Investment management update - April 2022

14 April 2022

Welcome to the April 2022 edition of our investment management update. This publication has been tailored to highlight topical news, cases and changes in the law impacting the investment management sector.

This month’s edition includes the following updates:

  • the DWP’s announcements about the defined contribution (DC) default charge cap and proposals to encourage DC scheme trustees to invest in illiquid assets, including through the new Long Term Asset Fund;
  • the FCA’s consideration of the use of side pockets to address issues with funds holding less liquid assets;
  • further regulatory guidance on the Sustainable Finance Disclosure Regulation and several announcements on ESG topics, such as the Social Taxonomy and the treatment of natural gas and nuclear power; and
  • increasing policy focus on cryptoassets, with two related developments in the EU.

Funds and financial services


  • The Department for Work & Pensions (DWP) has published its response to a consultation to its proposed removal of performance-based fees from the regulatory charge cap that applies to the default funds of occupational DC schemes. DWP’s response acknowledged that its plan to remove performance fees from the cap has come under some criticism; however, DWP intends to press ahead with its plan. Regulations are expected to come into force in October 2022.
  • DWP is consulting on proposals to encourage trustees of occupational DC schemes to invest in illiquid assets. Proposed changes include requiring trustees to disclose and explain (i) their policies on illiquid investment and (ii) their default asset class allocation.  The consultation also proposes amending legislation to broaden access to private markets for authorised master trusts.  The consultation will close on 11 May 2022.
  • The FCA has published a “Dear CEO” letter to custody and fund service providers. The letter states the regulator’s concerns about operational and cyber resilience and seeks information about the measures that firms have taken to reduce risks in specific areas. Firms were expected to respond by 31 March.
  • The FCA has announced its intention to consult on the use of side pockets by funds holding Russian and Belarussian assets. The FCA is considering the use of liquidity risk management tools to enable new and current investors in funds to deal while holding less liquid assets.
  • The FCA has published a quarterly consultation paper on miscellaneous policy topics. The consultation closed on 11 April and proposes:
    • to make changes to chapters 2 and 13 of the Perimeter Guidance manual to clarify application of the MiFID II ancillary activities test in the absence of overall market size data;
    • to amend the research and inducement rules for collective portfolio managers so they are subject to the same rules as investment managers;
    • to make changes to reflect amendments the Treasury has made to the UK MiFID delegated regulation in places where it is copied out in the Glossary and COBS;
    • to amend LR 14 to reflect the original policy position for investment entities other than OEICs prior to the amendments introduced in January 2021;
    • to make changes to the approach to continuing professional development for retail investment advisers and pension transfer specialists; and
    • to extend the MIFIDPRU TP 7.4R(2)(b) notification deadline.


  • The ESAs have published a joint warning to consumers about the risks associated with crypto-assets. The statement notes that the European Commission intends to regulate these assets but, for now, crypto-assets are unregulated at the EU level and consumers should exercise caution.
  • The European Parliament has voted in favour of draft legislation to outlaw anonymous crypto transactions. The proposals are intended to extend AML requirements that apply to conventional payments over €1,000 to the crypto sector. They also remove the floor for crypto payments, so payers and recipients of even the smallest crypto transactions would need to be identified, including for transactions with unhosted or self-hosted wallets. Further measures under discussion could see unregulated crypto exchanges cut off from the conventional financial system. A separate legal proposal would stop transfers being made to “non-compliant” crypto service providers, which includes those operating in the EU without authorisation or that are not affiliated to or established in any jurisdiction. For the legislation to be officially adopted, it must first go through tripartite meetings between the EU Parliament, European Commission, and European Council.


  • The Financial Stability Board published a report on FinTech, financial stability and market infrastructure, which notes that recent trends such as the pandemic, have accelerated the trend to digital finance.



  • The European Commission has adopted a delegated act which details the circumstances in which nuclear energy and natural gas can be deemed environmentally sustainable business activities under the EU’s Taxonomy Regulation. Pending objections from the co-legislators, the legislation will take effect from 1 January 2023.
  • The Platform on Sustainable Finance, an expert group that advises the European Commission on ESG related matters, has published its final report on the creation of a Social Taxonomy. The report proposes a structure for the framework based around three primary social objectives: decent work, adequate living standards and well-being, and inclusive and sustainable communities and societies. The European Commission will analyse the report and respond in due course.
  • ESMA has written to the Council of the European Union and the European Parliament’s Committee on Economic and Monetary Affairs setting out ESMA’s observations on the legislative proposal for a Regulation of European Green Bonds. ESMA welcomes the Commission’s proposal but sets out some potential "challenges" around the timing of implementing measures (level 2 deliverables), the functioning of the third-country regimes, and the appropriateness of the resourcing and funding model provided for ESMA’s supervision.
  • ESMA has published its Final Report on the European Union Carbon Market. The Report’s analysis did not find any current major deficiencies in the functioning of the EU carbon market based on the data available. However, ESMA’s analysis of the market has led itto put forward several policy recommendations to improve market transparency and monitoring, such as:
    • extend position management controls to EUA derivatives;
    • amend EUA position reporting;
    • track chain of transactions in MiFIR regulatory reports; and
    • provide ESMA with access to primary market transactions.
  • ESMA (together with the other ESAs) has updated their joint supervisory statement on the application of the Sustainable Finance Disclosure Regulation. This includes a new timeline, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the EU Taxonomy, and the use of estimates.

Derivatives and trading


  • HM Treasury has published its response to its Wholesale Markets Review consultation of last year. The response details a package of proposed reforms, including simplifying parts of the MiFID II regime that was onshored before Brexit. These proposals include changes to the systemic internaliser regime, the creation of a consolidated tape, and reforms to the trade transparency regime.


  • ESMA has issued a public statement on a series of updates in relation to the recognition of CCPs established in third countries (TC-CCPs) under EU EMIR. The updates include the review of recognitions of TC-CCPs that were already previously recognised, the conclusion of revised memoranda of understanding with relevant third-country authorities, as well as the first-time recognition of the National Securities Clearing Corporation.
  • ESMA has published “Final report: Guidelines on transfer of data between trade repositories under EMIR and SFTR”. The final report contains both amendments to the existing guidelines on transfer of data between trade repositories under EU EMIR, and new guidelines on transfer of data between trade repositories under EU SFTR.