October 2019
Regulatory Round-up - Q3 2019

In this edition we cover:

United Kingdom

  • Senior Managers and Certification Regime ("SM&CR")
  • No-deal Brexit Preparations
  • NPPR submission changes
  • Competition Investigations
  • Research unbundling post-MiFID II post mortem
  • New rules for open-ended funds investing in "inherently illiquid assets"

Senior Managers and Certification Regime

Practical Advice for those who have left it to the last minute. 


With around 8 weeks to go before SMCR takes effect (9th Dec), Firms should have their preparations well underway. However, for Firms which are yet to commence their SMCR projects, we suggest prioritising the following:


1. Determine which of the three SMCR Firm-types apply (Limited Scope, Core or Enhanced). The type of Firm depends on the extent to which SMCR applies.

2. Determine which personnel will be: Senior Managers, Certified Persons and NEDs.

3. Determine to whom each of the Prescribed Responsibilities are allocated (there are a maximum of 13 for Enhanced Firms and 6 for Core Firms) ensuring that the Governing Body are fully engaged in this process. The Governing Body should, by now, be fully briefed on SMCR especially with regard to the Duty of Responsibility.

4. Schedule Training in the Conduct Rules for all Senior Managers and Certified Persons before 9th Dec ‘19 (other persons must receive Conduct Rules training by Dec 2020, although HR staff should be included in all pre-Dec’19 preparations).

5. Register Firm to conduct criminal records checks on new staff or determine whether this is already conducted through agencies. More information on DBS checks may be found on the Government Website (linked here): 

6. After 1-5 are complete/commenced, start drafting documentation: Statements of Responsibility, Competence Assessments, Fitness and Propriety assessments and Regulatory Reference Templates.


Conversion from Approved Persons Regime to SMCR – Deadline 4th Nov


Existing approved persons of Core and Limited Scope Firms who have a corresponding function under SMCR will be mapped over automatically. However, where such Firms have approved Non-Executive Directors (CF2s), they must complete a Form K if that NED is to perform the role of “Chair”. Form Ks are now available on the FCA’s Connect system and applications must be sent by 23.59 on 24th Nov ‘19. Likewise, Enhanced Firms must allocate sufficient time to working out which of the new extended SMCR Functions will apply to Senior Managers as these cannot be mapped across automatically. They must complete Form Ks as appropriate before the 4th November deadline.


Portman will continue to assist firms with timely implementation of the new regime in order to ensure that firms meet their regulatory obligations on 9 December.

No-deal Brexit Preparations

Firms which need guidance on the potential issues resulting from a no-deal Brexit should revert to the FCA’s Brexit webpage (linked here). 


On this webpage Firms will find further links to content concerning Brexit considerations for retail, wholesale, banking and insurance. In Particular, Firms which passport into the EEA, have customers based in the EEA, market products into the EEA and transfer personal data into the EEA, should consider the impact of Brexit. Firms which intend to transfer business to another entity placed within the EEA should have plans in place (with time-lines considered) for the novation of contracts, continuation of passported business and have ready template correspondence outlining the execution of Brexit plans to clients, third parties and any other relevant persons.


Firms should also note that there is a dedicated “Brexit Line” for questions on how to prepare: 0800 048 4255. 

NPPR Submission Changes

Notifications by AIFMs to market an AIF into the UK via NPPR (and any notifications of material change) must now be submitted via Connect with the exception of Full Scope EEA AIFMs marketing offshore AIFs (as per Regulation 57) which must be submitted via email using the new word document format.

Competition Investigations

The FCA issued a reminder to Firms via it’s last newsletter that some Firms are not notifying them immediately when a competition authority has started an investigation or imposed disciplinary measures against them. Firms are reminded to notify the FCA (as per SUP 15.3.15(3)). Failure to do so may incur regulatory censure if non-compliance continues.

Research unbundling post-MiFID II post mortem

In September, the FCA published it’s review on the impact of the MiFID II research unbundling rules finding that the changes benefitted underlying investors and increased the cost-consciousness of asset managers as follows:


• Most asset managers have chosen to pay for research out of P&L (rather than via a research payment account, “RPA”, charged back to the client).

• Investors in UK-managed equity portfolios saved approx. £70m in the first 6 months of 2018 across a sample of Firms reviewed.

• Research budgets have fallen on average by 20-30%.

• Despite lower budgets, most asset managers say they are receiving sufficient research.

• Research coverage of SMEs listed in the UK has not seen a material reduction to date.

• Research pricing is still fluctuating with wide price ranges from Brokers and independent providers.


Importantly, the review exposed wide variation in how firms value research (as Consultants we are commonly asked how to determine whether research is priced too low). The FCA provided some guidance on how to evaluate and decide payment for research (the article, linked here, can be referred to for further detail). 

Illiquid Assets: New Rules for open-ended funds

On 30th September, the FCA announced new rules which will apply to non-UCITS retail schemes which invest in “inherently illiquid assets” such as real estate. These requirements come in the wake of the suspension of the LF Woodford Equity Income Fund and are intended to reduce the likelihood of runs on funds and consequential “fire sale” of assets which may be detrimental to remaining investors. These funds will be categorised as “FIIA” (Funds investing in inherently illiquid assets) and will be subject to more robust requirements including: increased disclosure on liquidity management policy, standard risk warnings in marketing documents, enhanced depositary oversight and a requirement to produce liquidity risk contingency plans. In addition, investors must be provided with clear information on circumstances where their access to funds may be restricted. Additional liquidity risk management requirements will be imposed on fund managers.


The new rules will take effect from 30th September 2020.