A s s e t M a n a g e m e n t N ew s l e t t e r An update from the
Asset Management Sector Team
Issue No.6 – April 2007
Welcome to our first Asset Management Towards the middle of the year, we will
newsletter of 2007. The regulatory outlook be feeding back on the findings of our
for the asset management sector this year Retail Distribution Review and the
presents both opportunities and challenges. related wrap platforms project. We
provide more information about this later
The implementation of the Markets in
in the newsletter.
Financial Instruments Directive (MiFID)
and the move to the Capital Requirements All our current consultations are detailed at
Directive (CRD) regime is likely to affect a www.fsa.gov.uk/Pages/Library/Policy/CP/
large number of firms within the sector. current/index.shtml
In particular, the CRD introduces some
new concepts which asset managers may
not have come across before; we outline
some of their major components later in In this edition we briefly outline the key
this newsletter. features of our Business Plan which apply
The beginning of 2007 has also seen the to Asset Managers. We highlight some of
conclusion of collective investment the key messages that asset management
schemes converting from our CIS firms need to take into consideration as
sourcebook to the new COLL sourcebook. we approach MiFID implementation and
We are very pleased with the way firms full mandatory CRD implementation.
have managed the application process in There is also a brief update on the key
ensuring the smooth, relatively bottleneck- messages for implementing Integrated
free transition to COLL. Regulatory Reporting.
We are also continuing with our drive We will also discuss how we will be taking
towards a more principles-based regulatory forward the wraps issue in light of the
approach. We outlined this in our Business thematic work we conducted last year.
Plan, published in February and we will We are always keen to hear from readers
give more details later in this newsletter. with comments on the content of this
We also published our Financial Risk newsletter. Please send any of these to:
Outlook which outlined our view of risks email@example.com
to the financial sector in the forthcoming
year and contained a section highlighting
issues relevant to asset management firms.
We are also likely to see further
developments on the European regulatory
front this year following on from the Dan Waters
White Paper on Investment Funds issued Asset Management Sector Leader
by the European Commission in
November last year.
Other upcoming events include the
publication of the feedback to our private
equity Discussion Paper and a Feedback
Statement following on from our Industry
Guidance Discussion Paper.
This is not FSA guidance.
Treating Customers Fairly: update that govern which assets the £650 billion unit-
linked insurance sector can invest in.
Treating Customers Fairly continues to be a key FSA For further information please follow this link:
initiative which intends to achieve improved
outcomes for consumers. We have challenged senior http://www.fsa.gov.uk/pages/Library/Policy/CP/
management in firms to ensure that customers are 2007/07_07.shtml
treated fairly throughout the business and to address
those areas where customers might be vulnerable to Capital Requirements Directive (CRD):
key messages for firms
In the July 2006 publication ‘Treating customers
fairly – towards fair outcomes for consumers’, we You should now have received a letter informing
said we expected all firms to be ‘implementing’ TCF you of whether our new CRD rules apply to
in a substantial part of their business by the end of your business. The table below outlines those
March 2007. We are now conducting visits, surveys changes to the rules (and the Handbook section
and using our knowledge gained from supervision in which they belong) which have applied since
to make an assessment of firms’ progress against 1 January 2007.
this deadline. We plan to publish our findings
before the summer. New definition of Capital (GENPRU 2.2)
As part of the TCF programme we also published a
Discussion Paper on ‘The responsibilities of providers Revised trading book and (BIPRU 1.2,
and distributors for the fair treatment of customers’. valuation requirements
We wanted to explore the TCF issues raised in
scenarios where more than one firm is involved in Fixed overhead (GENPRU 2.1.41 and
supplying a product or service to retail customers. requirement replaces 2.1.46)
We received over 60 responses from the industry and expenditure requirements
firms and we are now reflecting on the responses to Changes to Market Risk (BIPRU 7)
determine next steps. We are also doing some work excluding interest rate
on product design, and intend to publish our specific risk calculations
conclusions alongside the finalised and treatment of credit
Provider/Distributor statement in the coming months. default swaps
Link to the TCF library - Consolidated supervision (BIPRU 8)
http://www.fsa.gov.uk/Pages/Doing/Regulated/tcf/ for group
CP07/6: Funds of Alternative The following list outlines those changes to the rules
which will be part of the transitional approach.
Investment Funds (FAIFs) These will be optional for firms until January 1
2008, when they will become mandatory.
