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10 April 2019

Investment Management Update

A round-up of recent legal and regulatory developments of interest to the investment management sector.

This issue includes:

General

Brexit developments

Brexit SIs

General

Conduct risk in market transactions: FMSB statements of good practice 

The FICC Markets Standards Board (FMSB) has published statements of good practice (SGP) for the wholesale fixed income, commodity and currency (FICC) market participants in relation to conduct risk in market transactions. The FMSB has developed a methodology called behavioural cluster analysis. This identifies and provides a taxonomy of the core group of misconduct techniques which have recurrently formed the basis of misconduct across multiple jurisdictions. The guidance sets out SGP for the identification of conduct risks in market transactions using this methodology. 

The FMSB states that “the identification of conduct risk is an important role undertaken by the front office, as well as by control and oversight functions, and firms should consider their own practices in light of the statements of good practice and make any changes to such practices that they deem to be appropriate.” In January 2019, the FMSB published a SGP in relation to suspicious transaction and order reporting. See our update of 30 January 2019 for more detail on this. 

FSCS management expenses levy limit 2019/20: PRA policy statement

The Prudential Regulation Authority (PRA) has published a policy statement (PS10/19) setting out the final rules on the management expenses levy limit (MELL) for 2019/2020 for the Financial Services Compensation Scheme (FSCS). The MELL is the maximum amount which the FSCS may levy for its management expenses in a year and it is over £79.5m for 2019/20. No issues were raised to the PRA and the Financial Conduct Authority’s (FCA) joint consultation in relation to the FSCS MELL and the regulatory bodies are implementing the rules as consulted. The FCA has outlined its feedback on the consultation in Handbook Notice 64. The final rules are contained in the:

The instruments came into force on 1 April 2019 and the final rules will apply for the financial year ending 31 March 2020. See our update of 13 February 2019 for the FCA and PRA’s joint consultation paper on the FSCS MELL. 

Appropriateness and execution-only: ESMA MiFID II supervisory briefing 

The European Securities and Markets Authority (ESMA) has published an updated version of the MiFID II supervisory briefing in relation to appropriateness and execution-only. The supervisory briefing is aimed at competent authorities (as defined in MiFID II). It is intended to give market participants indications of compliant implementation of the MiFID II appropriateness provisions. The updated briefing takes into account the new version of ESMA’s guidelines on suitability, updated on 13 November 2018, with respect to aspects also relevant to the appropriateness rules.

The briefing considers the following areas:

  • determining situations where the appropriateness assessment is required; 
  • obtaining information from clients;
  • assessment of appropriateness; 
  • warnings to clients; 
  • qualifications of firms' staff; and
  • record-keeping.

The updated supervisory briefing supersedes the 2012 ESMA briefing. See our update of 21 November 2018 for information on the ESMA’s new guidelines on suitability.

Launch of the International Association for Trusted Blockchain Applications

On 3 April 2019, the International Association for Trusted Blockchain Applications (INATBA) was launched. The purpose of the new international association is to encourage the global governance and development of blockchain technology. At the inaugural meeting of the INATBA, the Commissioner for Digital Economy and Society, Mariya Gabriel, outlined in her keynote speech that the INATBA will:

  • promote an open, transparent and inclusive global model of governance for blockchain and other distributed ledger technology;
  • support adoption of sector-specific and interoperability guidelines; and
  • establish a dialogue with public authorities and regulators at a global scale.

The 105 founding members of INATBA are organisations in Europe, North America and Asia.

Brexit developments

Extended notification period for the temporary permissions regime and FCA’s final transitional directions

Extended notification window for the temporary permissions regime (TPR)

The FCA has updated its webpage announcing that in light of the delay to the process of the UK’s withdrawal from the EU, the notification window for the TPR will be extended and will now close at the end of 11 April 2019. The PRA has also updated its webpage to reflect this. The original deadline for notifications to the FCA and the PRA concerning the TPR was 28 March 2019. 

FCA transitional directions 

The FCA has published the following two final transitional directions, together with an explanatory note. The purpose of the final directions is to give effect to the use of the FCA’s temporary transitional power should the UK leave the EU without an implementation period.

  1. Main FCA transitional directions (with Annex A and Annex B)
  2. FCA prudential transitional direction.

If there is a no-deal Brexit, the transitional directions will take effect from exit day until midnight on 30 June 2020. After this date, all onshored changes will apply without modification. The FCA published near-final versions of these directions in February 2019. See our update of 13 March 2019 for more detail on this.

As a result of the extension of the TPR notification period to 11 April 2019, the FCA has subsequently published both amended and supplementary directions relating to the TPR notifications. The supplementary directions state that any firm that withdraws its notification in writing to the FCA before exit day will not enter the TPR.

