UK/EU Investment Management Update (January 2022)
ESMA has published a letter dated 17 December 2021 and addressed to the European Commission on the use of reverse solicitation by asset managers.
The Commission had written to ESMA on 24 September 2021 to ask ESMA to provide information and data on the use of reverse solicitation by asset managers. By way of background, the Commission is required under Article 18 of the new EU Cross-Border Distribution of Funds (CBDF) Regulation to submit a report to the European Parliament and to the Council of the EU on reverse solicitation. For further information on the new CBDF framework, please see our Update EU AIFMD — New Rules on the Cross-Border Distribution of Funds From August 2021 — Implications for Non-EU Managers (June 2021).
In its letter to the Commission, ESMA notes that almost all of the national competent authorities (NCAs) of the EU member states have no readily available information on the use of reverse solicitation either via asset managers or investor associations. ESMA notes that this is because under EU law, asset managers are not subject to any obligation to report to their NCAs any information on subscriptions stemming from reverse solicitation.
ESMA suggests that “[i]f there was willingness to fill in this information gap on a more permanent basis at European level, consideration should be given to the introduction of new reporting requirements allowing to collect information on reverse solicitation across the EU.”
We understand that the Commission is likely to submit its report on reverse solicitation to the Parliament and Council during Q1 2022. Note that on 25 November 2021, the Commission published its proposal for a directive amending the AIFMD, in effect a proposal for “AIFMD II.” It is possible that the Commission, Parliament and/or Council might seek to introduce some provisions on reverse solicitation either into the AIFMD II text or into the relevant “Level 2” legislation under AIFMD II. It will be particularly interesting to see if the Commission takes up ESMA’s suggestion of a reporting requirement where asset managers might have to report to NCAs whether any particular investor was taken on as a result of a reverse solicitation.
For further information on the AIFMD II proposal, please see our Update EU AIFMD II — Implications of the Commission Proposal (December 2021).
ESMA guidelines on marketing communications
In our Update on the new CBDF Directive (mentioned above), we note that on 27 May 2021, ESMA published its final report on its Guidelines under the Regulation on cross-border distribution of funds (the Guidelines).
On 5 January 2022, ESMA published a Compliance Table, noting that all EU member state NCAs comply or intend to comply with the Guidelines.
The Guidelines apply six months after the date of the publication of the Guidelines on ESMA’s website in all EU official languages. The Guidelines were so published by ESMA on 2 August 2021, meaning that the Guidelines apply from 2 February 2022.
Managers who market funds in the EU either under the Alternative Investment Funds Managers Directive (AIFMD) passport or national private placement regimes will need to consider their compliance obligations under the Guidelines.
ESMA updates AIFMD Q&As
On 17 December 2021, ESMA updated its Q&As on the application of AIFMD.
In response to a query as to whether managers of undertakings investing in crypto-assets are subject to AIFMD, ESMA has highlighted the importance of assessing whether the relevant undertaking meets the definition of an alternative investment fund (AIF) as defined in AIFMD. In particular, ESMA outlines that a collective investment undertaking raising capital from a number of investors to invest in crypto-assets in accordance with a defined investment policy for the benefit of those investors would qualify as an AIF, and an AIFM of such an AIF would need to ensure compliance with AIFMD, as applicable.
The UK IFPR regime started to apply to UK MiFID investment firms from 1 January 2022. For further information, please see our Update UK Investment Firm Prudential Regime — 10-Step Plan for Investment Managers (August 2021).
As a reminder, FCA investment firms and their parent undertakings that have not been subject to the UK Capital Requirements Regulation definition of capital and wish to count their existing instruments as own funds for the purpose of MIFIDPRU 3 were required to submit the MIFIDPRU TP7 form to the FCA by no later than 1 January 2022.
Separately, firms that are part of UK investment firm groups and wish to use the Group Capital Test (GCT) under the IFPR are reminded that they (or their parent undertaking) need to submit an application to the FCA by 31 January 2022 to benefit from the two-year transition period during which the applicant will be able to use the GCT.
