Investment management update - December 2022

12 January 2023

Welcome to the latest 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.

Key things to look out for include:

  • The UK’s Edinburgh Reforms which initiate a wide-ranging regulatory reform agenda and the potential for substantial divergence from EU regulations. There are several immediate implications for firms to consider.
  • Several in-country ESG developments to consider in Switzerland, Germany and Denmark, and in relation to the ISSB global standard for sustainability reporting.
  • The FCA’s Market Watch which contains guidance for firms on regulatory expectations for insider lists, while the Bank of England is focusing on risks in open-ended funds, money market funds, and in non-bank financial intermediation.


  • COP15 concluded on 19 December with the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF). The agreement commits the COP15 participants to the GBF’s four main goals of addressing biodiversity loss, restoring natural ecosystems, and protecting indigenous rights. The GBF also includes a headline “30x30 commitment” to protect 30% of the planet and 30% of degraded ecosystems by 2030. The GBF is to be delivered via a variety of related agreements and targets, including the creation of national action plans. Our analysis summarises the GBF and explores the effect of the agreement on UK business and financial services.
  • On 16 December, the FCA updated its webpage providing information for firms on the Consumer Duty. The webpage includes: FCA expectations on outcomes monitoring; clarification that firms applying for authorisation for the first time will have to prove that they can comply with the Consumer Duty from February 2023; and information on how the Consumer Duty applies through the distribution chain. The FCA has confirmed that the Duty applies to all firms with a key role in delivering retail customer outcomes, including those with no direct customer relationship. A firm’s responsibilities will depend on that firm’s role and level of influence.
  • On 14 December, the FCA published feedback it received to its call for input on the Financial Services Compensation Scheme. The review was launched following concerns about the increasing cost of compensation liabilities falling to the FSCS, resulting in an escalating FSCS levy imposed on firms. The review aims to make sure the compensation framework continues to provide an appropriate level of consumer protection, with costs to industry distributed in a fair and sustainable way. The feedback highlighted the importance of firms improving conduct to reduce the number of calls on the FSCS from mis sold product. The FCA does not consider that material changes are needed to the compensation framework at this time. However, the FCA intends to review the following elements of the framework to ensure that it remains proportionate: the underlying causes of high FSCS compensation costs; compensation limits; funding class thresholds; communication of protection and the appropriate scope of FSCS; and the FCA’s understanding of the impact of FSCS protection on consumer decision making and firm incentives.
  • On 13 December, the Bank of England’s Financial Policy Committee (FPC) published its latest Financial Stability Report, a regular update on the FPC’s views and proposals to enhance the stability of the UK financial system. The December report highlights the risks posed by global risks to the financial system. The FPC focuses on recent challenges to Liability Driven Investment strategies, and concerns over the stability of Money Market Funds (reflecting work at the global level via the Financial Stability Board and IOSCO considering pandemic-related market volatility in March 2020). The FPC also restates its concerns about liquidity mismatches in open-ended funds, reflecting its ongoing work on fund liquidity, initiatives underway among the international regulatory bodies, and a recent warning from the IMF. The FPC states that it will undertake a scenario exercise on non-bank financial institutions in 2023.
  • On 13 December, the FCA published issue 71 of its Market Watch newsletter. The newsletter covered the FCA’s position on insider lists. The FCA notes that the number of people considered permanent insiders has decreased considerably since Market Watch 60. The FCA considers that the ongoing reduction in the numbers of people with access to inside information reduces the opportunities for unlawful disclosure of that information and reduces the burden on firms of maintaining extensive insider lists. The FCA reminded firms of the importance of including personal information on insider lists. This is necessary to remove people from FCA enquiries by cross-referencing against transaction reports and other information sources. The FCA further reiterated that they expect firms using contractors to have arrangements in place to ensure that those contractors provide personal data to the FCA when requested. Firms must consider data protection law and may consider storing insider lists and personal data separately and only adding personal data to the template insider list when requested by the FCA.
