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Asset Management Horizon Report 2022

Looking ahead to 2022, the regulatory landscape for asset managers seems to be dominated by three topics: first, ESG, reflecting the importance of the financial sector to the transition to net-zero; second, developments in key funds frameworks including AIFMD, ELTIFS/LTAFs and UCITS; and third, a focus on consumer harm headlined in the UK by the introduction of a new “consumer duty”. These developments, as well as PRIIPS and how the new Investment Firms Prudential Regime is embedded into firms from January, mean that keeping a close eye on the horizon remains as critical as ever.

Our report explores twelve key regulatory developments, and the challenges and opportunities that they present for the asset management sector in the year to come.

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Asset Management

Topics covered in our Horizon Scanning report

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ESG (Disclosure and Reporting)

Sustainable Finance

With the focus on greenwashing, the asset managers, who have grappled with new disclosure obligations under the EU’s disclosure framework since March, have a lot more to come in 2022. Although compliance with the most granular product disclosure obligations will not hit until the beginning of 2023, other reports are required in 2022, including the beginning of mandatory UK TCFD reporting for large asset managers.

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Wholesale Markets Reform

Prudential

2022 will be a year of consultations and significant engagement with legislators and regulators across the EU and UK. Both the EU and UK have made certain “quick fix” amendments to their MiFID regimes to improve efficiencies in order to support post-Covid market recovery. In the EU an extensive review of MiFID II/MiFIR is coming to a close, with the European Commission putting forward its proposed legislative changes in November 2021. In the UK, HM Treasury is expected to put forward legislation to make wholesale markets regulation more efficient. On CSDR, significant concern around the introduction of the mandatory buy-in regime remains the key outstanding issue as we reach the end of 2021.

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Prudential regimes for investment firms

Horizon

Although the EU IFR/IFD have applied since June 2021, some Member States are yet to implement the directive, and various technical standards and guidelines are yet to enter into force. In the UK, firms are hurtling towards 1 January 2022, when the new prudential regime for investment firms (IFPR) starts to apply. The year 2022 will see firms in the EU and UK finalising implementation and, importantly, taking stock and making adjustments in line with emerging market practice and commentary from regulators. Several key regulatory publications are also to come.

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PRIIPS

MiFID

The legislation surroundings PRIIPs has proven to be one of the more contentious pieces of financial regulation in recent times. The core objective of the regime is to enable consumers to make informed investment decisions through an increase in the transparency and comparability of different packaged retail investment and insurance products. The UK and the EU have both recently proposed changes to their own PRIIPs regimes to address these concerns, and a key focus in the coming months will be on how the UK and EU are going to develop and diverge the rules in this area, both in the short term and in the longer term.

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AIFMD/UCITS/ELTIF Regimes

Horizon

The EU Commission has recently adopted proposals to amend AIFMD, the UCITS Directive and the European Long-term Investment Funds (“ELTIF”) Regulation. We expect to see negotiation between the European Parliament and the Council of the final legislative text over the coming months.

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Future UK Funds Regime

Payments

The UK Government has launched reviews of several areas of financial regulation. In 2022 the policy outcomes of this work will take shape. In many areas the UK is looking to international standards as its lodestar rather than EU rules. 

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Liquidity Management

Financial Crime

The issue of liquidity in open-ended funds has risen up the FCA’s agenda in recent years. The potential harm to result from mismatches between fund redemption terms and underlying asset liquidity has been brought to public attention most notably by the high profile case of LF Woodford Equity Income Fund. A number of recent initiatives demonstrate that the issue is also being considered at a pan-European level.

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ESMA Short Selling Regime

Horizon 

The recent ESMA consultation shines a light on the future of the EU Short Selling Regulation and progress is anticipated in 2022 in the form of ESMA recommendations for the European Commission to consider.  

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Operational Resilience

Governance

New rules set to build firms’ resilience to operational disruption will take effect from 31 March 2022. In-scope asset managers have until then to put together their self-assessment documents showing how they comply with the new regime.

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Consumer Harm

Governance

The FCA remains committed to identifying and tackling instances of consumer harm, rooting out systemic risk within the industry and securing remediation where things go wrong. Breaches of firms’ obligations to treat customers fairly set out in Principle 6 remain a common feature of enforcement action. The FCA wants to set higher standards for the industry and to see greater levels of consumer protection in place.

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Conduct Risks

Consumer Harm

The FCA continues to develop its thinking around how best to improve conduct and culture within financial services. This is becoming a common feature of supervisory discussions, with the FCA increasingly demanding metrics and evidence from firms that they are meeting the regulators objectives. 

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AML

Horizon

The UK Government aspires to exercise greater autonomy in AML regulation post-Brexit. The year 2022 could still see the first significant divergences between UK and EU AML regulations – increasing compliance burden on asset managers with multi-jurisdictional footprints.

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Explore our Year to Come 2022 and Year in Review 2021 series across 20+ jurisdictions and a number of legal topics.

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