The Financial Services Authority has set out
proposals that would allow for the first time the
New approach for Credit (BIPRU 3, 4, 5)
creation of funds of hedge funds (and other funds
of unregulated schemes) in the regime for
authorised retail collective investment schemes.For New approach for (BIPRU 9)
further information please follow this link: operation risk
http://www.fsa.gov.uk/pages/Library/Policy/CP/ New approach for (BIPRU 13, 14)
2007/07_06.shtml securitisation Exposure
values for derivatives &
CP07/7: Permitted Links for Long ICAAP and SREP (GENPRU 1.2)
Term Insurance Business
Disclosure (Pillar 3) (BIPRU 11)
The Financial Services Authority has set out requirements
proposed changes to its ‘Permitted Links’ rules
Page N 2 This is not FSA guidance.
In addition to these changes, the expenditure-based Mandatory Electronic Reporting (MER)
requirement principally applied to CRD firms will
be replaced by the ‘fixed overhead requirement’. Our IRR programme is in the process of
You should also consider whether you will require developing a strategic reporting solution (MER)
any ‘embedded waivers’ before the implementation that will give firms a range of suitable
of the full rules in January 2008. For further submission methods to help cost-effective and
information, please see efficient reporting of regulatory data. However,
http://www.fsa.gov.uk/pages/About/What/ as MER is a long-term strategic solution that will
International/basel/info/embedded.shtml . not go live until 2008/2009, there are a number
of reporting changes for firms in the meantime.
If you are subject to the new rules you should now
These changes are driven by a number of factors,
have received a letter indicating the category in
among them EU Directives.
which we believe your firm belongs. We have based
your firm’s categorisation on the current scope of
permission for your firm. We would highlight that it Early Reporting as a result of the CRD
is your responsibility to ensure that your firm’s
permission is a proper reflection of its current Those firms impacted by the new CRD regime have
range of activities. If you have any queries about had to report certain data under our Early
your letter you should contact our firm contact Reporting system (ERS) since 1 January 2007.
centre or your other supervisory contact. These new reporting requirements will apply to
credit institutions and those investment firms that
If your firm undertakes solely CIS activities which are subject to the FSA rules implementing the CRD.
are exempt from MiFID under article 2(1)(h), you For further information about Early Reporting
should consider whether you need to apply for a please visit our website:
variation of permissions to clearly identify that you
fall outside the scope of the Directive as your firm http://www.fsa.gov.uk/pages/Doing/Regulated/
is a UCITS firm. Returns/IRR/Dates/index.shtml
For further information on CRD please follow the
below link to the relevant area of our website:
New Reporting on Firms Online
http://www.fsa.gov.uk/pages/About/What/ There will be further reporting changes in April
International/basel/info/index.shtml 2007 when an additional number of firms will
have to start submitting the non-financial aspects
We are also running training programmes for industry
of the Retail Mediation Activities Return (RMAR)
practitioners. For more information on taking part in
and Mortgage Lending and Administration Return
these programmes please see our website:
(MLAR). A suspension was in place for this group
http://www.fsa.gov.uk/pages/Doing/Events/ of firms until our Board decided to remove the
workshops/index.shtml suspension of these rules in November 2005. We
set out the detailed rules in FSA rules instrument:
FSA 2005/63 Integrated Regulatory Reporting
Integrated Regulatory Reporting in (Amendment) Instrument 2005. To find out if
2007 you are subject to these new reporting
requirements please follow the link below:
Integrated Regulatory Reporting (IRR) is the
approach to regulatory reporting which we http://www.fsa.gov.uk/Pages/Doing/Regulated/
introduced after our 2003/2004 Plan and Budget Firms/phase2/index.shtml
commitment to harmonise the existing (pre-N2)
number of inconsistent reporting requirements. MiFID Developments and update
We recently consulted on a number of changes to
the reporting requirements for investment firms, Our recent Policy Statements transpose MiFID for
which will impact on firms operating in the asset FSA-regulated firms and markets and allow firms to
management sector. press ahead with their plans in preparation for the 1
November commencement date.
This is not FSA guidance. Page N 3
PS07/2, Implementing the Markets in Financial Article 4 notification to the European
Instruments Directive Commission
2007/07_02.shtml provides initial feedback on our HM Treasury made the Commission aware of our
July and October Consultation Papers on firms and intention to make certain additional requirements –
markets issues and our new Conduct of Business these requirements remain as we proposed in
Sourcebook. CP06/19 and we have provided the Commission
with the justifications for their retention.
