Managers of UK authorised UCITS must report to the FCA in respect of their use of derivatives, including a Derivatives Use Report that is required to be reported annually to the FCA within 30 business days from 31st October.

Overview of FCA Derivative Use Reporting:

The report contains detailed information for each UCITS scheme, or sub-fund where applicable, that uses derivatives and is managed by the AFM, including:

• Gross long and short derivatives positions;

• Details of risk measures used;

• Information on fund leverage including average leverage, maximum expected level, usually expected level and internal maximum level; and

• Confirmation as to whether derivatives are being used for EPM purposes.

The report needs to be submitted via the FCA’s Gabriel Reporting, either through manual entry or XML upload.

AFMs also need to submit additional reports at any time during the year if there has been a significant change to a fund’s risk profile since its last report.

A significant change could include:

• The first use of derivatives for investment purposes, if derivatives have previously been used only for efficient portfolio management;
• Investment in non-standard derivatives, if only standard derivatives have been used previously;
• A change in the type of risk measure used to calculate the global exposure (commitment method, relative VaR or absolute VaR); or
• Where a VaR measure is used, a change in the parameters of the calculation.

The regulatory requirements are found at FCA Handbook COLL 6.12 – Risk Management and measurement (click here).

See:

• COLL 6.12.3A – Annual Report
• COLL 6.12.3B – Ad-hoc reports of significant change to risk profile

The standard derivatives reporting template (FSA042)has been introduced in COLL 6 Annex 2R (“Derivatives Use Report”).It was updated in September 2017.

The latest version is here: https://www.fca.org.uk/firms/gabriel/financials-data-guide#FSA042.

Guidance

Guidance can be found at:

• COLL 6 Annex 3.
• FSA Data Item FAQs.