FCA updates webpage on its expectation of funds in light of COVID-19

Update: In light of the challenges firms face as a result of the “significantly increased" volatility in global markets, on 15 April 2020, the FCA updated its expectations in a number of key areas.

1. Delaying annual and half – yearly fund reports

The FCA has agreed to extend the deadlines for Authorised Fund Managers (AFMs) of UK UCITS schemes and NURS to publish fund reports and accounts

• by two months for a fund’s annual report; and
• by one month for half-yearly reports.

Under the temporary relief, the FCA has confirmed it will not bring enforcement actions for breaches of the rules under COLL 4.5.7 R and COLL 4.5.14R where an AFM publishes

• its annual report and assessment of value report within six months of its accounting year-end date;
• financial statements within 3 months of the end of its half-yearly accounting period.

An AFM that wishes to delay publication should:

• inform the fund’s depositary and auditors;
• email the FCA (ukcis@fca.org.uk) with details of the funds to which the extension will apply and a new date of publication; and
• publish on its website the reasons for its decision to postpone publication together with the new publication date.

2. Virtual general meetings

The FCA states that it sees no supervisory concerns on the issue of whether unitholders may be considered to be present at the meeting if they are participating in or have joined a virtual meeting. However, while the FCA recognises the need for general meetings of fund unitholders to be held virtually, it notes that fund documentation may contain details about such arrangements and firms must examine them carefully before holding a meeting in that format.

3. Ensuring compliance with limits on value at risk (VaR)

The FCA expects firms to comply with limits on value at risk (VaR), as such controls contribute significantly toward protecting investors and ensure that the fund is managed appropriately. If a firm has problems managing its fund within risk limits it should speak to its supervisory contacts or contact firm.queries@fca.org.uk.

4. Electronic signatures

The FCA confirms that it will accept electronic signature on applications to authorise funds or approve changes to funds. Where an e-signature is used, though, the FCA requires a signatory to have seen and agreed with the information in the form and urges applicants, where possible, to validate accompanying documentation electronically.

5. MiFID - 10% portfolio value reporting

The FCA has published a Dear CEO Letter addressed to firms which provide services to retail clients, in an effort to safeguard retail investors and help firms deal with their customers.

The letter states that firms providing portfolio management services or holding retail client accounts (including leveraged investments) must inform investors where the value of their investment falls by 10% or more, in value, from the last periodic statement.

No FCA enforcement will arise where the firm:

• has issued at least one notification to a retail client within a current reporting period indicating a 10% depreciation or more;
• subsequently provides general updates through public channels updating clients on market conditions and explaining to client how they can access their portfolio and check its value; or
• ceases to provide 10% depreciation reports to professional clients.

This will also apply, where applicable, to non-retail client business performed by MiFID investment firms and collective portfolio management investment firms

This approach will apply for a period of 6 months until 1 October 2020.

6. Client assets

The FCA has published the guidance on compliance with client assets (CASS) rules on the following topics:

• Handling cheques which have been sent to unmanned offices and remained unbanked.
• The rise in reported breaches and increase in the cost of CASS audit reports.
• Physical asset reconciliations and associated difficulties in accessing the location where assets are held.
• Depositing client money – operational challenges in meeting segregation and diversification requirements.
• Notification of CASS breaches under PRIN 11 and SUP 15.
• CASS firm classification in relation to an increase in holdings of client money and/or custody assets.

Delays in compliance with CASS rules should be reported to the FCA. The FCA urges firms to review the guidance in order to understand their expectations.

7. Paper-based and manual processes

Unitholders or potential investors may deal in units in an authorised fund by post, fax or other physical means. AFMs must not prejudice the interests of unitholders over others and continue complying with their duties under Prospectus and the instruments constituting the fund. If dealing by one or all those physical means ceases to be possible because of the pandemic, AFMs should consider whether there are any other options available that can be applied to serve unitholders in a non-discriminatory manner.