UK/EU Investment Management Update (January 2021)
UK and EU agree in principle on a Trade and Cooperation Agreement (TCA)
On 24 December 2020, the UK and EU reached an agreement in principle on a Trade and Cooperation Agreement (TCA) to govern the terms of the future relationship between the UK and the EU following the expiry of the Brexit transition period on 31 December 2020. The TCA commenced application on 1 January 2021.
2. MiFID II
UK MiFID II – FCA supervisory statement on the operation of the MiFID Markets Regime
On 16 December 2020, the FCA published a Supervisory Statement to explain the FCA’s approach to the UK MiFID regime after the end of the Brexit transition period. The Supervisory Statement covers the Double Volume Cap (DVC), transparency waivers and deferrals, equity transparency, bond transparency, derivatives transparency, and commodity position limits, amongst other things.
3. Short Selling Regulation (SSR) – EU and UK Net Short Position Reporting Thresholds
UK SSR – HM Treasury announces intention to reduce the UK net short position reporting threshold to 0.1%
On 15 December 2020, the FCA updated its webpage on “Notification and disclosure of net short positions” to note that HM Treasury intends to permanently lower the net short position reporting threshold under the UK SSR for shares admitted to trading on a UK regulated market or multilateral trading facility (MTF) from 0.2% to 0.1%. The 0.1% threshold will come into force on 1 February 2021.
4. New Prudential Regimes for Investment Firms
UK Investment Firm Prudential Regime
On 14 December 2020, the FCA published its consultation paper on the first phase of proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR) for UK-authorised MiFID firms. The FCA also published its proposed template for IFPR reporting and related guidance.
ESMA publishes final guidance to address leverage risk in the Alternative Investment Fund (AIF) sector
On 17 December 2020, ESMA published its final guidance on the imposition of leverage limits under Article 25 of the AIFMD.
In particular, ESMA’s guidance relates to the assessment by national competent authorities (NCAs) of leverage-related systemic risk and aims to ensure that NCAs adopt a consistent approach in designing, calibrating, and implementing leverage limits. It will apply to NCAs only, although firms may want to take note as it may affect NCAs’ approach to supervision of them.
6. UK Overseas Framework
HM Treasury releases call for evidence on the UK Overseas Framework for financial services
On 15 December 2020, HM Treasury published a Call for Evidence on the “Overseas Framework” for the provision of cross-border financial services into the UK. The Call for Evidence is designed to gather information to help HM Treasury understand how the UK’s current Overseas Framework supports the UK’s position as a global financial centre.
7. Market Abuse and Financial Crime
ESMA publishes report on administrative and criminal sanctions under the Market Abuse Regulation for 2019
On 21 December 2020, ESMA published its annual report on administrative and criminal sanctions and other administrative measures issued under the Market Abuse Regulation (MAR) during 2019. ESMA’s report shows that NCAs and other authorities imposed a total of €88 million in fines related to 339 administrative and criminal actions under MAR.
Non-performing loans (NPLs): European Commission publishes action plan on tackling NPLs
On 16 December 2020, the European Commission issued a communication setting out its strategy to prevent a future build-up of NPLs on EU banks’ balance sheets due to the COVID-19 crisis while ensuring a high degree of consumer protection. In this regard, the European Commission stresses the need for early, decisive action.
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