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Securities Financing Transaction Regulation (SFTR) and investment funds


United Kingdom

The FCA's Consultation Paper 16/14 consults on minor changes to SYSC and consequential amendments to COLL and FUND to reflect certain measures in the Securities Financing Transaction Regulation ("SFTR").

SFTR is directly applicable to firms. Please see our existing briefing paper on SFTR for further details. For ease of reference, the proposed amendments to be introduced by the Investment Funds (Securities Financing Transactions) Instrument 2016 are set out in the Annex to this briefing paper.

CP 16/14 simply picks up on particular issues which necessitate changes to the FCA's Handbook regarding SFTR provisions. The intention is to copy out in COLL the SFTR provisions requiring managers of UCITS and AIFs to disclose details of their use of SFTs and Total Return Swaps in the Fund's pre‑contractual documents and periodical reports to investors. This might affect UCITS, NURS and QIS schemes. The new disclosure requirements apply to managers of UCITS and AIFs. Note:

  • as NURS and QIS managers must issue a prospectus (see COLL 4.2 or COLL 8.3 respectively), the FCA's proposed Guidance clarifies that managers should disclose SFTR information in the Prospectus instead of disclosing it in other pre contractual documents;
  • if firms are not using, or are not authorised to use, SFTs or total return swaps, they are not required to make any disclosures under Articles 13 or 14 of SFTR;
  • the periodic report requirements in Article 13 will apply from 13 January 2017 and the provisions relating to these in the FCA's proposals will not come into force until that date;
  • for the pre contractual disclosure requirements in Article 14, there is a transitional provision running to 13 July 2017 for funds constituted before 12 January 2016. 

The FCA are maintaining their view that sub funds constituted after 12 January 2016, even for pre-existing umbrella structures, do not benefit from this transitional measure. This is a different position from that taken by other European regulators. The FCA may review any European Commission clarification on this issue in due course but the CP 16/14 proposals indicate no change of approach for now.