Funds Legal Update | 29 April 2019

Written on 29 Apr 2019

Welcome to our Funds Legal Update.

At a busy period for the PRA and FCA, we take a look at their business plans setting out strategic goals for 2019/20.

We take a look at the Law Society’s response to the FCA’s paper Optimising the Senior Managers and Certification Regime.

Finally, we take a look at the New Stewardship Regime for AIFMS and UCITS Managers.

All this, and more below.

PRA and FCA Business Plans 2019/20

On 15 April 2019, the PRA published its business plan for 2019/20, setting out its strategic goals. The full plan needs to be read and considered (a separate consultation on fees and levies can be found here), but two of the stated goals for the year ahead are of particular interest:

  • Robust prudential standards and supervision: the PRA will be carrying out an evaluation of the SM&CR and remuneration policies for banks and insurers as well as corporate governance at board level.
  • Adapting to market changes and horizon scanning: Brexit and fintech changes obviously will be major influences here, but the PRA also expects its new bank and insurer start-up units to lead to an increase in the number of new banks and insurers.

Two days later, the FCA released its update of regulatory business for 2019/20. The press release announces the business plan, a consultation on fees and levies and a Research Agenda. Some particular areas to note include the following:

  • Cross-sector priorities (for example, post-Brexit challenges, firms’ culture and governance, technology and innovation, and “the future of regulation”).
  • Investment management sector focus (for example, fund governance and duty to act in best interests rules that are effective in October 2019, perimeter extension, prudential regulation of investment firms, continued work on PRIIPs Review, and an implementation review of MiFID II product governance).
  • Retail lending, investments and banking sectors focus (for example, implementation of Mortgages Market Study, business models of lending products, a second review of RDR/FAMR, and financial crime scams.
  • The payments sector (for example, markets and services such as SME business current accounts and payments services value chains to be considered, PSD2 and Open Banking implementation, and extension of the Principles for Business to payment services and e-money firms)

The Research Agenda is a short document outlining areas of interest and the FCA states that it welcomes external contributions.

Significant areas of ambiguity for SM&CR

On 15 April 2019, The Law Society released its response to the FCA’s paper Optimising the Senior Managers and Certification Regime (CP19/4). The Law Society believes the Head of Legal role should be excluded from the scope of the senior manager regime and discusses its concerns around demonstrating “reasonable steps“. It believes the FCA should engage with it the Law Society to produce guidance as to the expectations of Heads of Legal, and in connection with requirements to provide privileged documents. Although the Law Society believes the FCA proposals are a step in the right direction, it concludes that “significant areas of ambiguity remain“.

New Stewardship Regime for AIFMs and UCITS Managers

On 3 April, the New EU Shareholder Rights Directive 2017/828 EC was adopted by the European Council. It is set to be transposed into UK law in June 2019. The new directive, also known as “SRD II”, calls for greater transparency with regards to institutional investors’ stewardship activities and more engagement with companies.

SRD II aims to improve the effectiveness of stewardship and long-term investment decision making through increasing transparency and awareness, which will clarify the extent to which investors fulfil their responsibilities as shareholders in companies and asset managers for clients.

According to the FCA, the implementation of SRD II is an “important baseline in a continuum of measures” driving effective stewardship and the UK Stewardship Code will supplement the new directive encouraging higher standards beyond the baseline. The FCA’s consultation on SRD II can be found here.

NPPR updated webpage

On 16 April 2019, the FCA updated its webpage to reflect changes under the heading “Change to submission of notifications and material changes“. You can read the new NPPR page here.

If you would like to discuss any of these developments, please get in touch with one of the experts listed below.