Fri, Nov 19, 2021

FCA Key Topics – October - November 2021

FCA Discussion Paper on SDR and Investment Labels

Jane Stoakes

On 3 November, the FCA issued a discussion paper (DP) on the development of proposals for sustainable disclosure requirements (SDR), which forms part of the government’s roadmap on sustainable investing mentioned above.

Firms are increasingly incorporating ESG factors into their operations, products and services. This results in an increasingly diverse range of products with varying sustainability objectives and characteristics. Whilst this is welcomed by the Regulator, it also increases the risk of harm without common standards, clear terminology and accessible product classification and labelling in place.

The DP addresses this and seeks feedback by 7 January 2022 on potential approaches to:

  • Sustainable investment labels
  • Consumer-facing disclosures for investment products
  • Entity- and product-level disclosures by asset managers and FCA-regulated asset owners

Please find the DP here.

New Prudential Rules for MiFID Firms – Less Than Six Weeks to Go 

Jane Stoakes

The Financial Conduct Authority’s (FCA) new prudential rules will apply to MiFID firms, including Collective Portfolio Management Investment firms, from 1 January 2022.
We can assist you with any questions that you have about the new requirements, which will be set out in the FCA’s new handbook, MIFIDPRU. We have also developed an Investment Firms Prudential Regime (IFPR) toolkit that will help firms to implement IFPR. The toolkit consists of the following:

  • IFPR guide 
  • Internal Capital and Risk Assessment (ICARA) templates 
    • Business Model Assessment, Capital and Liquidity Planning (BMA)
    • BMA stress test
    • ICARA liquidity policy
    • Cashflow forecasts and stress tests
    • Wind-down plan
    • Risk register
  • Template Remuneration Policy 

Please contact your normal relationship manager if you would like to discuss this further.

FCA Finalizes Rules for a New Authorized Long-term Asset Fund

Darragh Finn and Jane Stoakes

The FCA has published a policy statement entitled, “A new authorized fund regime for investing in long-term assets,” which sets out the new rules that create a Long-Term Asset Fund (LTAF) regime. The LTAF is a new FCA-regulated fund that is designed specifically to aid investment in assets that include venture capital, private equity, private debt, real estate and infrastructure. The LTAF aims to define contribution pension schemes that may invest in such assets. It also offers long-term investment opportunities to sophisticated investors and some high-net-worth individuals. 

The FCA’s rules for the LTAF ensure there is consistency between how long it takes to sell assets and how often and quickly an investor can sell out of the fund. The FCA has decided to require LTAFs to permit redemptions no more frequently than monthly and to have at least a 90-day notice period on redemptions to avoid a potential mismatch between redemption terms and the liquidity of assets.

The rules and guidance in the policy statement aim to address two specific barriers that stakeholders say have hampered investment in long-term illiquid assets: 

  • That there is no UK-authorized open-ended fund structure that enables investment in long-term illiquid assets while offering appropriate structural safeguards
  • That the permitted links rules for unit-linked insurance hinder investment in illiquid assets

The FCA will be consulting next year on the potential for widening the distribution of the LTAF to certain retail investors. While this would potentially open a controlled route for retail investors to higher-risk assets than some of the other routes currently available, such as unauthorized funds, the FCA is aware of the need for safeguards to ensure retail investors understand the risks involved.

The LTAF regime came into force on 15 November 2021. A link to the policy statement is available here.

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