Investment Management Update
The FCA has launched phase one of its initiative to support new firms applying for authorisation to act as asset managers.
The Asset Management Authorisation Hub is based on four objectives which the FCA describes as: clarifying expectations; making information easier to access; helping new entrants to engage with the FCA; and providing support for firms throughout the start-up cycle.
The FCA intends to introduce the Hub in stages. Along with access to a new website portal, this first phase offers case officers and pre-application meetings to firms. This should help new firms to enter a complete submission when applying for authorisation. It also clarifies the process of transitioning from the authorisation to the supervision regime.
Future phases are expected to arrive throughout 2018. These will include open days and surgeries.
The European Securities and Markets Authority (ESMA) has carried out a first analysis of fund performance measures, developing initial metrics to analyse the impact of ongoing fees, one-off charges and inflation on the returns of mutual funds. Key preliminary results for the EU fund industry show substantial reduction in net returns available to investors, especially in the retail sector and weak cost- or price-sensitive investment decisions by retail investors.
On average, ongoing fees, one-off charges and inflation reduced returns available to investors by 29 per cent of gross returns between 2013 and 2015. These reductions apply to all market segments, while varying across jurisdictions, asset classes and client types. Relative return reductions range from 11 per cent for passive equity funds to 44 per cent for bond funds. Relative and absolute return reductions for actively managed retail funds tend to exceed those of passively managed and institutional funds.
Despite the impact of fees and charges on the net outcome to investors, these do not seem to be reflected in investor choices.
The European Commission has issued a mandate to the three European Supervisory Authorities (ESAs) requesting them to issue recurrent reports on the cost and past performance of the main categories of retail investment, insurance and pension products.
The ESAs comprise the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).
This initiative is intended to contribute to the objective of the Capital Markets Union Action Plan to foster the participation of retail investors in capital markets by supporting the assessment of the net return of retail investment products and the impact of fees and charges.
The products to be included are those covered by the PRIIPs and UCITS regimes, being UCITS investment funds; AIF investment funds sold to retail investors; structured products (such as structured deposits and structured notes) sold to retail investors; insurance-based investment products; certain personal pension products; and, at a later stage, certain Defined Contribution occupational pension schemes.
The Commission recognises the disparities in retail investment products across the EU, their characteristics and market size but calls for "comparability of indicators", that is, indicators should be reported in a comparable manner for all retail products with similar characteristics. Actively and passively managed products should be reported separately. All fees impacting the net performance of retail investment products should be reported, and whenever appropriate, results should be presented against relevant indexes or other indicators. Results should preferably cover cost and performance over the last 1, 3, 7 and 10 years.
The Commission realises that a full set of data impacting the net performance of retail investment products may not be obtainable from a single data service provider. Given the wide range and the diversity of retail investor products, simplification may need to be envisaged, notably by working on the basis of representative samples of products. The weightings of different product categories within the sample analysed should be adjusted so to reflect the volumes of different categories of products.
The reporting should be based primarily on data and information originating from disclosures and reporting already required by EU law (for example UCITS, PRIIPs and MiFID/MiFIR), but the mandate also envisages collection of data from other sources, including product providers.
The Commission envisages planning for this exercise to start immediately, with first reports being published in Q3 or Q4 of 2018.
The European Securities and Markets Authority (ESMA) have published updated questions and answers documents (Q&A) on the application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS) and the Alternative Investment Fund Managers Directive (AIFMD).
The UCITS Q&A includes one new question and answer on periodic reporting under Article 13 of SFTR (Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012) for UCITS and AIFs to investors on the use of SFTs (securities financing transactions) and total return swaps.
The AIFMD Q&A includes three new questions and answers on the application of remuneration disclosure requirements to staff of the delegate of an AIFM to whom portfolio management or risk management activities have been delegated, the manner of disclosure of AIFM delegates' staff remuneration in Annual Reports and periodic reporting under Article 13 of SFTR for UCITS and AlFs to investors on the use of SFTs and total return swaps.
The purpose of the Q&A documents is to promote common supervisory approaches and practices of both the AIFMD and the UCITS Directive and their implementing measures.