Welcome to the Funds-Axis Regulatory Round Up!
The past month brought a number of important developments on topics impacting ESG, the Money Market Funds Regulation, liquidity, UCITS eligible market due diligence, short selling and major shareholdings disclosures.
This month’s regulatory round-up includes updates from:
- ESMA on proposed reforms to Money Market Funds;
- The SEC with proposed new rules on beneficial ownership, private funds and short position disclosures; and
- The Canadian Securities Administrators on the implementation of T+1 settlements.
Continue reading below to find out more about these and many other recent regulatory developments.
The European Securities and Markets Authority (ESMA), has published its Sustainable Finance Roadmap 2022-2024 (Roadmap).
The Roadmap sets three priorities for ESMA’s sustainable finance activities in the period from 2022 to 2024:
- Tackling greenwashing and promoting transparency;
- Building National Competent Authorities’ (NCAs) and ESMA’s capacities in the sustainable finance field; and
- Monitoring, assessing and analysing ESG markets and risks.
ESMA has issued an Opinion containing proposed reforms to the regulatory framework for EU Money Market Funds (MMFs) under the Money Market Funds Regulation (MMFR).
The ESMA Opinion includes the following key policy measures aimed at improving the resilience of MMFs:
- Addressing the threshold effects for constant net asset value (CNAV) MMFs, by:
- Removing the possibility to use amortized costs for low volatility NAV (LVNAVs) MMFs; and
- Decoupling regulatory thresholds from suspensions, gates and redemption fees for LVNAV/CNAV MMFs.
- Addressing liquidity related issues by:
- Ensuring mandatory availability of at least one liquidity management tool for all MMFs;
- Amendments of the Daily liquid asset/ Weekly liquid assets ratios as well as the pool of eligible assets, including public debt assets, which can be used to satisfy these liquidity ratios; and
- Inclusion/Reinforcement of the possibility to temporarily use liquidity buffers in times of stress.
The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 has completed its passage through the Australian Parliament and awaits assent.
The new bill amends:
- The Corporations Act 2001 to establish a corporate collective investment vehicle (CCIV) as a new type of a company limited by shares that is used for funds management;
- The Income Tax Assessment Act 1997 to specify the tax treatment for the CCIV regime; make amendments consequential on the commencement of the Commonwealth Registers Act 2020; update the list of deductible gift recipients; and remove cessation of employment as a taxing point for employee share scheme interests which are subject to deferred taxation;
- The International Tax Agreements Act 1953 to clarify that the priority rule is subject to the deeming principle;
- The Australian Securities and Investments Commission Act 2001, Personal Property Securities Act 2009, A New Tax System (Australian Business Number) Act 1999 and Income Tax Assessment Act 1997 to make consequential amendments in relation to the CCIV regime;
- The Income Tax Assessment Act 1997 and Taxation Administration Act 1953 to enable eligible corporate tax entities to claim a loss carry back tax offset in the 2022-23 financial year;
- 10 Acts and one determination in the Treasury portfolio to make miscellaneous and technical amendments;
- The Superannuation Industry (Supervision) Act 1993 to insert a new covenant that requires trustees of registrable superannuation entities to develop a retirement income strategy for beneficiaries who are retired or are approaching retirement.
The Securities and Exchange Commission (SEC) has proposed new rules and amendments under the Investment Advisers Act of 1940 (Advisers Act) to enhance the regulation of private fund advisers.
The proposed new rules would:
- Require private fund advisers registered with the Commission to provide investors with quarterly statements detailing information about private fund performance, fees, and expenses;
- Require registered private fund advisers to obtain an annual audit for each private fund and cause the private fund’s auditor to notify the SEC upon certain events;
- Require registered private fund advisers, in connection with an adviser-led secondary transaction, to distribute to investors a fairness opinion and a written summary of certain material business relationships between the adviser and the opinion provider;
- Prohibit all private fund advisers, including those that are not registered, from engaging in certain activities and practices that are contrary to the public interest and the protection of investors; and
- Prohibit all private fund advisers from providing certain types of preferential treatment that have a material negative effect on other investors, while also prohibiting all other types of preferential treatment unless disclosed to current and prospective investors.
Additionally, the SEC is proposing to require all registered advisers, including those that do not advise private funds, to document the annual review of their compliance policies and procedures in writing.
The Autorité des Marchés Financiers (AMF) has launched a public consultation on measures to encourage the wider adoption of liquidity management tools.
