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Investment Funds Update

UK/EU Investment Management Update (January 2021)

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Summary
In this Update we cover, among other things, the latest on: Brexit; the Markets in Financial Instruments Directive (MiFID II); Short Selling Regulation (SSR) net short position reporting thresholds in the UK and the EU; the new prudential regimes for investment firms in the UK and the EU; the European Securities and Markets Authority’s (ESMA) final guidance on addressing leverage risk under the Alternative Investment Fund Managers Directive (AIFMD); the UK Overseas Framework; market abuse in the UK and EU; and EU proposals on non performing loans in the context of COVID-19.

1. Brexit

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.

5. AIFMD

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.

8. COVID-19

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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