  • On 12 December, the FCA published the results of a multi-firm review: "Understanding approaches to Diversity & Inclusion in financial services". The report contains observations about 12 regulated firms’ D&I strategies. The headline conclusion is that “very few firms seemed to have understood diversity and inclusion as a fundamental culture issue”, with less focus on actions to build an inclusive culture as opposed to measuring diversity and addressing specific issues. The FCA expects firms to review and consider the findings in the design and integration of their strategies.
  • On 9 December, the Chancellor announced the Edinburgh Reforms, comprising a package of changes to financial services regulations. The Government intends to improve the competitiveness of UK financial services and economic growth. In many areas, the reforms represent a divergence from onshored EU regulations. The proposals include a review of the bank ring-fencing regime, changes to capital requirements for banks, potential changes to the Senior Managers & Certification Regime, scrapping the onshored ELTIF legislation in favour of the UK’s Long Term Asset Fund that seeks to achieve similar investment aims, scrapping the onshored PRIIPs Regulation in favour of a new regime for retail investor disclosures, and a series of reforms to capital markets regulations including the short selling regime, prospectus requirements, and the bundling of investment research payments. The Government also intends to publish a revised Green Finance strategy in early 2023 (which could provide clarity about the Government’s plans for the delayed UK Green Taxonomy) and to bring ESG data providers into the regulatory perimeter, as recommended by the FCA. Many of the reforms are dependent on the outcomes of planned regulatory reviews. For instance, HMT and the FCA have launched separate but related consultations about the design of a new retail investor disclosure regime, due to conclude in March 2023; while a consultation on the Senior Managers and Certification Regime is expected in Q1 2023. The process of reform will get underway in the coming months and could take several years to reach fruition.
  • As part of the Edinburgh Reforms, the FCA confirmed that it will scrap the portfolio depreciation rule: a requirement for firms to notify investors if the value of their portfolio declines by more than 10%. The legislative change is expected to take effect in January 2023. The permanent change had been expected since Brexit empowered the FCA to temporarily suspend the rule during turbulent market conditions in March 2020 and to extend the suspension until the end of 2022 while HMT undertook a review of the provisions.
  • As part of the Edinburgh Reforms package, on 9 December, HMT and HMRC published their long-awaited consultation on the VAT treatment of fund management services. While Brexit grants the UK greater flexibility over VAT, the Government does not propose radical measures to improve the competitiveness of the UK in comparison to other jurisdictions, such as zero-rating VAT. The consultation has narrower ambitions that, in essence, ask whether a new principles-based definition of a VAT-exempt special interest fund (SIF) should be added to the VAT Act, alongside the list of funds that have been identified for SIF status. The deadline for comments is 3 February. Here is our analysis of the consultation.
  • On 7 December, the Financial Services and Markets Bill completed its report stage and third reading in the House of Commons. The Bill has been amended to impose further requirements on the FCA and PRA to report their objectives. The regulators will also now be required to publish the names of respondents to policy consultations where those respondents have consented to publication. The Bill is currently with the House of Lords where it is due to have its second reading on 10 January. Members of the House of Lords will debate the Bill’s key principles. As previously reported, it is possible that some Members might propose amendments to strengthen the regulators’ accountability for delivering the new secondary objective to achieve the Government’s net zero emissions target.
  • The Financial Services and Markets Bill will amend the Financial Services and Markets Act 2000 to create a regulatory gateway that authorised firms must pass through before they can approve the financial promotions of unauthorised firms. On 6 December, the FCA published a consultation paper setting out how they anticipate that gateway will operate in practice. The consultation suggests that authorised firms will be able to apply to the FCA to approve all types of financial promotion or only those promotions for certain types of products. The draft legislation sets out that the FCA may refuse to grant permission at the gateway if it appears that it is desirable to do so to advance one of the FCA’s operational objectives, such as protecting consumers. The deadline for responses is 7 February 2023.

