UK/EU Investment Management Update (November 2020)
1. Brexit update
MiFIR Share Trading Obligation — ESMA final position
On 26 October 2020, the European Securities and Market Authority (ESMA) released a public statement clarifying the application of the EU share trading obligation (EU STO) under Article 23 Markets in Financial Instruments Regulation (MiFIR), following the end of the Brexit transition period on 31 December 2020. The FCA responded with its own statement on 4 November 2020 (see next section).
2. HM Treasury consults on UK Financial Services Future Regulatory Framework
3. COVID-19 update
CSDR — European Commission further postpones settlement discipline regime
On 23 October 2020, the European Commission adopted a Delegated Regulation to delay the entry into force of the Central Securities Depositories Regulation (CSDR) settlement discipline regime, from 1 February 2021 to 1 February 2022.
4. AIFMD — European Commission consultation on the AIFMD
On 22 October 2020, the European Commission launched its Consultation on the AIFMD. This marks the next step in the Commission’s formal review of the AIFMD, which may culminate in a legislative proposal for AIFMD II next year.
The Consultation is wide ranging and addresses a number of key aspects of the AIFMD. Of particular note to UK and other non-EU fund managers is that the Commission asks important questions relating to delegation by EU alternative investment fund managers (AIFMs) (including to broadening the AIFMD’s third-country reach) and the national private placement regimes for the marketing of non-EU AIFs. This reflects the Commission’s concerns regarding the post-Brexit EU fund management landscape under the current AIFMD framework.
Please see our Update, where we provide detailed commentary on the Consultation.
5. EU Short Selling Regulation
FCA issues first fine for net short position reporting failure
On 14 October 2020, the FCA issued a Final Notice, imposing a fine of £873,118 on Asia Research and Capital Management for its failure to notify the FCA under the EU Short Selling Regulation (SSR) of net short positions it held in Premier Oil plc between February 2017 and July 2019.
Please see our Update on this landmark fine, where we discuss the case and the implications for holders of short positions.
6. SFTR Reporting
SFTR reporting obligations now apply to buy-side firms
On 12 October 2020, the third phase of reporting under the EU Securities Financing Transactions Regulation (SFTR) went live. From that date, EU investment funds, pensions funds, and (re)insurance undertakings are subject to SFTR reporting obligations, joining sell-side firms, central clearing counterparties, and central securities depositories, which have already been reporting for three months (since July 2020, a date that had been delayed from the original April 2020 start date because of COVID-19).
The International Capital Market Association (ICMA) has issued detailed Recommendations for Reporting under SFTR to ensure consistency in firms’ implementation efforts. ICMA publishes consolidated SFTR data on a weekly basis, which can be found on its SFTR public data page.
FCA extension of SMCR deadlines
On 28 October 2020, the FCA published Policy Statement PS20/12 (the Policy Statement) on the extension of certain implementation deadlines for solo-regulated firms under the Senior Managers and Certification Regime (SMCR).
8. Market Abuse
FCA speech on “Market abuse in a time of coronavirus”
On 12 October 2020, Julia Hoggett, Director of Market Oversight at the FCA, gave a speech titled “Market abuse in a time of coronavirus” at the City Financial Global event.
The speech addressed the growing threat of market abuse as the financial sector continues to work remotely. Hoggett emphasised the FCA’s focus on maintaining clean and orderly markets and firms’ role in that process.
9. SEC lifts moratorium on registration of UK-based managers
European Commission defers introduction of regulatory technical standards on sustainability-related disclosures
On 20 October 2020, the European Commission wrote to the European Supervisory Authorities (ESAs), confirming that the introduction of regulatory technical standards (RTS) on the EU Sustainable Finance Disclosure Regulation (SFDR) will be deferred until an as yet unspecified date.
11. LIBOR transition
Launch of ISDA IBOR Fallbacks Supplement and Protocol
On 23 October 2020, ISDA published the 2020 IBOR Fallbacks Protocol and Supplement 70 to the 2006 ISDA Definitions, both of which will be effective 25 January 2021.
As of that date, all new derivatives contracts that (i) incorporate the 2006 ISDA Definitions and (ii) reference one of the covered benchmarks will automatically contain the new fallbacks. Existing derivatives contracts will include the new fallbacks only if all parties have adhered to the protocol or otherwise bilaterally agreed to incorporate the replacement rates in their contracts. The protocol will remain open for adherence after the 25 January 2021 effective date.
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