UCITS V and Securities Financing Transactions Regulation: Changes to the Handbook

Of relevance to:
UCITS management companies, AIFMs

The FCA has published Consultation Paper CP16/14 – “UCITS V Level 2 Regulation, SFTR and consequential changes to the Handbook”.

In basic terms the consultation can be broken down in to two specific areas: UCITS V Level 2 Regulation and Securities Financing Transactions Regulation (“SFTR”).

UCITS V Level 2 Regulation

Whilst UCITS V had to be implemented by 18 March 2016, the Level 2 Regulation (2016/438) does not apply until 13 October 2016, being 6 months after it came into force – see Regulatory Roundup 73 (pdf).

Although largely aimed at those firms that are acting as a trustee or depositary of a UCITS, the management companies of UCITS will also have a general interest in the Regulation e.g. the contract for the appointment of a depositary, liability for loss of a financial instrument held in custody etc. as well as areas directly relevant to them such as Article 22 and the need for a management company to have in place a decision-making process for choosing and appointing the depositary.

Being a Regulation it is, of course, directly binding on all firms. However the FCA has taken the opportunity to propose amendments to certain areas of the Handbook (COLL and CASS) to ensure consistency with the Level 2 measures as well as a clarification in SYSC 19E on when a remuneration committee will be required.

The changes can be found in Appendix 1 of CP16/14.

Securities Financing Transactions Regulation

Although the reporting obligations under the SFTR are a good year or two away, certain transparency requirements arising under the SFTR that impact upon both UCITS management companies and AIFMs will apply from next year.

For a general overview of the Securities Financing Transactions Regulation, including what falls under the definition of “securities financing transactions”, key dates, transparency etc. please see e.g. Regulatory Roundups 72 and 74.

Once again, as a Regulation, the SFTR is directly applicable to firms and does not require transposition by Member States. However CP16/14 introduces certain changes to the Handbook (COLL and FUND) to help firms comply with these new transparency requirements. Note that although the required disclosures in the annual report (and also in the half-yearly report in the case of a UCITS) will apply from 13 January 2017, those relating to the pre-contractual documentation/prospectus will apply from 13 July 2017 (or with immediate effect for those funds constituted after 12 January 2016).

The changes being consulted on can be found in Appendix 2 of CP16/14. It will be seen that the FCA will bring the changes relating to pre-contractual disclosure into force later this year, but subject to transitional provisions expiring on 12 July 2017.

Key Dates

  • Comments on CP16/14 invited by 19 July 2016
  • UCITS V Level 2 Regulation will apply from 13 October 2016
  • Transparency re annual/half yearly reports applies from 13 January 2017
  • Transparency re pre-investment/prospectus applies from 13 July 2017 (or with immediate effect to funds constituted after 12 January 2016)
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