Funds Legal Update | 25 March 2019

Written on 25 Mar 2019

Welcome to our Funds Legal Update

This week we take a look at the first proposal for a European crowdfunding legal framework that intends to scale up services and increase access to finance.

On cross-border distribution of collective investment funds, we look at a letter received by Sir William Cash MP, Chair of the European Scrutiny Committee from the Economic Secretary to the Treasury regarding pre-marketing and PRIIPs issues.

We highlight several publications surrounding sustainable finance and the call for ‘legal certainty’ and a ‘global approach’.

We report on the recently published FCA consultation on Investment Platforms Market Study Remedies.

Finally, we highlight the FCAs updated page on how to prepare your firm for Brexit and three SIs made last week.

CMU reforms: European crowdfunding service providers

On 13 March 2019, the European Observatory uploaded a new forecast: “27/03/2019 Indicative plenary sitting date, 1st reading/single reading” concerning a proposed regulation to establish a European label for investment and lending-based crowdfunding platforms that enables cross-border activity whilst addressing risks in a proportionate manner. So far, crowdfunding services have not been subject to a targeted EU action. These service providers have been adapting their business models to different national frameworks and this has led to a large variety of frameworks which range from those with no regulation, to those with a strict application of investor protection rules. Some Member States have bespoke crowdfunding regimes, while others require authorisation through MiFID II, PSD or AIFMD.

This proposal will ‘scale up’ crowdfunding services in order to increase access to finance for entrepreneurs, start-ups and SMEs. It will provide investors with the necessary information on crowdfunding. These service providers will also be required to have safeguards in place. The proposal is not intended to replace national regimes, specifically stating that:

This proposal for a European crowdfunding legal framework does not intend to interfere with national bespoke regimes or existing licenses…but rather to provide crowdfunding service providers with the possibility to apply for an EU label that empowers them to scale up their operations throughout the Union under certain conditions.”

You can read the proposal here (dated 8 March 2019) and see the forecast here.

Cross-border distribution of collective investment funds

On 14 March 2019, John Glen, Economic Secretary to the Treasury, wrote to Sir William Cash MP, Chair of the European Scrutiny Committee, regarding a proposed directive and a proposed regulation on the cross-border distribution of collective investment funds. The proposed regulation and directive are expected to progress to the European Parliament in April before proceeding to the European Council for final adoption (the timing for which is currently unclear). The letter discusses draft text agreed around pre-marketing and PRIIPs issues, and responds to points raised on mutual recognition, equivalence and portfolio delegation.

Sustainability… and more

Several publications this week deal with sustainable investment matters:

  • Criteria: on 11 March 2019, the European Parliament ECON and ENVI Committees adopted amendments to a proposal setting out uniform criteria for determining whether an economic activity is environmentally sustainable.
  • Legal certainty for investment firms: on 12 March 2019, the European Fund and Asset Management Association called for legal certainty and a compatible approach between the provisions of the new regime for investment firms and relevant existing provisions already applying to investment firms. EFAMA also welcomed the intention of the EU policy makers to conclude as soon as possible the negotiations concerning the new prudential regime for investment firms (IFD/IFR).
  • Report on proposal for a regulation: on 14 March 2019, the European Parliament Committee ECON and ENVI Committees published a joint report on the proposed regulation on the establishment of a framework to facilitate sustainable investment was published.
  • Sustainable finance and investor disclosures: on 13 March 2019, the European Parliament released an EU Legislation in Progress Briefing, which is a useful summary of progress on the proposed regulation on disclosures relating to sustainable finance and general background and context. The Briefing notes that there is growing consensus that the consideration of ESG factors is compatible with fiduciary duties when these factors would have a material impact on investment performance or valuation.

FCA consultation on Investment Platforms Market Study Remedies

On 14 March 2019, the FCA published a consultation setting out policy remedies from the Investment Platforms Market Study (IPMS) (CP19/12). It sets out a package of measures to help consumers who invest through investment platforms more easily find and switch to the right one for them, including proposed FCA rules and actions industry is taking forward. The consultation on new rules and exit fee issues – including a possible ban or cap – closes on 14 June 2019. Read the FCA press release here.

The Association of Investment Companies (AIC) has welcomed the report. You can read the opinion of Ian Sayers’, Chief Executive of AIC, here.

Fair treatment of customers: culture

On 15 March 2019, the FCA updated its webpage and a new section with new text has been added: “Our approach to culture”. Find the webpage here.

Brexit

EBA and UK regulators sign no-deal Brexit plans

The financial industry breathed a sigh of relief as the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA) and European Banking Authority (EBA) agreed a template Memorandum of Understanding (MoU), just days before the UK’s scheduled date for leaving the EU The template sets out the expectations for supervisory cooperation and information-sharing arrangements between UK and EU/EEA national authorities.

Updated FCA page: preparing your firm for Brexit

This webpage, updated on 13 March 2019, assesses how the temporary permissions regime (TPR) and financial services contracts regime (FSCR) will enable EEA-based firms to continue operating in the UK after Brexit. See the FCA’s flowchart which shows how the TPR and FSCR will enable EEA-based firms to continue operating in the UK after Brexit.

Brexit SIs

The following Brexit Statutory Instruments were made this week:

  • The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 were published on 12 March 2019. They provide for a UK equivalence framework to ensure the effective functioning of legislation including the Benchmarks Regulation, Capital Requirements Regulation and Solvency II Directive. You can find the SI here and explanatory memorandum here. This set of regulations had an impact assessment undertaken.
  • The Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019 were published on 14 March 2019. This SI amends the Distance Marketing Regulations to ensure effective operation and to address deficiencies. The Regulations come into force on exit day, apart from Parts 1 and 2 which came into force on 14 March 2019. You can find it here and explanatory memorandum here.
  • The Financial Regulators’ Powers (Technical Standards etc) and Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2019 were published on 15 March 2019. This SI amends the Financial Regulators’ Powers (Technical Standards etc) (Amendment etc) SI to add additional binding technical standards in order to enable the FCA, PRA and BoE to remove deficiencies in those requirements. The additions relate to the Benchmarks Regulation, European Long-Term Investment Funds Regulation, MAR, BRRD and Capital Requirements Regulation. The SI also makes minor amendments in relation to the powers transferred to HM Treasury and the FCA. You can find this SI here and the explanatory memorandum here.

If you would like to discuss any of these developments, please get in touch with one of the experts listed below.