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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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 : Funds
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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 : Funds -
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.
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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 : Funds -
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 : Funds -
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.
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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 : Funds -
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 : Funds -
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.
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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 : Funds -
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. The Fourth Commencement Regulations provide, among other things, for:- The repeal of HM Treasury’s obligation to review legislation in various financial services legislation, including but not limited to, the Short Selling Regulation, the Securitization Regulation, the Alternative Investment Fund Managers Regulations and the U.K. version of the European Market Infrastructure Regulation. These repeals took effect on December 15, 2023.
- The revocation from April 5, 2024 of the Data Reporting Services Regulations 2017 and related implementing legislation such as (i) the provisions in the onshored Markets in Financial Instruments Regulations that provide HM Treasury and the regulators with powers to specify further detail relating to data reporting services; and (ii) the provisions in the MiFIR Delegated Regulation on the provision of data on reasonable commercial basis. The revocation of these provisions on this date aligns with HM Treasury's aim of the draft Data Reporting Services Regulations 2023 entering into force on April 5, 2024. The draft Data Reporting Services Regulations 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The FCA has confirmed the final framework for a consolidated tape for bonds, which will also enter into force on April 5, 2024.
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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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UK Regulator's Feedback Statement to Consultation on Liquidity Mismatch in Authorized Open-Ended Property Funds
05/07/2021
Following its consultation last year, the U.K. Financial Conduct Authority has published a feedback statement to its consultation on liquidity mismatch in authorized open-ended property funds. In the consultation, the FCA proposed introducing a notice period of up to 180 days for U.K. authorized property funds that are non-UCITS retail schemes (known as NURS) that invest directly in property. The aim is to mitigate the potential for harm arising from the structure of funds that may lead to a mismatch between a fund holding illiquid assets and offering daily redemptions.
The FCA confirms that it will not make a final policy decision until Q3 2021 at the earliest and that if mandatory notice periods for property funds are introduced, there will be an appropriate implementation period before the rules come into force so as to allow firms to make operational changes.
Noting some cross-over between these proposals and the FCA's more recent proposals to introduce a long-term asset fund framework, the FCA also confirms that it will consider feedback to that consultation before finalizing its position. The FCA launched its consultation on proposals on LTAFs on the same day as this feedback was published. The aim of the LTAF framework is to establish a fund that would facilitate authorized funds to be set up to invest efficiently in long-term, illiquid assets. In the feedback statement, the FCA states that if notice periods are introduced then fund managers of LTAFs might have the same operational challenges.
View the FCA's feedback statement (FS21-8).
View details of the FCA's consultation on a LTAF framework.
View details of the FCA's consultation (CP20/15).Topic : Funds -
UK Regulator Consults on a New Authorised Fund Regime for Investing in Long Term Assets
05/07/2021
The U.K. Financial Conduct Authority has opened a consultation on proposals to establish a regulatory framework for a new type of authorized open-ended fund called the long-term asset fund. The aim is to establish a fund that would facilitate authorized funds to be set up to invest efficiently in long-term, illiquid assets, such as venture capital, private equity, private debt, real estate and infrastructure. The consultation closes on June 25, 2021.
The consultation paper sets out the details of the proposed framework, including increased governance requirements, clear disclosure rules and discusses the proposals on rules on the purpose of an LTAF, borrowing levels, valuation, redemption and subscription, due diligence and reporting. The FCA is proposing to restrict distribution of LTAFs to professional investors and sophisticated retail investors. However, the consultation asks for feedback on whether, and how, future wider retail access to such funds could be safely supported. LTAFs will be an alternative investment fund. As the LTAFs would invest in potentially complex and risky assets, the FCA proposes that only a firm authorized as a full-scope U.K. alternative investment fund manager could manage an LTAF. This will ensure that LTAFs have appropriate resources as well as good systems and controls.
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UK Financial Services Act 2021 Published
04/29/2021
The U.K. Financial Services Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the Financial Services Act 2021. Some provisions of the Act came into force on the date of Royal Assent, with a limited number following on June 29, 2021. The majority of the Act will come into force on a date specified in regulations yet to be made by HM Treasury.
