Next year will herald a range of regulatory developments which will impact on the funds industry. We present a summary of each development, along with key dates for implementation or further consultation.
Retail Distribution Review
2012 will see the implementation of the Financial Services Authority’s (FSA) Retail Distribution Review (RDR ) proposals which are intended to improve customer trust and confidence in the retail investment market in a number of ways.
First, investment firms must describe the advice they offer as:
• “independent” (where advice is based on a comprehensive and fair analysis of the client’s needs);
• “restricted” (where, for example, the advice relates to a limited range of products); or
Second, new charging rules will ban the payment of commission to advisers and require investment firms to set their own charges which must be agreed with clients.
Third, the minimum level of qualification for all investment advisers will be raised and the FSA will supervise and enforce professional standards for individual advisers with an enhanced role for accredited bodies. Firms will need to comply with the new rules by 31
December, 2012, and the FSA will be closely monitoring RDR implementation throughout 2012.
The deadlines for responses to two recent FSA consultations on RDR adviser charging are 10 and 16 January, 2012, respectively.
Packaged Retail Investment Products
The European Commission is expected to publish legislative proposals for the regulation of Packaged Retail Investment Products (Prips) in the early part of 2012, following its consultation in November, 2010.
Prips are investment products which are generally marketed to retail investors and which offer investors exposure to underlying assets in packaged forms. As such, they involve an element of engineering which alters the client’s exposure compared with direct holdings.
To address persistent problems with the way in which Prips are marketed and sold to retail investors, the European Commission is expected to extend the rules relating to pre-contractual disclosure and sales practices under the Ucits Directive and the Markets in Financial Instruments Directive to cover all Prips.
Alternative Investment Fund Managers Directive
The Alternative Investment Fund Managers (Aifm) Directive aims to introduce a comprehensive, harmonised European Union framework for the regulation of alternative investment fund managers and will grant third country alternative managers access to the European market, subject to certain management and marketing conditions.
In the UK, the FSA and HM Treasury are expected to publish a series of consultation papers and policy statements on the implementation of the Aifm directive during the first half of 2012. The directive came into force on 21 July, 2011 and must be implemented by 22 July, 2013.
It will catch all alternative managers, including those of private equity funds, hedge funds and investment trusts, although it will not apply to Ucits. Under the new rules, alternative managers will need to be authorised by their home state regulator and will be subject to minimum capital requirements. They will also need to comply with conduct of business standards, rules on remuneration and other robust regulatory standards.
The UK has now fully implemented Ucits IV through changes to the FSA rules and legislation. Among the changes introduced by Ucits IV are new rules and procedures relating to mergers, master-feeder structures and Key Investor Information Documents (Kiids).
Although firms should have already implemented the bulk of the measures under Ucits IV, they have until 30 June, 2012 to introduce Kiids for their Ucits funds. The European Commission is expected to publish its legislative proposals for Ucits V, which will cover the Ucits depository function and manager remuneration in early 2012.
Jacqui Hatfield is a partner and head of the financial services advisory group, and Dale Gabbert is a partner in the funds group, at Reed Smith
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