23 December 2021

Latest Regulatory Update

Here is the final RegWatch post of 2021, which recaps a very busy late-December on both sides of the channel. If you’re looking for what to look out for, we created a post noting ten regulatory areas of interest next year.


1) FCA: publish Policy Statement – UK climate-related disclosure

On Friday 17 December, the Financial Conduct Authority (FCA) published their final rules and interim guidance concerning climate-related financial disclosures applicable for UK-regulated asset managers, insurers and pension entities.  These are based on the GovUK commitment to achieve a net zero economy before 2050.

Under the confirmed rules, asset managers and institutional investors (such as pension funds, insurance companies) will be expected to make disclosures in relation to:

  • how they incorporate climate-related risks into their investment management processes
  • the climate-related attributes of their products

These will be based on a new ESG Sourcebook, updating the FCA Handbook in order to make disclosures consistent with both the Implementation Recommendations and Guidance on metrics / transition plans recently updated by the Task Force on Climate-Related Financial Disclosures (TCFD).

  • From 1 January 2022, the FCA rules apply to 34 asset management and 12 asset owner (larger) firms during the initial implementation phase, with first public disclosures required before 30 June 2023.
  • From 1 January 2023, the rules extend to an additional 140 asset management and 34 asset owner firms.  In due course, this will represent £12.1 trillion in assets under management (AUM) administered in the UK, “capturing 98% of both the UK asset management market and held by UK asset owners”.

The FCA has now scaled down their original proposals, removing dual disclosure of EU-sustainable finance disclosure regulation (SFDR) elements.  The FCA also confirm that UK firms will not be required to disclose information “…if data gaps or methodological challenges cannot be addressed through proxy data or assumptions, or if to do so would result in disclosures that are misleading”.

The new FCA disclosure specifications (Annex B, p7-18) include the TCFD entity report alongside the TCFD product report (i.e. both “public” and separate “on-demand” versions are stated).

Meanwhile, a reminder that the FCA will publish another Policy Statement during Q1-2022, outlining their separate Sustainability Disclosure Requirements (SDR) regime (to apply at corporate, asset manager and product levels), while the Green Technical Advisory Group (GTAG) will publish low-carbon standards for inclusion in the UK Taxonomy.  These are expected to diverge from their EU regulatory equivalents.


 2) EU official journal: recent legal publications

Also on 17 December, the long-anticipated PRIIPS / UCITS legal amendments were published in the European Union’s Official Journal (EU-OJ).  This formally extends until end-Dec 2022 the transition period relating to the revised Key Information Document (c/o revised level 2 RTS, also published in the EU-OJ).

Separately, the Delegated Act containing the technical screening criteria (TSC) for the climate change adaptation and mitigation objectives of the Taxonomy Regulation (TR) was published on 9 December.

Applicable from 1 January 2022, these will determine conditions under which an economic activity qualifies as contributing substantially to climate change adaptation or mitigation, while determining whether the activity will cause no significant harm to any of the other TR environmental objectives.

However, a final decision remains to be taken on whether nuclear power and natural gas activities will be included in the EU-Taxonomy.

Another TR delegated Act published in the EU-OJ of 10 December relates to the environmentally sustainable economic activities of undertakings within scope of the Non-Financial Reporting Directive (NFRD).  This includes the disclosure of key performance indicators covering the proportion of the turnover, capital expenditure and operating expenditure; these are required within the annual reporting of non-financial corporates from 1 January 2023, with KPI disclosure from financial undertakings following 12 months later.

At the time of writing, the EU Commission is expected to publish a Taxonomy reporting Q&A before 31 December 2021.



3) EEA: recent Q&A updates

There have been many recent updates to supervisory guidance, notably those published by the European Securities and Markets Authority (ESMA), the CSSF in Luxembourg and the Central Bank of Ireland (CBI).


a. ESMA UCITS Q&A: share class pre-notification period verified

ESMA have made various updates to their Q&A covering the application of the UCITS directive.

This includes a reply to the question of obligatory UCITS notifications facing firms within scope of the Cross-Border Distribution of Funds (CBDF) directive.  Ongoing, ESMA re-emphasise that in the event of a new UCITS share class, both home and host member state national competent authorities (NCAs) should receive written notice at least one month ahead of marketing activities.


b. ESMA AIFMD Q&A: crypto-assets eligibility

In their revised AIFMD Q&A, ESMA also clarify whether managers of funds investing in crypto-assets are subject to the AIFM directive.  Although ESMA deduce this may be possible in theory – as AIFMD legislation does not (currently) provide a list of non-eligible assets – the matter is deferred to the rules (including target investor limitations) set by their NCAs.  ESMA also issue a reminder of their previous warning of the high risks of crypto-assets facing consumers, including “the possibility of losing all their money”.


c. CSSF: issue Virtual Assets FAQ

Following on from the previous item, the CSSF’s recently published guidance on virtual assets essentially confirm they may authorise AIFMs to invest in virtual assets (incl. crypto-currencies) on a case-by-case basis, provided the product is marketed only to professional investors (who would receive the necessary disclosure in a “transparent and timely manner”).   Similar to ESMA, the CSSF also highlight the heightened risks (volatility, liquidity and technological) that directly apply to prospective virtual asset investors.


d. CSSF: clarify SPAC eligibility

The CSSF also published their latest UCITS Q&A (edition 14), addressing the suitability of Special Purpose Acquisition Companies (SPACs) for potential UCITS investment.  The CSSF confirm that although SPAC investments are not prohibited, these must legally qualify as transferrable securities, be subject to a preliminary detailed risk assessment and are restricted to a maximum 10% of the total UCITS NAV.


e. CBI: UCITS, AIF multi-manager performance fees

The CBI continue to clarify their performance fee expectations in the latest Q&A documents published for local UCITS (edition 36) and AIFMD (edition 44) regimes.

Addressing UCITS / AIF fund structures with multiple managers or advisors, the CBI again refer to their adoption of ESMA’s performance fee guidelines; in the instance of collective underperformance of a fund with different delegated portfolio managers, performance fees should not be paid to those managers who have overperformed.


The CBI also clarify that existing multi-manager UCITS and AIFs now have until 1 January 2023 to transition to ESMA’s performance fee model; however, new fund multi-manager firms are expected to comply with ESMA’s rules with immediate effect.



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