This month’s regulatory round-up pulls together some interesting regulatory developments we have tracked throughout June. The past month brought a number of important developments, particularly on the EU Money Market Fund Regulation, with ESMA publishing updated reporting instructions, and translations to the MMF guidelines.
ESMA recently published a supervisory briefing on the supervision by National Competent Authorities (NCAs) of costs applicable to Undertakings for the Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). The briefing was response to the need to improve convergence across NCAs in the approach to undue costs.
The European Securities and Markets Authority (ESMA) has published a supervisory briefing on the supervision by National Competent Authorities (NCAs) of costs applicable to Undertakings for the Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs).
A number of key regulators including ESMA, the CBI and the FCA have reviewed the market for potential hidden “closet tracker” funds and published their findings, with a number of funds providing inaccurate information in their investor disclosure documents as regards investment strategy.
While the FCA’s Assessment of Value (AoV) process is a new development in the UK market, a similar requirement on mutual funds has been in place in the United States for considerable time. The approach in the United States provides some useful comparisons to the new UK regime. The US fund governance model requires under Section 15c of the US Investment Companies Act 1940 for US fund boards to conduct an assessment on the fund managers using a number of factors commonly known as the Gartenberg Principles.
Whilst UK AFMs are currently busily engaged in the FCA Assessment of Value process of preparing their first reports, in this blog we give some thought as to where the FCA Assessment of Value requirements are likely to take us over the next few years.
The FCA’s terminology is FCA Assessment of Value, a shift from the earlier terminology of “Value for Money” which the FCA felt focused too much on the AFMs costs. Therefore, the focus from fund managers needs to be on the full value proposition for investors rather than focusing only on fund charges. Good value does not necessarily mean low cost!
Closet trackers, also known as closet indexing or index hugging, refers to the practice of fund managers claiming to manage portfolios actively when in reality the fund stays close to a benchmark. The issues around ‘closet trackers’ form part of a broader issue on the effectiveness of investor disclosure and the legitimate expectations of investors in respect of the service provided by some asset managers.