Clearly, the COVID-19 crisis has had an impact on the plans of financial regulators across the world.
In the UK, the FCA and PRA have both postponed non-critical activity, and the FCA has extended the closing date for responses to open consultation papers and calls for input until 1 October 2020, rescheduling most other planned work.
The FCA has also set out its expectations of funds in the light of the COVID-19 crisis in a paper which envisages the delay of annual and half-yearly fund reports and confirmation that firms can hold general meetings of fund unitholders in a virtual format, amongst other things.
Moving beyond COVID-19, the FCA has confirmed in its 2020-21 Business Plan a continuing focus on Environmental, Social and Governance (ESG) reforms. It intends to publish a Consultation Paper proposing new disclosure rules for certain issuers aligned with the TCFD’s recommendations on a "comply or explain" basis, and to challenge firms where they see potential greenwashing.
Meanwhile, at EU level, the European Banking Authority (EBA) will complete the second phase of its preparatory work on disclosure and risk assessment in the area of sustainable finance later this year, leading to a discussion paper on the incorporation of ESG into risk management and supervision, as well as undertaking preparatory work on the classification and prudential treatment of assets from a sustainability perspective.
In other developments, the European Commission published the Report on its review of AIFMD in June. The Commission is still assessing the need for any amendments to AIFMD and will consult on this in Q3 2020. Meanwhile, however, the report highlights several concerns raised by respondents to the consultation, particularly in respect of loan-originating AIFs, depositaries and passporting.
The FCA is due to publish the Retail Distribution Review and the Financial Advice Market Review findings in 2020, with the FCA particularly keen to understand the impact technology has had on the market and the potential for it to help meet future consumer needs.
The FCA's new rules for certain open-ended funds investing in inherently illiquid assets are currently due to come into effect on 30 September 2020, requiring that investors are provided with clear and prominent information on liquidity risks, and the circumstances in which access to their funds may be restricted (see more in our article on open-ended real estate funds).
The UK government has consulted on the overseas funds regime and proposals to simplify the process for allowing investment funds set up overseas to be marketed in the UK. This consultation sets out the government’s proposal for two new regimes based on the principle of equivalence: one for retail investment funds, and one for money market funds.
The government is also consulting on the tax treatment of asset holding companies in alternative fund structures, with the deadline for responses extended to 19 August 2020. This forms part of a wider review of the UK’s funds regime with a view to considering the case for targeted policy changes.
The FCA has published a discussion paper on the introduction of a new prudential regime for investment firms, which are currently regulated under rules made for banks and building societies, following last year's Investment Firm Directive and Regulation, due to be implemented by the end of June 2021. As the EU regime will be introduced after the scheduled end of the UK’s transition period to exit the EU, the UK will introduce its own prudential regime for investment firms, as announced in the Chancellor’s statement in the Budget in March.
Also anticipated are proposed amendments from the European Supervisory Authorities (ESAs) consultation on changes to the PRIIPs Delegated Regulation, the output of an FCA supervisory review of firms’ implementation of the MiFID II product governance rules, the applicability of the revised Shareholder Rights Directive (SRD II) from 3 September 2020, and the full implementation of the SMCR for FCA solo-regulated firms by 9 December 2020. With respect to the latter, perhaps the most significant change will be the extension from that date of individual conduct rules to all staff (except those carrying out a small number of purely administrative roles that are specified in the FCA’s rules), and not simply those who were formerly approved persons.