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Funds: Five by Five

Dale Gabbert


United Kingdom

Welcome to the Winter 2021 edition of Five by Five.

Five by Five is a summary of the key developments that we have been discussing with our fund clients and contacts over the last few months.

This edition covers:

  • ESG: updates on UK developments (the SDR) and EU developments (the SFDR)
  • PRIIPs: updates on UK and EU developments
  • UK Investment Firms Prudential Regime (including the new remuneration regime)
  • UK changes to MiFID
  • Proposed changes to the UK's Appointed Representative regime
  • The AIFMD Review
  • Final long-term asset fund ("LTAF") rules
  • FCA's new consumer duty
  • Launch of Fieldfisher's merger arbitrage desk
  • FCA expectations regarding remote or hybrid working

ESG: updates on UK developments (the SDR) and EU developments (the SFDR)


On 18 October 2021, the UK Government published a Policy Paper: Greening Finance: A Roadmap to Sustainable Investing.

Further to this policy, on 3 November 2021, the FCA issued a discussion paper (DP21/4: Sustainability Disclosure Requirements (SDR) and investment labels) in which it seeks initial views on the new SDR for asset managers and certain FCA-regulated asset owners and the proposed sustainable investment labelling system. The closing date to submit views is 7 January 2021. The FCA is aiming to consult in Q2 2022 on its proposed rules.

One approach the FCA is considering is a 3-tiered system incorporating labels and disclosures:

- Product labels: A standardised product classification and labelling system
- Disclosure layer 1 (aimed at consumers): Consumer-facing disclosures containing key product-level information
- Disclosure layer 2 (aimed at institutional investors): Detailed disclosures at product and entity level on sustainability risks, opportunities and impacts. 

The FCA set out the following potential approach to a sustainable product classification and labelling system:

• (1) Not promoted as sustainable (broadly equivalent to Article 6 SFDR funds)
• (2) Responsible and (3) Sustainable "Transitioning" categories (broadly equivalent to Article 8 SFDR funds)
• (4) Sustainable "Aligned" (broadly equivalent to Article 9 SFDR funds)
• (5) Sustainable "Impact" (a category in its own right, comprising only a (small) subset of Article 9 SFDR funds).

The FCA also published "A strategy for positive change: our ESG priorities" alongside DP21/4 that reiterates its commitment to enhancing both transparency and trust as ESG and sustainable products continue to grow in prominence.

On 22 October 2021, the Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA. together, ESAs) delivered to the European Commission the Final Report on draft regulatory technical standards (RTS) with regard to the content and presentation of taxonomy related sustainability disclosures under Articles 8(4), 9(6) and 11(5) of the Sustainable Finance Disclosure Regulation[1]  (SFDR). 

On 29 November 2021, the European Commission informed the European Parliament and Council that due to the length and technical detail of the 13 regulatory technical standards, the time of the submissions to the European Commission, and to facilitate the smooth implementation of the delegated act by product manufacturers, financial advisers and supervisors, the date of application would be deferred to 1 January 2023. However, the letter also specifies that the first detailed reporting on the principle adverse impact indicators would still be due by 30 June 2023 for the reference period 1 January 2022 until 31 December 2022.

PRIIPs: updates on UK and EU developments

Under the PRIIPs Regulation[2] those who produce, advise on or market PRIIPs (which include funds) must prepare and provide retail investors in the EEA with a standardised Key Information Document (KID), which must comply with prescriptive requirements. The PRIIPs Regulation, and accompanying RTS, were converted into UK law under the European (Withdrawal) Act 2018.

The PRIIPs Regulation sometimes causes an unreasonable and unsuitable cost and burden where a fund is legally offered to an investor, who is technically a "retail investor", in the UK or the EU, but where that investor is not a "true" retail investor (e.g. the investor could be very sophisticated but still fall in the definition of "retail investor" and, sometimes, employees of the fund's manager could be caught).


On 20 July 2021, the FCA published CP21/23 setting out its proposals to address its concerns and seek comments on its proposals, including (i) new rules to clarify the scope of the PRIIPs Regulation in relation to corporate bonds, (ii) introducing interpretative guidance to clarify what it means for a PRIIP to be "made available" to retail investors; and (iii) amending the PRIIPs RTS. On 1 November 2021, the FCA indicated a delay in publication of the Policy Statement that will set out the scope of rules and changes to the UK PRIIPs RTS. It is due to be published in Q1 2022.