New UK FCA rules on climate-related disclosures
On 1 January 2022, new FCA climate-related disclosure requirements for asset managers, life insurers and FCA-regulated pension providers came into force. The new rules oblige UK asset managers and asset owners to make disclosures in line with the Recommendations of the Task Force on Climate-Related Financial Disclosures.
Our Update New UK FCA Rules on Climate-Related Disclosures — Ten Key Points for Asset Managers (January 2022) sets out how the new regime is likely to affect asset managers, with a particular focus on U.S. (and other non-UK) managers, including those with UK sub-advisors, and provides 10 key points on the scope, timing, and content of the regime.
HMT consultation on amendments to the Financial Promotion regime
On 15 December 2021, HMT opened a consultation on its proposals to amend the high-net-worth-individual and sophisticated investor exemptions to the financial promotion restriction.
Under Section 21 of the Financial Services and Markets Act 2000 (FSMA), a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity unless (i) the communication is made by an authorised person; (ii) the content of the communication is approved by an authorised person; or, (iii) the financial promotion is exempt under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO).
The consultation proposes making substantive amendments to two existing FPO exemptions: (i) the high-net-worth-individual exemption and (ii) the self-certified sophisticated investor exemption.
Currently, to qualify for the high-net-worth-individual exemption, investors must sign a statement confirming that they had an income of £100,000 or more in the past year or net assets of a value of £250,000 or more in the past year.
Similarly, to qualify for the self-certified sophisticated investor exemption, an investor must sign a prescribed statement confirming that they meet one of the four criteria:
- They are a member of a network or syndicate of business angels (and have been for at least six months prior);
- they have made more than one investment in an unlisted company in the previous two years;
- they are working or have worked in the previous two years in a professional capacity in the private equity sector or in the provision of finance for small- and medium-sized enterprises; or
- they are currently or have been in the previous two years a director of a company with an annual turnover of at least £1 million.
HMT proposes to make amendments to these criteria to account for the fact that a significant number of individuals now technically fall within the exemptions who would not have done so when the exemptions were first introduced in 2001 and who are therefore no longer protected by the restrictions on financial promotions.
Specifically, HMT is proposing to increase the income and asset thresholds for the high-net-worth-individual exemption to account for inflation (at a minimum, £150,000 in income and £385,000 in assets) or, potentially, to limit the exemption to the current top 1% of earners and asset owners in the UK (£175,000 in income and £900,000 in assets).
HMT further proposes to amend two of the criteria for the self-certified sophisticated investor exemption. These include removing the criterion for a self-certified sophisticated investor to have made more than one investment in an unlisted company in the previous two years and increasing the threshold for a self-certified sophisticated investor to have been a director of a company with an annual turnover of at least £1 million to a threshold of £1.4 million, in line with inflation.
The proposals would also require that firms communicating a financial promotion have a “belief on reasonable grounds” that an investor meets the criteria to be deemed a high-net-worth or sophisticated investor rather than a reasonable belief that the investor has signed the requisite statement declaring as such. As part of this proposal, HMT suggests that firms be required to provide details about themselves (e.g., the firm’s address, contact details and Companies House number) to help consumers conduct due diligence and assist HMT to investigate potential non-compliance with the exemptions. HMT seeks input on these proposed amendments and information on how a firm might establish reasonable belief that an individual satisfies the criteria for the exemptions.
The consultation is open until 9 March 2022.
UK HMT report on the UK Securitisation Regulation
On 13 December 2021, HMT published a report on its review of the UK Securitisation Regulation (Sec Reg).
As outlined in our July 2021 Update, in June 2021, HMT launched a call for evidence on the functioning of the Sec Reg. The call for evidence has informed HMT’s review and this report to Parliament on the Sec Reg since its application on 1 January 2019.
Of particular interest to alternative investment fund managers (AIFMs) based outside the UK (e.g., U.S. AIFMs), the report highlights HMT’s intention to amend the Sec Reg’s definition of institutional investor to take “certain unauthorised, non-UK AIFMs out of scope of the due diligence requirements.” It is noted that this wording may suggest that only “certain” and not all non-UK AIFMs will be taken out of scope. Industry will need to wait for the draft legislation amending the Sec Reg to see how the UK intends to address this issue.
