Financial Services

Investment funds and asset management: the international road ahead for 2023

Published on 12th Jan 2023

What UK, EU and international legislative and non-legislative developments can be expected over the next 12 months?

In the spring of 2022, the UK government set out its initial priorities for reforming the UK regulatory and tax rules to increase the attractiveness of the UK as a location to set up, manage and administer funds.

This impetus for change continued at the end of 2022 when the government announced a further, broader set of reforms aimed at delivering an internationally competitive post-Brexit financial services sector.

Building on the proposals set out in the Financial Services and Markets Bill (which in 2022 continued to make its passage through Parliament and will carry on doing so this year), the so-called "Edinburgh reforms" published in December 2022, will set the tone for the UK's regulatory agenda for 2023 and beyond.

Clearer understanding

From a UK perspective, there is  a clearer understanding at the start of the new year of the government's direction of travel, even if much of the detail has yet to be published. 2023 will be the year in which a great deal more flesh is put on the bones of the reform agenda, as Treasury and the Financial Conduct Authority (FCA) continue to take forward priorities from the review of the UK funds regime.

In 2023, the UK's own sustainability disclosure framework will take shape. The Regulatory Technical Standards (RTS) under the European Union's Sustainable Finance Disclosure Regulation (SFDR) came into force on 1 January 2023.

This year is expected to bring further clarification from the European Commission on how fundamental concepts of that regulation should be understood and applied.

The 2023 regulatory pipeline

                Date                                       Event
In process

The Financial Services and Markets Bill (FSM Bill) includes provisions to revoke all EU-derived legislation related to financial services and replace it with an approach to regulation that is designed for the UK, subject to a transitional period.

On 9 December 2022, HM Treasury issued a policy statement setting out  the government’s approach to repealing and replacing retained EU law on financial services. The government expects to make significant progress on Tranches 1 and 2, including the Packaged Retail and Insurance-Based Investment Products (PRIIPS) Regulation, the Taxonomy Regulation, the UK Money Market Funds Regulation and the European Long-Term Investment Fund (ELTIF) Regulation, by the end of 2023. The government plans to repeal the ELTIF Regulation, without replacement. 

Early 2023 Subject to the responses received to the FCA’s consultation paper (CP 22/14) on proposals for broadening the retail distribution of Long Term Asset Funds (LTAFs), the FCA is expected to publish a final policy statement and final Handbook rules.
  Government is expected to publish an updated Green Finance Strategy.
  Government is expected to commence a review on reforming the Senior Managers and Certification Regime.
  Government is expected to consult on new guidance to the Local Government Pension Scheme (LGPS) in England and Wales on asset pooling. The government will also consult on requiring LGPS funds to ensure they are considering investment opportunities in illiquid assets such as venture and growth capital, as part of a diversified investment strategy
  HM Treasury is expected to make an equivalence decision under the overseas funds regime (OFR). The FCA is expected to consult on operationalising the OFR.
  The FCA is expected to decide whether to consult on money market fund reform proposals.
  The Commission is expected to publish a set of questions and answers on the SFDR addressing concerns over lack of clarity. This is expected to be accompanied by a comprehensive assessment of the implementation of SFDR, including by way of a public consultation.
  The European Securities and Markets Authority (ESMA): 
  • Is expected to undertake horizontal mapping of environmental, social and governance (ESG) data needs and usages for supervisory purposes in the area of investment management as detailed in ESMA’s sustainable finance roadmap 2022–2024.
  • Is expected to carry out a discretionary peer review on the depositary obligations under Directive 2009/65/EC UCITS (Undertakings for Collective Investments in Transferable Securities) IV and Directive 2011/61/EU, the Alternative Investment Fund Managers Directive (AIFMD). The peer review will focus on the oversight and safekeeping functions of depositaries. ESMA expects to finalise and publish its report on the peer review in 2024.
  • Will extend the notification portal, originally developed for the purpose of the cross-border database, to enable national competent authorities to exchange notifications of cross-border marketing of funds.
  • Will start a coordinated supervisory action (CSA) in the area of sustainability, covering the risk of greenwashing in the area of sustainable investment management products. 
  • Will report on the outcome of the 2022 CSA on valuation of less liquid assets in the UCITS and AIFMD frameworks.
  The Financial Stability Board (FSB), in consultation with the International Organisation of Securities Commissions (IOSCO), will initiate a pilot programme focused on closing identified data gaps relating to open-ended fund liquidity mismatch, the use of liquidity management tools and attendant financial stability risks.
H1 2023 IOSCO will develop capacity building programmes for its members, in order to assist them in implementing its recommendations with regard to the supervision of asset managers and the oversight of ESG ratings and data product providers (as detailed in the FSB's progress report on its roadmap).
  ESMA aims to publish a final report relating to its consultation on draft Implementing Technical Standards and RTS on the information and templates for cross-border marketing and management notifications under Directive 2009/65/EC, or the UCITS Directive, and Directive 2011/61/EU  AIFMD, as amended by Directive 2019/1160/EU with regard to cross-border distribution of collective investment undertakings.
  Following a review of lessons learned and engaging with firms on their operational contingency planning, the FCA intends to publish a further statement on good practice regrading liability driven investment towards the end of Q1 2023.