The proposed guidance with respect to (ii) is:

"In the FCA’s view, and for the purposes of the PRIIPs Regulation, a financial instrument is not "made available" to a retail investor where the following conditions are met:

(1) the marketing materials for the financial instrument (including the prospectus, if there is one) feature prominent and clear disclosures to the effect that the financial instrument: (a) is being offered only to investors eligible for categorisation as professional clients or eligible counterparties under the FCA’s rules; and (b) is not intended for retail investors; (2) the issuer of the financial instrument or, in relation to secondary market offers, the distributor, has taken reasonable steps to ensure the offer and any associated promotional communications are directed only to investors eligible for categorisation as professional clients or eligible counterparties; and (3) a denomination or minimum investment of £100,000 applies to the financial instrument, or equivalent amount for a financial instrument denominated in another currency, where the equivalent amount is calculated not more than three business days before the date of issue of the financial instrument."

This proposal could ideally have gone further to more easily carve out investors that are not "true" retail clients. As it stands, however, the guidance should prove helpful in determining whether a KID is required in many of the more common problem least with respect to investors in the UK…


On 21 October 2021, the ESAs opened a call for evidence concerning multiple aspects of the PRIIPs Regulation. The input provided will feed into the ESAs' technical advice to the European Commission on a review of the KID. The ESAs are requesting information from stakeholders on a range of topics including the practical application of the existing KID such as its use by financial advisors or the use of digital media, the scope of the PRIIPs Regulation and the degree of complexity and readability of the KID. 

The call for evidence is open until Thursday, December 16, 2021. The ESAs also plan to hold a stakeholder event in Q1 2022 before finalising the advice.

UK Investment Firms Prudential Regime ("IFPR")

The UK IFPR sees the introduction of a new prudential regime for MiFID investment firms that are prudentially regulated by the FCA in the UK (FCA Investment Firms).  The implementation date of 1 January 2022 is fast approaching.  This initiative was introduced in the Financial Services Act 2021 and will be a major change for FCA Investment Firms and is based on the EU Investment Firms Regulation and the Investment Firms Directive[3]

On 22 October 2021, the FCA published a press release regarding the IFPR final rules. The FCA has converted the near-final rules from the first two policy statements of the IFPR into final rules. The final rules are in the legal instruments – FCA 2021/38 and FCA 2021/39. You can read a summary of minor updates made since the FCA published the near-final versions of the instruments in PS21/9.

Our note "The IFPR Remuneration Regime - The Devil in the Details" looks at the new remuneration regime applicable from 1 January 2022 as part of the implementation of IFPR. For firms already applying IFPRU (SYSC 19A) or BIPRU (SYSC 19C) Remuneration Codes, this may be evolution rather than revolution. But for exempt CAD firms becoming non-SNI firms some of the requirements may affect profoundly how they go about rewarding their most important staff.

UK Changes to MiFID
On 30 November 2021, the FCA set out its final policy position and rules on changes to the research rules and the removal of the best execution reporting in RTS 27 and RTS 28 following feedback to CP21/9.
From 1 December 2021, an FCA authorised firm is no longer required to prepare RTS 27 and RTS 28 reports. Happy Christmas!
From 1 March 2022, asset managers and research firms will be able to exercise the options on exempting the following from the FCA's inducement rules on research: (i) research on SMEs below a market capitalisation of £200m, (ii) fixed income currencies and commodities (FICC) research, (iii) research provided by research providers who do not provide execution services and are not part of a group that includes a firm offering execution services and (iv) openly available research.
Proposed changes to the UK's Appointed Representative regime
The publication of our article "The regulatory hosting model in the UK: Current challenges and potential developments" in edition 218 of the AIMA Journal proved to be quite timely.
Three days afterwards, HM Treasury published a call for evidence on how market participants use the UK's appointed representatives regime; how effectively the regime works in practice; potential challenges to the safe operation of the regime; and possible future reforms.
On the same day, the FCA published CP21/34: Improving the Appointed Representatives regime. The initial reaction is that this Consultation Paper does not contain any surprises but, given the importance of the regime to our clients, we will shortly publish a more detailed analysis of the proposals.