The proposals have several objectives:
- To rebalance the information asymmetry between the funds that do not have liquidity management tools and do not provide information on the lack of these tools and those that do have them and inform investors about them;
- To facilitate adoption by existing funds by opening a transitional period during which those that decide to adopt the ability to activate gates will be required to provide notification by any means, which could be provided as part of a statement covering several funds and no longer as individual notifications for each fund;
- Make fund managers accountable for compliance with their professional obligations in terms of liquidity risk management, particularly those who have chosen not to use such tools, by requiring at least formal recognition of the risks incurred by the funds concerned in the event of exceptional market circumstances.
FinDatEx has published the European PRIIPs Template v2.0 (EPT) which incorporates the necessary changes based on the revised PRIIPs RTS, published by in the Official Journal of the European Union on 20 December 2021.
FinDatEx has launched a public consultation on a new European ESG Template (EET) and an update of the European MiFID Template (EMT).
The EET template is structured in the following main parts:
- EET Data Set Information
- Manufacturer Information
- Product or Financial Instrument Data
- Principle Adverse Indicators
- Screening Criteria
- Country Specific Information (Mandatory in the country of distribution)
The introduction of the EET requires an update of the EMT. The EMT v4.0 will replace the currently co-existing v3.0 and v3.1 and will then be the only version of the EMT for use.
In comparison to v3.0 and v3.1, the following changes have been made:
- The disclaimer explains the rationale for the update and the interplay with the EET.
- The wording of data field 05105 has been updated.
- The country specific ESG-related data fields of v3.1 have been deleted.
The Spanish National Securities Market Commission (CNMV) has approved the Technical Guide on the management and control of the liquidity of Collective Investment Schemes (CISs).
The Technical Guide indicates what elements should be included in the procedures of CIS management companies to ensure appropriate management and control of the liquidity risk of its collective investment schemes, in order to avoid any harm and conflicts of interest among investors.
The SEC has announced that it has voted to propose changes that would provide greater transparency to investors and regulators by increasing the public availability of short sale related data.
Under the proposed changes, market participants would be required to collect and submit certain short sale-related data to the SEC on a monthly basis. The Commission then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security.
More on the proposal here:
The Securities and Exchange Commission proposed amendments to modernize the rules governing beneficial ownership reporting. The proposed amendments to Regulation 13D-G would:
- Accelerate the filing deadlines for Schedules 13D and 13G beneficial ownership reports;
- Expand the application of Regulation 13D-G to certain derivative securities;
- Clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting obligations; and
- Require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
More on the proposal here:
The Australian Government has released the Secretary to the Treasury’s evaluation of the foreign investment reforms that commenced on 1 January 2021, as well as the Government’s response to the evaluation. The evaluation was a requirement under the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020.
The regulation amendments address the foreign investment framework’s treatment of moneylending, Australian media businesses, unlisted entities, securities investments that do not increase an investor’s overall interest in an entity, and acquisitions by foreign custodians.
BaFin has updated the frequently asked questions on notification and publication requirements pursuant to Article 5 et seq. of Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps (EU Short Selling Regulation).
The following questions were updated:
- Are there any other legal provisions apart from the EU Short Selling Regulation?
- From what thresholds do the notification and publication requirements exist?
- When do positions reach or fall below thresholds?
- When must a further notification and/or publication be submitted?
On 26th February 2022, the leaders of the United Kingdom, the European Commission, France, Germany, Italy, Canada, and the United States committed to:
• Ensuring that selected Russian banks are removed from the SWIFT messaging system.
• Imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions
On 24th February 2022, the National Securities and Stock Market Commission (NSSMC) announced that it had decided to stop the circulation of all securities in the country, except for operations necessary for the central bank’s monetary policy and the finance ministry’s public debt servicing.
On 9th February 2022, the Securities and Exchange Commission (SEC) announced that the commission voted to propose rule changes to reduce risks in the clearance and settlement of securities, including by shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one business day after the trade date (T+1).
The proposed changes are designed to reduce the credit, market, and liquidity risks in securities transactions faced by market participants and U.S. investors.
The Canadian Securities Administrators (CSA) has published a notice to raise awareness, summarize views, and describe the role with respect to an initiative by the Canadian securities industry to shorten the standard settlement cycle for most trades in securities from two days after the date of trade (T+2) to one day after the date of trade (T+1).
There have been several trading halts throughout February for the following markets: