Welcome to the Funds-Axis Regulatory Round Up!
The past month brought several important developments, including:
- The FCA confirming the PRIIPs regulation,
- The FCA’s reminder to firms regarding exposure to cryptoassets,
- A new major shareholding reporting process in Luxembourg; and
- FinDatEx publishing EET V1 and updated EMT V4
Continue reading below to find out more about these and many other recent regulatory developments.
FCA Confirms PRIIPs Regulations
The FCA have confirmed changes to the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation to address the areas that post the most harm to investors.
These new requirements are one of the first examples of the FCA confirming UK divergence from EU rules following Brexit.
Following feedback from consultation CP21/23, the FCA are:
- Introducing rules to clarify the scope of the PRIIPs Regulation for corporate bonds, making it clearer that certain common features of these instruments do not make them into a PRIIP
- Introducing interpretative guidance to clarify what it means for a PRIIP to be ‘made available’ to retail investors
- Amending the PRIIPs Regulatory Technical Standards to:
– Replace the requirements and methodologies for presentation of performance scenarios in the KID with a requirement for narrative information on performance to be provided
– Address the potential for some PRIIPs to be assigned an inappropriately low summary risk indicator in the KID
– Address concerns about certain applications of the ‘slippage’ methodology when calculating transaction costs
In our latest blog we highlight the key changes to the UK PRIIPs regime:
FCA finalises changes to UK PRIIPs regime
In July 2021, the FCA consulted (in CP21/23) on proposals to address the…
FCA Notice to all Regulated Firms with Exposure to Cryptoassets
The FCA have issued a reminder to all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services.
While cryptoassets and their underlying technologies can offer benefits to financial services firms e.g., reduce costs and increase efficiencies, they also present risks to market integrity and consumers, particularly when used as a speculative investment. This is additional to significant risks in relation to financial crime and money laundering.
The FCA have set out the following areas of risk that firms need to consider:
- Being clear with customers
- Financial Crime and registration of cryptoasset business
- Having appropriate systems and controls in place
- Assessing the risks
- Prudential considerations
- Custody considerations
- Domestic and international engagement
Updated Joint ESA Supervisory Statement on the application of the Sustainable Finance Disclosure Regulation
The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have updated their joint supervisory statement on the application of the Sustainable Finance Disclosure Regulation (SFDR). This includes a new timeline, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation, and the use of estimates.
The supervisory statement aims to promote an effective and consistent application and national supervision of the SFDR, thus creating a level playing field and protecting investors.
The ESAs recommend that national competent authorities and market participants use the current interim period from 10 March 2021 until 1 January 2023 to prepare for the application of the forthcoming Commission Delegated Regulation containing the Regulatory Technical Standards (RTS) while also applying the relevant measures of SFDR and the Taxonomy Regulation according to the relevant application dates outlined in the supervisory statement.
The ESAs have clarified that, under Article 5 and 6 of the Taxonomy Regulation, the supervisory expectation for disclosures during the interim period is that financial market participants should provide an explicit quantification, through the numerical disclosure of the percentage, of the extent to which investments underlying the financial product are taxonomy-aligned.
In addition, while estimates should not be used, where information is not readily available from investee companies’ public disclosures, financial market participants may rely on equivalent information on taxonomy-alignment obtained directly from investee companies or from third party providers.
ASIC Scrutinises Marketing of Managed Fund Performance and Risks
ASIC has commenced surveillance into the marketing of managed funds, to identify the use of misleading performance and risk representations in promotional material. ASIC is concerned that, in the current highly volatile and low-yield environment, consumers seeking reliable or high returns are being misled about the performance and risks of the funds they are investing in.
Promoters of managed funds should ensure they are familiar with the principles and guidance set out in ASIC’s Regulatory Guide 234, including:
- Marketing must give balanced messages about returns, features, benefits and significant risks.
- Risk disclosure needs to be clear and prominent.
- The safety, reliability or security of an investment should not be overstated.
- Comparisons with other products or benchmarks must be appropriate and reasonable.
- Any reliance on past performance must explain that it is not indicative of future performance.
- Care must be taken with the use of images, graphs and tables to ensure they are not confusing or misleading.
- The physical limitations of a medium is no excuse for misleading marketing.
SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors
The Securities and Exchange Commission has proposed rule amendments that would require a domestic or foreign registrant to include certain climate-related information in its registration statements and periodic reports, such as on Form 10-K, including:
- Climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook;
- The registrant’s governance of climate-related risks and relevant risk management processes;
- The registrant’s greenhouse gas (“GHG”) emissions, which, for accelerated and large accelerated filers and with respect to certain emissions, would be subject to assurance;
- Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements; and
- Information about climate-related targets and goals, and transition plan, if any.
Commission adopts Delegated Regulation amending PRIIPs KID Delegated Regulation and related Delegated Regulation concerning extension of transitional arrangements
On 17 March 2022, the European Commission adopted a Delegated Regulation amending the regulatory technical standards (RTS) laid down in Delegated Regulation (EU) 2017/653 (otherwise known as the PRIIPs KID Delegated Regulation) as regards the extension of the transitional arrangement laid down in Article 14(2) of that Regulation and amending the RTS laid down in Delegated Regulation (EU) 2021/2268 as regards the date of application of that Regulation.
The Delegated Regulation extends the transitional arrangements under Commission Delegated Regulation (EU) 2021/22683 that are consistent with the extended transitional arrangements in Article 32 of the Regulation on packaged retail and insurance-based investment productions (Regulation on PRIIPs). It allows manufacturers of PRIIPs that offer investment funds as the only underlying investment options, or alongside other investment options, to continue using, for the purposes of drawing PRIIPs key information documents, key investor information documents drawn up in accordance with Articles 78 to 81 of the UCITS IV Directive in respect of such funds until 31 December 2022.
The Delegated Regulation now adopted also lays down 1 January 2023 as a new application date of Delegated Regulation (EU) 2021/2268:
- Article 1 amends Article 18, third paragraph, of Delegated Regulation (EU) 2017/653. In consequence, the transitional arrangement for manufacturers of PRIIPs that offer investment funds as the only underlying investment options, or alongside other investment options, applies until 31 December 2022.
- Article 2 amends Article 2, second paragraph, of Delegated Regulation 2021/2268. In consequence, Delegated Regulation (EU) 2021/2268 applies from 1 January 2023.
EU adopts fourth package of sanctions against Russia
The EU has adopted four packages of sanctions in response to Russia’s unprecedented and unprovoked military attack against Ukraine. The measures are designed to:
- Weaken the Kremlin’s ability to finance the war
- Impose clear economic and political costs on Russia’s political elite responsible for the invasion
The measures include:
- Individual sanctions
- Economic sanctions
- Restrictions on media
- Diplomatic measures
- Restrictions on economic relations with the non-government controlled areas of Donetsk and Luhansk oblasts
The EU has also adopted sanctions against Belarus in response to its involvement in the invasion of Ukraine.
FinDatEx publishes EET V1 and updated EMT V4
On 14th March 2022, FinDatEx published the first version of the European ESG Template (EET V1) and a corresponding update to the European MiFID Template (EMT V4). Both can be found on the FinDatEx website under “Current templates”.
The EET V1 contains a high number of data fields focusing on the implementation of the SFDR Level 1 and current draft RTS, as well as the delegated acts complementing MiFID II and IDD with regard to the introduction of the concept of clients’ sustainability preferences.
The EMT V4 will replace the currently co-existing V3 and V3.1 and will then be the only version of the EMT going forward.
Luxembourg Updates Major Shareholdings Notification Process
The CSSF have updated Circular CSSF 08/349 relating to details regarding the information to be notified with respect to major holdings in accordance with the Law of 11 January 2008 on transparency requirements for issuers.
The circular amends Circular CSSF 08/349 by taking into account the changes that have taken place in connection with the introduction of the CSSF web application called eRIIS (electronic Reporting of Information concerning Issuers of Securities). This application was developed to enable entities subject to the Law of 11 January 2008 on transparency requirements for issuers as well as Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse to fulfil their filing obligations with the CSSF.
The amendments require that all regulated information as required by the Law concerning issuers whose home Member State is Luxembourg must be filed with the CSSF via eRIIS (electronic Reporting of Information concerning Issuers of Securities).
Further information available via the following links:
Canadian Securities Administrators Update on SEDAR
The Canadian Securities Administrators has published an update regarding SEDAR+.
Once the SEDAR+ core platform is up and running, the CSA will continue to add functionality, incorporate feedback, and improve the interface through future releases. Future SEDAR+ releases will offer ongoing functionality and performance enhancements to keep our technology current and fulfill our technology vision.
Click here for SEDAR+ Frequently Asked Questions.
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