Content

• Financial Services and Markets (Collective Investment Undertakings) Act 2000 (Amendment) Ordinance 2021
• Making money market funds more resilient: speech by the BoE governor
• Fund plan authorized to invest in long-term assets: FCA CP21 / 12
• Liquidity mismatch in authorized open-ended real estate funds: FCA FS21 / 8

Financial Services and Markets (Collective Investment Undertakings) Act 2000 (Amendment) Ordinance 2021

the Financial Services and Markets (Collective Investment Undertakings) Act 2000 (Amendment) Ordinance 2021 (SI 2021/566) was published, with a Explanatory memorandum.

The ordinance specifies that a company which takes over loan agreements operated via a peer-to-peer lending platform, in particular because the original company is in the process of liquidation, is not an organization. collective investment scheme (UCI) and is therefore exempt from being authorized. by the UK Financial Conduct Authority (FCA) for this particular activity.

The Ordinance does this by amending the Annex to the 2001 Ordinance of the Financial Services and Markets (Collective Investments) Act 2000 (SI 2001/1062), which defines the types of arrangements that do not constitute a UCI within the meaning of article 235 of the 2000 law on financial services and markets.

The ordinance comes into force on June 18, 2021.

Making money market funds more resilient: speech by the BoE governor

The Bank of England (BoE) has published a word by Andrew Bailey, BoE Governor, on the reforms needed to make money market funds (MMFs) more resilient. Mr Bailey explains that, as money market funds played a role in amplifying the stress seen in the global financial crisis, the ‘dash for the money’ at the start of the COVID-19 pandemic is the second time they have been shown to be insufficiently resilient. It is therefore right that great efforts be made to tackle these problems.

He identifies five principles that could shape a framework for reforms and explains that three main changes flow from these principles and should form the basis of reforms. These three changes are:

• the removal of unfavorable incentives introduced by liquidity thresholds linked to the use of suspensions, portals and redemption fees;
• simplifying the landscape to clarify the critical distinction between cash-type funds and investment funds; and
• a more explicit definition of what constitutes species.

Bailey stresses that no reform will solve things on its own and says a coherent package of reforms is needed to address the current vulnerabilities in the MMF sector. It identifies three broad approaches that illustrate the potential options available:

• at one extreme, asset holdings could be limited to government instruments. Given the low risk and liquid nature of these instruments, this would significantly reduce the risk of a run;
• at the other extreme, the liquidity mismatch could be eliminated by making non-daily fund transactions (ie, no cash on sight), which would require a notice period; or
• a combination of measures could be used to reduce the risks to a sufficiently low level. For example, a limit could be introduced on the percentage of assets that an MMF could hold in non-government instruments, in order to reduce the holding of less liquid assets. This could be combined with ensuring that the funds are structured as a variable net asset value, although with this asset mix the variability in the value of the fund should be mitigated. Also, there shouldn’t be any regulatory cliffs, so that funds can be more confident to release their cash cushions in times of stress to deal with withdrawals.

Mr Bailey noted that the Financial Stability Board (FSB) would soon consult which reforms would be most appropriate and said the BoE remained very supportive of the work of the FSB.

Fund plan authorized to invest in long-term assets: FCA CP21 / 12

The FCA has published a consultation document, CP21 / 12, on a new fund regime authorized to invest in long-term assets. These assets are sometimes referred to as productive finance and include venture capital, private equity, private debt, real estate, and infrastructure.

The FCA proposes to create a new category of funds called long-term asset funds (LTAF). A new Chapter 15 of the Collective Investment Reference Manual (COLL) will contain rules for LTAFs. Authorized fund managers will also need to comply with rules from other sources, including PRIN, FUND, COBS and SYSC.

LTAFs will be Alternative Investment Funds (AIFs). They will invest in assets that can be complex and risky, which means their managers will need to have the right resources and good systems and controls. Therefore, the FCA proposes to require that only firms that are licensed as full UK Alternative Investment Fund Managers (AIFMs) can manage LTAFs.

The FCA’s proposed framework for LTAF is principled and does not propose setting detailed or prescriptive rules in many areas. She has designed a regime that she believes will provide an appropriate level of protection to investors for whom the products may be suitable. LTAFs will facilitate investments through a UK approved fund in less liquid and potentially riskier assets than assets available to traditional retail funds.

Pending feedback, the FCA proposes initially to restrict the distribution of LTAFs to professional investors and sophisticated retail investors (on the basis of the distribution rules for qualified investor systems ( QIS)). He designed the rules to allow wider dissemination if he later decides it would be appropriate.

The FCA plans to allow LTAFs to invest in a range of long-term illiquid assets, with few restrictions on qualifying investments. Since the types of investments held in an LTAF may have varying risk characteristics and return profiles, it suggests requiring additional information to help potential investors understand how the fund will be managed and explain the characteristics. important.

The FCA is also proposing to modify the rules relating to links allowed in COBS 21.3 to allow defined contribution (DC) pension plans to invest in LTAFs.

The consultation ends on June 25, 2021. The FCA intends to issue a policy statement and final rules later in 2021.

Liquidity mismatch in authorized open-ended real estate funds: FCA FS21 / 8

The FCA issued a feedback statement, FS21 / 8, outlining the comments received in its August 2020 consultation paper on the liquidity mismatch in authorized open-ended real estate funds (CP20 / 15).

The FCA reports that respondents expressed a range of views, although many argued for the usefulness of open-ended real estate funds as part of an investment portfolio. Only a small number of respondents endorsed the proposal that real estate funds apply a notice period (between 90 and 180 days) before processing investor redemption requests, as discussed. However, just over half of the respondents, who expressed a clear position, supported the proposals “in principle” but subject to the following important conditions:

• The larger “ecosystem” that supports and distributes investment funds (including platform and advisor systems) that are able to operationally support notice periods; and
• investments in funds with notice periods continue to be eligible assets for ISA purposes.

FCA says it is carefully considering its next steps in light of the comments received. It also plans to take into account reactions to its separate consultation paper on LTAFs (see above) and broader progress on LTAFs, before finalizing its policy on notice periods for real estate funds.

If it does introduce mandatory notice periods for real estate funds, it will allow a sufficiently long implementation period before the rules come into force, to allow companies to make operational changes. It notes the information that a period of 18 months to two years would be appropriate.

Along with FS21 / 8, FCA also issued a declaration on its work in this area. In this, he is committed to continuing to work with industry stakeholders, notably through the Productive Finance working group set up by the FCA, the Bank of England and HM Treasury to overcome operational obstacles. identified.