Firms have asked us about our rules and guidance on funds. The queries focus mainly on the associated challenges firms are facing both operationally and as a result of significantly increased volatility in global markets.

We acknowledge the significant challenge firms are facing in the current environment. Nevertheless we expect them to continue to uphold the best interest of their investors at all times. But we set out our answers to these queries here.

Delaying annual and half-yearly fund reports

Some firms have asked whether publishing annual and half-yearly fund reports can be delayed. We have agreed to do this.

Virtual general meetings

We have been asked whether firms can hold general meetings of fund unitholders in a virtual format and whether a unitholder may be considered to be present at the meeting if they are participating in or have joined a virtual meeting. We understand the operational challenges that firms are facing in the current situation and in that context, we do not have a supervisory concern about meetings being held in that format.

However, fund documentation may contain details about arrangements that are additional to what is prescribed by our rules. We cannot forbear on private law obligations owed by authorised fund managers (AFMs) to unitholders or claims which they might bring. So AFMs will need to consider the terms of their fund documentation, including prospectuses and instrument of incorporation, when making arrangements for meetings during this time.

Ensuring compliance with limits on value at risk (VaR)

We understand some authorised fund managers have experienced issues ensuring compliance with limits on value at risk (VaR) as part of their risk-limit systems. Risk controls play an important role in protecting investors’ interests and ensuring the fund is managed appropriately. We expect firms to have plans in place already to deal with such events and to take appropriate remediation action, considering market conditions and what is in the best interests of their customers. 

If individual firms continue to face issues managing their funds within risk limits generally, and VAR limits specifically, they should speak to their supervisory contacts in the first instance, or contact firm.queries@fca.org.uk.

Electronic signatures

We are aware that some firms are making fund-related applications to us and are struggling to obtain wet signatures (ie physically signed) on their application documents.

During the coronavirus crisis, we are willing to accept electronic signatures on applications to authorise funds or approve changes to funds. Applicants may use such electronic signatures where appropriate and relevant forms should be construed accordingly. Where it is possible for the applicant to validate accompanying documentation electronically they may do so. In all cases where an electronic signature is used, we need to be assured that the signatory has seen and agreed with all the information in the form. 

This clarification applies only to information sent by firms to the FCA.

MiFID -10% portfolio value reporting

On 31 March, we published a Dear CEO letter about coronavirus to firms providing services to retail clients. Firms providing portfolio management services or holding retail client accounts that include leveraged investments are currently required to inform investors where the value of their portfolio or leveraged position falls by 10% or more compared with its value in their last periodic statement, and for each subsequent 10% fall in value. In the letter, we made statements on supervisory flexibility around these requirements.

The statements including on reporting of 10% falls, and other issues including in relation to best execution, apply to non-retail client business performed by MiFID investment firms and collective portfolio management investment firms to the extent that the requirements are applicable to those firms.

Repo use for liquidity management

Firms have been in contact with us to ask whether repo transactions can be used within UCITS schemes and non-UCITS retail schemes for liquidity management purposes. Repo transactions should only be used for efficient portfolio management (COLL 5.4). If repo transactions are entered into for the sole purpose of liquidity management, then we consider it unlikely that they will meet the requirements under applicable rules. AFMs must ensure that repo transactions entered into on behalf of authorised funds are permitted under, and meet the conditions in, COLL 5.4. We also refer AFMs to paragraphs 32 to 33 of ESMA’s guidelines concerning the use of repos.

Client assets

We have received several queries on client assets (CASS) compliance related to the current disruption caused by coronavirus. On 6 April we published guidance on this topic. Firms should review the guidance to understand our expectations of firms.

Paper-based and manual processes

AFMs may allow unitholders or potential investors to deal in units in an authorised fund by post, fax or other physical means. AMFs must not prejudice the interests of certain unitholders versus others’. AFMs also have duties and obligations to unitholders under the terms of the Prospectus and instrument constituting the fund, which are not derived from our rules. If dealing by one or all of those physical means ceases to be possible because of the pandemic, AFMs should consider whether they can provide alternative means for unitholders to deal in units in the fund and how they can manage such alternative processes without disadvantaging unitholders. If AFMs cannot provide alternative means for unitholders to deal in units in the fund, and if that means that some unitholders may be prejudiced, AFMs should consider whether there are any other options for ensuring that all unitholders in the fund are treated fairly.

AIFMD transparency reporting

We do not intend to change the usual deadlines for reporting transparency information to us under the AIFMD Level 2 Regulation (Regulation 231/2013/EU). We have previously summarised the relevant requirements.

Firms that suspect they may not be able to meet the usual deadlines should inform their usual supervisory contact or contact firm.queries@fca.org.uk to explain the reasons.

Our page on changes to regulatory reporting sets out our position more broadly.