Funds Focus | First quarter 2024
Published on 22nd Apr 2024
Welcome to this year's first edition of Funds Focus
It's almost becoming a cliché – but this year will be a busy one for regulatory compliance. So much so, that the Financial Conduct Authority (FCA) has issued a "Dear CEO" letter: its main point is a concern over whether asset managers have sufficient compliance resources to deal with the "high volume of significant business and regulatory change to be delivered in 2024".
This year brings asset managers a three-in-one Kinder egg of regulatory developments. It brings a new regime (sustainability disclosures), the continuing roll-out of major regulatory developments (such as the Consumer Duty) as well as updates to well-trodden regulatory territory on both sides of the Channel. This is in addition to planned FCA supervisory reviews of asset managers.
Much ink has been consumed drafting horizon scanners to provide a holistic overview of changes, combined with the details of what needs to be done, by whom and by when. This article provides a summary of the main developments of this year's first quarter.
Osborne Clarke's investment management, fund formation and regulatory experts are well placed to advise you further on any of the topics covered in this edition of Funds Focus. For further information please contact the experts mentioned in the articles or one of our funds partners: Helen Parsonage, Alison Riddle, Tim Simmonds, and Simon Thomas.
EU pushes through changes to the regulation of AIFMs
The European Union has changed the regulation of alternative investment fund managers (AIFMs). The new rules introduce targeted amendments to several key areas of which European AIFMs need to be aware. While AIFMD II does not apply to AIFMs from the UK, it will affect UK managers that, for example, use the services of host AIFMs in Luxembourg and Ireland.
Meanwhile, for the UK, the FCA has set out different reform priorities for the same area.
UK sustainability disclosure regime to introduce greenwashing rule
This spring brings the phasing in of the UK's sustainability disclosure regime with an anti-greenwashing rule coming into force applying to all authorised firms. Following this, UK asset managers making funds available to retail investors, as defined under the FCA Handbook, will either have to use "sustainability labels", abstain altogether from using certain fund names and making any sustainability claims in financial promotions, or provide a range of information relating to sustainability.
UK FCA flags supervisory scrutiny of asset managers
The FCA is focusing on asset management. Its supervisory focus for the next year is set out in a "Dear CEO" letter recently received by all authorised firms in its asset management and alternatives portfolio. To address a range of issues of concern, the FCA will be reviewing the effectiveness of asset managers' governance arrangements. A separate workstream is dedicated to reviewing private assets valuation practices.
Furthermore, the regulator has recently published its findings after reviewing "host AIFM" models. The FCA have provided guidance for firms operating the AIFM host model but is also considering potential policy changes.
UK financial regulator gives guidance on implementing the Consumer Duty
The FCA has also taken stock of the Consumer Duty implementation and published helpful information, reminding firms of the four consumer outcomes required by the duty, and set out examples of good practice, highlighting areas for improvement. This is useful for asset managers when considering what changes they need to make to meet the 31 July 2024 implementation deadline for closed products and services. Distributors of overseas funds marketing into the UK will also be affected.