PS07/3, Reforming the Approved Persons regime. Consultation on these notifications closed alongside
Policy Statement on Section IV of CP06/15: Markets our wider review on 23 February. If we need to
in Financial Instruments Directive make any further notifications to the Commission
http://www.fsa.gov.uk/Pages/Library/Policy/Policy/ when we have made our final rules, then HM
2007/07_03.shtml confirms the MiFID-driven Treasury will again make them on our behalf.
changes to our Approved Persons regime. http://www.fsa.gov.uk/pages/Library/
We have also published PS07/5 - Perimeter Other_publications/EU/eu_docs/article4.shtml
Guidance relating to MiFID. The guidance will help Andrew Sykes, Head of the FSA’s Retail
firms judge whether they fall within the scope of Investment Policy department, recently spoke at
MiFID and should reduce firms’ costs by cutting the MiFID for Investment Managers conference
down on the need for them to obtain legal advice on hosted by Informa. The speech deals with a
scope issues. PS07/5 complements our work in number of the issues asset managers are likely to
individually helping firms understand their status face as a result of the new MiFID rules, and it is
under MiFID and the CRD. We will also publish likely to be of interest to firms that will be
shortly a practical guide for firms with the affected by the directive. You can see the full text
notifications and applications they may need to of the speech below:
make as a result of MiFID Implementation.
There were a number of areas of non-MiFID CIS update
business within the scope of NEWCOB that we
were not able to include in CP06/19 or 20. We aim
to publish a CP on those ‘deferred matters’ towards Submitting documents for authorised funds
the end of April.
Managers of authorised funds (ICVCs and
We also expect to publich a CP in Q3 that picks up authorised unit trusts) are required to send us
consequential changes that need to be made to the copies of each fund’s annual and half-yearly long
Handbook as a result of the MiFID-driven changes reports and accounts once they are published. In
to the Handbook and to UK legislation. the past, firms have usually sent us printed copies
by post, but did you know you can now do this
Level 3 and Best Execution update electronically instead? Simply send us your
document in PDF format to: CIS@fsa.gov.uk
Although the end may be in sight for our Handbook
changes, there are still challenging practical and Sending electronic files will make the process
operational issues to be tackled. In the next few easier for you and will help us to save money on
months CESR is aiming to finalise guidance on storage costs. For UCITS schemes, copies of the
priority Level 3 issues about which firms need simplified prospectus can also be sent to us in this
clarification. So far, CESR has issued final guidelines way. Please note that we do not require copies of
and recommendations on record keeping and short reports.
market data consolidation and aims to issue
guidelines on inducements, passporting, transaction Approach to Wrap Platforms
reporting and best execution shortly.
You should be aware of the ongoing retail
You can find more information through
distribution review launched in June 2006.
Page N 4 This is not FSA guidance.
The review is considering distribution of retail possibility that our regulation could inadvertently
investment and savings products by banks, life drive the wraps market in directions that are not
insurers, financial advisers, building societies, fund necessarily ideal.
managers and platforms and is focusing on the
With these factors in mind, we plan to publish a
Discussion Paper in the second quarter of 2007
• the sustainability of the sector; looking at the risks and opportunities that the
• the impact of incentives;
In the coming months, we will be looking for
• professionalism and reputation;
input from across the industry. We have been
• consumer access to financial products and approached by a number of firms that want to
services; and open a regulatory dialogue on the underlying
issues and we are more than willing to do this.
• regulatory barriers and enablers.
We aim to publish a Discussion Paper in the second Potential Fraud at Fund Management
quarter of 2007 setting out our analysis, our initial
conclusions and commenting on potential solutions. Firms
It is likely that this Discussion Paper will result in
further consultation including on the costs and The FSA is aware of a method of account
benefits of any change. Our preference is for an takeover fraud being targeted at customers of fund
industry-led solution, so we have set up industry management firms. It involves the impersonation
groups to work with us on this. of customers and redemption of their holdings.
