Investment management update - October 2023
22 November 2023Welcome 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.
UK
- On 30 October 2023, the FCA confirmed that it will not remove the Long-Term Asset Fund (LTAF) from Financial Services Compensation Scheme (FSCS) protection. The decision published in Feedback Statement 23/7 states that investors will be insured by the FSCS against poor conduct in relation to regulated activities involving the LTAF. However, the FSCS said that it would consider the matter as part of a future broader review of the FSCS, the timing of which is unconfirmed.
FCA FS23/7: Long-Term Asset Funds (LTAFs) and Financial Services Compensation Scheme Coverage Feedback Statement - On 30 October 2023, the FRC published guidance to help companies better assess the materiality of risks and issues for the purposes of financial reporting. The FRC recommends a “holistic approach” comprising quantitative, qualitative and sustainability-related information, with a view of the matters that the board will prioritise over different timescales.
FRC press release: report looks at "Materiality Mindset" for better corporate reporting - On 30 October 2023, HM Treasury published a feedback statement on its approach to the regulation of crypto-assets and an update on stablecoins. The feedback statement responds to the Government’s previous consultations on crypto-assets. The document contains timelines for legislation, and provides greater clarity on definitions, the FCA’s authorisation process, and bringing investment advice and portfolio management in relation to crypto-assets into the regulatory perimeter. The Government also confirms that it will regulate stablecoins and provides a definition of a stablecoin as a type of crypto-asset.
Government response to the Future Regulatory Regime for Crypto-assets consultation
Government Update on Plans for the Regulation of Fiat-backed Stablecoins - On 26 October 2023, the Economic Crime and Corporate Transparency Act received Royal Assent.
Read our detailed brief about the the impacts for Limited Partners and General Partners, and the next steps
Economic Crime and Corporate Transparency Act legislative text - On 24 October 2023, the FCA’s Chair, Ashley Alder, gave a speech outlining the FCA’s response to its review of the UK’s asset management regime. The FCA confirmed that it will reform the UK’s AIFMD regime to be more proportionate, update and possibly rebrand the Non-UCITS Retail Scheme (NURS) regime, and undertake various actions to support technological improvements such as tokenisation. The FCA will consult on its various proposals.
FCA to reform the UK's AIFMD and NURS regimes - Macfarlanes - On 19 October 2023, the Department for Energy Security and Net Zero published a consultation on Scope 3 carbon emissions. The Government is seeking views on the costs, benefits and practical issues in relation to Scope 3 (i.e., supply chain) emissions reporting in the UK. The consultation forms part of the UK’s endorsement and adoption of the ISSB disclosure standards.
Government Call for Evidence on Scope 3 Emissions in the UK Reporting Landscape - On 12 October 2023, the Competition and Markets Authority published guidance on environmental sustainability agreements. The guidance advises companies operating at the same level of the supply chain on how to make agreements on climate and sustainability matters without breaching competition law.
CMA Green Agreements Guidance - On 9 October 2023, the Transition Plan Taskforce (TPT) published the final version of its TPT Disclosure Framework. The guidance aims to provide a gold standard for companies to report their net zero transition plans. Alongside this, the TPT published a summary of its sectoral-specific guidance and it will consult on sectoral deeper dives in November 2023, with final standards due to be published in February. The Government is expected to consult by the end of 2023 on making the guidance mandatory for larger public and private companies, including financial institutions.
Transition Taskforce: TPT Disclosure Framework - On 5 October 2023, the Green Taxonomy Advisory Group (GTAG) published its final recommendations to the Government on the design of the UK’s Taxonomy. The recommendations summarise the conclusions of the GTAG’s nine previously published reports on different aspects of the Taxonomy. The final report also recommends that the Government create an advisory body or delegate responsibility to an existing organisation within the next three to six months to assist in the implementation of the Taxonomy.
GTAG final report
Europe ex UK
- On 24 October 2023, the EU adopted a European Green Bond Standard. The regulation outlines voluntary disclosure guidelines for the issuance of environmental and sustainability-linked bonds in the EU. The standards will be published in the EU’s Official Journal soon and will take effect a year later.
European Council press release on the adoption of the European Green Bonds Regulation - On 18 October 2023, the European Commission said that it will delay parts of the Corporate Sustainability Reporting Directive (CSRD) implementation deadlines. The adoption of the sector-specific European Sustainability Reporting Standards (ESRS) will be delayed from June 2024 by two years and its implementation by businesses will be delayed from 2028 for two years. The first set of ESRS standards were adopted on 21 October 2023, when the period ended in which the EU institutions can object to the rules. EFRAG, the body responsible for the rules, welcomed the adoption.
European Commission press release on the 2024 Commission Work Programme
EFRAG press release on the adoption of the first ESRS - On 17 October 2023, the European Banking Authority (EBA) recommended that environmental and social risks should be integrated into bank prudential regulation. The EBA’s report suggests that sustainability-related risks are becoming more prominent and cut across the traditional risk categories such as credit and operational risk. The EBA proposes shorter-term actions such as the incorporation of ESG considerations into bank stress testing and, over the longer term, suggests that modelling under the Pillar 1 framework for minimum capital requirements should be reviewed. The report confirms that the EBA does not support a green supporting factor (capital discount) or brown penalising factor (capital add-ons) for sustainability-related risks.
EBA Report on the role of environmental and social risks in the prudential framework - On 5 October, ESMA issued a call for evidence on the potential for moving the EU’s markets from a T+2 to T+1 or T+0 trade settlement cycle. The consultation will close on 15 December 2023.
ESMA Call for evidence on the shortening of the settlement cycle - On 4 October 2023, the Dutch AFM published guidance on ESG claims and potential greenwashing. The AFM warns that an SFDR classification as Article 8 or Article 9 is not in itself a demonstration of a product or strategy’s ESG credentials. The guidance outlines three principles to properly demonstrate ESG claims. The European Commission’s SFDR review is expected to result in proposals for an explicit product labelling regime next year.
AFM press release on the publication of Guidelines on Sustainability Claims - On 2 October 2023, ESMA published the results of a study into the use of ESG-related terms in fund names and disclosure documents, as part of its broader investigation into greenwashing. The research found an increase in fund names, although a peak was reached in late 2021 and early 2022. The study evidences the natural language analysis method (using Artificial Intelligence to monitor for the use of terms in a large number of documents) that EU regulators will increasingly use to supervise against greenwashing risks. The report does not provide an update on the imminent introduction of ESMA’s guidance on ESG fund names and minimum levels of sustainable investments.
ESMA Trends, Risks, and Vulnerabilities Report on ESG names and claims in the EU fund industry
International
- On 25 October 2023, the IAASB published guidance to help companies assess materiality in relation to sustainability-related reporting. The draft guidance is open for consultation until 1 December 2023.
IAASB press release and FAQ on the Proposed ISSA 5000: The Application of Materiality by the Entity and the Assurance Practitioner - There have been recent moves to consolidate the various global ESG reporting standards. On 2 November 2023, the CFA Institute, the PRI, and Global Sustainable Investment Alliance jointly published the Definitions for Responsible Investment Approaches, an attempt to standardise ESG terminology. On 18 October 2023, CDP announced that it would align its standard with ISSB in 2024.
CFI Institute article on and links to the 5 Key Definitions for Responsible Investing guidance
CDP and environmental disclosure standards and frameworks guidance page
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