Enhancing Independent Governance of UK Funds
Following the release of the UK’s Financial Conduct Authority ("FCA") regulatory report on 28 June 2017, the topic of independent governance of UK funds has remained top of mind for investors and asset management professionals alike. In its report, the FCA proposes various remedies designed to enhance fund governance in the UK asset management sector, including the appointment of at least two independent directors to sit on the boards of UK management companies of authorised funds and UK or European UCITS funds, and for at least 25% of the board to be independent, non-executive directors.
Recent industry research has shown that despite its reputation as a leading investment funds centre, the UK lags behind other countries when it comes to enhancement of its fund governance regime. According to a recent survey conducted by consulting firm LCP, more than 50% of UK domiciled funds do not have any independent directors whereas for funds domiciled overseas, the proportion of those without independent directors drops to just 20%. While the new guidelines promise to raise the bar on fund governance best practices, they also come at a critical period just ahead of MiFID II which comes into effect early next year and places new obligations on boards to ensure that good governance and protecting investor interests remains a priority.
Given these developments, the need for independent governance has never been greater and directors’ roles and responsibilities have evolved in tandem with the industry. First and foremost, there is an increasing emphasis on the director’s professional background and experience including the length of time they have served on fund boards and, in instances where a director is sitting on multiple boards, an ability to demonstrate that they have sufficient capacity to perform their fiduciary duties. While the primary oversight and risk management responsibilities remain, independent fund directors today are also expected to have a thorough understanding of all outsourced activities and functions so that they can efficiently review the performance and potential risk associated with a particular service provider. An excellent grasp of technology is also deemed vital in order for directors to obtain and analyse vast amounts of information on an ongoing basis. Lastly, directors are tasked with staying abreast of industry trends and best practices to ensure they have the knowledge and experience with respect to corporate governance matters rests to guide the fund accordingly.
The new proposals by the FCA reinforce the UK’s longstanding commitment to investors. Maples Fiduciary similarly supports the introduction of enhanced standards designed to protect investors. As one of the premier corporate and fiduciary service providers, Maples Fiduciary has extensive experience working with funds managed by leading international asset managers. We provide highly qualified, seasoned directors with considerable experience across a broad range of structures to act on these boards. In addition, we have developed specific policies, procedures and systems that are supported by a dedicated team of operational, information technology, internal audit and compliance professionals. We strive to add value to a fund’s operations and governance processes and have the flexibility to tailor our offering to meet the specific requirements of our clients now and as regulatory requirements evolve in the future.
To learn more about the FCA’s proposals or to discuss your fiduciary needs, please contact Sam Ellis.
For more updates from our UK corporate and fiduciary services business, please visit our dedicated webpage.