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European Securities and Markets Authority Proposes Changes to European Long-Term Investment Funds Regulation
02/03/2021
The European Securities and Markets Authority has written to the European Commission proposing a series of amendments to the European Long-Term Investment Funds Regulation. ESMA's letter comes in response to the Commission's consultation on the efficacy of the ELTIF Regulation, which was designed to increase long-term investments in the real economy (e.g. infrastructure projects, real estate and listed and unlisted small and medium-sized enterprises). The consultation was launched in October 2020 and was designed to analyze why the ELTIF market has not developed to a large scale and how well it is contributing to the integration of European capital markets and smart, sustainable growth within the EU.
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EU Final Draft Standards on Information for Facilitating Cross-Border Distribution of Funds
02/01/2021
The European Securities and Markets Authority has published a final report and final draft Implementing Technical Standards setting out the forms, templates and procedures that national regulators should use to publish information on their websites to facilitate cross-border distribution of funds. The Regulation on facilitating cross-border distribution of funds aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national regulators. It was brought in at the same time amendments were made to the Directive on Undertakings for Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive through an amending Directive. Member states are required to transpose the amending Directive into national laws by, and apply those laws from, August 2, 2021. Certain provisions of the Regulation applied directly across the EU from August 1, 2019, while the remaining provisions will apply from August 2, 2021.
The Regulation requires ESMA to draft Implementing Technical Standards on the standard forms, templates and procedures that national regulators should use to publish information on their websites that will facilitate the cross-border distribution of funds. The information must cover:- the national laws, regulations and provisions on marketing requirements for Alternative Investment Funds and UCITS; and
- the regulatory fees and charges applied by the national regulator for the activities of AIFMs, UCITS management companies and managers of European Venture Capital Fund and European social entrepreneurship funds.
The final draft ITS have been submitted to the European Commission for consideration.
View the final report and final draft ITS.Topic : Funds -
HM Treasury Launches Consultation on UK Funds Regime
01/26/2021
HM Treasury has launched a consultation on a series of proposed reforms to the U.K.'s funds regime, as part of the U.K. Government's plans to make the U.K. a more attractive location for asset management. Responses to the consultation should be submitted by April 20, 2021.
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UK Parliament Publishes Financial Services Bill for Post-Brexit Regulatory Framework
10/21/2020
The U.K. Government has published a Financial Services Bill setting out a proposed regulatory framework for the financial services industry following the U.K.'s exit from the EU. The Bill is part of the U.K.'s wider initiative under the Future Regulatory Framework Review to re-frame its regulatory framework. Although Brexit has brought challenges to the financial sector, there may also be post-Brexit opportunities for the U.K. to seize. The aim of these reforms is to cement the U.K.'s position as a global financial centre of excellence. A core piece of that will be to set conditions that continue attracting business to the U.K. and to look for opportunities to cut "red tape" whilst at the same time maintaining the U.K.'s globally recognized high regulatory standards.
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European Commission Launches Consultation on European Long-Term Investment Funds Regulation
10/19/2020
The European Commission has launched a public consultation on possible improvements to the European Long-Term Investment Funds Regulation. The ELTIF Regulation has applied across the EU since December 2015 and is designed to encourage investment in long-term projects in the real economy, such as infrastructure projects, real estate and listed and unlisted small and medium-sized enterprises. However, only a small number of ELTIFs have been launched since the Regulation was introduced. In addition, in its 2020 report, the High Level Forum on the Capital Markets Union recommended that the ELTIF Regulation be reviewed in order to broaden the scope of eligible assets and reduce potential barriers to investment.
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Bank of England Financial Policy Committee Publishes Policy Summary
10/08/2020
The Bank of England's Financial Policy Committee has published its latest Policy Summary and the minutes of its meeting held on September 30, 2020. The FPC notes a range of near-term risks that could impact the U.K. economy, including the evolution of the COVID-19 pandemic, post-Brexit trading arrangements between the U.K. and EU and various other geopolitical risks.
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Confirmation Announced of Revisions to EU Guidelines on Stress Testing of Money Market Funds
08/27/2020
The European Securities and Markets Authority has published a statement confirming that the 2019 Guidelines on stress test scenarios under the Money Market Funds Regulation will be updated by the end of 2020 to reflect COVID-19 market developments. The MMF Regulation has applied directly across the EU since July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds, and are often regarded as a short-term cash management function alternative to bank deposits. The MMF Regulation requires MMFs and MMF managers to measure the impact of the common reference stress test scenarios, as specified by ESMA in its guidelines, and to report the outcomes to their national regulators. ESMA is required to assess annually whether the Guidelines should be updated to reflect market developments. ESMA states that it intends to update the Guidelines published in July 2019 to reflect the impact of COVID-19 on the market, in particular, the liquidity challenges faced by MMFs. The 2019 Guidelines will continue to apply until the revised Guidelines apply—ESMA intends to publish the updated Guidelines in Q4 2020, following which they will be translated into EU national languages. The updated Guidelines will apply two months after the translations are published.
