Reuters logo
Fitch: FCA Plan Bolsters UK Fund Board Independence, But Lags US
June 30, 2017 / 10:42 AM / 3 months ago

Fitch: FCA Plan Bolsters UK Fund Board Independence, But Lags US

(The following statement was released by the rating agency) LONDON, June 30 (Fitch) The Financial Conduct Authority's plan to reinforce fund governance will make UK director independence rules stricter than those in Europe's major cross-border fund domiciles, but board independence is still likely to trail well behind US funds, Fitch Ratings says. Recent regulatory changes mean fund boards will play an increasingly important role in the outcome for investors, and independent directors could help achieve better outcomes where there are potential conflicts between the interests of investors and the asset manager. The FCA's proposals, made as part of its wider review of the asset management sector, would require fund boards to appoint at least two independent directors and at least 25% of the total board membership to be independent. This would go beyond requirements in other major European jurisdictions for asset management. For example, the Irish Corporate Governance Code requires at least one independent director, while the ALFI code of conduct for Luxembourg investment funds recommends an independent director. Our recent analysis of 145 sub-funds found European UCITS funds had an average of 1.9 independent directors on each board, but almost a quarter had no independent directors at all. This trails far behind the US, where a minimum of 40% of directors must be independent, and in practice around 75% actually are independent. <iframe allowfullscreen src="//e.infogram.com/almost_a_quarter_of_sampled_funds_have_no_ independent_dire ctors?src=embed" title="Almost A Quarter of Sampled Funds Have No Independent Directors" width="550" height="666" scrolling="no" frameborder="0"> Fund boards are required to put the interests of investors above those of the asset manager and their responsibilities are growing. For example, under recently agreed European money market fund reforms, boards will play a key role in determining whether liquidity fees or redemption gates should be applied. Fund boards were also required to approve the decision by several UK commercial real estate funds to prevent or limit redemptions in the wake of the Brexit vote. These decisions involve balancing the needs of exiting and remaining investors. Having more independent directors should reduce the risk that the asset manager's interests, for example the desire to maintain assets under management, also become a factor in the decision. The FCA's proposals also include measures to increase transparency on fees and charges for retail and institutional investors, and further strengthen the rules around benchmarking and past performance disclosure. These measures are likely to increase the pressure on investment manager margins, and increase the flow of money from actively to passively managed funds and to alternative asset classes, where margins remain wider. But margins are strong (EBITDA margins averaged 40% in 2016 in our recent peer review of traditional investment managers) and flexible cost structures should help offset some of the pressure. Cash flow leverage across the sector is also modest and firms generally maintain cushions against the benchmark thresholds for their ratings. Therefore we do not expect leverage growth to affect ratings in the near term, although continued performance turbulence may result in a further increase in cash leverage metrics. Contact: Alastair Sewell, CFA Senior Director Fund and Asset Managers +44 20 3530 1147 Fitch Ratings Limited 30 North Colonnade London E14 5GN Nalini Kaladeen Director Financial Institutions +44 20 3530 1806 Simon Kennedy Senior Analyst Fitch Wire +44 20 3530 1387 Media Relations: Rose Connolly, London, Tel: +44 203 530 1741, Email: rose.connolly@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below