Investment management update

This month’s edition includes the following updates:

• a significant FCA announcement about the MiFID portfolio depreciation reporting requirement;
• announcements in the UK that will bring cryptoassets into financial regulation and change the rules for promoting high-risk investments to retail clients; and
• a supervisory review into UCITS and open-ended AIFs launched by ESMA.

Asset management and financial services

UK

• The FCA has removed the on-shored MiFID related requirement on firms to notify professional clients (regardless of their domicile) when the value of their investment portfolio depreciates by more than 10% in value over the last quarterly reporting period. However, firms must give their clients the opportunity to opt-in to notifications if they wish to do so. The FCA previously applied the change to professional clients on a temporary basis. The 10% portfolio depreciation rule continues to apply in respect of retail clients. Although the FCA will exercise forbearance, meaning that firms must only make one notification of a depreciation, rather than a notification on each 10% decline in value, so long as firms continue to give their retail clients general market updates.
• The FCA has published a feedback statement on accessing and using data in wholesale financial markets. The statement confirms that the FCA will undertake a competition review to look at issues including licensing and pricing. The first stage concerning trading data will commence in spring 2022 and then work on benchmarks and indices will begin in summer 2022.
• The FCA has published a policy statement about a new structure for regulatory fees levied on firms applying for authorisation. In addition, the FCA is jointly consulting with the PRA on FSCS management fees levied on the industry, which covers the FSCS’ operating costs. The consultation closes on 14 February 2022.
• The FCA has confirmed that the exemption for UCITS from the PRIIPs Key Information Document (KID) requirement will also apply to insurers that offer UCITS as an investment option in a multi-option product. UCITS will not need to adopt the PRIIPs KID until 31 December 2026, unless the FCA decides to implement the requirement sooner. The FCA is expected to publish a policy statement soon confirming its proposed changes to the UK’s version of the PRIIPs KID.
• The UK authorities have published two statements with relevance to crypto assets and high-risk investments. HM Treasury confirmed that it will bring crypto assets into the financial promotions regime, and the FCA is consulting on several changes to the financial promotion regime for high-risk investments. The changes aim to protect retail investors, and to reduce mis-selling. You can read more about the Treasury and FCA’s announcements in our blog posts.

EU

• ESMA is consulting on updates to its MiFD II suitability guidelines. The changes include a proposal to align the common elements of suitability and assessment processes. The consultation closes on 27 April 2022 and the updated guidelines are expected to be published in Q3 2022. ESMA also published final guidelines on appropriateness and execution-only assessments, with an aim of promoting supervisory convergence in the EU.
• The European Systemic Risk Board (ESRB) has made recommendations to the European Commission on reforms to the Money Market Funds Regulation. The headline recommendation is to mandatory conversion of Low Volatility Net Asset Vale (LVNAV) funds to Variable Net Asset Value Funds (VNAV). The EU’s reforms are in the context of a coordinated effort among global regulators, including central banks, via the Financial Stability Board to ensure that money market funds are robust in stressed conditions. The impetus for the changes arises from market volatility in March 2020 due to the pandemic.
• The EBA has published two consultations relating to remuneration guidelines under the Capital Requirements Directive and the Investment Firms Directive. The consultations concern high earners and the gender pay gap, and propose corresponding requirements for banks and investment firms. Both consultations close on 21 March 2022.
• ESMA has launched a Common Supervisory Action on the implementation of valuation rules by UCITS and open-ended AIFs. ESMA will coordinate the exercise with national supervisors throughout 2022 to assess funds’ and managers’ compliance with the rules.

Global

• IOSCO is consulting on proposed guidance for regulators to address the risks relating to online marketing and distribution to retail consumers. The guidelines include proposed regulatory expectations and practical methods for addressing risks. The consultation closes on 17 March 2022.

Derivatives and trading

EU

• From 31 January 2022, the European Commission has permanently lowered the reporting threshold from 0.2% to 0.1% for net short positions under the Short Selling Regulation. The changes apply to both non-EU and EU firms, and reflect changes also made in UK regulations. ESMA temporarily made the change in response to market volatility during the pandemic.

Global

• IOSCO is consulting on the operational resilience of trading venues and market intermediaries in light of lessons learned during the pandemic. The consultation process will inform guidelines to help regulators improve the operational resilience of these entities. The consultation closes on 14 March 2022.