View ESMA's statement. -
EU Review: Alternative Investment Fund Managers Directive
08/18/2020
The European Securities and Markets Authority has published a letter addressed to the European Commission on the upcoming review of the Alternative Investment Fund Managers Directive. In the letter, ESMA highlights areas that it considers would benefit from a review and potential amendments. ESMA considers these areas important because of the discussions it has had with national regulators on the practical difficulties involved in implementing the AIFMD. ESMA is proposing policy improvements and reporting recommendations, including harmonizing the AIFMD and UCITS regimes. The areas of focus include delegation and substance, liquidity management tools, leverage and the harmonization of supervision of cross-border entities. The Commission is likely to publish its proposals for amending AIFMD in Q3 2020.
View the letter.Topic : Funds -
UK Regulator Consults on Addressing Liquidity Mismatch in Open-Ended Property Funds
08/03/2020
The U.K. Financial Conduct Authority has launched a consultation on liquidity mismatch in authorized open-ended property funds. The FCA wants to tackle the potential for investor harm that arises because the terms for dealing in units of some property funds are not aligned with the time that it takes to buy or sell the buildings that the funds invest in. Responses to the consultation may be submitted until November 3, 2020. The FCA intends to publish its final policy statement and rules as soon as possible in 2021.
The FCA's proposals seek to address the structural issues arising from the mismatch between holding illiquid assets and offering daily redemptions and the potential harm caused by the liquidity mismatch of U.K. authorized property funds that are non-UCITS retail schemes (known as NURS) that invest directly in property. The FCA is proposing to introduce a notice period of up to 180 days for these funds with the object of removing the potential for some investors to gain at the expense of others and to decrease the probability of liquidity runs on funds that lead to rapid sales of assets.
The FCA clarifies that the proposals in this consultation paper are only directly relevant to U.K.-authorized property funds that are NURS. The FCA is continuing its work with the Bank of England on illiquid assets in open-ended funds and will consult on additional solutions once the Financial Policy Committee has completed its work.
View the FCA's consultation paper (CP20/15).Topic : Funds -
Outcome of European Supervisory Authorities’ Review of PRIIPs Technical Standards Published
07/21/2020
The Joint Committee of the European Supervisory Authorities has published a letter addressed to the European Commission informing it of the outcome of the ESAs’ review of the Regulatory Technical Standards (Commission Delegated Regulation (EU) 2017/653) on the presentation, content, review and revision of a standardized “key information document” and the conditions for fulfilling the requirement to provide a KID. The RTS supplements the Packaged Retail and Insurance-based Investment Products Regulation, which introduced a requirement for manufacturers of PRIIPs to produce a KID with the intention of improving retail investors’ understanding of the financial products they were purchasing.
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European Systemic Risk Board Announces Further Actions to Combat Impact of COVID-19
06/08/2020
The European Systemic Risk Board has announced a series of further actions designed to combat the impact of COVID-19 on European financial markets. The actions relate to the five priority areas already identified by the ESRB as requiring particular focus in the context of the COVID-19 pandemic, as follows:- Implications for the financial system of guarantee schemes and other fiscal measures to protect the economy: the ESRB has published a Recommendation introducing minimum requirements for national monitoring of the financial stability implications of the various debt moratoria and guarantee schemes introduced by Member States to support economies through COVID-19 (Recommendation A); national regulators are also advised to regularly report information on these schemes to the ESRB in accordance with reporting templates to be published by the ESRB by June 30, 2020 (Recommendation B); national regulators implicated by the Recommendation should communicate the actions they have taken, or intend to take, in response to the Recommendation A by July 31, 2020 and Recommendation B by December 31, 2020;
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EU Consultation on Draft Guidelines on Outsourcing to Cloud Service Providers
06/03/2020
The European Securities and Markets Authority has opened a consultation on draft guidelines on outsourcing to cloud service providers. The draft guidelines cover: (i) governance, documentation, systems and procedures that firms should have in place; (ii) the assessment and due diligence to be undertaken before outsourcing arrangements are entered; (iii) minimum elements that outsourcing agreements should include; (iv) exit strategies; and (v) access and audit rights. The consultation closes on September 1, 2020. ESMA expects to publish the final guidelines in Q4 2020 or Q1 2021.
