Funds Legal Update | 14 October 2019

Upcoming deadlines for FCA notification

• 16 October 2019 - Deadline for fund managers to update the FCA with notifications under Brexit temporary permissions regime (TPR).
• 30 October 2019 - Current closing date for the FCA notification window for incoming EEA firms to enter the TPR.

FCA policy statement on illiquid assets and open-ended funds

On 30 September 2019, the FCA published a policy statement on illiquid assets and open-ended funds, setting out its finalised rules following its consultation back in October 2018 on measures relating to non-UCITS retail schemes (NURS) investing in illiquid assets.

The FCA's proposals include amendments to the Collective Investment Schemes sourcebook and the Conduct of Business sourcebook. Full details of the FCA Handbook instrument responsible for making the relevant rule changes can be found in Appendix 1 of the policy statement and will come into force as of 30 September 2020.

The key amendments include the following requirements:

• NURSs holding property and other immovables must suspend dealing when there is material uncertainty about the valuation of at least 20% of the scheme property.
• Managers of funds investing in inherently illiquid assets (FIIAs) must produce contingency plans for dealing with liquidity risks. Depositaries will have a specific duty to oversee the processes used to manage the liquidity of the fund.
• There will need to be an additional disclosure in a fund's prospectus of the details of its liquidity risk management strategies. A standard risk warning must also be included in financial promotions to retail clients for FIIAs.

The publication of the policy statement was initially postponed in June 2019, following the suspension of the LF Woodford Equity Income Fund (a UCITS fund), while the FCA deliberated over whether its proposals surrounding NURSs could be applied more widely. The FCA's current thinking on UCITS and potential measures are set out in chapter 7 of the policy statement. The FCA continues to work alongside the Financial Policy Committee to consider how redemption terms can be better aligned with their assets' liquidity to reduce the risk to financial stability without sacrificing the supply of productive finance.

Joint Committee of ESAs work programme for 2020

On 2 October 2019, the Joint Committee of the European Supervisory Authorities, which comprises the European Banking Authority, European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (ESMA), published its work programme for 2020. The programme places emphasis on cybersecurity and retail financial services and depositor, consumer and investor protection issues. The programme also covers matters such as packaged retail investment and insurance-based products (PRIIPS), financial innovation, sustainable finance, complaints handling and securitisation.

ESMA updates MiFID II Q&As on investor protection and intermediaries topics

On 3 October 2019, ESMA updated its Q&As on investor protection and intermediaries topics under Markets in Financial Instruments Directive (MiFID) II and the Markets in Financial Instruments Regulation (MiFIR). The updates include the following:

• A modified answer to the question on best execution concerning how the Regulatory Technical Standards (RTS) 27 and RTS 28 reports should be made available to the public.
• A new Q&A added on investment advice on an independent basis.
• A modified answer to the question regarding how the term "ongoing relationship" is used and should be understood in the context of MiFID II.

ESMA consults on MiFIR alignment following introduction of EMIR Refit Regulation

On 4 October 2019, ESMA published a consultation paper on the alignment of MiFIR with the changes introduced by the European Markets Infrastructure Regulation (EMIR) Refit Regulation. The European Commission will prepare a report to assess the necessity and appropriateness of aligning the trading obligation for derivatives (DTO) under MiFIR with the changes to the clearing obligation under the EMIR Refit Regulation that did not make direct amendments to MiFIR. This explains the misalignments between the scope of counterparties subject to the clearing obligation under EMIR and the DTO under MiFIR.

If you would like to discuss any of these developments, please get in touch with one of the experts listed below.