FCA Handbook Notice No. 101

COLL INSTRUMENT

Following the Russian invasion of Ukraine, numerous countries, including the United Kingdom (“UK”) imposed financial sanctions, as well as trading restrictions to Russia. As a result, some assets including, equities and fixed-income securities, assets listed and traded on the stock exchange, and units in collective investment schemes, have become illiquid or untradable. To tackle all the consequential negative impact on the financial markets, on 28 April 2022, the FCA published a consultation paper (“CP22/8”), and subsequently a policy statement (“PS22/8”), setting out new rules and guidance to protect investors by allowing authorised UK authorised fund managers (“AFMs”) to create separate unit classes (also known as side pockets) for retail investment funds. At the same time, this empowers investment managers to isolate their holdings of Russian and Belarusian assets, as a limited emergency temporary measure.

These rules were finalised and implemented on 11 July 2022 in Annex A and Annex B of the COLL Instrument, and the consequential changes are reflected in the Handbook as follows:

• the scope of sanctioned investment is broadened to include any asset or investment that is subject to a relevant sanctions regime and held in a retail authorised fund;
• voting on rights for side pockets may now be exercised at a unitholder meeting;
• additional warnings must be included in the prospectus and the information sent to existing investors when receiving units in side pocket classes;
• new guidance and the need for AFMs to consider the operational needs of distributors before deciding to set up a side pocket class;
• changes to some provisions on the ability of AFMs to effect redemptions and transfers of title to units; and
• additional guidance introducing clarity for the FCA’s expectations of how AFMs should carry out the assessment of the value required by the Collective Investment Schemes sourcebook (“COLL”), in relation to a fund with a side pocket class.

It is important to note that the aforementioned changes affect consumers who have invested directly in UK authorised retail funds which had holdings in sanctioned investments, or who are exposed to these funds through their pension contributions or their long term life assurance policies.

For more information on this topic, please see our earlier article on this: FCA consulting on use of side pockets for retail funds affected by Russian invasion of Ukraine.

DA INSTRUMENT

The DA Instrument focuses on the effective operation and dealing of dormant assets. A DA is a financial product, such as a bank account, insurance, pension, or an investment, which has not been used for a long period of time and attempts to reunite the beneficial owners with those assets that have been unsuccessful. Under the current Dormant Asset Scheme (“DAS”), dormant accounts include UK bank and building society accounts that have had no customer transactions. Such financial products can be utilised by the financial services firms or can be transferred to the administrator of the DAS, facilitated by the Reclaim Fund Ltd (“RFL”), who are then responsible in managing those assets during the period in which they remain unclaimed to be released to charitable initiatives. Notwithstanding this, the beneficial owners of dormant assets can reclaim their funds at any given time even if they have already been used for charitable initiatives.

The Dormant Assets Act 2022 expanded the current DAS to facilitate inclusion of five additional asset classes; insurance, pensions, securities, investment assets and client money. Consequently, this is expected to unblock £880 millions of Dormant Assets (“DAs”). Subsequent to the approval of the Act, on 13 May 2022, the FCA opened a consultation on the ‘Expansion of the DAS’ (“CP22/09”) making changes to specific FCA rules to facilitate the  expansion of the three out of the five asset classes including insurance, pensions and securities. The FCA made the following changes included the Handbook Notice No.101:

• definitions relating to dormancy are expanded with an aim to capture the widening of the DAS and include insurance pensions and securities; and
• amendments to the Dispute Resolution Complaints Sourcebook which will provide customers of insurers and pension providers with the same access to a dispute resolution service, with the ability to complain to the Financial Ombudsman Service in the event that there is a dispute, with the aim of resolving these disputes efficiently on the basis of what is fair and reasonable.

It is important to note that these changes are not introducing additional rules per se, but instead making amendments to allow firms to voluntarily participate in the DAS.

PF INSTRUMENT

On 28 June, the FCA published a policy statement on ‘regulated fees and levies rates for 22/23’ (“PS22/7“) for the FCA, the Financial Ombudsman Service, the Money, and Pensions Service, the Developed Authorities, and the Treasury’s expenses in funding the teams that tackle illegal money lending. The periodic Fees 2022/2023 and Other Fees Instrument 2022 has been in force since 1 July and will make relevant amendments to the Fees manual as set out in the Handbook Notice No.101. The FCA has recommended that fee-payers and firms use the FCA online calculator to work out their individual fees based on the final rates. The calculator includes the FCA periodic fees and the Financial Ombudsman Service, Money and Pensions Advice Service, Developed Authorities, and illegal money laundering levy final rates.