UK and Ireland Regulatory Update - September 2021 - Waystone

      UK and Ireland Regulatory Update – September 2021

      Welcome to our latest Regulatory Update for the UK and Ireland, a review of the rapidly evolving regulatory landscape.

      United Kingdom

      1. UK Extend PRIIPS exemption for UCITS

      On 1 June 2021, HM Treasury published a press release announcing that the current exemption for UCITS funds from the requirements of the retained EU law version of the PRIIPs Regulation ((EU) 1286/2014) (UK PRIIPs Regulation), in respect to packaged retail investment and insurance-based products (PRIIPs), will be extended by five years to 31 December 2026.

      The exemption currently allows UCITS fund providers to produce a key investor information document (KIID) as per the requirements of the UCITS Directive (2009/65/EC) instead of having to produce a key information document (KID). The HM Treasury intends to legislate to extend the exemption to 31 December 2026. However, depending on the findings of its review of the UK retail disclosure regime, changes to the UK PRIIPs Regulation or a successor regulation may be introduced sooner than this deadline.

      2. FCA Business Plan for 2021/22

      On 15 July 2021, the FCA published its latest Business Plan for 2021/22 which sets out the FCA’s key priorities and objectives for the year ahead. In its latest Business Plan, the FCA highlighted its commitment to being a forward-thinking and proactive regulator, and which would involve three distinct changes, to be more innovative, assertive and adaptive.

      The FCA’s commitment to such change is driven by a variety of factors, which include COVID-recovery, a response to Brexit, an increased focus on environmental and social issues in the financial sector and ever-advancing technology. With this in mind, the FCA details its key priorities separately in relation to:

      • protecting consumers and the effectiveness of consumer markets
      • increasing the effectiveness of wholesale markets; and
      • focussing on issues which apply on a cross-market basis, including fraud, financial resilience, operational resilience, diversity and inclusion, supporting ESG issues and preventing “greenwashing”, as well as international co-operation.

      3. FCA Consult on Climate-Related Disclosure Requirements

      On 20 July 2021, the FCA published a Consultation Paper (CP21/17) on new climate-related disclosure requirements for asset managers, life insurers and FCA-regulated pension providers, with a phased-in approach starting 1 January 2022. The FCA are set to introduce a new ‘Environmental, Social and Governance (ESG) Sourcebook’ in the FCA Handbook to set out its proposed rules and guidance, which include (i) entry level disclosures and (ii) product or portfolio level disclosures. The implementation will occur in two phases and will come into effect for asset managers with assets under management of more than £50 billion from 1 January 2022, with the deadline for the first disclosures falling on 30 June 2023.  For firms outside of this threshold, the rules will take effect from 1 January 2023, with the disclosure deadline falling on 30 June 2024.

      4. FCA Consults on Post-Brexit Changes to PRIIPS Regulation

      On 20 July 2021, the FCA published a Consultation Paper (CP21/23) on amending the UK PRIIPs Regulation, which focusses on concerns with the current regime. The focus of the consultation is to provide more clarity to investors on the nature of PRIIPs, the risks and further information on likely future performance.

      The FCA’s proposals include (a) introduction of rules to clarify the scope of the PRIIPs Regulation in relation to corporate bonds, making it clearer that certain common features of these instruments do not make them into PRIIPs, (b) introduction of interpretative guidance to clarify what it means for a PRIIP to be ‘made available’ to investors; and (c) amendments to the PRIIPs regulatory technical standards (RTS) to:

      1. replace the requirement of performance scenarios in the key information document (KID) with a requirement for narrative information on performance
      2. address the potential for some PRIIPs to be assigned an inappropriately low summary risk indicator in the KID, and
      3. address concerns pertaining to certain applications of the slippage methodology when calculating transaction costs.

      The proposed changes will be included in the FCA Handbook in a new ‘Product Disclosure’ sourcebook, and revisions to the PRIIPs RTS. The FCA plans to make final rules and amend the PRIIPs RTS by the end of 2021, which will take effect on 1 January 2022.


      1. CP140

      On 9 April 2021, the Central Bank published, CP140, which seeks views from interested stakeholders on the Central Bank’s proposed Cross Industry Guidance on Operational Resilience (the Guidance). The purpose of the Guidance expands on the Central Bank’s belief that a flexible, pragmatic, and proportionate approach to operational resilience will strengthen the industry’s ability to respond to and recover from the stresses and strains of business disruption.

      The Guidance sets the Central Bank’s expectations on how a firm implements operational resilience as part of their risk management and investment decisions. The area of Cyber Resilience was also heavily focussed on, whereby the Central Bank now require fund management companies, investment managers, and funds to have a robust and resilient cyber resilience policy and require board and senior management being held responsible for ensuring these procedures are in place. It is expected that there will be a significant transitional period to allow in-scope firms to ensure compliance.

      2. Dear Chair Letter on Liquidity Risk Management

      On 18 May 2021, the Central Bank published an industry letter following the ESMA project to review liquidity risk management frameworks for UCITS.

      The letter closely follows ESMA’s March 2021 public statement at the conclusion of Common Supervisory Action on UCITS liquidity risk management (LRM). The letter is addressed to all Irish authorised UCITS managers and directs them to review their liquidity risk management practices, documentation, systems and controls.