Amendments to the RTS relating to the PRIIPs Regulation set out in Regulation (EU) 2021/2268 regarding the underpinning methodology and presentation of performance scenarios, the presentation of costs and the methodology for the calculation of summary cost indicators, the presentation and content of information on past performance and the presentation of costs by packaged retail and insurance-based investment products offering a range of options for investment, come into force.

(Note that the Commission Delegated Regulation (EU) 2022/975 amended Article 2 of Delegated Regulation (EU) 2021/2268 to delay the effective date from 1 July 2022 until 1 January 2023.)

  From 1 January 2023, for FCA approval, operators of collective investment schemes managed outside the UK no longer have to provide written notice for all changes to the scheme’s operation or management. Instead, they only have to provide notice for changes which would be a material alteration. The FCA may make rules specifying when a proposed alteration is a material alteration.

In policy statement PS21/24, the FCA introduced new obligations on client-focused Task Force on Climate-Related Financial Disclosures (TCFD) aligned disclosures for asset managers, life insurers and FCA-regulated pension providers in two phases. Starting from 1 January 2022, the rules came into force for the largest firms, comprising:

  • Asset managers with assets under management of more than £50 billion.
  • Asset owners with £25 billion or more in assets under management or administration in relation to in-scope business.
Effective from 1 January 2023, the rules will take effect for the remaining firms above the proposed £5 billion threshold for both asset managers and asset owners. The first disclosures by these firms will be made by 30 June 2023, and subsequent disclosures will be made by 30 June each calendar year.
25 January 2023 Deadline for responses to the FCA's consultation paper (CP22/20) on the proposed sustainability and disclosure requirements (SDR) and investment labels.
3 February 2023 Deadline for responses to the government's consultation on the VAT treatment of fund management.
7 February 2023 Deadline for responses to the FCA's  consultation paper (CP22/27) on introducing a gateway for firms that approve financial promotions. The FCA expects to publish a policy statement and final rules in the first half of 2023, although its timings depend on the legislative progress of the FSM Bill.
20 February 2023 Deadline for responses to ESMA’s consultation on guidelines on funds’ names using ESG or sustainability-related terms.
28 February 2023 Deadline for principal firms to respond to any section 165 request(s) received from the FCA about appointed representatives.
3 March 2023 Deadline for responses to HM Treasury's consultation on repeal of the UK PRIIPs Regulation.
7 March 2023 Deadline for responses to the FCA's discussion paper (DP22/6) on a future disclosure framework for retail investments. 
April 2023 Changes to REIT (real estate investment trust) rules as announced by government in a written statement and a collection of documents concerning reforms to the financial services take effect.
Q2/Q3 2023 Following ESMA’s consultation on guidelines on funds’ names using ESG or sustainability-related terms, ESMA expects to issue the final guidelines by Q2/Q3 2023. 
30 June 2023 ESMA will submit a report to the European Parliament, the Council and the Commission that presents an overview of marketing requirements in all Member States and contains an analysis of the effects of national laws, regulations and administrative provisions governing marketing communications based also on the information received in accordance with article 8(1) of the regulation. 
30 June 2023 The FCA is expected to publish final rules following its consultation on SDR and investment labels, at which point the FCA's proposed "anti-greenwashing" rule is expected to come into effect.
30 June 2023 The first TCFD disclosures under the FCA's policy statement PS21/24 will be made by 30 June 2023, and subsequent disclosures will be made by 30 June each calendar year. In the case of "on demand" product and portfolio-level disclosures to institutional clients, firms must provide the requested information from 1 July 2023.
Mid-2023 The FSB, in consultation with IOSCO, will publish a consultative report in mid-2023 to revise the FSB’s 2017 recommendations on liquidity mismatch in open-ended funds. IOSCO, in consultation with the FSB, will publish a consultative report in mid-2023 to develop detailed guidance on liquidity management tools to complement the revised FSB recommendations.
2 August 2023 Article 5 of Directive (EU) 2019/1160 amending Directive 2009/65/EC (UCITS IV) and Directive 2011/61/EU (AIFMD) with regard to cross-border distribution of collective investment undertakings requires the Commission to present a report by 2 August 2023 assessing the merits of harmonising the provisions applicable to UCITS management companies testing investor appetite for a particular investment idea or investment strategy, and whether any amendments to UCITS IV are needed to that end.
Late 2023 The FSB, in consultation with IOSCO, will publish a final report in late 2023 on revisions to the FSB’s 2017 recommendations on liquidity mismatch in open ended funds. IOSCO, in consultation with the FSB, will publish a final report in late 2023 with detailed guidance on liquidity management tools to complement the revised FSB recommendations. IOSCO will also operationalise the revised FSB recommendations through amendments to IOSCO’s 2018 recommendations and supporting good practices.
  Proposed amendments to the SFDR relating to the indicators for principal adverse impact and the financial product disclosures are expected from the European Supervisory Authorities.
31 December 2023

The temporary marketing permissions regime (TMPR) for European Economic Area (EEA) funds (other than EEA UCITS) expires on 31 December 2023. HM Treasury has the power to extend the temporary regime by an additional 12 months.

The Financial Services Act 2021 amended the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019, SI 2019/325, to extend the TMPR for EEA UCITS by two years to 31 December 2025.

This Insight does not constitute legal advice and is not intended to provide an exhaustive list of all provisions or requirements applicable to firms during this period.



* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

Connect with one of our experts

Interested in hearing more from Osborne Clarke?