Financial Services Regulation and Compliance - Funds July 2023
Financial Services Regulation and Compliance - Funds July 2023
CBI discussion paper on macroprudential policy for investment funds
On 18 July 2023, the Central Bank of Ireland (CBI) published a discussion paper on its macroprudential policy for investment funds. This paper hopes to make the case for systemic risk posed by elements of the investment fund sector, to present the need for a macroprudential framework for the sector, and to prompt and accelerate the discussion regarding the potential overarching framework itself. The paper explores what the objectives of a macroprudential framework would be and outlines key principles that could underpin its design. It also discusses potential tools that could be used to achieve the objectives and considers a range of practical issues that would need to be progressed to make such a framework operational.
The CBI has launched a public consultation on this discussion paper, which will run until 15 November 2023. The CBI will publish a feedback statement next year which will help inform its participation in any international or European regulatory discussions on the topic and inform further analysis and policy work in this area.
CBI publishes guidance on IMR
On 4 July 2023, the CBI published guidance on the investor money requirements (IMR), clarifying such matters as when a fund service provider is deemed to hold investor money. These requirements are derived from Part 7 of the Investment Firms Regulations 2023 and entered into force on 1 July 2023.
Provisional political agreement on reform of AIFMD / UCITS directive
On 20 July 2023, the Parliament and Council reached provisional political agreement on reforms to the Alternative Investment Fund Managers Directive (AIFMD) and Undertakings for Collective Investment in Transferable Securities (UCITS) framework. The agreed text will harmonise the rules governing liquidity management tools, in line with international recommendations to support financial stability. It will also increase transparency on the so-called ‘delegation rules’, by ensuring that supervisors are well-informed about the extent to which fund managers rely on expertise from third parties. Finally, the new rules establish a harmonised framework for funds that originate loans especially to companies in the EU, offering new funding opportunities to the real economy while safeguarding investor protection.
ESMA and NCAs launch CSA on sustainability-related disclosures and the integration of sustainability risks
On 6 July 2023, the European Securities and Markets Agency (ESMA) and the National Competent Authorities (NCAs) launched a common supervisory action (CSA) on sustainability-related disclosures and the integration of sustainability risks. The CSA hopes to establish whether market participants adhere to applicable rules and standards in practice; to gather further information on greenwashing risks in the investment management sector; and to identify further relevant supervisory and regulatory intervention necessary to address the issue.
The CSA will run until Q3 2024.
European Commission publishes report on adequacy of MMFR
On 20 July 2023, the European Commission published a report on the adequacy of the EU’s Money Market Funds Regulation (MMFR). While acknowledging the potential to further increase the resilience of EU money market funds, as well as certain structural problems, such as those linked to the underlying short-term markets, the Commission is not proposing revisions to the MMFR at this point.
ESMA publishes report on sanctions under the UCITS Directive and AIFMD
On 18 July 2023, ESMA published reports on sanctions under the UCITS Directive and AIFMD. In the reports, ESMA provides an overview of the applicable legal framework and information on the sanctions imposed by NCAs from 1 January 2022 to 31 December 2022.
ESMA issues statement on ESG disclosures expectations under the Prospectus Regulation
On 11 July 2023, ESMA issued a public statement on the sustainability disclosure expected to be included in prospectuses under the Prospectus Regulation. This statement is relevant only to listed closed ended funds.
ESMA publishes second report on the cross-border distribution of funds regime
On 3 July 2023, ESMA issued its second report on national rules governing marketing of investment funds under the regulation on cross-border distribution of funds (CBDFR). The report identifies that many observed divergences have been closed following transposition of the directive on cross-border distribution of collective investments undertakings and the publication of marketing communications under the CBDFR. The report also draws attention to the limited number of NCAs utilising their powers under the CBDFR to carry out ex-ante verifications of marketing communications.
ESRB publishes report on recommendation on leverage and liquidity in investment funds
On 4 July 2023, the European Systemic Risk Board (ESRB) published a compliance report on its recommendation relating to liquidity and leverage risks in investment funds. The report finds that implementation of recommendations addressed to the Commission is largely compliant and that implementation of recommendations addressed to ESMA is fully compliant.
IOSCO consults on use of anti-dilution liquidity management tools
On 5 July 2023, the International Organisation of Securities Commissions (IOSCO) published a report on the use of anti-dilution liquidity management tools by responsible entities for open-ended funds. The report sets out proposed guidance for effective implementation of its 2018 recommendations for liquidity risk management for collective investment schemes. The aim of the guidance is to support greater and more consistent use of anti-dilution liquidity management tools by responsible entities for open-ended funds, in both normal and stressed market conditions.
A public consultation on the guidance contained in this report will run until 4 September 2023.
FSB consults on proposals to address structural vulnerabilities from liquidity mismatch in open-ended funds
On 5 July 2023, the Financial Stability Board (FSB) published proposed revisions to its 2017 policy recommendations on addressing structural vulnerabilities from asset management activities in relation to liquidity mismatch in open-ended funds. It is not proposed to apply the revised FSB recommendations to exchange-traded funds.
A public consultation on the proposed revisions will run until 4 September 2023.
European Commission extends transition period for regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds
On 14 July 2023, the European Commission extended the transition period before the use of third country benchmarks by supervised entities is restricted, pursuant to Regulation 2016/1011. As a majority of third country benchmark administrators have not taken the necessary steps to prepare for the end of the transitional period on 31 December 2023, proceeding along the original timeline would cause an abrupt disruption that might threaten financial stability. The new transition period will expire on 31 December 2025.
ESG & Sustainability Bulletin
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