      The review must be completed and an action plan approved by the board of each UCITS fund management company by the end of Q4 2021.\

      3. Senior Executive Accountability Regime

      The heads of the Central Bank (Individual Accountability Framework) Bill (Heads of Bill) was published on 27 July 2021. The Senior Executive Accountability Regime (SEAR) forms a crucially important part of the Heads of Bill. The “in scope” firms for SEAR will be credit institutions (except credit unions); insurance companies’ undertakings (except reinsurance, captive (re)insurance and ISPVs) and “investment firms” which underwrite on a firm commitment basis and / or deal on own account and / or are authorised to hold client monies / assets. SEAR will be rolled out on a phased basis and it is possible that other regulated entities may be brought within its scope in the future.

      SEAR seeks to introduce requirements on in-scope entities to provide (a) statements of responsibility and (b) a management responsibility map, in which it seeks ensure greater transparency and clearer accountability within the financial services sector. Whilst, at least on an initial basis, SEAR will not apply to UCITS Management Companies and AIFMs, the Heads of Bill will, however, impose obligations on all regulated financial service providers (RFSP) whom will be obliged to comply with (i) “The Standards for Businesses”, (ii) the “Common Conduct Standards”, and (iii) the “Additional Conduct Standards”.

      I. The Standards for Businesses

      • obliges the firm to conduct its business professionally, honestly, ethically and with integrity
      • conduct its business with due skill, care and diligence, and take appropriate steps to prevent or effectively manage conflicts of interests
      • act in the best interests of its customers and treat them fairly and professionally
      • maintain adequate financial resources and control and manage its affairs and system sustainably, responsibly, and in a sound and prudent manner
      • arrange adequate protection for clients’ assets when it is responsible for them
      • deal with its regulators in good faith and in an open and cooperative way and shall disclose to the Central Bank promptly, proactively and appropriately anything relating to the firm of which the Central Bank would reasonably expect notice.

      II. Common Conduct Standards

      The Common Conduct Standards will apply to persons performing Controlled Function (CF) roles (including Pre-Approval Controlled Function (PCF) Roles) in RFSPs. The Common Conduct Standards will oblige RFPS’s to:

      • notify all relevant persons of the conduct standards that apply to them
      • provide suitable training to its staff on the conduct standards and
      • report in a timely manner any disciplinary action arising from breaches of the conduct standards to the Central Bank.

      III. Additional Conduct Standards

      The Additional Conduct Standards will impose binding obligations on persons in senior roles (being persons performing a PCF role and other persons who exercise significant influence on the conduct of an RFSP’s affairs) with respect to expected Common Conduct Standards in the performance of their roles and applies to all RFSPs whether in scope of SEAR.

      The additional conduct standards will require persons in senior roles:

      • to ensure that the business of the RFSP for which the person is responsible is controlled effectively
      • to ensure that the business of the RFSP for which the person is responsible complies with relevant regulatory requirements
      • to ensure that any delegation of tasks for which they are responsible is to an appropriate person and that they oversee the discharge of the delegated task effectively
      • to disclose promptly, proactively and appropriately to the Central Bank any information of which the Central Bank would reasonably expect notice and
      • to participate effectively in collective decision making.

      The Heads of Bill will now be put forward for approval to the Seanad and Dail for commentary and approval.

      4. Central Bank update to AIFMD Q&A and UCITS Q&A

      On 29 July 2021, the Central Bank issued an updated UCITS Q&A and AIFMD Q&A (collectively, the Q&A), which sets out its current position with respect to QIAIFs, RIAIFs and UCITS in gaining exposure – directly or indirectly – to crypto-assets.

      The Q&A highlights that crypto-assets are generally considered to be private digital assets that depend primarily on cryptography and distributed ledger or similar technology, but that the nature and characteristics of crypto-assets vary considerably. Furthermore, the Central Bank has indicated that it is not satisfied, in the context of UCITS products, that crypto-assets are capable of meeting the eligible asset criteria for UCITS and that indirect exposure to crypto-assets is capable of being appropriately risk managed.

      Taking into account the specific risks attached to crypto-assets, in particular for retail investors, the Central Bank has indicated that, at present, it is “highly unlikely” to approve a RIAIF or UCITS proposing any exposure, be it direct or indirect, to crypto assets.

      The Central Bank has indicated in the case of QIAIFs (which funds are aimed at professional investors) seeking to gain exposure to crypto-assets, that a submission may be made to the Central Bank in relation  to any exposure to crypto assets. The AIFM appointed to the QIAIF would need to be able to demonstrate to the satisfaction of the Central Bank how the risks associated with exposure to crypto-assets can be effectively managed by the AIFM.

      5. Central Bank propose updates to Fitness and Probity

      On 22 September 2021, the Central Bank issued its notice of intention to amend the list of PCFs applicable to all RFSPs, other than credit unions, by amending the Central Bank Reform Act 2010 (Sections 20 and 22) Regulations 2011 (the Act). This comes in light of the changing structure of, and landscape surrounding Irish financial services, including, in the lead up to and post-Brexit.

      In particular, the Central Bank proposes that non-executive directors (which are not independent) will be classified as PCF-2A, whilst independent Non-Executive Directors will be classified as PCF-2B.The purpose behind the proposed classifications is to distinguish the role of the independent Non-Executive Directors from other Non-Executive Directors, given that the role is an integral component of the board of an RFSP and a fundamental safeguard within an RFSP’s governance framework.

      The publication also states that in situ PCF-2s will be re-designated as PCF-2A and will require the RFSPs to notify the Central Bank which individuals should be designated as PCF-2B, and to confirm they have undertaken the relevant due diligence to assess independence.

      A consultation process will now commence in relation to the Central Bank’s proposed changes, with responses required to be submitted by the 20 October 2021.

      Once the Act comes into effect, RFSPs will also be required to submit an in situ confirmation to the Central Bank, and will have six weeks to do so.

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