Investment management update

This month’s edition includes the following updates:

• following the UK’s roadmap for its sustainable finance regulations, the FCA is consulting on its Sustainability Disclosure Requirement and the creation of a new green product label. The European Commission has also confirmed a delay to the implementation of its sustainable finance rules and it has informally consulted on its parallel Ecolabel;
• the EU has published proposed reforms to the AIFMD, UCITS, and the ELTIF regulations; and
• the FCA has published its third and final policy statement to complete the Investment Firms Prudential Review, which will take effect next year.

Asset management and financial services

UK

• The FCA published a discussion paper on the framework for the UK’s new Sustainability Disclosure Requirements (SDR), as announced last month in the UK Government’s roadmap to greening the financial system. The FCA’s consultation defines the types of disclosures that will be required in the new regime, the ESG classification of funds compared with the EU’s categories and the creation of a sustainable investment product label. The consultation closes on 7 January 2022.
• HM Treasury has published a consultation on the Future Regulatory Framework, defining the structure and functioning of the UK’s regulatory regime. The deadline for comments is 9 February 2022.
• The FCA has published its third and final policy statement on the Investment Firms Prudential Review (IFPR). The policy statement addresses disclosures, depositaries, and regulatory applications, among other topics. The new regime will take effect on 1 January 2022.
• The FCA published a policy statement that confirms a proposal on which it previously consulted to remove the requirement on managers to produce annual best execution reports. The new rule took effect on 1 December 2021.

EU

• The European Commission is informally consulting on the Ecolabel, the EU’s proposed gold standard for green products. The authorities propose to expand the retail label to professional investors and requested feedback by 15 December 2021.
• The European Commission has published draft legislation to reform the AIFMD and UCITS Directive. The changes include delegation of portfolio management, loan origination funds, accessing depositaries across borders, liquidity risk management in open-ended funds, marketing of third country AIFs under national private placement regimes, and regulatory reporting. The proposal has now entered the EU’s legislative process.
• In addition, the European Commission has proposed further reforms as a package under its Capital Markets Union initiative. The proposals include improvements to the ELTIF Regulation through expanding its investment powers, proposing mechanisms for managing liquidity and distinguishing between retail and professional ELTIFs. The other proposals include the creation of a consolidated tape under MiFID II, and the creation of a Single European Access Point, a central repository of data for investors.
• The European Commission published a letter to the European Council and the European Parliament. The statement confirms that it will legislate to delay the implementation of the Sustainable Finance Disclosure Regulation (SFDR) Level 2 (RTS) requirements from 1 July 2022 to 1 January 2023. The delay is due to the late adoption of the RTS and the reduced time for the market to implement the final rules. Although the letter also confirms that the first principal adverse impact reports must still be published by 30 July 2023 with reference to the entirety of 2022 (i.e. data and metrics must be completed before the RTS take effect on 1 January 2023).

Global

• The Financial Stability Board published a report on non-banking financial intermediation. The report compares non-banks involved in liquidity transformation, and particularly money market funds (MMFs), unfavourably with banks through the pandemic. The report supports the case of global regulators to introduce reforms to MMF regulation.
• The accountancy organisation, the IFRS Foundation, announced at the UN’s COP26 conference that a new International Sustainability Standards Board (ISSB) will be created. The ISSB is due to create a global corporate ESG disclosure standard. The reporting framework is expected to be ready for approval by IOSCO (the umbrella group for securities regulators) during next year. The UK confirmed that it will incorporate the ISSB standard into the UK’s ESG regime, the previously referenced SDR.

Derivatives and trading

UK

• The FCA announced that it will permit temporary use of synthetic sterling and yen LIBOR rates in legacy LIBOR contracts that have not been changed by the end of 2022.

EU

• The European Commission has extended the equivalence decision in respect of UK central counterparties (CCPs). The current decision ends in June 2022 and it is felt that the lack of central clearing capacity in the EU would pose financial stability risks. The European Commission is due to formally announce the extension in early 2022.
• The EU’s institutions have agreed a delay to the mandatory buy-in rule in the Central Securities Depositaries Regulation (CSDR). The rule caused concerns due to its expected negative impact on trading in markets. ESMA is likely to produce a no-action letter to formalise the delay.