This fraud has primarily targeted directors of
In parallel, we are looking at particular industry firms and has to a large extent been thwarted by
developments that might affect retail distribution. systems and controls firms have in place to ensure
One example is our work on wrap platforms and the security of their clients’ assets. However there
fund supermarkets, which are systems that advisers have been a number of attempted frauds that have
can use to view and administer clients’ portfolios. led to losses and we urge firms to ensure that the
Our own and other industry data indicate that the systems and controls they have in place are secure
adoption and use of wrap platforms amongst and robust.
advisers and other financial intermediaries is
growing, and fast. For further information on this matter please
contact the Financial Crime Sector Team at the
We believe that platforms have the potential to FSA on: firstname.lastname@example.org
support a range of positive features for both
providers and distributors. For advisers,
platforms can help organise and administer
Financial Risk Outlook 2007
customers’ accounts; they might offer access to
Our Financial Risk Outlook (FRO) 2007 is
new tools for assessing and recording clients’
designed to raise awareness of the priority risks
needs and wants; or they could even be a means
which we believe we should consider, along with
for firms to gain access to discounted – or perhaps
providers and users of financial services.
customisable – products. Also, some platforms
are currently being marketed as a tool to help The weight of international regulatory reform that
advisers provide ongoing advice – or even is due to come into force over the next year is
discretionary management – to their clients, likely to pose a significant challenge for firms in
instead of focusing on single transactions. the asset management sector as many will be
impacted by both the CRD and the MiFID
We are also conscious that the development of
directives. This could be a significant burden to
wrap platforms could lead to increases in both
firms that have not considered these developments
complexity and costs to clients, without new – or
in their plans for the forthcoming year.
valued – services being received in return. It is
important that firms properly consider how using On the operational risk side, the document drew
a wrap platform might impact on the products or attention to the increasing use of derivatives by
services they offer their clients. In addition to asset managers, in both their retail and
these sorts of risks, we are also aware of the institutional business. This will place increasing
This is not FSA guidance. Page N 5
demands on both the front and back offices of instruments. We will also be considering the
firms that may not have used these instruments impact of our rules on the use of dealing
before. We also drew attention to the new commissions by investment managers.
conflicts of interest that firms may experience
For the full text of the document please follow the
because they are investing in new instruments.
For the full text of the documents and a podcast
summary of the wider findings of the report,
please follow the link below:
Correction to the International
Volunteer presenters sought by the We would like to point out that in that part of the
FSA! asset management sector message dealing with the
CRD (page 25), we mistakenly referred to ‘pure’
The FSA is looking for firms who would be asset managers as those who deal as principal.
interested in delivering one of our financial ‘Pure’ asset managers are those that deal as agent.
capability seminars. The aim is to provide general They will mostly fall within the limited licence
financial education to employees in their place of category of CRD firms.
work through accessible resources and seminars
delivered by volunteer professionals from the
financial services industry. If you want more
information please contact Darren Moxom on The FSA and many asset management firms have
0207 066 0738 or visit our website previously enjoyed mutual benefit from ongoing
http://www.fsa.gov.uk/financial_capability/ secondment opportunities afforded to FSA staff by
contact/speakers.html investment management firms.
The secondments are arranged via the Investment
FSA Business Plan 2007/2008 Managers Association (IMA) and Association of
Private Clients, Investment Managers and
We have published our Business Plan for the year.
Stockbrokers (APCIMS) and involve FSA staff
The Business Plan sets out our priorities for the
spending either 6 months or 6 weeks at asset
year ahead under our three strategic aims:
management firms learning how these businesses
i. promoting efficient, orderly and fair markets; are run through hands on involvement at the firm.
ii. helping retail consumers achieve a fair deal; and We are currently looking for firms to be involved
in 2007’s round of secondments. For those IMA
iii. improving our business capability and
member firms interested in providing six month
placements please contact Victoria Nye at the
The document sets out much of the work that is IMA on email@example.com or 020 7831
likely to be of interest or affect firms in the sector. 0898. For those APCIMS member firms
To summarise this briefly, our asset management interested in providing six week secondments
work this year will touch on a number of different please contact Jason Baxter at APCIMS. To find
areas. We are, for example, looking to continue out more about the secondment process from an
our work examining valuation processes for FSA perspective please contact the Asset
illiquid assets at hedge fund managers and Management Sector Team on:
combining this with the ongoing input into the
IOSCO working group on valuations.
During 2007/08 we will review firms’ governance,
systems and controls, and risk management
processes to assess whether firms are adequately
controlling the risks surrounding the use of these
Page N 6 This is not FSA guidance.
FSA Asset Management Conference
Provisional date 20 September 2007
QEII Conference Centre, London
Following the success of last year’s FSA Asset Management Conference, plans are in progress for the next in
For further details on the planned conference please visit our website: