The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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UK seeks feedback on revisions to regulation of alternative investment fund managers
7 April 2025
The HM Treasury (HMT) has launched a consultation on proposals to revise the legislative regime applicable to Alternative Investment Fund Managers (AIFMs) and the depositories they use. The government intends to use the powers and framework provided for under the Financial Services and Markets Act 2023 to repeal the existing AIFM regulations, maintaining or replacing those with key legislative provisions and moving much of the detail to the FCA's Handbook. The FCA has also issued a call for input, together with a press release and has updated the FCA's webpage, setting out its proposed approach to regulating AIFMs within HMT's proposed framework.
Read more.Topic : Fund Regulation -
European Commission communication on the Savings and Investments Union
19 March 2025
The European Commission has unveiled its strategy for the Savings and Investments Union (SIU), an initiative to improve the way the EU financial system channels savings to productive investments. Alongside the communication, the Commission also published an accompanying press release and questions and answers. A factsheet includes a summary timetable for key proposed measures. In Q2 2027, the Commission will publish a mid-term review of the overall progress in achieving the Savings and Investments Union.
Implementing the SIU requires a range of policy measures, which are grouped under four headings:- Citizens and savings—encouraging and incentivising retail customers to hold more of their savings in capital market instruments.
- Investments and financing—promoting investment in equity and certain alternative assets, namely venture capital, private equity and infrastructure.
- Integration and Scale—removing sources of fragmentation in EU capital markets, whether regulatory, supervisory or political, to allow for the possibility of market-driven consolidation.
- Efficient Supervision in the Single Market—harmonised supervision is an objective of the SIU. All financial market operators should receive the same supervisory treatment irrespective of their location across the Union.
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ESMA publishes overview of planned consultations for 2025
13 March 2025
The European Securities and Markets Authority has published an overview of its planned consultations for 2025. The consultations relate to workstreams under the EU Listing Act, the Markets in Financial Instruments package, the latest European Market Infrastructure Regulation (known as EMIR 3), the review of the Alternative Investment Fund Managers Directive, sustainable finance and investor protection. ESMA states that it will update the list regularly. -
ESMA notifies EC of delay of certain deliverables
6 March 2025
The European Securities and Markets Authority (ESMA) has published a letter (dated 3 March) addressed to the European Commission on the prioritisation of ESMA's 2025 deliverables. ESMA's letter sets out specific items which ESMA intends to delay or which have been cancelled. In some instances the delays are made with the purpose of aligning ESMA's work with other initiatives. For example, the technical standards on buy-in under the Central Securities Depository Regulation Review are delayed until T+1 implementation is complete. The EU has committed to moving to T+1 by 11 October 2027. ESMA identifies the following as being included in its highest priority workstreams: (i) implementation of the latest amendments to the European Market Infrastructure Regulation, known as EMIR 3; (ii) the Markets in Financial Instruments Directive and Regulation Review; (iii) the Listing Act; (iv) the Central Securities Depository Regulation Review; (v) the T+1 project; and (vi) the review of the Alternative Investment Fund Managers Directive. ESMA is also prioritising new supervisory responsibilities relating to Consolidated Tape Providers, Green Bond verifiers, ESG Rating providers and oversight powers under the Digital Operational Resilience Act. -
UK FCA highlights areas for improvement in private market valuation processes
5 March 2025
The UK Financial Conduct Authority (FCA) has published the findings of the multi-firm assessment of valuation practices and governance for valuing private equity, venture capital, private debt and infrastructure assets. The review covered firms managing funds or providing portfolio management and/or advisory services in the UK for private equity, venture capital, private debt and infrastructure assets. The FCA found that many firms had good practices in valuation processes, including the quality of reporting to investors, documenting valuations, using third-party valuation advisers to introduce additional independence and expertise and consistent application of established valuation methodologies.
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UK FCA portfolio letter on supervision priorities for asset management and alternatives portfolios
26 February 2025
The UK Financial Conduct Authority (FCA) has published a portfolio letter explaining its current supervision priorities for asset management and alternatives. Firms must discuss this letter with their Board, Executive Committee and accountable Senior Managers to consider whether the risks of harm discussed exist in their firm and implement strategies for managing them.
The FCA's supervisory priorities include:- Supporting confident investing in private assets. The FCA will shortly be releasing its multi-firm review on private market valuation practices. The FCA will also start a multi-firm review on conflicts of interest at firms managing private assets.
- Market integrity and avoiding disruption. Informed by the vulnerabilities identified in the System Wide Explanatory Scenario, the FCA will focus surveillance on prudent risk management, liquidity management and operational resilience.
- Consumer outcomes. The FCA will publish its findings from the ongoing multi-firm review of unit linked funds later this year and will also start a multi-firm review of model portfolio services (MPS). This review of MPS will look at how firms are applying the Consumer Duty, to provide confidence that investors are receiving good outcomes from MPS.
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UK Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025 published
26 February 2025
The Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025 have been published, along with an explanatory memorandum. The regulations support the Government's introduction of the reserved investor fund (RIF) which will be a new type of UK-based investment fund vehicle legally structured as an unauthorised co-ownership alternative investment fund. The regulations will apply, with modifications, sections 261M to 261O and 261P(1) and (2) of the Financial Services and Markets Act 2000, which currently apply to investors in investment funds that are authorised contractual schemes, to investors in UK-based RIFs (or funds that were RIFs). The Regulations were made on 25 February and come into force when the Co-ownership Contractual Schemes (Tax) Regulations 2025 which establish RIFs come into force, that is 19 March. -
ESMA guidelines on stress test scenarios under MMF Regulation
24 February 2025
The European Securities and Markets Authority (ESMA) has published official translations of its guidelines on stress test scenarios under the Money Market Funds Regulation (MMF Regulation). These guidelines apply to competent authorities, MMFs and managers of MMFs in relation to Article 28 of the MMF Regulation. In particular, and as specified in Article 28(7) of the MMF Regulation, they establish common reference parameters of the stress test scenarios to be included in the stress tests. The parts of the guidelines shown in red text will apply from 24 April. The other parts of the guidelines already apply from the dates specified in Articles 44 and 47 of the MMF Regulation.Topic : Fund Regulation -
UK FCA expectations for authorised fund applications published
14 February 2025
The UK Financial Conduct Authority (FCA) has published information setting out its expectations for firms applying for collective investment schemes to be authorised as authorised unit trusts, authorised contractual schemes and authorised open-ended investment companies. The information covers specific questions as well as main areas to help applicants understand where they may need to provide further detail. Among other topics, the publication covers the FCA's expectations in relation to environmental, social and governance strategies and sustainability disclosure requirement (SDR) labels, and long-term asset funds which fund managers may find useful. For such funds, the FCA highlights that it expects applications intending to comply with SDR label rules to include the relevant aspects for the specific label as set out in the FCA rules and the FCA's policy statement PS23/16. -
ESMA CSA on fund manager compliance and internal audit functions launched
14 February 2025
The European Securities and Markets Authority (ESMA) has published a press release confirming the launch of a Common Supervisory Action (CSA) with national competent authorities on compliance and internal audit functions of management companies of undertakings for collective investment in transferable securities (UCITS) and alternative investment fund managers in the EU. The CSA will assess the effectiveness of fund managers' compliance and internal audit functions in accordance with the relevant applicable provisions of the Alternative Investment Fund Managers and the UCITS Directives, looking at the adequacy of staffing, authority, knowledge and expertise. ESMA will publish the final report in 2026.Topic : Fund Regulation -
UK Chancellor announces engagement with financial services leaders to bolster growth plans
January 20, 2025
HM Treasury has announced that the Chancellor will increase engagement with financial services leaders to strengthen plans to grow the economy. Over the coming months, the Chancellor plans to host a series of Industry Forums with key sub-sector leaders in banking, insurance, and asset management to elicit views on delivering long-term growth. HMT explains that the Industry Forums, alongside extensive further engagement at official and ministerial levels, will ensure that industry and senior stakeholders are closely involved in the development of the upcoming Financial Services Growth and Competitiveness Strategy so that it tackles the key issues that matter most to the industry. The first meetings of the Industry Forums will run throughout January and February, reconvening ahead of the Government's publication of the Financial Services Growth and Competitiveness Strategy as part of the Industrial Strategy later this year. The Government will continue to work closely with industry following the publication of the Strategy, to ensure that it is implemented effectively. The Strategy, set to be published in the spring, aims to develop policies that foster growth in the financial services sector. -
Government response to call for evidence on pension fund clearing exemption
January 10, 2025
HM Treasury published the Government's response to its call for evidence on the pension fund clearing exemption, which exempts pension funds from the requirement to clear certain derivative contracts via a central counterparty. In November 2023, HMT published the call for evidence requesting input from industry stakeholders to inform the Government's review of the exemption, which aimed to determine a long-term approach. The response document provides a breakdown of the key themes raised by the 26 respondents to the call for evidence. Following analysis of the responses and engagement with U.K. regulatory authorities on the issue, the Government has decided that the exemption should be maintained for the longer-term. The Government will now take forward legislation to ensure that the exemption does not expire on June 18, 2025 as currently scheduled, and to remove any further time limit on the exemption. The Government will, however, keep this policy under review in coordination with the U.K. regulatory authorities. -
UK Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025 published
January 9, 2025
The Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025 has been published, alongside an explanatory memorandum. The Order includes a new paragraph 22 to the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (the "CIS Order"). The Schedule to the CIS Order specifies the kinds of arrangements which do not amount to a collective investment scheme. The new paragraph clarifies that arrangements for qualifying crypto-asset staking do not amount to a collective investment scheme. The aim of the instrument is to provide clarity to firms so that they are able to offer staking services to their U.K. customers without being subject to the collective investment scheme rules for this activity. The U.K. government has considered the need for an appropriate degree of consumer protection from the risks associated with the marketing of staking products and considers that this protection is delivered by communications on staking arrangements provided in compliance with the requirements of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and relevant FCA rules and guidance. The Order comes into force on January 31, 2025.
For more information on the issues and developments relating to fintech, see our blog A&O Shearman on fintech and digital assets. -
EU final report on updated guidelines on stress test scenarios under Money Market Funds Regulation
January 7, 2025
The European Securities and Markets Authority has published its final report on guidelines on stress test scenarios under the Money Market Funds Regulation. The MMF Regulation requires ESMA to annually update the guidelines, taking into account the latest market developments. The final report includes:- An additional explanation on the way to report the results of the macro systemic shocks.
- Updated guidelines and risk parameters, so that managers of MMFs have the information needed to fill in the relevant reporting template.
Read more.Topic : Fund Regulation -
European Securities and Markets Authority publishes Q&As on application of guidelines on funds' names using environmental, social, and governance or sustainability-related terms
December 13, 2024
The European Securities and Markets Authority has published three sets of Q&As to provide further detail on the guidelines on funds which use ESG or sustainability-related terms in their names. The guidelines relate to requirements under the Undertakings for Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and the Cross-Border Distribution of Investment Funds Regulation to act honestly and fairly in conducting their business and to ensure marketing communications are fair, clear, and not misleading. The Q&As have been published separately for UCITS and AIFs but are identical in content.
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European Securities and Markets Authority consults on the draft technical standards on open-ended loan-originating alternative investment funds
December 12, 2024
The European Securities and Markets Authority has published a consultation paper on draft regulatory technical standards on open-ended loan originating Alternative Investment Funds under the revised Alternative Investment Fund Managers Directive. Under the revised AIFMD, an Alternative Investment Fund Manager is required to ensure any loan-originating AIFs it manages is closed-ended. However, there is a carve-out for open-ended loan-originating AIFs where the AIFM is able to demonstrate that the AIF's liquidity risk management system is compatible with its investment strategy and redemption policy.
The draft RTS set out the requirements for loan-originating AIFs to maintain an open-ended structure as per this carve-out. The requirements include: (i) a sound liquidity management system; (ii) the availability of liquid assets and stress testing; and (iii) an appropriate redemption policy having regard to the liquidity profile of loan-originating AIFs.
Responses may be submitted until March 12, 2025. ESMA intends to finalize the draft RTS by Q3/Q4 2025.Topic : Fund Regulation -
Financial Stability Board publishes final report on liquidity preparedness for margin and collateral calls
December 10, 2024
The Financial Stability Board has published a final report on liquidity preparedness for margin and collateral calls. The report sets out policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets (including securities financing such as repo). The FSB has analyzed recent incidents of liquidity stress, as well as completed a survey of financial authorities and feedback from industry stakeholder outreach events. Together, the FSB has found there is need for policy adjustments to deal with liquidity strains in the NBFI sector arising from spikes in margin and collateral calls during times of market stress. The findings suggest that while margin and collateral calls are a necessary protection against counterparty risk, they can also amplify the demand for liquidity by market participants if they are unexpected in times of stress and affect a large enough part of the market. The increase in such calls can impact market participants differently depending on the size of positions and level of liquidity preparedness. The FSB also identified liquidity risk management and governance weaknesses of some market participants as key causes of their inadequate liquidity preparedness for margin and collateral calls.
The FSB's eight policy recommendations in this report cover: (i) liquidity risk management and governance; (ii) stress testing and scenario design; and (iii) collateral management practices of non-bank market participants, focusing on liquidity risks arising from spikes in margin and collateral calls, including under extreme but plausible stressed conditions. The FSB explains that the recommendations should be applied proportionately to the underlying risks of different non-bank market participants. -
Bank of England System-Wide Exploratory Scenario Exercise and 2024 Central Counterparty Supervisory Stress Test
November 29, 2024
The Bank of England has published the final report on its system-wide exploratory scenario. The SWES was a 'system-wide' exercise, incorporating a wide range of financial firms and business models, focusing not on the resilience of individual participants, but the impact on important U.K. financial markets.
Through running the SWES, the BoE, working closely with and with the full support of the U.K. Prudential Regulation Authority, Financial Conduct Authority, and the Pensions Regulator, has drawn key financial stability conclusions, including that actions taken by authorities and market participants following recent market shocks have improved gilt market resilience, but further work is required given the other vulnerabilities highlighted by this exercise. The BoE considers that the SWES has proven to be an effective tool to understand system-level vulnerabilities. The BoE, alongside the FCA, will use the experience as a framework for future system-wide analysis and embed it into how market-wide surveillance is conducted. To support this the BoE will invest in its in-house capacity to model system-wide dynamics, supported by continuing engagement with market participants.
The BoE also published the results of its 2024 CCP Supervisory Stress Test. In the core credit stress test, the BoE found that all three U.K. CCPs have adequate pre-funded resources to cover a severe stress scenario and the default of the 'Cover-2' members—the two members whose default generates the greatest depletion of mutualized resources at the CCP. The BoE identified that in some very extreme but plausible scenarios there may be a risk to CCPs, and will follow-up with CCPs to probe how they capture the risks identified by these hypothetical scenarios via their own stress testing. -
UK Regulations Amending Temporary Recognition and Marketing Regimes for CCPs and Collective Investment Schemes
November 26, 2024
The Collective Investment Schemes (Temporary Recognition) and Central Counterparties (Transitional Provision) (Amendment) Regulations 2024 have been published, alongside an explanatory memorandum. The Regulations amend the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 to remove the requirement that a CCP must continue to be recognized in the EU to remain in the temporary recognition regime for overseas CCPs.
The Regulations also make amendments to the Collective Investment Schemes (Amendment etc.) EU Exit Regulations 2019 (CIS EU Exit Regulations), which established the temporary marketing permissions regime for EEA investment funds. Amendments include extending the duration of the TMPR from five to six years (that is, until December 31, 2026). This reflects an HM Treasury policy announcement made in January 2024. In addition, technical amendments are made to the TMPR to ensure that sub-funds are able to transition smoothly to the Overseas Funds Regime on direction by the Financial Conduct Authority where they are in scope of the U.K. government's equivalence decision concerning EEA states or alternatively apply for recognition. The FCA published guidance in October 2024 to assist firms in making an application for an overseas investment fund to be recognized under the OFR.
The Regulations come into force with immediate effect, that is November 26, 2024. -
Consultation on Updated Liquidity Risk Management Recommendations for Collective Investment Schemes
November 11, 2024
The International Organization of Securities Commissions has published a consultation report on its proposed revised recommendations for liquidity risk management for collective investment schemes. The Liquidity Risk Management Recommendations For Collective Investment Schemes were originally published in 2018. The revised recommendations take into consideration the Financial Stability Board's revised recommendations to address structural vulnerabilities from liquidity mismatch in open-ended funds, published in December 2023. The recommendations also take account of recent market events such as the COVID-19-induced market volatility and the conflict in Ukraine. Responses to the consultation may be submitted until February 11, 2025. IOSCO aims to publish its final report in the first half of 2025.
The proposals consist of 17 recommendations organised into a revised structure with six sections, namely: (i) the collective investment scheme design process; (ii) liquidity management tools and measures; (iii) day-to-day liquidity management practices; (iv) stress testing; (v) governance; and (vi) disclosures to investors and authorities.
The accompanying Implementation Guidance, also for consultation, sets out technical elements focusing on open-ended funds, such as the determination of asset and portfolio liquidity and considerations relating to the calibration and activation of liquidity management tools and other liquidity management measures.Topic : Fund Regulation -
UK Financial Conduct Authority Consults on Investment Research Payment Optionality for Fund Managers
November 5, 2024
The Financial Conduct Authority has opened a consultation on extending the new payment optionality for investment research to pooled funds. This proposal will allow asset managers to use the new payment optionality that was confirmed for MiFID firms earlier this year, in line with the recommendation made by the U.K. Investment Research Review. We discussed the new rules for MiFID firms in "UK allows bundled payments for third-party research and trading commissions."
The proposals apply to UCITS and AIF managers and residual collective investment scheme operators. Managers who take up the option will need to meet various requirements, including: (i) having a written policy on the approach of joint payments; (ii) establishing a research budget based on the expected amount of third-party research; (iii) having a cost allocation structure among research providers; (iv) assessing the price and value of research periodically; (v) allocating cost of research fairly; (vi) responsibility for operating and administering any research payment accounts; and (vii) investor disclosure.
The deadline for comments is December 16, 2024. If the FCA decides to proceed, it aims to publish any rules or guidance in the first half of 2025. -
HM Treasury Proceeding with Introduction of Reserved Investor Funds
October 30, 2024In the U.K. government's Autumn Budget published on October 30, 2024 (paragraph 5.117), the government confirmed that it is proceeding with the introduction of the Reserved Investor Fund (Contractual Scheme). Related provisions will also make minor changes to the tax rules in respect of Co-ownership Authorised Contractual Schemes. Secondary legislation will be brought forward before the end of the tax year 2024-25. The date from which these reforms will have effect has not yet been indicated.Topic : Fund Regulation
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Delegated Regulation on Regulatory Technical Standards under Revised European Long-Term Investment Funds Regulation Published in Official Journal of the European Union
October 25, 2024
Commission Delegated Regulation (EU) 2024/2759 supplementing the European Long-Term Investment Funds Regulation with regard to certain regulatory technical standards was published in the Official Journal of the European Union. It covers RTS on circumstances in which the use of financial derivative instruments for hedging purposes is considered as solely serving the purpose of hedging the risks inherent to the investments of the ELTIF, the requirements for an ELTIF's redemption policy and liquidity management tools, the circumstances for the matching of transfer requests of units or shares of the ELTIF, certain criteria for the disposal of ELTIF assets, and certain elements of the costs disclosure. The Delegated Regulation entered into force on October 26, 2024, the day after its publication in the Official Journal.Topic : Fund Regulation -
EU Announces Next Steps for the Transition to T+1 Settlement
October 16, 2024
The European Commission, the European Central Bank and the European Securities and Markets Authority have published a joint statement on the next steps to support the preparations towards a transition to T+1. Under the EU Central Securities Depositories Regulation, ESMA is required to assess the appropriateness of shortening the settlement cycle in the EU and to propose a detailed roadmap towards a shorter settlement. ESMA plans to deliver its report to the Council of the European Union and the European Parliament in the coming months.
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UK Draft Regulations Amending Temporary Recognition and Marketing Regimes for CCPs and Collective Investment Schemes
October 15, 2024
A draft version of the Collective Investment Schemes (Temporary Recognition) and Central Counterparties (Transitional Provision) (Amendment) Regulations 2024 has been published, alongside a draft explanatory memorandum. The Regulations amend the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 to remove the requirement that a CCP must continue to be recognized in the EU to remain in the temporary recognition regime for overseas CCPs.
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UK Financial Conduct Authority Publishes Guidance on Approach to Recognition of Funds under the Overseas Funds Regime
September 12, 2024
The U.K. Financial Conduct Authority has published guidance to assist firms in making an application for an overseas investment fund to be recognised under the Overseas Funds Regime. The OFR will allow certain investment funds established outside the U.K. to be promoted in the U.K., including to retail clients. At the outset, the OFR will be available to most funds established in EEA and EU member states that have been authorised under the Undertakings for Collective Investment in Transferable Securities Directive (other than EEA UCITS that have been authorised as money market funds).
The FCA provides details of the application process and sets out the standards required of funds to be eligible for the regime, including that they are managed in the best interests of investors, hold appropriate investments that align with a clear investment objective and policy and demonstrate good governance. The FCA sets out certain features that funds may exhibit that are unlikely to be compatible with its standards. These include: (i) funds with unsuitable names; (ii) funds that have economic exposure to cannabis-related investments; (iii) funds that have exposure to crypto-currency; (iv) funds that have exposure to contingent convertible bonds; and (v) liquid funds that charge permanent redemption/exit charges.
Read more.Topic : Fund Regulation -
UK Financial Conduct Authority Publishes Temporary Measures for Firms on Naming and Marketing Sustainability Rules
September 9, 2024
The U.K. Financial Conduct Authority has set out temporary measures to offer firms flexibility to comply with the naming and marketing rules under the Sustainability Disclosure Requirements (SDR) regime, which come into force from December 2, 2024. It has taken longer than expected for some firms to make the required changes to comply with the new regime, so the FCA is offering limited temporary flexibility, until 5pm on April 2, 2025, for firms to comply with the naming and marketing rules set out in ESG 4.3.2R to ESG 4.3.8R.
The temporary relief applies in exceptional circumstances in relation to a U.K. authorised investment fund caught by the regime where the firm: (i) has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5pm on October 1, 2024; and (ii) is currently using one or more of the terms 'sustainable', 'sustainability' or 'impact' (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund. Where firms can comply with the rules without requiring this flexibility, they should do so. The FCA also expects firms to comply with the rules as soon as they can, without waiting until April 2, 2025. The FCA has received queries about the authorisation of mergers, wind-ups or terminations before December 2, 2024 and will take a supportive, proportionate and outcomes-based approach in these circumstances. Firms with questions should contact their supervisor or usual supervisory contact to discuss on a case-by-case basis. -
UK Listed Investment Companies (Classification etc) Bill Published
September 5, 2024
The Listed Investment Companies (Classification etc) Bill (with explanatory memorandum) has been published on the U.K. Parliament website, following its first reading in the House of Lords on the same day. The Bill seeks to make provisions about listed investment companies, the classification and characteristics of those companies which regulators must take into account when, among other things, making any rules or guidance. It relates to collective investment undertakings of the closed-end type, the shares of which are admitted to trading on any market or venue operated by a U.K.-recognized investment exchange, known as Listed Closed-End Investment Companies and does not relate to collective investment undertakings other than the closed-end type. The Bill is sponsored by Baroness Bowels of Berkhamsted. The date of the Bills second reading has not yet been announced.Topic : Fund Regulation -
UK Financial Conduct Authority Confirms Date for Opening of Overseas Funds Regime Gateway to New Schemes
August 22, 2024
The Financial Conduct Authority has updated its webpage on the Overseas Funds Regime to confirm that it will open the gateway to new schemes on September 30, 2024. From that date, new schemes (schemes not in the Temporary Marketing Permissions Regime) will be able to apply for recognition at any time without a landing slot.
For schemes in the TMPR, landing slots will start in October and will be available for operators of stand-alone EEA UCITS. After that, the FCA intends to issue landing slots to operators of umbrella UCITS by alphabetical order of the fund operator's name. The FCA explains that the sequence of landing slots will then be staggered monthly to help with operational efficiency.
The OFR is a new gateway through which certain collective investment schemes, domiciled in jurisdictions deemed to be equivalent by the Government, will be able to market to U.K. retail investors upon recognition by the FCA. At the outset, the OFR will be available to most funds established in EEA and EU member states that have been authorized under the UCITS Directive following the Government's decision to grant equivalence in relation to those funds (excluding money-market funds).Topic : Fund Regulation -
UK Regulator Provides Guidance on Operational Impact of Overseas Funds Applying for Recognition
July 19, 2024
The Financial Conduct Authority has updated its webpage on the overseas funds regime providing guidance on the operational impact for operators of funds in the temporary marketing permissions regime. The FCA explains that for operators of funds in the TMPR that make an application to be recognized in the U.K. under the OFR, it is important for the fund population data at the beginning of the landing slot window to be accurate and stable. The FCA requests operators not to make any changes to the fund population data during the allotted landing slot and to plan accordingly.
