EU & UK regulatory update
1. Recent UCITS / PRIIPs developments
a) ESAs update PRIIPs Q&A
On 5th December, the European Supervisory Authorities (ESAs) updated their consolidated Q&A document covering the PRIIPs Key Information Document (KID).
One notably-timed clarification (p.57) relates to the identity of the PRIP ‘manufacturer’. The ESAs now state: “…even if the fund delegates functions to third parties, the PRIP manufacturer can only be the management company or the alternative investment fund manager of the fund, or, in particular in the case of a self-managed UCITS or internally managed AIF, the fund itself.”
NB: if this is contrary to previous interpretation, we advise firms with concerns to seek further advice.
b) CSSF amend UCITS, AIF FAQs
The CSSF in Luxembourg updated their FAQs covering the local UCI law and AIFM law on 29th December.
- For local AIFs, there is no specific set timeline to apply the annual PRIIPs KID update;
- For local UCITs, they “encourage” firms to annually update, within 35 business days of each year-end:
➢ the PRIIPs KID (obligatory for retail clients) ahead of filing;
➢ the website or document where past performance is made available.
Last week, the CSSF announced the availability of their new eDesk portal for local UCITS cross-border notifications.
Ongoing, firms must transmit UCITS notification / de-notification files to the CSSF either directly (via eDesk) or via API solution (S3 technology).
c) CBI: modify PRIIPs KID filing requirements
A reminder the Central Bank of Ireland (CBI) recently updated both their PRIIPs KID and UCITS KIID websites.
As from last week, the CBI expect UCITS authorised before 1 January 2023 to make their initial PRIIPs KID submission, using their portal. When firms produces both a UCITS KIID and PRIIPs KID, the latest versions of both documents should be filed.
d) AMF: revise expected non-financial disclosure information
Over in France, the Autorité des marchés financiers (AMF) have updated their policy covering information expected from asset managers that apply non-financial approaches (including’ sustainability’ and ‘socially responsible investment’) to their UCITS and AIF products. This was originally issued back in 2020, when they observed the SFDR “does not define minimum standards for products mentioning non-financial criteria.”
The AMF’s ‘positions’ and ‘recommendations’ apply to both regulatory documents (e.g. prospectus, PRIIPs KID and UCITS KIID) and marketing materials. If you market sustainable products in France, we suggest you take another look at this paper (available in French and English).
2. ESMA activity update
All the way up to the festive season, the European Securities & Markets Authority (ESMA) kept the industry busy.
a) ESMA finalises technical standards under the revised ELTIF regulation
The revised European Long-Term Investment Fund (‘ELTIF II’) regulation legally applies from 10 January 2024.
On 19 December 2023, ESMA published a report setting out their draft ELTIF II regulatory technical standards (RTS). Modified rules relate to include minimum holding period, maximum redemption frequency, notice period and maximum percentage of liquid assets.
The European Commission (EC) has until 19 March 2024 to decide whether to accept this draft RTS; if adopted, the new RTS enters into force the day after publication in the EU Official Journal (EUOJ). In the meantime, the previous ELTIF ‘Level 2’ RTS will presumably remain in place, after this week’s ‘Level 1’ regime transition.
b) ESMA update MiFID II costs Q&A, start discussion on digital investor protection
ESMA updated their MiFID II investor protection Q&A on 15 December 2023.
Information on costs and charges (chapter 9, p.80-101) was revised to clarify cost aggregation for “all-in” fees, plus ex-ante / ex-post disclosure of foreign currency amounts.
ESMA also published a new discussion paper on MiFID II investor protection digitalisation. Topics include ‘Layering and accessibility of information’ and ‘Digital marketing communications and practices’, covering ground similar to the EC’s proposed information layering in a ‘digitalised’ PRIIPs KID.
ESMA say they will use feedback to develop a position on the use of marketing practices (including social media and
affiliates) by firms, and “in particular to assess whether a regulatory response may be needed”. This ESMA paper is open for comment until 14 March 2024.
c) AIFMD reporting updates now in-progress
ESMA’s latest AIFMD reporting technical guidance was meant to be applied by EU regulators on 15 November 2023.
However, they left it to each firm impacted to “contact directly the national competent authorities to know how the filling of the XML reports will be handled at national level.”
Both the CSSF and the CBI have updated their local AIFM reporting technical guidance to align with ESMA’s source
specifications. However, other local NCAs have not (yet) officially announced their Annex IV readiness.
