Funds Legal Update | 23 April 2019
Published on 23rd Apr 2019
Welcome to our Funds Legal Update.
The FCA has published its Business Plan for 2019/20, highlighting six cross-sector priorities.
The European Commission confirms the Distance Marketing Directive is now under review and publishes a consultation into its effectiveness and relevance.
Andrew Bailey, CEO of the FCA has written an a 'Dear CEO' letter reminding firms of their obligations when approving financial promotions for unauthorised persons.
Sustainable investment has been a theme of the week; we look at the MFA and AIMA joint response to IOSCO's sustainable finance consultation and the IIF's comment letter which highlights key issues including the lack of a globally-accepted and implementable disclosure standard.
Finally, we report on responses to ESMA's consultation on draft guidelines on liquidity stress test for investment funds.
All this, and more (still Brexit free) below.
FCA Business Plan
On 17 April 2019, the FCA published its priorities for 2019/20. The FCA's Business Plan for 2019/20 outlines the key priorities for the coming year, which include six cross-sector priorities (such as culture and governance, including the extension of the SM&CR, and priorities around operational resilience, the future of regulation, and intergenerational challenge in financial services). For the investment management sector specifically, the FCA plans to focus on the value of products and stewardship. Some examples of the specific activities planned include those related to the implementation of new requirements resulting from the Asset Management Market Study, implementation of the Revised Shareholder Rights Directive, a consultation on the introduction of a new prudential regime for MiFID investment firms, continued PRIIPs review work to resolve issues, and a MiFID II implementation review with a focus on product design, governance and distribution.
Distance Marketing Directive now under review
On 9 April 2019, the European Commission launched a consultation which will look at the relevance and effectiveness of the Distance Marketing of Financial Services Directive (DMD) in light of new products, actors and sales channels and the digitisation of the retail financial services sector. This is a second evaluation to assess whether the DMD is still fit for purpose. The consultation will be open until 2 July 2019.
Approving financial promotions: the FCA’s expectations
On 11 April 2019, Andrew Bailey, CEO of the FCA, published a Dear CEO letter reminding firms involved in the approval of financial promotions for unauthorised persons of their obligations when doing so. The Dear CEO letter follows a similar letter published earlier this year to all regulated firms reminding them of their responsibilities relating to the use of financial promotions.
Sustainable finance views: regulate or voluntary guidance?
During the first week of April 2019, the Managed Fund Association (MFA) and the Alternative Investment Management Association (AIMA) published a joint response to IOSCO’s “Sustainable finance in emerging markets and the role of securities regulators” Consultation Report. They set out their belief that the better approach is to create incentives for investors on the demand side of asset management, rather than imposing prescriptive requirements on the supply side. Environmental, social and governance (ESG) factors should be left as guidance that IOSCO might develop, rather than something that asset managers must incorporate. They further point out a number of issues surrounding ESG data (which can be expensive, inconsistent or unavailable) and that, without a foundation of ESG data, it is difficult to establish mandatory regulations around sustainable finance.
The Institute of International Finance (IIF) also wrote a comment letter on the consultation report, highlighting a number of key issues including the risk of fragmentation and the limitations of available data. The IIF points out that there is currently no globally-accepted and implementable disclosure standard, and believe that the current voluntary approach is more feasible.
Mainstreaming sustainable finance for retail sector
On 8 April 2019, the EBA published a speech given at an EBA and EBF workshop on sustainable finance. Sebastien de Brouwer, Chief Policy Officer, EBF gave an introductory speech on the four E's of sustainable finance – Enabling, Encouraging, Engaging and Educating – in which he argues that voluntary actions are not sufficient to mobilise finances at the required scale and pace. He believes most retail investors would want to invest sustainably, and highlights the EBF's Task Force on Sustainability and Fintech, which will explore how innovation and digital technology could help mainstreaming sustainable finance in the retail sector. In his conclusion, he states that the goal should be a system where "we will not have to talk about sustainable finance anymore as by definition, all finance will be sustainable".
Responses to ESMA consultation on draft guidelines on liquidity stress test
On 8 April 2019, ESMA published the responses received to its consultation on draft guidelines on liquidity stress test for investment funds.
Cross-border distribution of investment funds
On 18 April 2019, the European Parliament endorsed the proposal for a regulation on facilitating cross-border distribution of collective investment funds. The EU legislation in progress briefing paper discusses the changes the legislation would bring to AIFMD and UCITS and discusses the position on amendments.
If you would like to discuss any of these developments, please get in touch with one of the experts listed below.