Read more.Topic : Fund Regulation -
European Commission Adopts Delegated Regulation Under ELTIF Regulation
July 19, 2024
The European Commission has adopted a Delegated Regulation supplementing the European Long-Term Investment Funds Regulation with regard to regulatory technical standards specifying when derivatives will be used solely for hedging the risks inherent to other investments of the ELTIF, the requirements for an ELTIF's redemption policy and liquidity management tools, the circumstances for the matching of transfer requests of units or shares of the ELTIF, certain criteria for the disposal of ELTIF assets, and certain elements of the costs disclosure.
Among other things, the adopted legislation sets out the:- circumstances in which the use of financial derivative instruments for hedging purposes is considered as solely serving the purpose of hedging the risks inherent to the investments of the ELTIF;
- circumstances in which the life of an ELTIF is to be considered compatible with the life cycles of each of its individual assets;
- criteria to be used by the ELTIF managers to determine the minimum holding period referred to in Article 18(2), first subparagraph, point (a), of the ELTIF Regulation;
- minimum content requirements to the full or partial matching of transfer requests of units or shares of the ELTIF by existing and new investors where an ELTIF provides for that possibility under Article 19(2a) of the ELTIF Regulation; and
- criteria for the assessment of the market for potential buyers.
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UK Financial Conduct Authority Policy Statement on Implementing the Overseas Funds Regime
July 17, 2024
The Financial Conduct Authority has published a policy statement on its implementation of the Overseas Funds Regime. The OFR will be a new gateway through which certain collective investment schemes, domiciled in jurisdictions deemed to be equivalent by the Government, will be able to market to U.K. retail investors upon recognition by the FCA. The final policy sets out (i) the information that OFR fund operators will need to submit as part of the recognition process; (ii) ongoing change notification requirements for OFR funds; (iii) disclosure requirements for OFR funds to inform investors about compensation and dispute resolution schemes; and (iv) procedures for suspending and revoking recognition of an OFR fund or censuring its operator or depositary.
Following consultation feedback to CP23/26, the FCA has made changes to the final policy, including: (a) removing the proposed 30-day period between notifying the FCA of changes to OFR funds and when those changes could take effect in the U.K.; (b) providing further explanation and clarification as to which categories of changes should be notified; (c) including guidance relating to additional information in disclosures for fund prospectus' and point of sale information; and (d) clarified which U.K. fund prospectus requirements apply to OFR funds. The final rules will come into force on July 31, 2024. The OFR gateway is expected to open later this year. The FCA advises operators with funds currently in the Temporary Permissions Regime to check their landing slot on the FCA website for details of when they can apply for OFR recognition.Topic : Fund Regulation -
European Securities and Markets Authority Consults on Liquidity Management Tools for Funds
July 8, 2024
The European Securities and Markets Authority has published for consultation draft regulatory technical standards and guidelines relating to liquidity management tools under the Alternative Investment Fund Managers Directive and the Undertakings for the Collective Investment in Transferable Securities Directive. The draft RTS will apply to Alternative Investment Fund Managers managing open-ended the Alternative Investment Funds and UCITS. In the draft RTS ESMA defines the constituting elements of each LMT, such as calculation methodologies and activation mechanisms.
ESMA is also consulting on guidelines on LMTs of UCITS and open-ended AIFs, which provide guidance on how managers should select and calibrate LMTs in the light of their investment strategy, their liquidity profile and the redemption policy of the fund.
The draft RTS and guidelines are designed to promote convergent application of the Directives for both UCITS and open-ended AIFs and ensure that EU fund managers are better equipped to manage the liquidity of their funds, in preparation for market stress situations. They also intend to clarify the functioning of specific LMTs, such as the use of side pockets, a practice that currently varies significantly across the EU. The deadline for comments is October 8, 2024. ESMA aims to deliver the final RTS and guidelines by April 16, 2025.Topic : Fund Regulation -
UK Financial Conduct Authority Sets Overseas Funds Regime Landing Slots for Funds
July 5, 2024
The Financial Conduct Authority has published information regarding landing slots under the incoming overseas funds regime for firms currently operating under the temporary marketing permissions regime. The landing slots specify the dates when overseas funds operating under the TMPR can apply for 'recognised scheme' status under the OFR. The OFR is a new gateway introduced as part of the U.K.'s post-Brexit reforms, granting access to the U.K. market for certain categories of investment funds.
Read more.Topic : Fund Regulation -
UK June Financial Stability Report Published
June 27, 2024
The U.K. Financial Policy Committee has published the financial policy summary and record of the FPC meeting on June 11, 2024, as well as its June financial stability report. The FPC considers the overall risk environment to be broadly unchanged from Q1. Markets continue to price mostly for a benign central case outlook, and some risk premia have tightened even further, despite the global risk environment facing several challenges. Some of these challenges have become more concerning and proximate.
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UK Grants Equivalence to EEA UCITS Under Overseas Funds Regime
May 13, 2024
The Financial Services and Markets Act 2000 (Overseas Funds Regime) (Equivalence) (European Economic Area) Regulations 2024 (SI 2024/635) were made on May 13, 2024 and enter into force on July 16, 2024. Established by the Financial Services Act 2021, the Overseas Funds Regime is an equivalence framework for allowing overseas funds to market into the U.K. The OFR is a new, efficient way for overseas funds to market as it does not require a detailed assessment by the Financial Conduct Authority of each individual fund application, which was the only process available prior to the OFR.
