Snapshot: fund management regulation in United Kingdom & More News Here

Fund management regulation

Regulatory framework and authorities

How is fund management regulated in your jurisdiction? Which authorities have main accountability for regulating funds, fund managers and people advertising funds?

The Financial Conduct Authority (FCA) is mostly answerable for regulating funds, fund managers and fund management-related actions (together with fund advertising) in the UK. The UK regulatory framework for fund managers is basically set out in the Financial Services and Markets Act 2000 (FSMA), numerous statutory devices made below FSMA and FCA guidelines. 

Subject to a transition interval that expired on 31 December 2020, the UK withdrew from the European Union (EU) and the European Communities Act 1972 (which integrated subsisting EU regulation into home UK regulation) was repealed on 31 January 2020. At the tip of the transition interval, EU regulation that was operative in the UK at the moment broadly turned a part of UK home regulation as a brand new class of retained EU regulation below the EU (Withdrawal) Act 2018.

Fund administration

Is fund administration regulated in your jurisdiction?

Overall accountability for the administration of a fund in the UK will usually quantity to the regulated exercise of ‘establishing, operating or winding up a collective investment scheme’. Providing custody providers regarding investments is mostly additionally a regulated exercise. Subject to sure exemptions, these regulated actions require FCA authorisation.

Authorisation

What is the authorisation or licensing course of for funds? What are the important thing necessities that apply to managers and operators of funding funds in your jurisdiction?

UK undertakings for collective funding in transferable securities (UCITS) established as authorised unit trusts (AUTs), open-ended funding corporations (OEICs) or authorised contractual schemes (ACSs) should be FCA-authorised. An software type for authorisation should be submitted to the FCA, together with:

• a draft prospectus;
• constitutional paperwork (and a solicitor’s certificates confirming their compliance with relevant regulation); and
• a mannequin portfolio.

The FCA has two months to contemplate a UCITS authorisation software.

Most UK closed-ended retail funds and non-retail open and closed-ended funds don’t require FCA authorisation. However their UK supervisor would typically be topic to FCA authorisation or registration and self-managed funds that would not have a separate supervisor should typically be FCA-authorised.

Subject to sure exemptions and relying on the exact actions carried on, a supervisor or operator of an funding fund should typically be FCA-authorised to hold on in the UK the regulated actions of:

• managing an alternate funding fund (AIF) or a UCITS fund;
• discretionary portfolio management (eg, delegated portfolio management for a fund or managing a single investor’s property in a segregated account);
• advising on investments;
• establishing, working or winding up a collective funding scheme (the place working typically includes being answerable for the scheme’s property);
• arranging offers in investments (together with intermediation actions regarding arranging an investor’s funding in an funding fund); and
• agreeing to hold on any of the above regulated actions. 

The FCA authorisation course of can take six months or extra for managers or operators of funding funds and self-managed funds and the FCA requires as a part of the method detailed info on the applicant’s operation, management and possession.

Territorial scope of regulation

What is the territorial scope of fund regulation? Can an abroad supervisor carry out management actions or present providers to purchasers in your jurisdiction with out authorisation?

Unless an exemption applies, it’s prohibited (and a prison offence) below FSMA to hold on in the UK a regulated exercise by means of enterprise with out authorisation, and any contract made in contravention of this prohibition is unenforceable in opposition to an investor. For the aim of this prohibition, an funding supervisor wouldn’t be deemed to be carrying on in the UK the regulated actions of discretionary portfolio management or arranging offers in investments if the funding supervisor is predicated outdoors the UK when endeavor these actions. Further, an abroad funding supervisor may depend on an exclusion from requiring authorisation to hold on the regulated exercise of getting into into an settlement with a UK particular person to hold on for them discretionary portfolio management, if the abroad supervisor enters into the settlement apart from from a everlasting administrative center maintained by it in the UK and any solicitation of the UK particular person complies with the UK monetary promotion guidelines.

Acquisitions

Is the acquisition of a controlling or non-controlling stake in a fund supervisor in your jurisdiction topic to prior authorisation by the regulator?

An individual who decides to accumulate management over an FCA-authorised fund supervisor should get hold of the FCA’s approval earlier than making the acquisition. For this objective, ‘control’ broadly means holding a minimum of 10 per cent of the shares or voting energy in the supervisor or the supervisor’s father or mother endeavor (or 20 per cent if the supervisor’s FCA permission solely covers managing AIFs) or holding shares or voting energy because of which the holder is ready to train important affect over the management of the supervisor. Further, an individual deciding to subsequently improve his or her holding in a fund supervisor (apart from in a fund supervisor with FCA permission solely to handle AIFs) to a minimum of 20, 30 or 50 per cent of the shares or voting energy in the supervisor should once more get hold of the FCA’s prior approval.

Restrictions on compensation and revenue sharing

Are there any regulatory restrictions on the structuring of the fund supervisor’s compensation and profit-sharing preparations?

Certain staff of UK fund managers could also be topic to a number of of the units of remuneration guidelines.

Broadly, an funding supervisor (together with a supervisor of an AIF (AIFM) or a UCITS) that carries on MIFID enterprise akin to discretionary portfolio management is topic to the FCA’s MIFIDPRU Remuneration Code below the brand new UK funding companies prudential regime, which replaces the BIPRU and IFPRU Remuneration Codes for efficiency intervals beginning on or after 1 January 2022. Depending on an funding agency’s categorisation below the MIFIDPRU Remuneration Code, it might be topic to, amongst different necessities, the necessities to set an applicable ratio of variable to fastened remuneration and to make sure that variable remuneration is topic to in-year changes, malus or clawback. 

An AIFM can be topic to the FCA’s AIFMD Remuneration Code and a UCITS supervisor is topic to the FCA’s UCITS Remuneration Code. More than one of many remuneration codes might in sure circumstances apply to a agency, though the necessities of every code are related (however not similar). The guidelines should be utilized in a means that’s applicable to the agency’s measurement and inner organisation, and the character, scope and complexity of its actions. 

Further, dual-regulated companies, akin to banks that keep on asset management, are topic to the FCA’s Dual-regulated companies Remuneration Code.

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