The FCA has updated its previous guidance on its expectations for funds as a result of COVID-19 (see our previous update).

Of particular interest for private fund managers are the comments on the 10% value reporting rules under MIFID. The FCA has made clear that its previous guidance on these rules applies to MIFID firms conducting non-retail business (e.g. UK portfolio managers to funds or other non-retail clients and fund managers with MIFID portfolio management permissions). The 10% value reporting rule requires portfolio managers to inform clients where the overall value of the portfolio depreciates by 10% and thereafter at multiples of 10%. The FCA has said that it won’t take enforcement action where a firm:

  • Has issued at least one notification to a client within a current reporting period, indicating their portfolio has decreased in value by at least 10%; and
  • Subsequently provides general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications; or
  • Chooses to cease providing 10% depreciation reports for any professional clients.

The FCA has said it will adopt this approach until 1 October 2020. Therefore, for managers who have professional clients, provided the first condition above is satisfied, there is scope under the guidance to cease providing the 10% depreciation reports.

Other areas included in the FCA’s updated guidance for funds include:

  • Best execution - the statements made by the FCA on flexibility around best execution reports also apply to non-retail client business performed by MiFID investment firms and collective portfolio management investment firms (broadly guidance around publication of RTS 27 and 28).
  • Repo use for liquidity management – this is relevant for UCITS and non UCITS retail scheme managers and the FCA has said that repo transactions should only be used for efficient portfolio management. If repo transactions are entered into for the sole purpose of liquidity management, the FCA is of the view that it is unlikely they will meet the requirements under applicable rules.
  • Client assets – the FCA referred to previous guidance issued on client assets and money which covers the following areas which will be of interest for fund managers/firms who hold client assets/money: CASS audit reports, physical asset reconciliations, depositing client money, notification of CASS breaches, CASS firm classification and delays to improvement programmes.
  • Paper based and manual processes – this is relevant for authorised fund managers and the FCA has indicated that these managers should consider whether they can provide alternative ways for unitholders to deal in fund units rather than paper based means. However, if this is done, it is important mangers ensure that all unitholders are treated fairly.