The Upcoming Changes by FCA in UK Asset Management Regulation
The Financial Conduct Authority (FCA) recently revised its asset management regulation. This initiative was taken to adapt EU regulations in the UK market. In a detailed speech, Ashley Alder, Chair of the FCA, provided insights into the key areas of focus and the strategic approach for the same. The following blog will explore the core aspects of FCA’s agenda.
1. Smarter Regulatory Framework
A significant portion of the asset management regulation in the UK comes from EU laws like UCITS, AIFMD, and parts of the MIFID. The FCA is working to repeal and replace these regulations.
Last year, the FCA shared initial ideas for reform in a Discussion Paper. Many respondents wanted the UK to stay aligned with EU rules, especially for retail funds, where UCITS is a trusted standard. However, there is a big opportunity to make the rules more proportionate for alternative managers. The AIFMD, including hedge funds, private equity, and some retail funds, needs clearer, risk-proportional requirements. The FCA also aims to maintain international cooperation while ensuring stability, predictability, and proportionality in the new regulations.
2. Private Finance, NBFI, and Valuations
As the FCA streamlines rules for alternative funds, it is crucial to maintain confidence in asset management quality. Non-Bank Financial Intermediation (NBFI), which includes private equity and hedge funds, varies in risk but requires effective regulatory oversight.
Private finance is growing fast, with assets reaching $12.8 trillion by 2022. The FCA is examining private markets globally and domestically, addressing potential conflicts and valuation issues. They are also working with the Global Financial Stability Board (FSB) on supervision and leverage in the non-banking sector.
3. Retail Investments
The FCA is closely focusing on packaged retail and insurance-based investment products (PRIIPs). The current PRIIP regulations have sometimes failed to show the true costs of investments. The FCA plans to revoke these regulations and introduce new rules that provide investors with clear and meaningful information. This change aims to create a more engaging experience for consumers, changing how they interact with financial products.
4. Sustainability Disclosure Requirements (SDR)
Investors are showing a growing interest in environmental, social, and governance (ESG) factors. Over 80% of consumers want their investments to have a positive impact. The FCA’s new disclosure and labelling rules aim to support those who want to invest in ways that benefit people and the planet.
Recognising that many firms follow global sustainability rules, the FCA wants to ensure international consistency. This way, all investment schemes marketed to UK investors will meet the same standards, ensuring equal opportunities.
5. Innovation
The FCA is also excited about the potential of new technologies, especially fund tokenisation, which can bring significant benefits to asset managers. The FCA is closely watching the industry-led Technology Working Group of the government’s Asset Management Taskforce. This group is exploring how to implement tokenisation in the UK and has shared initial reports on developing models within current legal frameworks. The FCA is ready to update its rules as needed to keep up with these innovations.
For reference: https://www.xbrl.org/news/fca-outlines-agenda-for-revising-uk-asset-management-regulation/
Bottom Line
The FCA’s initiatives are part of a broader discussion about the UK’s competitiveness and its role in boosting the international growth of the UK economy. As the FCA works through these regulatory changes, it constantly balances its primary goals with the need to foster growth and competitiveness.
Without strong competition and secure markets, sustainable growth is impossible. These factors not only lower costs and improve quality but also encourage innovation. The FCA wants to build a strong and dynamic asset management industry that benefits everyone by concentrating on private finance, retail investments, sustainability, innovation, and better regulations.
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