Note that the European Commission is also carrying out a review of the EU Securitisation Regulation and is considering the same point above.
ESMA public statement on delayed mandatory buy-in (MBI) provisions
Following on from our December 2021 Update, ESMA has issued a public statement that an amendment will be made to the CSDR allowing ESMA to develop draft technical standards to postpone the date of application of the MBI regime while keeping the date of application of the penalties and reporting requirements unchanged (1 February 2022).
Given that the amendment and draft regulatory technical standards (RTS) in relation to the MBI regime will likely take several months and will not enter into force ahead of the application start date of the MBI regime, ESMA has expressed that it does not expect NCAs to apply their supervisory powers in relation to the application of the MBI regime in the meantime.
Further, ESMA expects NCAs to encourage central counterparties to continue applying the buy-in rules currently implemented by them under the EU Short Selling Regulation (SSR) until the application of the revised CSDR MBI regime, which will repeal the SSR buy-in requirement.
UK — changes to LIBOR as of end-2021
On 4 January 2022, the FCA published a statement noting that publication of 24 London interbank offered rate (LIBOR) settings has ended, and the six most widely used sterling and Japanese yen settings will be published using a changed methodology from 4 January 2022.
The LIBOR settings that have ended are:
- all euro and Swiss franc LIBOR settings
- the overnight/spot next, one-week, two-month and 12-month sterling and Japanese yen LIBOR settings
- the one-week and two-month U.S. dollar LIBOR settings
The one-, three- and six-month sterling and Japanese yen LIBOR settings are Article 23A benchmarks, meaning they are now permanently unrepresentative of the underlying market they seek to measure. This is because the panel of banks, which used to provide submissions to create these rates, has now ended.
From 4 January 2022, these six LIBOR settings will be calculated in a way that does not rely on submissions from panel banks. Market participants generally call this “synthetic” LIBOR. The FCA has published a Notice requiring LIBOR’s administrator to change the way these LIBOR settings are calculated, in line with the draft Notice published in September 2021.
EU — ESMA public statement on the implementation of the clearing and derivatives trading obligation in light of the benchmark transition
On 16 December 2021, ESMA issued a public statement on the status of the benchmark transition for over-the-counter (OTC) interest rate derivatives (IRD) subject to the clearing obligation (CO) and derivative trading obligations (DTO).
Given the cessation of EONIA, GBP LIBOR and JPY LIBOR by the end of 2021 and the June 2021 joint statement of EU authorities encouraging a transition away from USD LIBOR by 31 December 2021, ESMA expects the transition away from EONIA and LIBOR to Risk-Free Rates (RFR) such as €STR to be largely completed by the end of 2021 for OTC IRDs denominated in EUR, GBP, JPY and USD.
However, the draft RTS updating the scope of existing COs and DCOs for IRD referencing these rates are not expected to enter into force by the end of 2021.
In light of this, ESMA has expressed that from 3 January 2022, it expects NCAs to disapply their supervisory actions in relation to the CO for IRD classes that reference EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and in relation to the DTO for IRD classes that reference GBP LIBOR or USD LIBOR in spite of the fact that the RTS will not have been implemented by this time.
Equally, ESMA expects RFR referencing IRD to be cleared on a “voluntary” basis for the time being.
Sidley Austin LLPはクライアントおよびその他関係者へのサービスの一環として本情報を教育上の目的に限定して提供します。本情報をリーガルアドバイスとして解釈または依拠したり、弁護士・顧客間の関係を結ぶために使用することはできません。
弁護士広告 - ニューヨーク州弁護士会規則の遵守のための当法律事務所の本店所在地は、Sidley Austin LLP ニューヨーク：787 Seventh Avenue, New York, NY 10019 (+212 839 5300)、シカゴ：One South Dearborn, Chicago, IL 60603、(+312 853 7000)、ワシントン：1501 K Street, N.W., Washington, D.C. 20005 (+202 736 8000)です。