:
The FCA intends to review the use of data by financial services firms, including:
It believes this will help them better assess both potential opportunities and harm and where they may need to intervene.
The FCA will also further develop its relationship with the Information Commissioner’s Office in anticipation of the General Data Protection Regulation (“GDPR”) coming into force in May 2018, with the intention of publishing an updated Memorandum of Understanding (first issued in 2014) setting out how the two organisations will work together in future.
While the ICO will regulate GDPR, complying with GDPR requirements is something the FCA will consider under, for example, the requirements in the Senior Management Arrangements, Systems and Controls (“SYSC”) sourcebook. Under SYSC, firms should establish, maintain and improve appropriate technology and cyber resilience systems and controls.
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]]>The post Firms may provide projections to retail investors in addition to PRIIPs KIDs first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Manufacturers of packaged retail and insurance-based investment products and persons advising on, or selling, those products to retail investors. |
| Key date: | Applicable from 1 January 2018 |
Following changes to the FCA’s Conduct of Business sourcebook (COBS), firms will have the option, but not the obligation, to continue to provide projections to retail investors outside of the Packaged Retail and Insurance-based Investment Products (PRIIPs) standardised key information document (KID), providing they are produced in line with COBS rules.
COBS 13.5 Preparing product information: other projections sets out how a firm must prepare such a projection; the main changes being in COBS 13.5.2R and COBS 13.5.2BG.
If firms choose to provide a projection alongside the PRIIPs KID, then, to avoid consumer confusion, they will need to explain all differences between ‘performance scenarios’ in the KID and any projection provided, in line with the ‘fair, clear and not misleading rule’.
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]]>The post UK PRIIPs Regulation published – KIDs required 1 January 2018 first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Manufacturers of packaged retail and insurance-based investment products and persons advising on, or selling, those products to retail investors Don’t be caught unawares – if you have staff invested or distributors, you could be caught! |
| Key date: | Applicable from 1 January 2018 |
EU Regulation No 1286/2014 (the “PRIIPs Regulation”) requires those manufacturing a packaged retail and insurance-based investment product (“PRIIP”) to draw up a key information document (“KID”) containing standard information, and requires persons advising on or selling PRIIPs to provide the KID to retail investors, with effect from 1 January 2018.
The UK PRIIPs Regulations (Statutory Instrument 2017 No.1127: The Packaged Retail and Insurance-based Investment Products Regulations 2017) have been laid before Parliament and similarly come into force on 1 January 2018. They designate the FCA as the competent authority in the UK for the purposes of the PRIIPs Regulation and give the FCA certain enforcement powers.
Where a person has infringed the requirements of the PRIIPs Regulation, these enforcement powers include the power to:
The FCA also now has the power to impose penalties and make a statement (such as a ‘supervisory notice’, ‘warning notice’ or a ‘decision notice’) in relation to a contravention of the PRIIP Regulation.
Where any of these have been actioned, the FCA may—
The UK PRIIPs Regulations make the following important additions:
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]]>The post PRIIPs: Key Information Document Guidelines first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>Guidelines (“Communication from the Commission”) on the application of the KID under PRIIPs have now been published.
It’s fairly modest in length – four pages in total – but clarifies various areas including, but not limited to:
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]]>The post Benchmarks Regulation first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>Both MiFID II and the Packaged Retail and Insurance-based Investments Products Regulation (“PRIIPs”) means that next January will be a busy time for many firms as they get to grips with new regulatory regimes.
One further piece of European legislation which will also apply from next January (1st) that hasn’t received as much publicity is the Benchmarks Regulation (2016/1011) (“BMR”).
The Regulation will apply not only to the provision of benchmarks, and the contribution of input data to a benchmark, but will also apply to those that use a benchmark.
