FCA rules post Asset Management Market Study

In February 2019, the Financial Conduct Authority (the “FCA”) published a second set of rules following the Asset Management Market Study (“AMMS”), the final report of which was published back in June 2017 (for a detailed analysis of the outcomes and remedies the AMMS, please click here to view our previous newsletter). The fundamental purpose of the AMMS was to better understand how asset managers compete to deliver value to all investors, both retail and institutional. The results of the AMMS found that there was clear evidence of weak price competition in a number of areas of the asset management industry. For investors, savers and pensioners, this effectively means that they are receiving lower returns for their investments.

As a result, the FCA has sought to tackle these issues through a new set of rules which aim to assist consumers in better understanding how their money is being managed to enable them to make better investment decisions.

In summary, the new rules and guidance set out:

  • how fund managers should describe fund objectives and investment policies;
  • the requirements on fund managers to explain how their funds use certain benchmarks or how investors can assess the performance of a fund in their absence;
  • consistency in benchmark references throughout fund documentation;
  • fund performance requirements; and
  • the proper calculation of a performance fee as set out in the prospectus.

These new rules have been introduced by The Collective Investment Schemes Sourcebook (Miscellaneous Amendments) Instrument 2019 (the “New Rules”).


It is common knowledge that investment objectives and policies are used by consumers to help them compare their investment options and choose which funds to invest in based on for example what the fund can invest in, what the fund aims to achieve, etc. The AMMS found that these objectives and policies are not always clear or helpful which contradicts their ability properly choose investments which are aligned with their needs and expectations.

The FCA has created guidance which applies to UK authorised funds setting out what the prospectus, UCITS KIID, and PRIIPs KID should contain which ultimately summarises the requirements already stated under COLL, PRIIPS Regulation (and the Delegated Regulation) and the KII Regulation.

From a guidance perspective, the FCA sets out some useful pointers such as the inclusion of non-financial objectives (e.g. environmental, social) and how the fund managers will measure whether those objectives are being met.


The FCA has created 3 benchmark categories which capture the different ways they have seen fund managers using benchmarks in practice:

  1. a ‘constraint’ – an index or similar factor that fund managers use to limit or constrain how they construct a fund’s portfolio;
  2. a ‘target’ – an index or 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; and
  3. a ‘comparator’ – an index or similar factor against which a fund manager invites investors to compare a fund’s performance.

Where a fund is not managed with reference to a benchmark, the FCA has been clear in their stance that it should not, in such cases, be up to the investor to assess the fund’s performance. The fund manager must still be able to explain how they otherwise assess the fund’s performance.

Where funds have more than one benchmark, and fund documentation sets out past performance, this past performance information must be shown against all the benchmarks as opposed to selectively disclosing past performance information only in relation to certain benchmarks. As a result, the FCA has updated COBS 4.5.14R so that it is clear that a fund should show past performance against more than one benchmark if it uses more than one.


Where a performance fee is specified in the prospectus, it must be calculated on the basis of the fund’s performance after all other charges/payments have been deducted which is reflected in the new COLL rule 6.7.6A.


The New Rules in relation to benchmarks will come into force on 7 May 2019 for new funds and on 7 August 2019 for existing funds and the New Rules relating to performance fees come into force on 7 August 2019.

To view the FCA’s statement, please click here.

The FCA has stated that it will be monitoring the implementation of these new rules by the firms they regulate over the next 12 – 24 months and will publish any material findings. With regards to the impending Brexit, and the intention that the UK should leave the EU on 29 March 2019, the FCA have confirmed that whilst the UK remains a member of the EU, they are unable to make rules which would require a fund manager to provide additional information in the UCITS KIID or PRIIPs KID because the form and content of both documents are set out in maximum-harmonising legislation.

For more information, and any guidance or advice on the impact on AMMS on your fund documentation, Cleveland & Co, your External in-house counsel, are here to help.


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