The rules that firms and operators, depositories and trustees of EEA-domiciled funds in the TPR will need to comply with are contained in the FCA’s policy statement PS19/5. See our update of 13 March 2019 for a discussion on the policy statement. 

FCA and ASIC sign MoUs

The FCA and the Australian Securities and Investments Commission (ASIC) has announced that they have agreed two Memoranda of Understanding (MoUs) to ensure there is continuity once the UK leaves the EU. The MoUs cover trade repositories and alternative investment funds (AIFs). These agreements will provide reassurance by ensuring arrangements are in place for cross-border cooperation between the FCA and ASIC. The FCA and ASIC also support the continuity of existing equivalence decisions to provide certainty to businesses post-Brexit.

See our update of 27 March 2019 for when the FCA, PRA and the European Banking Authority agreed a template MoU in relation to supervisory cooperation and information-sharing arrangements in a no-deal scenario. In February 2019, the FCA agreed a MoU with ESMA and EU regulators to enable delegation models post-Brexit. See our update of 13 February 2019 for more detail on this.

Brexit SIs

Brexit SI: Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (SI 2019/632)

The Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (SI 2019/632) has been made and is published alongside its explanatory memorandum. The statutory instrument (SI) makes a number of amendments to the Financial Services and Markets Act 2000 to ensure that the financial services framework continues to operate effectively in a no-deal scenario. The Regulations come into force on exit day, with the exception of certain provisions specified in regulation 1 (including those relating to transitional powers) that came into force on 23 March 2019. See our updates of 13 February 2019 and 5 December 2018 for more detail on the SI.

Brexit SI: Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019 (SI 2019/680)

HM Treasury has published the Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019 (SI 2019/680), together with its explanatory memorandum. The SI, made on 26 March 2019, ensures that, after Brexit, financial services firms incorporated and headquartered in Gibraltar will be able to continue to conduct certain financial services activities in the UK as they do currently. Regulations 2, 3, 4, 5, 11 and Schedules 1 and 2 to the Regulations come into force on exit day. The other provisions come into force immediately before exit day. See our update of 13 February 2019 for a further discussion on the SI. For detail on the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 (SI 2019/589) see our update of 27 March 2019. 

Brexit SI: Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019 (SI 2019/681)

The Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019 (SI 2019/681) has been made and is published together with its explanatory memorandum. The changes introduced by the SI will ensure that the UK continues to be able to disclose information to other regulatory and supervisory authorities post-Brexit. Parts 1 and 3 of the Regulations came into force on 27 March 2019. Part 2 of the Regulations comes into force on exit day. See our updates of 27 February 2019, 30 January 2019 and 16 January 2019 for a further discussion on the SI.

Brexit SI: Securitisation (Amendment) (EU Exit) Regulations 2019 (SI 2019/660)

HM Treasury has published the Securitisation (Amendment) (EU Exit) Regulations 2019 (SI 2019/660), accompanied by an explanatory memorandum. The SI, made on 25 March 2019, amends the EU Securitisation Regulation and related legislation. The SI aims to ensure that the European framework governing securitisations can continue after the UK leaves the EU. The Regulations will come into force on exit day. See our updates of 30 January 2019 and 16 January 2019 for more detail on the SI.

Brexit SI: Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 (SI 2019/710)

The Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 (SI 2019/710) has been made and is published alongside its explanatory memorandum. The SI ensures a coherent and functional financial services regulatory regime post-Brexit. Regulation 38 comes into force on the day before the day on which exit day falls and Regulations 1 and 13 to 24 come into force immediately before exit day. The remaining provisions in the Regulations come into force on exit day. See our updates of 27 February 2019 and 13 February 2019 for a further discussion on the SI. For detail on the Financial Services (Miscellaneous) (Amendment) (EU Exit) (No 2) Regulations 2019, see our update of 13 March 2019.

Brexit SI: Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/707)

HM Treasury has published the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/707), together with its explanatory memorandum. The SI, made on 27 March 2019, replicates the current effects of the prospectus regime, the transparency rules and the listing rules which stem from the Prospectus Directive and the Transparency Directive. The Regulations will come into force on exit day. See our updates of 30 January 2019 and 5 December 2018 for more detail on the SI.

Draft Brexit SI laid before Parliament: Financial Services (Miscellaneous) (Amendment) (EU Exit) (No 2) Regulations 2019

The draft version of the Financial Services (Miscellaneous) (Amendment) (EU Exit) (No 2) Regulations 2019 has been laid before Parliament and is published alongside its draft explanatory memorandum. The SI ensures a coherent and functional financial services regulatory regime post-Brexit and makes amendments to other EU exit instruments. See our update of 13 March 2019 for a further discussion on the SI.

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