For the purposes of the Regulation a ‘benchmark’ is defined as:
“any index by reference to which the amount payable under a financial instrument or a financial contract, or the value of a financial instrument, is determined, or an index that is used to measure the performance of an investment fund with the purpose of tracking the return of such index or of defining the asset allocation of a portfolio or of computing the performance fees”
Currently the FCA supervises eight specified benchmarks, including LIBOR (The London Interbank Offered Rate) and SONIA (Sterling Overnight Index Average). The BMR will apply much more widely, including all indices that are used in the EU as the basis for financial instruments or that are referenced by an investment fund.
The FCA has now published “Handbook changes to reflect the application of the EU Benchmarks Regulation” (CP17/17). However the title of the Consultation Paper doesn’t paint the full picture because whilst parts of the BMR directly apply to e.g. firms that use benchmarks in financial instruments or in relation to investment funds, the Handbook changes brought about by the BMR do not.
Article 29 of the BMR concerns the use of a benchmark – a term which is defined in Article 3(1)(7) and includes, but is not limited to “measuring the performance of an investment fund through an index or a combination of indices for the purpose of tracking the return of such index or combination of indices, of defining the asset allocation of a portfolio, or computing the performance fees”.
A ‘supervised entity’ e.g. a MiFID investment firm or an AIFM (please see Article 3(1)(17) for the full definition) may use a benchmark if the benchmark administrator is located in the Union and is included in a register that will be maintained by ESMA. A benchmark provided by an administrator located in a third country will have to meet the equivalence requirements in Article 30 in order for it to be used in the Union.
At the present time there are only draft technical standards available – which CP17/17, in part, is based upon – so it is possible that the FCA may need to adopt some final tweaks.
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]]>The post PRIIPs: Final FCA Rules first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>As advised in Regulatory Roundup 87, the Packaged Retail and Insurance-based Investment Products Regulation (“PRIIPs”) Regulation will apply from 1 January 2018 (although the carve out for UCITS/NURS applies until 31 December 2019).
As a reminder, at its heart the PRIIPs Regulation – which applies to both PRIIPs ‘manufacturers’ and to those that advise on or sell such products – is to help investors better understand and compare the key features, risks, rewards and costs of different PRIIPs by way of a Key Information Document (“KID”) as per Articles 5 and 13 of the PRIIPs Regulation:
Note that a distributing firm that makes any changes to an existing PRIIP will be regarded as a PRIIP ‘manufacturer’.
The FCA has now published PS17/6 “FCA’s disclosure rules following application of PRIIPs Regulation” containing the final rules. Chapter 2 is certainly worth a read as it gives a high-level overview of the impact of PRIIPs and addresses various issues e.g. the circumstances when the AIF rather than the AIFM would be deemed to be the ‘manufacturer’ of a PRIIP.
The FCA recognises that there are uncertainties on the application of PRIIPs such as what “made available to retail investors” means in the context of PRIIPs that are traded on a securities exchange or when an investment is not intended for retail investors but which could be ‘made available’ via a secondary market.
Unfortunately there are no immediate guidelines which can be referenced to address such issues, but the FCA advises that it will continue to work with European Supervisory Authorities and the European Commission and the FCA “may comment further in a separate communication later this year”.
Annex 2 includes a list of products which the FCA views as either being PRIIPs (e.g. AIFs or derivatives, including contracts for differences) or non-PRIIPs (e.g. ISA wrappers or fixed interest debentures).
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]]>The post FCA Review: Suitability first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The FCA seems happy with the outcome of a review of suitability it undertook last year which captured 1,142 individual pieces of advice given by 656 firms.
The review looked at pension and investment personal recommendations delivered by firms to retail customers during 2015 – it did not consider how firms met the suitability rules when managing investments.
The FCA found that ‘suitable advice’ was given in 93.1% of cases reviewed. The FCA describes this as a ’positive result’ which they attribute to the RDR. In addition, 2.5% of cases were described as ‘unclear’ due to inadequate information on file – which the FCA regards as a breach of COBS 9 (‘Suitability’) as the firms responsible were unable to demonstrate that suitable advice had been given.
