FSA006 – Market Risk: Supplementary (not collected via Gabriel)
Q: When changes were made to the Data Reference Guide earlier this year, FSA006 was removed. Does this mean that this data item has been dropped or does it mean that the form still needs completing by firms, but they will not be able to submit it via the “Direct Communication” submission method?
A: FSA006 is still required but cannot be submitted through the Gabriel system. Currently, those firms that are required to report FSA006 do so electronically by means of an emailed file (Excel spreadsheet or comma-separated-variable file). The volume of data contained in FSA006 precludes it from online data entry and we have decided that we do not want to force firms to submit using direct XML submission through the Gabriel Gateway. Therefore, for the time being, firms should continue to submit the data in the format required by their CAD2 waiver (which is very similar to that required by FSA006).
Q: Our firm has not sought a CAD2 waiver. Do we need to inform our supervisor of our intention not to do so? If we do not notify them, will we be required to submit FSA006?
A: If your firm has not sought a CAD2 waiver, or has no intention of doing so, there is no need to do anything. FSA006 should not appear on your reporting schedule. Please also note that in any case FSA006 will not be available for data entry on Gabriel.
FSA038 - Volumes and types of business
Q: Is the Funds under Management figure being reported here relevant for the calculation of our periodic fee? The guidance looks different to that in the FEES handbook.
A: The figure reported in this section will not be used for the calculation of your periodic fee. The definition of funds under management in FSA038 has been devised to reflect more accurately than the FEES definition the impact of the firm.
Firms will typically receive a completely separate communication asking for details of the relevant tariff basis according to their Activity Group.
As a reminder, for firms categorised as falling into activity group A7 – Fund Managers, the relevant tariff base is Funds under Management as defined in FEES 4 Annex 1 Part 2.
For firms falling into activity group A9 – Operators, Trustees and Depositaries of collective investment schemes and Operators of personal pension schemes or stakeholder pension schemes, the relevant tariff basis is Gross Income, also defined in FEES 4 Annex 1 Part 2.
Q: If we manage on a delegated basis a portion of a fund that is domiciled overseas, do we report the whole of the value of the fund of which we manage a portion?
A: No. We are primarily interested in the value of funds under management for which a UK regulated entity has responsibility. You should include a figure that represents only the portion of the fund for which you have been delegated responsibility.
Q: Please clarify what is meant by "percentage of clients that are retail clients". Does it refer to:
- clients with funds under management?
- clients with whom the firm undertakes Designated Investment Business (DIB)?
- all clients (which could include ordinary banking clients)?
A: As the guidance for FSA038 shows, we intended that there be a degree of pragmatism around the figure that is entered here, especially as there are only four possible ranges. It is easy to see why including ordinary banking customers as 'retail clients' would distort the figures substantially. Therefore, as the data item is measuring both funds under management and DIB, the figure used as the numerator ought to cover retail clients for whom you undertake either activity.
Q: I am unable to submit FSA038 due to a validation error which requires data element 5A to be less than or equal to data element 1A.
A: The FCA and PRA's view is that for private equity firms 'total funds under management' (1A) should be calculated by reference to the total current value of investor commitments plus any undrawn committed capital (capital would include both capital and loans). Thus, it would not include any capital contributed by the firm, any capital which was drawn down to be used for management fees/costs or any amounts which were drawn-down and subsequently returned to investors.
'Drawn down capital' (5A) is a defined term and should represent the total current value of drawn-down capital, less those amounts used to pay fees/costs and those amounts returned to investors. On this basis, total funds under management should always be more than drawn-down capital".
FSA039 – Client Money and client assets
Q: Does a BIPRU 50K firm which has a requirement in its Part IV permission preventing it from holding client money or assets have to submit FSA038 where it will have no data to report?
A: All firms will be required to complete FSA039, even although they may not be able to hold client assets. In these cases, a nil return will be required.
FSA040 – CFTC data
Q: Are we required to report FSA040? It seems from the rules that we would have to report it but we do not undertake that type of business.
A: We know there are a limited number of firms that are subject to the CFTC part 30 exemption order, and we will clarify the reporting rules to make it clear that it only applies to those specific firms. Gabriel will only require this from those firms that completed that section on the old securities and futures firms' returns.
FSA042 – UCITS
This Q&A is designed to help firms navigate filling out the FSA042 – UCITS form on the Gabriel system. In COLL 6 Annex 2R this form is also referred to as the Derivative Use Report (FSA042: UCITS).
COLL 6.12.3R(2) requires an authorised fund manager or a UK UCITS management company of an EEA UCITS scheme to report at least annually on their use of derivatives, their underlying risks, any relevant quantitative limits and methods for estimating risks. COLL 6.12.3AR sets out that this information must be submitted within 30 business days of 31 October using form FSA042.
