The Discussion Paper (DP) published on February 20 by the Financial Conduct Authority (FCA) includes some indications about how the regime applicable to funds and asset managers might change.

Possible area of changes includes :

• Enhancing the rules applicable to authorised fund managers (AFMs) to, among others things, allow funds to use third-party portfolio managers and create specific contractual requirements between an AFM and a portfolio manager

• Enhancing liquidity management by, amongst others, requiring firms to comply with the Liquidity Stress Testing Guidelines issued by the European Securities and Markets Authority (ESMA)

• Strengthening the rules around investment due diligence. This will include the requirement for portfolio managers to conduct suitability assessment as well as the requirement for fund managers to carry out due diligence

• Clarifying rules for depositaries, including (i) the systems and controls that a depositary must have in place to identify breaches of the rules and constituting documents of a scheme, (ii) the resources and knowledge, skills and experience expected for a depositary; (iii) as well as actions that must be taken by a depositary when a breach is identified

• Improving the fund rules to provide more detailed and clarity

• Eligible assets regime for UCITS to provide some flexibility to managers, depending on the circumstances, regarding the 10% rules (i.e. possibility for funds to invest up to 10% of their portfolio into assets that do not meet the eligible markets criteria)

The DP will be of interest to, but not limited to, authorised fund managers, alternative investment fund managers, portfolio managers and depositaries of authorised funds or alternative investment funds.

Comments should be provided by May 22, 2023.