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.
UK
- 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rules, alongside draft guidance on the anti-greenwashing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 6 November 2023, the UK's authorities launched
early-stage consultations on a new regulatory regime for
stablecoins. The FCA published a Discussion Paper on
regulations to govern the issuance and holding of stablecoins and
the Bank of England issued a Discussion Paper concerning the
proposed regulation of systemic payment systems that use
stablecoins. A cross-authority roadmap was also released providing
an overview of the regulation of payments and digital assets. The
consultation papers are open for comments until 6 February
2024.
DP23/4: Regulating cryptoassets Phase 1: Stablecoins | FCA
Regulatory regime for systemic payment systems using stablecoins and related service providers | Bank of England
Cross-authority roadmap on innovation in payments | Bank of England
- 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
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