We encourage firms to look at the entirety of CESR’s Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (CESR/10-788), prior to filling out form FSA042.
Q1: Does the reporting requirement apply to UCITS funds only (not NURS, QIS etc.)?
A: Yes, it applies to UCITS schemes only, treating each sub-fund of an umbrella as if it were a separate scheme.
Q2: Does it apply to UK-based management companies regardless of fund domicile? Would it capture all funds which are managed by a UK management company, including non-UCITS funds?
A: The requirement applies to an authorised fund manager or a UK UCITS management company of an EEA UCITS scheme (as defined in the FCA Handbook), subject to COLL 6.12.3R(2). It does not apply to management companies or fund managers of non-UCITS funds (e.g. NURS). Where management companies or fund managers are domiciled in other jurisdictions, those firms will be required to report not to the FCA but to their own home state regulator.
As an example, where EEA schemes have a non-UK UCITS management company (for example, Irish or Luxembourg-domiciled UCITS which have not appointed a UK ManCo under a management company passport), those schemes are subject to Irish or Luxembourg regulatory requirements regarding use of derivatives reporting, irrespective of where the investment management activity takes place.
Often, investment management is delegated to a UK-domiciled MiFID investment firm (not a UK UCITS management company or authorised fund manager) and as such there would be no obligation on that UK-domiciled delegate to report this information to the FCA.
Q3: Does it apply to a Sub Investment Manager located outside the UK with a management company in the UK?
A: It applies to the management company in the UK, to the extent that it manages UCITS funds (and not other types e.g. NURS) and not the Sub Investment Manager located outside the UK.
Q4: Is there an obligation to report on funds that have commenced termination or winding up within the 12 months preceding 31 October?
A: No, only funds 'live' on 31 October each year need to be reported on.
Q5: Will there be an MS Excel version of the FSA042 UCITS Derivatives Use Report form available?
A: The DRG (data definition, schema & sample XMLs) is now available on the FCA website. The form itself will not be made available in MS Excel unless the appropriate FCA system (Gabriel) is not working. Should this be the case, firms can email [email protected] to request a copy of the Excel file (Excel is our preferred method of submission if Gabriel is not working) and submit the return to the same email address if Gabriel is still unavailable. If and when Gabriel becomes available during a reporting window after initially being unavailable, firms can submit the report online instead of via email.
Q6: Gabriel reporting – will the report need to be keyed into Gabriel or submitted through uploading an XML/Excel spreadsheet? Will Gabriel be ready for the 2016 submissions? If not, what email address should the report be sent to?
A: The standard Gabriel reporting methods will be available for this form, i.e. Direct Comms (system to system), XML upload, keying online and offline PDF. However, firms will not be able to upload an Excel spreadsheet. Gabriel should be available for 2016 submissions, though not immediately when the window opens. We expect the system will be ready by the end of November 2016.
We may communicate this at the appropriate time on the FCA website, but firms are nevertheless encouraged to check Gabriel regularly and submit the form as soon as the system is functioning. If the system is not available by the end of November 2016 as expected, then firms can request a copy of the Excel file and submit the form via email to [email protected].
Q7: What are the definitions for the symbols on the form?
A: The symbols can be seen in the special instructions box of the FSA042 – UCITS form on Gabriel. These are also listed below for your reference:
- * As of the record date, or most recent preceding dealing day if the record date is not a dealing day
- # In line with the CESR guidelines (CESR/10-788), this should be calculated as the sum of notionals of the derivatives used
- + See box 10 of the CESR guidelines (CESR/10-788)
- ** Complete all fields for which data is available
- ++ See box 24 of the CESR guidelines (CESR/10-788)
Additional special instructions on how to fill out the form, which are not included on the form itself, can be found below (letters in brackets refer to column headings):
- assets under management (D), equivalent to net asset value, refers to each stand-alone scheme or sub-fund
- gross long and gross short derivative positions (E and F), mean of Commitment approach (J) and Leverage (R to U) all require % of NAV
- gross short derivative positions (F) should be a positive value, e.g. 10.0 (not -10.0) would indicate that 10% of NAV is in short positions
- relative VaR (K and L) should be calculated in line with box 12 of the CESR Guidelines (CESR/10-788), e.g. 50.0 equals 50%
- VaR calculation standard holding period (O) refers to the time horizon in business days e.g. 20 days, 1 day
- the VaR calculation standards (O and P) apply to all relevant VaR calculations
- the maximum VaR limit according to defined risk profile (Q) should state the maximum internal limit used
- average leverage (R) should be filled out only if the fund uses a relative VaR or absolute VaR approach
- the free text 'Other' box in the Derivative use information section (AB) should separate the different derivatives with a comma and a space e.g. 'asset swap, volatility swap, variance swap'.