Both consultations close on 3 March 2022.

The AIFMD Review
On 25 November 2021, the European Commission published the much-anticipated legislative proposal amending the Alternative Investment Funds Manager Directive[4] (Directive 2011/61/EU) (AIFMD). The European Commission also felt that several issues highlighted in the AIFMD review were equally relevant for UCITS. Consequently, to better align the AIFM and UCITS requirements, this legislative proposal also amends the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS—Directive 2009/65/EC).
The proposals cover a wide variety of topics (including delegation and substance requirements, loan origination, the availability of liquidity management tools and Annex IV reporting etc.).
The proposal that could perhaps have the most impact for our clients is the one that would require two additional conditions to be satisfied in order to be able to rely on the National Private Placement Regimes (under Articles 36 and 42 of the AIFMD). The two new conditions are: (1) the non-EEA country where the non-EU AIF or the non-EEA AIFM is established is not identified as a high-risk non-EEA country pursuant to Article 9(2) of the EU's Money Laundering Directive; and (2) the non-EEA country where the non-EEA AIF or non-EAA AIFM is established has signed an agreement with the relevant EEA member states, which fully complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensures an effective exchange of information in tax matters, including any multilateral tax agreements, and that non-EEA country is not mentioned in Annex I to the Council conclusions of 2020 on the revised EU list on non-cooperative jurisdictions for tax purposes (the EU’s so called tax haven "blacklist").
These extra conditions are potentially problematic as some popular fund/manager domiciles have not always been able to satisfy both of the conditions and the "blacklist" is reviewed every six months. Indeed, the Cayman Islands was on the blacklist between February 2020 and October 2020 and, had the new proposed rules been in place, it would not have been possible to market Cayman Islands funds to EEA investors during this period.
The AIFMD review has now started its journey into the EU's legislative process and there will be at least two-three years until the final rules will come into effect.
Final long-term asset fund ("LTAF") rules
The FCA's final rules relating to the "long-term asset fund" ("LTAF"), a new authorised fund regime in the UK for investing in long-term investment assets/productive finance (such as venture capital, private equity, private debt, real estate and infrastructure), came into force on 15 November 2021.
We published an updated version of our original note from June that highlights the changes between the proposed and final rules.
The UK government released new tax regulations for the LTAF, which came into force on 9 December 2021.


On 10 December 2021, the FCA issued its final LIBOR publications before the important end-2021 deadline.
From 1 January 2022, 24 of the 35 LIBOR settings, which relate to specific currencies and time periods, will no longer be available. For the LIBOR settings that are continuing for a further time limited period after end-2021, the FCA has outlined the further actions it expects firms to take.
We recently published an article on synthetic LIBOR.

FCA's new consumer duty

On 7 December 2021, the FCA began a second consultation on its proposals to set a higher standard of consumer protection in retail financial markets.

The FCA's first consultation CP21/13: A new consumer duty outlined its high-level proposals to deliver this. In this second consultation, the FCA sets out more of the detail, including: (i) key feedback to CP21/13 and the FCA's analysis of the responses received and (ii) the FCA's revised proposals for a new Consumer Duty, which include proposed draft Handbook rules and guidance.

Launch of Fieldfisher's merger arbitrage desk

In September, we launched our merger arbitrage desk with the arrival of experienced antitrust and M&A lawyer Miguel Vaz.

"Merger arbitrage investors, normally event driven and hedge funds, need to understand the antitrust and other regulatory risks that may affect the outcome of M&A deals so they can make informed investment decisions," said Miguel. "In this type of market, success is determined by identifying and assessing regulatory issues and other risk factors quickly, precisely and with access to quality information."

FCA expectations regarding remote or hybrid working

As the UK government once again tells its citizens to "Work from home, if you can", it is worth pointing to the FCA's press release dated 11 October 2021, in which the FCA sets out its expectations on remote or hybrid working.

Please contact us if you would like to discuss any of the points we have raised in this edition.

We wish all our readers a happy and healthy break over the festive period.

[1] Regulation (EU) 2019/2088
[2] Regulation (EU) No 1286/2014
[3] Investment Firms Regulation ((EU) 2019/2033) and the Investment Firms Directive ((EU) 2019/2034)
[4] Directive 2011/61/EU