Ten things to watch in 2024
1. 2024 Election results
During 2024, pivotal elections will take place on either side of the channel. In choosing their new representatives, European voters will influence legal paths of direction, including specific priorities, scope and delivery dates.
The EU Parliamentary Elections take place from 6-9 June 2024. The outcome will decide which political parties represent their countries in the European Parliament, responsible for setting primary legislation (including financial services, consumer rights and the environment).
The new MEPs will also elect the next President of the European Commission and approve all appointed EU Commissioners. These delegates will determine the EU legal priority areas over the next five years, including the Sustainable Finance, Retail Investment and Digital strategies created by their predecessors.
There will also be a UK General Election sometime this year. In the event of a government change (as indicated in latest opinion polls), closer EU relations may follow. A period of détente would be a major contrast to the clear divergence on display since 2016. If there is sufficient appetite (and good faith) on both sides, a more substantial EU-UK bilateral trade agreement (including financial services) may appear in due course.
2. UCITS, PRIIPs update variations
One year on from the UCITS/PRIIPs transition, firms in the process of reviewing their product pre-contractual documents will have to revisit the many regional variations previously experienced.
For example, the Central Bank of Ireland (CBI) recently confirmed that from 1 January 2024, they now expect UCITS authorised before 1 Jan 2023 to begin submitting their PRIIPs KIDs, using their new portal. Where firms produce both a UCITS KIID and a PRIIPs KID for products marketed locally, the latest versions of both need to be filed with the CBI.
Just before New Year’s Day, the CSSF in Luxembourg updated their local UCI law FAQ. They now encourage PRIIPs manufacturers to annually update their PRIIPs KIDs for UCITS within 35 business days after 31 December, each year.
There are numerous other EU regulators yet to verify their latest expectations: this may change early in 2024.
3. AIFMD / UCITS: strategic changes finally agreed
The long-running legal review of both EU AIFMD and UCITS directives will soon be resolved.
After two years of EU discussion, the recent provisional agreement is expected to finalised and published in the EU Official Journal during Q1-2024. Respective legal measures will come into effect within 24-36 months.
Meanwhile, the European Securities and Markets Authority (ESMA) are mandated to deliver many items, e.g.
- New guidance to address unfair, unclear or misleading AIF / UCITS fund names;
- A report on how to streamline NCA reporting: including ways to improve data standardisation, reduce areas of duplication and inconsistency;
- New regulatory technical standards covering:
- New UCITS supervisory reporting requirements;
- Modified ‘Annex IV’ AIFM reporting framework (based on the entire portfolio of each fund).
Some of these deliverables will begin to appear (in draft consultation form), during the course of this year.
4. Long-term EU-SFDR direction confirmed
The EC’s targeted consultation on the Sustainable Finance Disclosure Regulation (SFDR) has now ended.
At some stage in 2024 (probably after the EU elections), the funds industry will learn the full extent of the long-term SFDR regime changes that lie ahead.
Finalised Level 1 SFDR changes are unlikely to apply until 2027 (at the earliest); however, fund firms should not underestimate the disruption likely from a proposed ‘categorisation system’ for EU financial products (similar to the UK ‘ESG-labelling’ that will begin in 2024). This is now openly supported by many supervisory authorities.
Financial market participants (FMPs) may also have to extend Product-level disclosures on a ‘uniform’ basis (i.e. for all of their funds, including obligatory Principal Adverse Impact [PAI] indicators).
5. Interim SFDR Level 2 RTS changes verified
In the meantime, the EC have until 4 March 2024 to approve the amended SFDR technical standards, recently supplied by the European Supervisory Authorities (ESAs).
However, it is currently unclear when these latest changes will legally apply; several experts assume the remainder of 2024 will be made available for transition, given the overall scale and complexity.
‘Sustainable’ product pre-contractual, periodic and website disclosures have been extensively re-designed.
FMPs must provide key information ‘dashboards’, alongside new detailed content for products with greenhouse gas (GHG) emission reduction targets and two new templates for multi-option products (MOPs).
In addition, disclosures must be produced in machine-readable format, in readiness for the European Single Access Point (ESAP) platform now formally aligned with SFDR, from 10 January 2028.
6. Retail Investment Strategy: fate determined?
As mentioned above, we should learn in 2024 the overall importance of the Retail Investment Strategy (RIS) during the five-year mandate of the incoming European Parliament and Commission.
The daunting ‘Value for Money’ (VfM) regime was severely criticised by both the funds industry and the current European Parliament, whose rapporteur stated it would “disrupt the market, lead to reduced diversity of products and suppress innovation”. However, although since deleted from the original draft legal text, the VfM concept is likely to remain, with a counter-proposal expected to emerge later this year.
Separately, we should learn the full scope of required changes to the EU-PRIIPs key information document (KID). This will also require a digital transformation, ahead of ESAP supply starting in 2028.
7. UK-SDR goes Live
In 2024, the Sustainability Disclosure Requirements (SDR) and investment labels regime will go live in the UK.
This will be regulated by the Financial Conduct Authority (FCA), with major milestones including:
- 31 May 2024: Anti-greenwashing rule becomes applicable (i.e. after FCA draft guidance is finalised);
- 31 July 2024: UK ‘sustainability’ investment labels begin to apply, alongside mandatory consumer-facing and pre-contractual disclosures, with Distributor requirements;
- 2 December 2024: Product naming & marketing, additional consumer-facing and pre-contractual disclosures (for non-labelled products) all apply.
NB: there is much more to follow in 2025 (click here for a high-level summary).
8. UK PRIIPs replacement unveiled
The new Consumer Composite Investments’ (CCIs) retail disclosure framework will replace EU-PRIIPs in the UK.
In 2024, the UK Treasury intend to pass their draft CCI legislation, subject to available Parliamentary time.
The FCA are also expected to publish a discussion paper with further details of their proposed new CCI disclosure requirements, including costs and charges. These will not apply to UK/EU-UCITS or UK-NURS until 1 January 2027.
9. UK Overseas Fund Regime rollout begins
The FCA’s consultation on Overseas Funds Regime (OFR) implementation will run until 12 February 2024.
The OFR is meant to be the long-term “streamlined process” to recognise legally ‘equivalent’ EEA-UCITS marketed in the UK. Final rules are expected before April 2024 (i.e. OFR “roll-out date” previously indicated by the FCA).
Firms should keep tracking the ‘Landing slots for funds in temporary marketing permissions regime’ webpage.
We may also learn this year if products within the OFR will fall into scope of the UK-SDR.
10. Consumer Duty: not “a once and done event”
Finally, the FCA remind firms to prepare for the next Consumer Duty deadline on 31 July 2024.
They emphasise the Duty is now “an integral part of our approach and mindset at every stage of the regulatory lifecycle – including authorisations, policy development, supervision and enforcement”.
To support the provision of data by distributors to product manufacturers, the Joint Trade Associations Group (including the IA) recently finalised their Distributor Feedback Template (DFT).
The first tranche of distributor data is now expected mid-May (i.e. within 6 weeks of end-Q1 2024).