Apex Group
Niall Pritchard
22 Jun 2022
Niall Pritchard, managing director, UK at Apex Group, talks to Asset Servicing Times about the changes Brexit has brought to the funds space, and the UK Financial Conduct Authority’s consultation on ‘side pockets’ for retail funds in response to the Russian invasion of Ukraine
Image: Apex Group
What are the most pressing regulations for UK-based asset managers today? What have been your clients’ main concerns to ensure their compliance?
Like many other countries, the UK has been increasing requirements for the disclosure of the risks and effects of climate change to promote sustainability across the financial chain and support its ambition to become a net-zero economy by 2050.
This is part of the UK Government’s commitment to introduce mandatory disclosure obligations across the economy by 2025, aligned with the Task Force on Climate-related Financial Disclosures (TCFD). In December 2021, the UK Financial Conduct Authority (FCA) revealed its final rules that require asset managers, life insurers, and FCA-regulated pension providers to disclose against the TCFD framework. In addition, the UK FCA is expected to propose its Sustainable Disclosure Requirements this year which are expected also to apply to these businesses.
Firms must publish an annual TCFD entity report in a prominent area on their main website, explaining how they take climate-related matters into account when managing or administering investments. They must also include a statement to confirm their compliance with the rules. Disclosures on products and portfolios, including a core set of climate-related metrics, must be made public on the company’s main website and be included in client communications.
Complying with these new regimes will be challenging and require expertise in environmental issues, ESG regulatory guidance and data gathering. Our clients are seeking a broad range of services that can help asset managers, asset owners and standard-listed companies to understand and comply with the FCA’s new TCFD disclosure rules.
How has your firm helped to prepare its clients for the changes that Brexit has brought, particularly in terms of fund registration and redomiciling? What has been your experience in helping them prepare for these hurdles?
We have evolved and expanded the scope of services to better support clients to navigate the opportunities and challenges of Brexit. In 2021, we acquired FundRock, a leading UCITS management company (ManCo) and Alternative Investment Fund Manager (AIFM)-offering solutions for European based funds.
Via FundRock, we can offer clients support through ManCo services as well as distribution services to act as investment adviser and distributor of shares and units of funds. Under this Markets in Financial Instruments Directive license, we are able to act as global distributor or sub-distributor of the funds, managed by our affiliates. We leverage our free provision of services through the EU to offer a long-term and stable solution to our clients.
In addition, Apex’s Business Acceleration Services (also known as BASE) is a turnkey solution which enables fast and efficient business expansion support.
This includes advice on cross-border regulatory requirements, local jurisdictional complexity and non-compliance risks which can pose new challenges for today’s CEOs and chief financial officers in a post-Brexit Europe.
How much significance will the UK Government’s proposed Fund Regime hold for the everyday activities of both the UK investment funds industry and UK-based asset servicers in particular?
We are expecting the reputation of the UK’s fund location and administration to be enhanced.
In terms of legislative progress associated with the review, the UK Government has already made sure long-term asset funds can be launched, and from April 2022, the UK has become a more attractive location for asset-holding companies as well as unlisted real estate investment trust permits.
We hope for further reforms arising from the review — for instance, a UK Professional Investor Fund (PIF) that will plug a gap in the UK funds offering. The PIF will be particularly useful for funds holding UK real estate. This will allow defined contribution pension schemes to invest in less liquid assets, in line with counterparts across the globe.
The Russian invasion of Ukraine has affected financial markets, with some Ukrainian assets becoming illiquid or untradeable. Broadly speaking, how is Apex helping both its UK-based clients and international ones to navigate this?
Apex works in close conjunction with AIFMs, directors and managers on any Ukrainian assets held to ensure that we apply any agreed fair value pricing. Where we act as depositary on the fund, we will look to review the proposed pricing of the underlying assets to ensure there is appropriate justification of the pricing to be applied.
In response to the Russian invasion of Ukraine, the FCA’s consultation on ‘side pockets’ closed on 19 May. The consultation was initiated in response to the significant practical challenges in disposing of Russian and Belarussian assets — in the context of suspensions and extensive global sanctions. What will this mean for fund managers?
The normal mechanisms for determining accurate and reliable valuation for some securities have either become difficult or stopped completely, and the FCA has therefore proposed the potential use of ‘side pockets’ for investments impacted by the Ukrainian war. The proposal allows authorised fund managers to structure the fund using separate new classes of units to hold the affected investments, referred to as side pockets. These side pockets allow new investors to enter the fund without sharing the exposure to the affected investments; existing investors to sell the units which relate to assets that are not affected investments and some funds to end their current suspension of dealing.
We have extensive experience of supporting funds in other global jurisdictions where the use of side pockets is commonly applied. The initiative allows investors to continue to trade on the remaining assets in the fund — in line with standard dealing timeframes. Our systems are built to support clients that have this requirement.
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