The Financial Services and Markets Act 2000 (Overseas Funds Regime) (Equivalence) (European Economic Area) Regulations 2024 grant equivalence to each EEA state for Undertakings for Collective Investment in Transferable Securities funds, except for those that are authorized as Money Market Funds. The UCITS can be stand-alone schemes or sub-funds.
Currently, EEA funds market into the U.K. using the Temporary Marketing Permissions Regime. The TMPR is due to expire at the end of 2025, subject to legislation extending that date to the end of 2026. Unlike the TMPR, an equivalence decision under the OFR does not have an expiry date. In addition, the TMPR only captures standalone and umbrella UCITS funds that were marketing to U.K. clients using a UCITS passport (while the U.K. was in the EU) and who applied to the FCA to continue doing so.Topic : Fund Regulation -
Fourth Commencement Regulations Under Financial Services and Markets Act 2023 Published
01/18/2024
The Fourth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 - under the Financial Services and Markets Act 2023 were made on December 14, 2023.
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UK Statutory Instrument Made to Ensure Legislation Remains Consistent with Latest Repeals
01/08/2024
The Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023 make consequential amendments to various pieces of legislation arising from the repeal by the Financial Services and Markets Act 2023 of certain retained EU financial services laws. The Regulations took effect on January 1, 2024. The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 provided for the repeal of 98 statutory instruments on August 29, 2023, and further revocations from January 1, 2024, including the European Long-Term Investment Funds Regulation (and related SI and tertiary legislation) and a provision from the Capital Requirements Regulation so as to allow the Bank of England more flexibility to set internal Minimum Requirements for Own Funds and Eligible Liabilities for U.K. subsidiaries of non-U.K. global systemically important banks. These latest Regulations make consequential amendments to ensure that legislation remains consistent with the January 2024 repeals.
Consequential amendments are also made to account for the removal of the double volume cap from the U.K.'s Markets in Financial Instruments regime. The DVC limited the level of dark trading to a certain proportion of total trading in an equity. Instead, the Financial Conduct Authority must monitor trading and has new powers to direct that transparency waivers should be suspended if the ongoing use of the waiver would impact market integrity. In addition, consequential amendments are made following the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 which amended payments-related REUL. -
Revocation of the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013 is Postponed
09/14/2023
The Financial Services and Markets Act 2023 (Commencement No. 3) (Amendment) Regulations 2023 were made on August 25, 2023, postponing the revocation of the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013.
The Commencement No. 3 Regulations amend the Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023, which were made on July 10, 2023 and provide for the entry into force of certain provisions of the Financial Services and Markets Act 2023 (which we discuss in our client note, A Boost for UK Financial Services: The UK Financial Services and Markets Act 2023). This included provisions revoking retained EU legislation relating to financial services, including the CITS Regulations. The CITS Regulations establish a fund vehicle for the U.K. investment management industry which makes U.K. domiciled funds for collective investment in transferable securities more competitive. The CITS Regulations will now be revoked on a day appointed by the Treasury in a later instrument. -
European Commission Publishes Retail Investment Strategy
06/05/2023
On May 24, 2023, the European Commission published a Retail Investment Strategy package aimed at enhancing retail investor protections across the EU and encouraging participation in the EU capital markets. The package comprises an amending Directive, which makes changes across a range of EU legislation, and an amending Regulation, which revises the EU's Packaged Retail and Insurance-based Investment Products Regulation.
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FCA Publishes Consultation Paper on Sustainability Disclosure Requirements
10/25/2022
Following its 2021 Discussion Paper, the FCA has published a consultation paper setting out proposals to enhance sustainability disclosure and labeling requirements for sustainability-linked investment products. The majority of the rules will apply only to fund and asset managers, although the FCA is considering expanding this to FCA-regulated asset owners in relation to their investment products and for certain rules to apply to distributors of investment products to U.K. retail investors. The proposals are directed at fund and asset managers and portfolio managers based in the U.K. The FCA will consult separately on how these proposals apply to overseas fund and asset managers. The FCA already has climate-related disclosure rules for premium listed issuers, as well as rules for standard listed issuers and certain FCA-regulated firms (asset managers, life insurers, pure reinsurers and FCA-regulated pension providers).
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UK Regulator Proposes Extending Long-Term Asset Fund to Certain Retail Investors
08/01/2022
Following the introduction of a regulatory framework for a new type of authorized open-ended fund called the long-term asset fund, the U.K. Financial Conduct Authority has opened a consultation on extending the LTAF to more retail investors. The LTAF enables investors to invest in long term illiquid assets through an authorized fund vehicle. The LTAF may currently only be marketed to professional investors, certified and self-certified sophisticated investors, and certified high net worth individuals. The FCA is proposing to categorize the LTAF as a Restricted Mass Market Investment as per its recent Policy Statement on revising the financial promotion rules for high-risk investments. Opening the LTAF to more retail investors would be accompanied by additional investor protections rules, such as those that apply to other retail authorized funds. Responses to the consultation may be submitted by October 10, 2022. The FCA intends to publish a policy statement and final rules early in 2023. -
HM Treasury Publishes Responses to Review of UK Funds Regime
02/10/2022
HM Treasury has published a summary of responses to its consultation on the U.K. funds regime. The consultation forms part of the U.K. Government's plans to make the U.K. a more attractive location for asset management.