Europe (excluding UK) 

  • On 16 December, the Swiss Federal Government published reports on sustainable finance and on greenwashing. The Government has proposed a sustainable investment product naming regime: products that use terms such as ESG, green or sustainable must align with or contribute to at least one sustainable investment objective and must demonstrate how the objective(s) will be achieved. The rules also prescribe investor disclosures, regular product reports, and third party verification. The proposals suggest that products which integrate sustainability considerations, or which seek only to reduce ESG risks but do not target a sustainability objective, would not qualify under the Swiss labelling regime. The Swiss Government has made a series of additional proposals that aim to make the country a world leading ESG hub, for example, making TCFD disclosures mandatory for large companies. The product naming and greenwashing rules are due to be completed and published by the end of September 2023.
  • On 8 December, the German Parliament voted for a law that will make it easier for real estate funds to invest in renewable energy. As "Spezialfonds", real estate funds will be able to generate up to 10% of their revenue from renewable energy without losing their tax transparent status. The new law reflects a doubling of the current 5% revenue threshold.
  • On 7 December, the European Commission published several proposals related to its Capital Markets Union, an initiative to deepen the integration and improve the functioning of the EU’s capital markets. The proposals include "EMIR 3.0" (comprising improvements to CCPs and the clearing system), harmonising aspects of the corporate insolvency regime across the EU, and changes to listing rules. The regulations amend various pieces of legislation including EMIR, CRR and CRD, the Money Market Funds Regulation, MiFIR and the Prospectus Regulation, among others. In total there are six legislative items that have now entered the EU’s process of scrutiny by the European Council and European Parliament.
  • On 6 December, the EU agreed new rules on deforestation. The regulation on deforestation-free supply chains aims to ensure that goods marketed in the EU do not contribute to forest degradation anywhere in the world. Practically, firms must undertake due diligence and demonstrate that their products comply with the law. Earlier drafts included financial institutions in the scope of the law; however, these firms have been removed from the final regulations. Consequently, asset managers will not be required to screen their investments for deforestation risks. However, the European Commission will keep the matter under review and might propose a deforestation law applicable to asset managers, while certain elements in the European Parliament are expected to lobby the Commission for such a law to be introduced. The agreed deforestation law will now be subject to formal sign off by the European Council and European Parliament and will take effect 18 months later.
  • On 6 December, the Danish Financial Services Authority (FSA) warned four (unnamed) pensions and insurance firms that they have provided insufficient information about how their remuneration policies are linked to the integration of sustainability risks into their businesses. Firms subject to the SFDR are required to disclose this information under Article 5 of the legislation. The FSA has issued orders, a supervisory tool that gives the recipient firms two months to address the regulator’s concerns. The orders are the first issued by the FSA’s new anti-greenwashing unit. The FSA published the results of a thematic review into the remuneration policies of six institutional investors, including the four firms subject to orders.


  • On 15 December, the ISSB confirmed that while it will require financial institutions and investee companies to report Scope 3 carbon emissions, it will also provide guidance and context to help firms and investors to measure and understand the data. The ISSB will also suggest an extra year for Scope 3 reporting (the bulk of firms’ emissions) after Scope 1 and 2 reporting takes effect. The ISSB is close to finalising its global ESG reporting standards and is expected to publish its final framework early in 2023. The ISSB standard is due to be incorporated into the UK’s Sustainability Disclosure Requirements and aims to provide a consistent international framework for ESG reporting. In addition, on 21 December, a new Sustainability Standards Advisory Forum (SSAF) was announced to provide technical advice to the ISSB on the design of their standards. The SSAF will comprise representatives from Brazil, Canada, China, India, Japan, Mexico, Saudi Arabia, South Korea, Switzerland and the UK, and bodies representing Africa, the European Union and Latin America. The SEC, European Commission and IOSCO will also observe the meetings.