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European Systemic Risk Board Actions on Five COVID-19 Priority Areas
05/14/2020
The European Systemic Risk Board has established five priority areas on which it intends to take action to combat the impact of COVID-19 on the EU financial system. In determining its actions, the ESRB hopes to ensure an effective response to the pandemic across the EU that prevents individual Member State actions from negatively impacting the EU Single Market and to take advantage of flexibility in regulatory standards to support financial institutions in providing financial services and liquidity.
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European Securities and Markets Authority Publishes Statement on Fund Managers' Liquidity Risk Management During COVID-19
05/14/2020
The European Securities and Markets Authority has published a statement confirming its support for the European Systemic Risk Board's Recommendation on tackling the implications of market illiquidity for asset managers with exposures to corporate debt and real estate. In accordance with the ESRB's Recommendation, ESMA intends to coordinate with Member State national regulators to engage closely with these asset managers. The supervisory engagement ties in with ESMA's common supervisory action, announced in January 2020, on liquidity risk management by managers of Undertakings for the Collective Investment in Transferable Securities.
View ESMA's statement on fund managers' liquidity risk management.
View details of the ESRB's Recommendation.
View details of ESMA's common supervisory action on liquidity risk management for UCITS.
Details of other regulatory responses to COVID-19 are available on our COVID-19 Research Center. -
European Securities and Markets Authority Recommends Regulatory Forbearance for Funds’ Periodic Reporting Obligations
04/09/2020
The European Securities and Markets Authority has announced its expectation that national regulators should, where possible, deprioritize supervisory action against certain fund managers for failure to comply with periodic financial reporting deadlines for funds they manage for the periods ending from December 31, 2019 to April 30, 2020 (inclusive). The fund managers covered by ESMA’s statement are: (i) undertakings for the collective investment in transferable securities (UCITS) management companies; (ii) self-managed UCITS investment companies; (iii) authorized alternative investment fund managers; (iv) non-EU AIFMs marketing AIFs; (v) European Venture Capital Fund managers; and (vi) European Social Entrepreneurship managers.
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EU Consultation on Standardized Information for Facilitating Cross-Border Distribution of Funds
03/31/2020
The European Securities and Markets Authority has launched a consultation on the forms, templates and procedures that national regulators should use to publish information on their websites to facilitate cross-border distribution of funds. The Regulation on facilitating cross-border distribution of funds aims to increase transparency on the rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national regulators. It was brought in at the same time amendments were made to the Directive on Undertakings for Collective Investment in Transferable Securities and the Alternative Investment Fund Managers Directive through an amending Directive. Member states are required to transpose the amending Directive into national laws by, and apply those laws from, August 2, 2021. Certain provisions of the Regulation applied directly across the EU from August 1, 2019, while the remaining provisions will apply from August 2, 2021.
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UK Conduct Regulator Dear CEO Letter to Firms on Consumer Protection During COVID-19 Pandemic
03/31/2020
The U.K. Financial Conduct Authority has published a Dear CEO letter addressed to firms providing services to retail investors on the actions they should be taking to protect consumers during the COVID-19 pandemic. Firms are expected to provide strong support and service to consumers, to be transparent with their customers and to report to the FCA immediately if they foresee themselves getting into financial difficulty.
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COVID-19: UK Financial Conduct Authority Confirms No Short Selling Ban (Yet)
03/23/2020
The U.K. Financial Conduct Authority has published a statement confirming that, in the wake to the COVID-19 pandemic, it is working with regulators in the U.S., the EU and elsewhere to ensure that the financial markets can remain orderly and open. Noting the recent volatility in the financial markets, the FCA confirms that the U.K. has not imposed a short selling ban and neither has the U.S. or any other major financial market. The EU has however temporarily reduced the threshold for the reporting of short positions. Net short position holders are required to notify the relevant national regulator of any net short position of 0.1% of the issued share capital of a company and of each 0.1% above that threshold. This also applies to listed shares on UK markets. It is not necessary to notify existing positions above the new lower threshold that were not previously notifiable, until new trading takes place.
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