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UK Regulator Issues Statement on Extension of Exemption for UCITS From PRIIPs Disclosure Requirements
12/29/2021
The U.K. Financial Conduct Authority has published a statement in which it confirms that it will amend the Technical Standards and related Handbook provisions to align with the extended exemption from the requirements of the U.K. Packaged Retail and Insurance-based Investment Products Regulation for investment companies and persons advising on, or selling, units in UCITS from December 31, 2021, to December 31, 2026. The FCA states that it will not take enforcement action against firms that offer UCITS funds to U.K. retail investors and that provide either a key information document under the PRIIPs Regulation or a UCITS key investor information document. Following the government's announcement in June 2021, the Financial Services Act 2021 extended the exemption for UCITS. -
EU Amending Technical Standards Improve PRIIPs Regulation Requirements
12/20/2021
An EU Commission Delegated Regulation (2021/2268) amending the Regulatory Technical Standards supplementing the EU Packaged Retail Investment and Insurance-based Products Regulation has been published in the Official Journal of the European Union. The amending RTS include provisions to:- Introduce new methodologies to calculate appropriate performance scenarios and a revised presentation of these scenarios.
- Revise the summary cost indicators and changes to the content and presentation of information on the costs of PRIIPs.
- Modify the methodology to calculate transaction costs.
- Clarify the rules for PRIIPs offering a range of options for investment (known as MOPs), in particular, to identify the products' full cost implications.
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FCA Publishes Policy Statements on Climate-Related Disclosures for Standard Listed Companies and FCA-Regulated Firms
12/17/2021
The FCA has published two policy statements introducing new rules and guidance on climate-related disclosures for standard listed issuers and certain other FCA-regulated firms. The Policy Statements mirror the rule imposed under the FCA's Policy Statement on climate-related disclosures for premium listed issuers.
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HM Treasury Identifies Areas for Improving the UK Securitization Framework
12/13/2021
Following its call for evidence earlier this year, HM Treasury has published its report on the review of the U.K. Securitization Regulation. HM Treasury was required to conduct a review of the functioning of the Regulation and report to Parliament on its findings by January 2022. The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related provisions under the Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
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UK Financial Conduct Authority Publishes Discussion Paper on Sustainability Disclosure Requirements and Investment Labels
11/03/2021
The U.K. Financial Conduct Authority has published a discussion paper on its proposed Sustainability Disclosure Requirements and sustainable investment labels. The FCA is seeking initial views on these proposals with the intention of consulting on fuller policy proposals in Q2 2022. Responses to the discussion paper may be submitted until January 7, 2022. These proposals link to the U.K. government's ambitions on climate change and green finance, detailed in its October policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.
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UK Government Opens Review of Securitization Regulation
06/24/2021
HM Treasury has opened a Review of the U.K. Securitization Regulation with the issue of a call for evidence. The Review is required under the Regulation, and HM Treasury must report to Parliament on its findings by January 2022. Responses to the consultation may be submitted until September 2, 2021. HM Treasury also asks respondents to consider whether any changes are needed that are time-sensitive so that consideration can be given to whether a change is implemented through legislation or regulator rules. In the context of the Future Regulatory Framework Review, the responsibility for making and implementing rules will be transferred to the regulators. The FRF Review is ongoing, with a second consultation expected later this year.
The Securitization Regulation provides the criteria for identifying which securitizations will be designated as "simple, transparent and standardized" (STS) securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Related provisions under the Capital Requirements Regulation set out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
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UK Announces Extension of Exemption for UCITS from PRIIPs Disclosure Requirements
06/01/2021
HM Treasury has announced that the current exemption for Undertakings for Collective Investment in Transferable Securities funds from the requirements of the U.K. Packaged Retail Investment and Insurance-based Products Regulation will be extended by five years to December 31, 2026.
The U.K. PRIIPs Regulation, which was on-shored in the U.K. after Brexit and is based upon the corresponding and much-criticized EU regulation, requires "manufacturers" of PRIIPs to produce a standardized "key information document," designed to improve U.K. retail investors' understanding of the financial products they are purchasing. Technical Standards govern the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide a KID. Under the U.K. PRIIPS Regulation, management companies, investment companies and persons advising on, or selling, units in UCITS are exempt from the requirements of the PRIIPs Regulation until December 31, 2021. UCITS funds still need to prepare a key investor information document (KIID) as required by the UCITS Directive, with different but broadly similar content requirements. The EU PRIIPs regime, which the U.K. has now adopted without material modifications, was intended to improve investor disclosures for more complex retail products such as index-tracking investments and insurance-wrapped products. However, it has resulted in deleterious impacts in other industries and has been widely criticized for its vagueness of scope and wide application, with particularly difficult consequences for bond issuers, listed derivatives and funds. The U.K. has announced that it is undertaking a broader review.
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