Hopefully, timely verifications will be supplied ahead of end-Jan 2024 deadlines.
3. ESAP comes into effect this week
On 20 December 2023, the landmark European Single Access Point (ESAP) Regulation was published in the EUOJ.
This becomes legally effective this week, on 9 January 2024.
ESAP will be a ‘single point of access’ platform for public financial, non-financial and sustainability-related information about EU companies and financial products. It will administer:
- Mandatory information: currently submitted via mandatory public disclosure (per specific EU legislation);
- Other information: to be made accessible on a voluntary basis.
In due course, ESAP will be of key importance to support both EU Green Deal and Digital Finance strategies.
ESMA now has a deadline to “establish and operate” an ESAP before 10 July 2027.
The ESAP Regulation was accompanied in the EUOJ by ‘Omnibus’ Regulation and Directive texts; these amend a large range of EU legislation in the areas of capital markets, financial services and sustainability, to facilitate the provision of information to ESAP, within the stated timelines.
Ongoing, there will be an ESAP phase-in: to “allow for a robust implementation”:
- Phase 1: includes Short-selling, Prospectus Regulations; Transparency Directive [from 10 July 2027]
- Phase 2: includes SFDR, PRIIPs Regulations; UCITS Directive [from 10 January 2028]
- Phase 3: includes AIFM, MiFID II Directives [from 10 January 2030].
In due course, those ‘entities’ subject to EU regime disclosure requirements will need to submit the relevant information to the designated ‘collection body’; this must be data-extractable or machine-readable format, bearing a qualified electronic seal.
ESMA’s draft ESAP technical standards are likely to start appearing later this year.
4. UK catch-up
a) FCA short-term forbearance: additional costs disclosure
Across the channel, the Financial Conduct Authority (FCA) recent forbearance statement sought to address concerns raised about costs and charges disclosures of closed-ended funds and multi-asset products.
The FCA confirm they will not take enforcement action against firms opting to provide “additional disaggregation of costs and charges disclosure” in their UCITS KIIDs or PRIIPs KIDs. This is permitted where fund firms are concerned that “specified costs disclosures in key information documents do not appropriately reflect the ongoing costs”. In the short-term, the FCA suggest firms can provide “additional factual information (as well as the aggregated figure) such as the breakdown of costs to put the aggregate number in context”.
In the longer-term, the FCA state they are now considering “possible legislative change” to this subject area, as part of the UK Treasury’s Smarter Regulatory Framework (SRF).
The FCA made a similar communication in relation to investment companies. They say these statements “will give trade bodies the ability to modify or issue guidance that will support a meaningful approach to calculating component charges”. In response, the Investment Association (IA) have commented on the FCA’s recent announcements, confirming cost disclosure member guidance has been amended.
b) Temporary permissions regime ends
Last week, the FCA confirmed their temporary permissions regime (TPR) had now run its course.
Post-Brexit, the TPR had offered fund firms that had previously used EEA licences to “passport” into the UK, a grace period of up to three years (to apply for a full UK authorisation).
Meanwhile, the temporary marketing permissions regime (TMPR) remains in operation until 31 December 2025.
A reminder the TMPR allows EEA-based funds to continue marketing their products in the UK, pending recognition
under the Overseas Funds Regime (OFR) which is set to be activated by the FCA during April 2024
5. Latest market updates, trends
a) Retail investment strategy “slips down EU agenda”
The Retail Investment Strategy (RIS) will reportedly not be progressed until after the EU elections in May 2024.
A Belgian EU representative said to FT Ignites that “…in practice, January and February will be dedicated to current trilogue files, aiming at reaching agreements before the end of the legislature.”
A Spanish EU representative also told a recent European Fund and Asset Management Association (EFAMA) forum that EU member states will “not be able to agree a common approach before the end of the year”, as “the retail strategy is too long, too complex and deserves more policy discussions”.
b) EFAMA publish latest industry overview, RIS stance
EFAMA recently published a 3-page leaflet that effectively summarises their positions on the EU-RIS (incl. Value for Money benchmarks, PRIIPs KID changes).
EFAMA have also published the latest edition of their Asset Management Report.
This highlights the latest trends in total assets under management, including analysis of fund investors, asset allocation and sustainable products. Latest challenges and opportunities now facing the European industry are also ranked on page 16.