Investment management update - June 2023

12 July 2023

Welcome to the latest edition of our investment management update. This publication has been tailored to highlight topical news, cases and changes in the law impacting the investment management sector.

On 30 June, HM Treasury published a consultation on reforms to the anti-money laundering (AML) and counter-terrorist financing (CTF) supervisory regime. The consultation proposes four possible supervisory models for the regime, including the creation of a new single public body. The deadline for comments is 30 September.
On 27 June, the FCA published its Policy Statement (PS23/7) on broadening retail and pension access to the Long Term Asset Fund (LTAF). The final rules reclassify the LTAF as a Restricted Mass Market Investment (RMMI), meaning that the fund can be sold to retail investors and self-directed pension scheme members subject to additional distribution requirements. The FCA has also requested initial feedback on whether investors in the LTAF should be covered by the Financial Services Compensation Scheme (FSCS). You can read more about the final rules and next steps in our short analysis note.
On 23 June, the Advertising Standards Agency (ASA) published updated guidance on misleading environmental claims. The guidance clarifies that the ASA will ban any advertising that does not provide sufficient context about the environmental-related claims made by a company. The guidance makes specific reference to net zero claims, stating that companies must detail their actions and timeframe for achieving their public commitments.
On 8 June, the FCA published final rules (PS23/6) on the promotion of crypto-assets to retail investors. The Policy Statement makes four changes to the financial promotion rules to require risk warnings, ban financial incentives to invest such as referral benefits, a cooling-off period, and to require an appropriateness assessment for sales of crypto to retail investors. The rules will take effect from 8 October.

On 27 June, the European Council and European Parliament reached an agreement on the Central Securities Depositaries Regulation (CSDR) REFIT. The CSDR reforms retain the mandatory buy-in provision for failed trades but sets a series of tests that must be achieved before the European Commission may introduce the provision via an implementing act. The legislation will also require the European Commission to review cash penalty rates for failed trades every four years, and for ESMA to reduce the maximum settlement period and consider measures that might do so. The EU institutions must formally adopt the compromise text before it will enter into force.
On 14 June, ESMA published updated Q&As on the implementation of AIFMD and of the UCITS Directive. The updates concern passporting, denotification, pre-marketing for AIFs, real estate AIFs, and the permissions for UCITS management companies to manage AIFs and pension schemes.
On 13 June, the European Commission proposed a new series of ESG measures, entitled the "Sustainable Finance Package 2023". The proposals include a new regulation for ESG ratings. The legislation aims to improve transparency around ESG ratings and to set organisational requirements for ratings providers. The Commission has also proposed long-awaited amendments to the Taxonomy Delegated Acts. These changes incorporate the Technical Screening Criteria for the four remaining environmental objectives under the EU’s Taxonomy (i.e. water and marine use, the circular economy, pollution, and biodiversity; to join the existing rules for the two climate-related objectives under the Taxonomy). Finally, the package includes a proposal on transition finance. The Commission intends to provide guidance and practical examples on how companies can use the EU’s sustainable finance framework to provide finance to the green transition. These proposals have now entered the EU’s legislative process and are subject to scrutiny by the European Parliament and the European Council to develop their separate positions on each proposal.
On 9 June, the European Commission proposed changes to the European Sustainability Reporting Standards (ESRS). The ESRS comprises the content and form of sustainability-related disclosures that companies will be required to make under the EU’s Corporate Sustainability Reporting Directive (CSRD) from 2024. The Commission’s amendments take the form of a public consultation on a draft Delegated Act with comments requested by 7 July. The proposed amendments seek to reduce the burden of CSRD on small companies and first-time reports by phasing in the reporting of certain metrics, such as Scope 3 carbon emissions.
On 8 June, the European Supervisory Authorities (ESAs) published progress reports on greenwashing, including a report from ESMA. The initiative is in response to a request from the European Commission to help define greenwashing, to consider the available supervisory tools to address the problem, and to review and evaluate the current regulatory framework in respect of greenwashing. The ESAs’ report suggests that greenwashing is a mismatch between sustainability-related claims about a product, strategy, or entity and the underlying profile of the same. This means that greenwashing can be inadvertent and not only intentional as some in the industry had argued. Our note provides analysis of the report and the next steps.
On 6 June, the European Commission made a formal request to ESMA for the latter to provide technical advice on the potential reform of the UCITS Eligible Assets Directive. The European Commission is requesting advice on the consistent application of the rules in the EU, on how UCITS gain indirect exposure to certain asset classes, and more generally on the risks associated with UCITS’ exposures to alternative assets such as private assets, crypto, and leveraged loans.
On 6 June, ESMA published the results of a stress test of Money Market Funds (MMFs). The exercise found that MMFs are resilient but there are vulnerabilities in liquidity risk and credit risk.