On April 5, the UK Financial Conduct Authority (FCA) published a policy statement with the final rules from its consultation paper 17/18 on asset management market study remedies and changes to the FCA Handbook. The policy statement announces the following prominent changes, among others:

• Authorized Fund Managers (AFMs) must assess the overall value delivered to investors and publish a description of this assessment in a fund’s annual report (or a separate composite report);

• “box profits” (i.e., risk-free profits resulting from differences in the bid-offer prices) will need to be paid to the fund or individual investors, as opposed to asset managers retaining these profits, which is currently the case;

• removing the requirement in the FCA guidance for asset managers to obtain investor consent before “conversion” from more expensive share classes to cheaper, but otherwise identical, share classes; and

• requiring AFMs to appoint at least two independent directors, comprising at least 25% of total board membership.

The FCA has deferred the implementation dates, by up to as much as 6 months, for some of these changes. For example, the rules prohibiting the retention of box profits will take effect on April 1, 2019, and the independent directors requirement on September 30, 2019. AFMs must publish the assessment of value for accounting periods ending on or after September 30, 2019.

Alongside the policy statement, the FCA also published consultation paper 18/9 proposing changes to the rules and guidance for AFMs. The key proposed changes include:

• prohibiting performance fees calculated on gross performance, by amending the performance fee rules so that fees must be calculated net of other fees in every instance;

• publishing guidance reminding AFMs to express a fund’s objectives and investment policies to make them more useful to investors (for example, by reducing the use of technical jargon and including important information about how a fund is managed);

• introducing new rules to require AFMs to clarify why they use certain benchmarks, or if they do not, how investors should assess a fund’s performance; and

• requiring AFMs using benchmarks to reference those benchmarks consistently across a fund’s documents and, where making reference to past performance, require comparison against constraints on portfolio construction or target benchmarks.

The FCA is seeking feedback on the consultation paper from retail and professional investors, and their advisers and representatives, until July 5.

The consultation paper is available here.

The policy statement is available here.