The exercise also looked at disclosures (relating to firms’ charges and services, product information and suitability reports) although the findings were less positive with only 52.9% of cases being deemed ‘acceptable’ in respect of all three areas.
We are advised that there will be a communication programme rolled out over 2017/18 which will share further details of these findings including examples of good and poor practice. We are also warned that there will be a repeat of the review in 2019 which will “measure how the sector has responded to our findings and communications plan”. This review will not only look at suitability of advice and compliance with the disclosure rules, but also compliance with any new relevant rules, including those under MiFID II, PRIIPs and IDD.
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]]>The post PRIIPs: Implementation Date Confirmed first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>Of Relevance to:
Most firms providing investments or investment services to retail investors, including AIFMs, UCITS Management Companies and the Authorised Fund Managers of NURS
Firms involved in Packaged Retail and Insurance-based Investment Products (“PRIIPs”) will be aware of the delay in the date of application of the PRIIPs Regulation – see Regulatory Roundup 82.
As a reminder, at its heart the PRIIPs Regulation – which applies to both PRIIPs ‘manufacturers’ and to those that advise on or sell such products – is to help investors better understand and compare the key features, risks, rewards and costs of different PRIIPs by way of a Key Information Document (“KID”) as per Articles 5 and 13 of PRIIPs Regulation:
“Before a PRIIP is made available to retail investors, the PRIIP manufacturer shall draw up for that product a key information document in accordance with the requirements of this Regulation and shall publish the document on its website” and
“A person advising on, or selling, a PRIIP shall provide retail investors with the key information document in good time before those retail investors are bound by any contract or offer relating to that PRIIP”.
PRIIPS was intended to apply from 31 December 2016 but, following the European Parliament’s rejection of the all-important (original) Regulatory Technical Standards (“RTS”), the European Commission was forced to propose an extension of one year to the date of application of the PRIIPs Regulation.
The final agreed RTS (Delegated Regulation 2017/653) has now been published in the Official Journal meaning that the one obstacle to the application of PRIIPs Regulation has been removed. The Annexes provide the important information that firms will have been waiting for including, but not limited to:
For the avoidance of doubt, the RTS, and hence PRIIPs Regulation, will apply from 1 January 2018, although note that Article 14(2) – which allows UCITS Management Companies to continue to continue to use a Key Investor Information Document (“KIID”) (see COLL 4.7.2) – applies until 31 December 2019. Note that the FCA intends to offer this route in respect of non-UCITS retail schemes (“NURS”) where the authorised fund manager has elected to provide a NURS KII document.
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]]>The post PRIIPs – Joint Consultation first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>A joint EBA/EIOPA/ESMA consultation paper (JC 2017 05) has been published concerning Packaged Retail and Insurance-based Investment Products (“PRIIPs”) with environmental or social objectives.
The PRIIPs – Joint Consultation paper arises from Article 8(4) of the PRIIPs Regulations which empowers the Commission to adopt acts which specify details of the procedures used to establish whether a PRIIP targets specific environmental or social objectives (“EOS PRIIPs”). The PRIIPs – Joint Consultation paper explains that where a Key Information Document states that a PRIIP targets such objectives, “the manufacturer must be able to demonstrate to stakeholders, and in particular to the potential retail investor, in supporting documentation to the KID, the relevance of these objectives for the whole value chain of the investment process”.
Chapter 4 provides draft ‘Technical Advice’ (page 20) the introduction to which, subject to consultation feedback, advises that the current product oversight and governance provisions for PRIIPs are sufficient for EOS PRIIPs but there would be benefit in another delegated act by the Commission to assist EOS PRIIPs manufacturers to understand what is expected.
It is noted from section 2.3 of JC 2017 05 that we are advised “As of the 1st January 2018 …. PRIIPs manufacturers will have to indicate whether or not a PRIIP targets EOS objectives”.
The consultation period ends 23 March 2017.
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