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What happened?
Fund managers will have to provide more information on the way their funds are run from this July, the FCA has announced. The regulator has published new rules and guidance in its Policy Statement 19/4 to improve the quality of information available to investors in response to its asset management market study last year.
The new rules and guidance:

• set out how fund managers should describe fund objectives and investment policies to make them more useful to investors,
• require fund managers to explain why or how their funds use particular benchmarks or, if they do not use a benchmark, how investors should assess the performance of a fund,
• require fund managers who use benchmarks to reference them consistently across the fund’s documents,
• require fund managers who present a fund’s past performance to do so against each benchmark used as a constraint on portfolio construction or as a performance target,
• clarify that where a performance fee is specified in the prospectus, it must be calculated based on the scheme’s performance after the deduction of all other fees

Managers will now have to explain why or how their funds use particular benchmarks and reference them consistently across the fund’s documents. If managers do not use a benchmark, investors must be informed how to assess the performance of a fund. Past performance should also be measured against the benchmark.

In its CP18/9, the FCA had set out three benchmark categories that were relevant to the proposals and which have now been accepted. These were:

1. A ‘constraint’ – an index or a similar factor that fund managers use to limit or constrain how they construct a fund’s portfolio
2. A ‘target’ – an index or a similar factor that is part of a target a fund manager has set for a fund’s performance to match or exceed, which includes anything used for performance fee calculation
3. A ‘comparator’ – an index or similar factor against which a fund manager invites investors to compare a fund’s performance

Additionally, the regulator has amended its rules to require that where a performance fee is specified in a prospectus, it must be calculated on the basis of the scheme’s performance after the deduction of all other fees.

Rules for benchmarks do not require managers to use one, and those who do use one are not expected to refer to it if it is not relevant to the way the fund is run.

Rules for performance fees will come into force on 7 August, while benchmark declarations will be required from 7 May for new funds and from 7 August for existing funds. The FCA expects fund managers to take this guidance into consideration when reviewing fund documentation from the date of publication of this policy statement.

In addition, the FCA is clarifying how Chapter 4 of the COBS sourcebook applies to the key investor information document. This change came into force on 4 February 2019 (see COBS 4.1.7A and B). The FCA did not intend the new rules to apply to the UCITS KIID or the KIID equivalent for a non-UCITS retail scheme and has decided to make clear that the rules in COBS 4 do not impose obligations on firms to add further information to the UCITS KIID (or the NURS equivalent). This is because legislation already sets out the form and content of the UCITS KIID in an exhaustive manner.

How Thistle can help you?
Thistle will continue to keep this area under review and will issue further updates where necessary. Please contact us if you need assistance in relation to any of these issues or further information on our investments services.