DP23/2: Updating and improving the UK regime for asset management 

Read DP23/2 (PDF)[1]

We set out ideas about how we might look to improve asset management regulation with a more modern and tailored regime, better meeting the needs of UK markets and consumers. We want to support the UK’s position as a world-leading centre for asset management. We want to make sure our regime takes account of developments in technology and supports innovation. 

We want feedback as we start to think about what the Future Regulatory Framework[2] (FRF) means for the UK rules for asset management.  

This DP covers possible areas we could change. We want to understand what impact potential changes might have on stakeholders. We are unlikely to take all these specific ideas forward, but feedback to this DP will help us prioritise. Those we do take forward would take account of feedback and be subject to public consultation and appropriate cost benefit analysis.  

If we change any aspect of regulation of the sector, we want to ensure any changes:  

• better meet the needs of investors, both domestic and international, and retail and professional  
• enable technological development, innovation and better use of data  
• are consistent with international standards and take account of rules in other jurisdictions, so that firms can continue to operate efficiently on a global basis
• are effective and proportionate, simplifying and standardising requirements where possible 

Who this is for   

You should read this if you are interested in the future of the UK fund and asset management industry. It may be of interest to:

• authorised fund managers 
• alternative investment fund managers 
• portfolio managers, including portfolio managers providing services to both professional and retail clients 
• depositaries of authorised funds or alternative investment funds 
• investment platform providers 
• financial advisers 
• investment consultants or professional investment advisers 
• investors in authorised funds or alternative investment funds 
• consumers who invest or are interested in investing in funds  

Next steps 

The Treasury has concluded its review on FRF while setting out the approach on delivering the Smarter Regulatory Framework[3] (SRF). This will give us the opportunity to tailor the rules to the UK market. 

Having considered the responses to the Discussion Paper (DP) we put forward our strategic approach and priorities in a speech by our Chair, Ashley Alder[4]. 

Priorities are:  

• making the regime for alternative fund managers more proportionate  
• updating the regime for retail funds 
• supporting technological innovation 

We recognise our regime cannot stand still. We will only reform the regulations for the sector when there are clear benefits of doing so. We will not take forward some of the ideas set out in the DP such as consolidating the rules and developing a ‘basic’ category of authorised fund.

Few respondents considered it sufficiently beneficial to create a single set of rules compared to the costs of doing this. We also had feedback that a new category of authorised funds could cause confusion.   

We want our rules to lead to the outcomes we are looking for in an effective and proportionate way, with the right amount of regulation. This could involve reforming parts of our Handbook to standardise or simplify some rules and guidance. 

We heard calls from the alternative industry to address some areas for specific improvements. Stakeholders asked us to retain the core framework of the Alternative Investment Fund Managers Directive (AIFMD), while making it more proportionate in some areas and more tailored to the UK market.

Stakeholders highlighted the highly developed nature of the alternative investment industry in the UK, with a wide range of specialisms in areas such as investment companies, alternative credit and private equity.

They also noted that many types of alternative funds are typically sold to professionals and that some granular requirements of regulation are too prescriptive. 

Stakeholders also asked us to reassess how the AIFMD rules apply to non-UCITS retail schemes (NURS). UCITS refers to funds subject to rules derived from the EU Directive on Undertakings for Collective Investment in Transferable Securities. We are considering how to simplify and clarify the rules, to make NURS subject to a regime that is similar to the UCITS regime.

This would be a change from the current situation where NURS are subject to AIFMD rules. We will further develop these proposals linking up with the SRF timeline as close as possible over the next two years.  

In the DP we mentioned how fund managers might seek to adopt distributed ledger technology to offer fully digitised funds. Based on the feedback, we plan to explore the regulatory topics around tokenisation in the fund industry.

We are participating in the Treasury’s Asset Management Taskforce Technology working group, which aims to develop a shared view about how the UK asset management industry can use the technology to improve and to explore any regulatory changes that might be required to facilitate that. 

We have received detailed feedback on the ‘Direct2Fund’ proposition providing the option for investors to directly transact with an authorised fund when buying and selling units.

This offers an alternative to the current dealing model where fund managers buy and sell units on behalf of the fund and its investors. We will develop the proposal further in the medium term. 

We published the DP to inform our approach of reforming rules in light of the Financial Services and Markets Act setting out the outcomes of the Government’s SRF programme. We will consult on all specific changes to the rules so there will be an opportunity to provide detailed feedback before any rules change.

This includes consulting on some areas later this year and early next year in our quarterly consultation papers. We remain open to engagement on the topics covered in the DP, please email if you want to provide further feedback on any of the topics at [email protected].