Investment management update - December 2023

18 December 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.

  • On 30 November 2023, the FCA issued a statement on the disclosure of costs and charges under PRIIPs, MiFID II and the UCITS regulations. The FCA will give firms the flexibility to disclose a breakdown of the aggregated costs that must be disclosed to retail investors. While this is a short-term measure, the FCA has committed to review the usefulness of aggregated cost disclosures and reforms are expected to be announced before the end of this year. Due to the FCA’s revision of their position, the Investment Association has revised its guidance in relation to investment trusts, removing its statement that managers should aggregate the costs of underlying unit trusts in the ongoing charges figure.
    Statement on communications in relation to PRIIPs and UCITS | FCA
  • On 29 November 2023, the FCA published CP23/24, "Capital deduction for redress: personal investment firms". The consultation proposes that personal investment firms must set aside capital for paying customer redress at an early stage. Part of the FCA’s policy rationale is to ensure that the "polluter pays" principle is upheld, rather than the socialisation of redress claims among peer firms via the Financial Services Compensation Scheme (FSCS). The consultation will close on 20 March 2024.
    CP23/24: Capital deduction for redress: personal investment firms | FCA
  • On 28 November 2023, the FCA published its long-awaited Sustainable Disclosure Requirements (SDRs) and Fund Labelling final rules, alongside draft guidance on the anti-greenwashing rule that is the first component of the SDRs. The rules were twice delayed while the FCA considered the feedback that it received in response to its consultation on the draft rules. The changes in the final rules include the creation of a fourth sustainable investment product label, the Sustainability Mixed Goals fund, a requirement for all labelled funds to have a minimum of 70% of their assets aligned with their sustainability goals, and amendments to the minimum qualifying criteria for each fund label. The anti-greenwashing rule will take effect from 31 May 2024, followed by a staggered implementation of the subsequent requirements. Most importantly, firms can begin to use the fund labels from 31 July 2024. The deadline for comments on the draft anti-greenwashing guidance is 26 January 2024.
    PS23/16: Sustainability Disclosure Requirements (SDR) and investment labels | FCA
    GC23/3: Guidance on the anti-greenwashing rule | FCA
  • On 22 November 2023, the Government published a policy note and draft statutory instrument on the UK’s new Retail Disclosure Regime. The current PRIIPs regime and costs and charges disclosure rules under MiFID will be replaced by a framework for “Consumer Composite Investments (CCIs)”. The Government has defined the key terms of the new regime and that the UCITS exemption will continue to apply until the end of 2026 (meaning that UK UCITS KIIDs and NURS KIIs will remain a requirement, rather than the EU’s PRIIPs KID). While the Government’s publications determine the broad policy approach, the FCA will create detailed requirements in relation to the new regime and it is expected to consult on draft rules in due course. The draft statutory instrument is open for consultation until 10 January 2024.
    UK Retail Disclosure Framework – Draft SI and Government Policy Note
  • On 16 November 2023, the FCA published the results of a multi-firm review of compliance with its Guiding Principles for managers of ESG funds. The FCA found examples of good practice, but also highlighted numerous areas which firms must improve. Many examples of poor practice relate to disclosures, while the FCA also says that stewardship and measuring its impact is likely to be an ongoing challenge. While the Guiding Principles are distinct from the SDRs, the FCA considers it necessary to comply with its guidance to meet its expectations in relation to the SDRs.
    Testing how Authorised Fund Managers are embedding the Guiding Principles in ESG and sustainable investment funds | FCA
  • On 8 November 2023, the FCA published a "Dear CEO" letter to wealth management firms and stockbrokers. The letter outlines the regulator’s priorities for the sector, including financial crime and meeting consumers’ expectations, the FCA’s wider expectations (including ESG, operational resilience, and diversity, equity and inclusion) and its supervisory approach (which it says will be more proactive, data driven and intrusive). Firms should review their business against the FCA’s expectations set out in the letter. The FCA also confirmed it intends to issue a survey in relation to business model risks in December 2023.
    Dear CEO letter: FCA expectations for wealth management & stockbroking firms
  • On 1 November 2023, Nisha Arora, the FCA’s Director of Cross Cutting Policy and Strategy, gave a speech on the Consumer Duty and the regulator’s expectations about what firms should do next. The speech emphasised that the Consumer Duty is an ongoing business activity, rather than a one-off exercise and continuous improvement should be evidenced in a firm’s annual board report. Arora also highlighted the 31 July 2024 compliance deadline in relation to closed in-scope products. The FCA has also published updated webpages on the Consumer Duty and examples of the FCA’s work on driving higher standards.
    Nisha Arora Speech: Consumer Duty: Not once and done | FCA
    Consumer Duty resources | FCA
    How we are using the Consumer Duty | FCA
  • On 31 October 2023, the FCA published Market Watch 75 concerning market abuse risks. The publication focuses on risks facing Market Sounding Recipient (MSR) firms and provides a series of recommendations for MSRs to mitigate their regulatory and legal risks.
    Market Watch 75 | FCA
Europe ex UK
  • On 7 November 2023, France announced a series of reforms to the French Socially Responsible Investment product label. The changes make the label a stricter standard, such as requiring the complete exclusion of new fossil fuel investments and taking climate impact into account. The new standard will be published soon, and the reforms will take effect in March 2024.
    FinTech Global news article reporting the Finance Minister's comments
  • On 7 November 2023, the Dutch regulator, the AFM, published a position paper on reforms to the SFDR. The AFM has joined the French regulator in calling for the creation of a new sustainable investment product labelling regime. The AFM recommends that the European Commission removes the Article 8 and Article 9 categories, and that all products (not just ESG products) should be required to make sustainability-related disclosures.
    AFM position paper on the SFDR