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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.