International Funds Legal Update | 19 April 2024

UK FCA improves the authorised funds rules

The Financial Conduct Authority (FCA) has updated its rules for authorised UK collective investment schemes, providing additional options, as well as clarifications  and corrections to the Collective Investment Scheme Sourcebook. In short, the changes include:

• Enabling the holding of virtual or hybrid general meetings to allow more flexibility and efficiency when managing funds.
• For Qualified Investment Schemes (QIS), broadening the range of permitted investments. This allows investment in the same types of assets as Long Term Asset Funds, including loans, and removes a prohibition on investing in funds that, in turn, invest more than 15% in other funds. The rule has been modified to prevent circularity of investment.
• For QIS, clarifying comprehensive cover requirements for global exposure in transactions in derivatives and forward transactions.
• Clarifying the allocation of payment rules.
• Facilitating payments from Shariah-compliant funds to registered charities.
• Facilitating giving notice to joint unitholders.

Furthermore, glossary definitions have been amended. The instrument, implementing the changes, came into force on 2 April 2024.

HM Treasury's working group reports on UK fund tokenisation

The Investment Association has published its second report on UK fund tokenisation. The report is written by the technology working group for HM Treasury's asset management taskforce.

Use cases for fund tokenisation

The report identifies two main use cases for fund tokenisation. The first involves fully on-chain investment markets, where tokenised funds invest in tokenised securities such as fixed income or other asset classes. The second use case relates to tokenised money market fund units as collateral, where permitted under the UK regime for non-centrally cleared derivative contracts.

Next stages of development

The report examines the potential next stages of development for fund tokenisation. This includes enabling on-chain fund settlement through digital money, allowing funds to hold tokenised assets in their portfolios and expanding the range of solutions to include the use of public permissioned networks.

Actions and recommendations

The report provides an update on the actions identified in the first phase report and introduces new recommendations to facilitate the broader implementation of firms' fund tokenisation strategies. It also includes a model fund prospectus disclosure for firms to use and a summary of emerging technical standards that will enable interoperability.

European Commission streamlines internal EU marketing notifications

Four regulations will soon come into force, mainly concerning the cross-border activities of alternative investment funds and UCITS (undertakings for the collective investment in transferable securities) funds and the provision of information to national regulators. They introduce template notifications that European Economic Area (EEA) management companies must use when notifying intra-EEA marketing of investment funds.

The Commission Delegated Regulation (EU) 2024/912 and the Commission Implementing Regulation (EU) 2024/913 both supplement the Alternative Investment Managers Directive by laying down implementing technical standards (ITS) and regulatory technical standards (RTS). They will apply from 25 June 2024 and 14 April respectively.

The Commission Implementing Regulation (EU) 2024/910 and the Commission Delegated Regulation (EU) 2024/911 respectively lay down ITS and RTS relating to the UCITS Directive. They will apply from 14 July 2024 and 25 June respectively.

EU takes a step towards amending its PRIIPs rules

The European Parliament has published a report on the European Commission's legislative proposal amending the regulation on key information documents for the PRIIPs (Packaged Retail and Insurance-based Investment Products) Regulation. The report contains a draft legislative resolution with suggested amendments to the proposed regulation. The European Parliament is expected to vote on the report between 22 and 25 April 2024.

EU takes a steps forward and then backwards on ELTIFs

The European Commission has informed the European Securities and Markets Authority (ESMA) that it will adopt its RTS relating to the European Long-Term Investment Funds (ELTIFs) Regulation. But not before ESMA has amended the proposed regulatory technical standards (RTS), as the Commission has found that the draft does not sufficiently cater for the individual characteristics of different ELTIFs.

In the Commission's view the draft RTS were disproportionate with regards to the requirements relating to redemption and liquidity management tools, hampering the ability of ELTIFs managers to pursue a broad range of investment strategies and objectives.

If ESMA does not comply within six weeks, the Commission can either adopt the RTS with the amendments it considers relevant or reject it entirely.