Are you up to date with the FCA’s PS19/4?

The FCA published Policy Statement PS19/4 in February with further remedies for UK Authorised Fund Managers (AFMs) as a follow-up to its Asset Management Market Study (AMMS).

by Mikkel Bates
14 June 2019

The FCA published Policy Statement PS19/4 in February with further remedies for UK Authorised Fund Managers (AFMs) as a follow-up to its Asset Management Market Study (AMMS).

While its previous AMMS policy statement, PS18/8, dealt with corporate and fund governance issues, such as appointing independent Non-Executive Directors, publishing annual Assessment of Value reports, repaying any risk-free box profits to the fund and making it easier to move investors to cheaper share classes, PS19/4 is about clear fund communications with investors.


PS19/4 comes out of Consultation Paper CP18/9, which consulted on:

  • New non-handbook guidance to remind authorised fund managers (AFMs) how they should describe fund objectives and investment policies to make them more useful to investors.
  • Requiring AFMs to explain why their funds use particular benchmarks or, if they do not use a benchmark, how investors should assess the performance of a fund.
  • Requiring AFMs that use benchmarks to reference them consistently across the fund’s documents.
  • Requiring AFMs that present a fund’s past performance to do so against each benchmark used as a constraint on portfolio construction or as a performance target.
  • Amending [FCA] rules to require that where a performance fee is specified in the prospectus, it must be calculated on the basis of the scheme’s performance after the deduction of all other fees.

The final decision on each of these proposals is as follows.

Fund objectives, investment policies and strategies should be written in language that retail investors could be expected to understand.  Research was carried out last year to understand what terms are or are not generally understood by retail investors and anything that could be considered jargon should be avoided or defined.

Fund groups are required to explain why a fund uses a particular benchmark or benchmarks or, if they don’t, how investors can assess performance, and how much discretion a manager has to deviate from a benchmark, ie whether or not it is a tracker. 

References to benchmarks must be consistent across all fund documents (eg prospectus, report & accounts, KIID, factsheet, website).  Each benchmark can be categorised as one of:

  • A ‘target’ – an index or similar factor that is part of a target a fund manager has set for a fund’s performance to match or exceed, which includes anything used for performance fee calculation
  • A ‘constraint’ – an index or similar factor that fund managers use to limit or constrain how they construct a fund’s portfolio
  • A ‘comparator’ – an index or similar factor against which a fund manager invites investors to compare a fund’s performance

Past performance, when shown, must be against all target and constraint benchmarks.  The European regulator ESMA has clarified that if a fund has a target to outperform an index by X%, that outperformance target (ie index +X%) should be the benchmark, not the pure index.  This was confirmed by the Investment Association in its guidance (produced in conjunction with Eversheds Sutherland and after discussions with the FCA), on how benchmarks should be included in objectives, when they need to be shown in the performance chart on KIIDs and marketing documents (eg. factsheets), and how to engage with the FCA and investors about the changes.

PS19/4 says the requirements do not apply to UCITS/NURS KIIDs, as they are already covered by existing EU rules.  However, ESMA has updated its UCITS Q&As to cover this point, saying that a “KIID should be consistent with other fund documents. This also applies to ensuring that the benchmark index used is consistent” and “the information disclosed in the UCITS KIID should be consistent with the UCITS’ Investment Objective in the Prospectus”.

Past performance does not need to be shown against any comparator benchmark.  However, if a manager chooses to show a fund’s performance against a comparator benchmark, it must do so consistently across all documents.

It’s worth pointing out that the FCA goes out of its way in PS19/4 to say, “The use of benchmarks is not mandatory and we do not expect fund managers to refer to a benchmark if it is not relevant to the way a fund is run. Our rules do not require or encourage fund managers to use benchmarks, but will require that fund managers explain why they have chosen a particular benchmark.”

Finally, there are now rules (where previously the FCA used guidance) on any performance fee being based on performance after all other charges have been deducted.


These changes took effect from 7 May 2019 for new funds and will come in on 7 August 2019 for existing funds.  Efforts were made to extend the deadline, but the FCA has not moved on that.  You now have less than two months to update existing prospectuses, KIIDs, factsheets, websites and any other fund documents if you are making changes to benchmarks.  On the other hand, if your funds have no benchmarks, you need to explain how investors should assess performance.


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