Q8: Should question 2A ('Do you use derivatives in the scheme(s)?') be answered based on whether the UCITS scheme has the power to use derivatives, or whether derivatives have actually been used?
A: Answer 'yes' if derivatives have actually been used in the fund in the preceding 12 months.
Q9: Column B - PRN/LEI – Given that the FCA has issued us with PRN numbers at an ICVC level and not sub-fund, is it acceptable when reporting at sub-fund level to leave the PRN blank or repeat the ICVC PRN for each sub-fund?
A: In line with guidance under COLL 6 Annex 3G, firms can check the individual PRN of sub-funds on the FS Register by searching for the sub-fund name. If you have difficulty in finding a particular sub-fund on the Register, please email [email protected] providing as much detail as possible and the team will investigate.
Q10: Column D – AUM – in the absence of an explanatory note accompanying the symbol * we are assuming this data is 'as at 31 October' and not any average over the year – is this correct?
A: Yes. Column D should be used to report the net asset value of the fund (referred to in the form as 'assets under management', but not defined in the same way as under AIFMD) as at the record date, the 31 October (or the most recent preceding dealing day if the record date, 31 October, is not a dealing day). Explanatory notes are available in the special instruction boxes.
Q11: Columns E and F – Gross long and short derivative positions - are these the gross derivative positions as at 31 October?
A: Yes, as at the record date of 31 October.
Q12: Columns E and F – Gross long and short derivative positions - should the standard conversion methodologies in the UCITS Directive / CESR Guidelines be used?
A: We would expect firms to consider the CESR Guidelines (CESR/10-788) when filling out all parts of the form.
Q13: Columns K and L – Relative VAR - our assumptions are that in K we will put the highest value relative to the benchmark and in L we will take the average VAR to the benchmark over the preceding year. Is this correct?
A: A calculation in line with box 12 of the CESR guidelines (CESR/10-788) is what we are expecting here, as referenced in the additional special instructions at Q7 of this Q&A. For example, the value in K would be 50.0 (50.0%) if the UCITS VaR was 7.5% and the benchmark VaR was 5.0% ((7.5%-5.0%)/5.0%). In this example, it would not simply be 2.5 (2.5%) i.e. (7.5%-5.0%). The value in L would be the average of the calculations using box 12 of the CESR Guidelines (CESR/10-788).
Q14: Column R - Leverage - is it acceptable to 'delta adjust'?
A: We would encourage firms to refer to the CESR Guidelines (CESR/10-788) which provides examples of 'delta-adjusted' derivatives. In any case, it would be prudent for firms to take a conservative approach when filling out the form, including this column, and deciding whether to 'delta adjust'.
Q15: Columns J and R – Mean average – Handbook Notice 35 states that the average of the 12 month-ends should be used. As the Commitment Approach and VaR are calculated daily, can the average of daily calculations over the past 12 months be reported?
A: Yes. It is assumed that firms are recording their daily global exposure calculations, so reporting the average of these daily calculations over the past 12 months would be the same as reporting an average of 12 month-end values (if those month-end values are themselves averages). To the extent that only month-end values (being a snapshot in time) are available, then those month-end values should be used.
Q16: Column J – for our funds we apply the Commitment Approach and not VaR. Do we also need to populate columns R to U?
A: No. Firms applying the Commitment Approach do not need to fill out columns R to U (or columns K to Q). Firms applying VaR will need to fill out a combination of columns K to Q, column R and, if applicable, a combination of columns S to U.
Q17: Column S – Does 'Maximum expected level of leverage' refer to the actual maximum leverage over the reporting period?
A: Maximum expected level of leverage would be the level defined in the prospectus (if there is one defined), according to box 24 of the CESR Guidelines (CESR/10-788). If the actual maximum leverage over the reporting period exceeded this value, then firms can utilise the free text box at the bottom of the form to detail this. The following year’s submission could then make reference to this higher level assuming the prospectus is updated to reflect it as such.
Q18: Columns S, T and U – Leverage Limit - Does only one of these three columns need to be completed?
A: The number of columns completed would depend on the circumstances of the particular UCITS scheme that uses VaR. If a maximum expected level of leverage or a usually expected level of leverage is defined in the prospectus, then column S or column T should be completed. If no such level is defined, but the firm uses an internal limit, we would expect firms to complete column U.
If firms neither define a level in the prospectus nor manage the fund to an internal maximum leverage limit, then all three columns can be left blank. It should be noted that by introducing this form, we are not requiring firms to start either defining levels in the prospectus or reporting an internal maximum limit, if they don’t think it is appropriate or don’t currently use one.
Q19: Should average figures be based on the whole year or only those dates where derivatives have been employed?
A: It should be based on an average over the whole year, including dates where derivatives have not been employed.