International Funds Legal Update | 15 July 2024

The UK Financial Conduct Authority (FCA) has resumed its public policy notifications, including some notices that are relevant for fund managers, following a pause during the sensitive political climate in the lead up to the UK general election, There have also been a number of updates related to sustainability from both the FCA and the EU's regulators.

FCA publishes delayed regulatory round-up

Following its halt in issuing policy notifications during the UK general election results, the FCA has published its delayed regulation round-up for June 2024, including updates of which fund managers should take note on the Consumer Duty and on changes to its attestation forms.

The end of July marks the first anniversary of the Consumer Duty applying to new and existing products, as well as the deadline for fund managers to provide their first annual Consumer Duty board report. The 31 July is also the date of implementation for closed products and services. The FCA has published information about the Consumer Duty queries that it has received from firms, which will be a useful information resource for fund managers.

The FCA is reviewing its attestation forms that relate to firm details in order to improve guidance, navigation and accessibility. The regulator will strengthen validation on all existing fields and verification for email addresses, phone numbers and addresses. Data will be matched up against that held by Companies House, including firms' registered name, registered address and financial year end. Fund managers should review and update their data held by Companies House before completing their next attestation. The FCA plans to roll out the new form later in 2024.

How to notify the FCA about investment labels

Managers will be able to opt in from 31 July to use investment labels for UK investment funds that are seeking to achieve positive sustainability outcomes, providing they meet the relevant label's qualifying criteria. In this context, the FCA has recently updated its webpage on the sustainability disclosure requirements (SDR) and labelling regime.

A section has been added on how fund managers can notify the regulator about using  SDR investment labels. Also, information is provided on how to apply to make associated changes to a fund's name, investment objectives or policy.

Firms must notify the regulator when using an investment label through Connect, the FCA's online notification and applications system. The webpage sets out the process for the following scenarios:

• An authorised fund that the fund manager considers meets the criteria for a label without the need for changes to the pre-contractual disclosures.
• An authorised fund that the fund manager considers requires changes to the pre-contractual disclosures to meet the label criteria.
• A new fund that the fund manager considers will meet the label criteria.
• An in-scope unauthorised alternative investment fund seeking to use an investment label.

The FCA does not approve labels, but fund managers are required to notify the regulator when they use, revise or stop using a label.

EU retail funds must apply for permanent UK marketing permissions

The FCA has updated its overseas funds regime (OFR) webpage with information on landing slots for fund operators in the temporary marketing permissions regime (TMPR).

The FCA will issue a binding direction to each fund operator in the TMPR, eight weeks before their landing slot opens. This will explain how the fund operator can apply. The specific dates for landing slots are set out and fund operators must apply within their allocated three-month slot. There are a total of 20 landing slots, with the first one opening on 1 October 2024.

If a fund fails to submit its application or to notify the FCA that no application will be made during its landing slot, the applicable fund will lose its recognition under the TMPR immediately after the end of its landing slot. This means that the fund will no longer be a recognised scheme under the Financial Services and Markets Act 2000; as such, the fund will be unable to be promoted to UK retail investors until it has made a successful application for recognition under the OFR. Funds in the TMPR cannot apply to be a recognised scheme under section 271A FSMA until the FCA has directed them to do so.

Fund managers should consider the impact on UK investors – including the potential tax implications –   if they wish to remove any funds from the TMPR.

ESAs issue their assessment of EU's sustainability regime

The European Supervisory Authorities (ESAs) published a joint opinion on 18 June on the assessment of the Sustainable Finance Disclosure Regulation (SFDR).

The SFDR lays down harmonised rules for financial market participants, including fund managers and financial advisers, on transparency. These rules relate to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability-related information  about financial products, such as investment funds.

The recommendations are that:

• The European Commission could consider the introduction of a product classification system to help consumers navigate the broad selection of sustainable products.
• The categories should be simple with clear objective criteria or thresholds.
• A sustainability indicator could refer to environmental sustainability, social sustainability or both.
• Options for product categorisation and sustainability indicators should be consulted on or consumer tested.
• The Commission should ensure that sustainability disclosures cater to different investor needs.
• The Commission could carefully reflect on whether to include other products within scope of the SFDR.

The opinion was delivered on the ESAs' own initiative, as the Commission is currently assessing stakeholders' responses to support policy considerations to improve the EU framework for sustainable finance that are based on experiences gained from implementing the SFDR.