The UK's asset management industry has experienced significant regulatory changes aimed at enhancing transparency, investor protection and market competitiveness. Below is an overview of the key...
The UK's asset management industry has experienced significant regulatory changes aimed at enhancing transparency, investor protection and market competitiveness. Below is an overview of the key developments.
1. VAT on Investment Fund Services
The UK government is considering intervening to prevent HMRC from imposing a 20% VAT on investment fund services. This potential tax, estimated to add an annual cost of £147 million, has faced strong opposition from senior City executives and industry groups, who argue it could harm the UK's reputation as a stable and competitive business environment compared with EU fund hubs like Dublin and Luxembourg.
2. FCA's Call for Improved Valuation Processes
The FCA has urged firms managing private assets to enhance their valuation processes and to identify and disclose potential conflicts of interest. This comes amid a surge in retail investor interest in non-public assets such as private equity, venture capital, private debt and infrastructure. The FCA's review highlighted the need for more independent valuation processes, especially during volatile periods, to maintain market confidence and ensure fair investor outcomes.
3. Regulatory Focus on ESG Rating Providers
The UK published draft regulations to bring ESG rating providers under the FCA's supervision. Once finalised, providing ESG ratings will become a regulated activity requiring prior authorisation by the FCA. This aims to enhance the credibility and reliability of ESG ratings and to ensure consistent standards for UK and non-UK providers serving UK users.
4. Updates to Research Payment Options
The FCA introduced rules allowing UK MiFID investment firms to bundle payments for investment research with execution services, subject to conditions. The FCA has proposed extending this flexibility to fund managers, including UCITS management companies and alternative investment fund managers, aiming to provide greater flexibility while ensuring transparency and investor protection.
5. Implementation of the Overseas Funds Regime
The Overseas Funds Regime (OFR) is operational, allowing non-UK funds recognised by the FCA to be marketed to retail investors in the UK. This replaces the Temporary Marketing Permissions Regime that permitted certain EU UCITS to continue marketing post-Brexit. Funds are assigned a landing slot to transition into the OFR.
6. Enhancements to UK EMIR Reporting Requirements
Changes to derivative reporting under the UK European Market Infrastructure Regulation (EMIR) came into effect, including the obligation to report additional information, promptly address reconciliation failures, and notify the FCA of material errors or omissions as soon as they are identified.
These developments underscore the UK's commitment to refining its regulatory framework, ensuring the asset management sector remains robust, transparent and competitive on the global stage.