Funds and asset management regulatory news, August 2021

Hogan Lovells

Hogan Lovells

Selected UK and EU regulatory updates of interest to the funds and asset management sector. See also our Related Materials links for regulatory updates of broad application.


  • ESG and sustainable investment funds: FCA guiding principles
  • PRIIPs KID exemption: European Commission adopts legislative proposal for amendments to UCITS Directive
  • UCITS Directive and AIFMD: sanctions imposed in 2020
  • AIFMD and UCITS Directive: ESMA updates Q&As

ESG and sustainable investment funds: FCA guiding principles

On 19 July 2021, the Financial Conduct Authority (FCA) published a Dear Chair letter addressed to the chairs of authorised fund managers (AFMs) on improving the quality and clarity of authorised environmental, social and governance (ESG) and sustainable investment funds. The letter includes guiding principles explaining the FCA's expectations in this area to help AFMs comply with existing requirements by ensuring that fund disclosures accurately reflect the nature of the fund's responsible or sustainable investment strategy in both the pre-contractual documentation (for example, the prospectus) and on an ongoing basis.

The FCA states that it is essential that funds marketed with a sustainability and ESG focus describe their investment strategies clearly and any assertions made about their goals are reasonable and substantiated. The FCA has seen numerous applications for authorisation of investment funds with an environmental, social and governance (ESG) or sustainability focus, a number of which have been poorly drafted and have fallen below its expectations. It gives examples of such applications in the letter. The FCA warns that applications falling below its expectations are likely to fail and it expects issues to have been addressed in the product design phase, prior to authorisation applications. The FCA expects to see material improvements in future applications. It also expects clear and accurate ongoing disclosures to consumers where funds make ESG-related claims, and for funds deliver on their stated objectives and/or strategy.

The FCA acknowledges that, while the EU Sustainable Finance Disclosure Regulation (SFDR) has not been onshored in the UK, some UK authorised firms may also be complying with its requirements in relation to their cross-border business in the EU. The intent of the FCA's guiding principles is to be complementary to obligations under the SFDR.

The FCA also flags that the guiding principles are "not the end point" of setting out its expectations in this space, and they have been developed with the aim of being compatible with prospective future disclosure rules for responsible and sustainable investment fund products, including the government's plan to introduce economy-wide Sustainability Disclosure Requirements and sustainable investment labels.

PRIIPs KID exemption: European Commission adopts legislative proposal for amendments to UCITS Directive

The European Commission has adopted a legislative proposal for a Directive amending the UCITS Directive as regards the use of key information documents (KIDs) by management companies of UCITS.

The proposed Directive inserts a new Article 82a in the UCITS Directive. This states that where a KID is drawn up, provided, revised and translated for a UCITS pursuant to PRIIPs Regulation, it should be considered as satisfying the requirements applicable to key investor information for the purposes of the UCITS Directive. Member states are expected to apply measures implementing the amending Directive from 1 July 2022.

UCITS qualify as PRIIPs for the purposes of the PRIIPs Regulation, which requires that all PRIIPs be accompanied by a KID. However, Article 32 of the PRIIPs Regulation also provides for a transitional arrangement for management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS, temporarily exempting them from the requirement to provide retail investors with a key KID. The arrangement currently applies until 31 December 2021. The Commission has adopted a legislative proposal for amendments to the PRIIPs Regulation extending the Article 32 transitional period until 30 June 2022.

UCITS Directive and AIFMD: sanctions imposed in 2020

The European Securities and Markets Authority (ESMA) has published its annual report on penalties and measures issued under the UCITS Directive and its annual report on penalties and measures issued under the Alternative Investment Fund Managers Directive (AIFMD). In the reports, ESMA provides an overview of the applicable legal framework and information on the sanctions imposed by national competent authorities from 1 January 2020 to 31 December 2020.

AIFMD and UCITS Directive: ESMA updates Q&As

ESMA has updated its Q&As on the application of the AIFMD and on the application of the UCITS Directive, adding new Q&As relating to ESMA's guidelines on performance fees in UCITS and certain types of alternative investment funds (AIFs) relating to performance fee scenarios where:

  • an authorised alternative investment fund manager has delegated the portfolio management function to different delegated portfolio managers; and
  • a new compartment or share class in an existing AIF/UCITS has been created in the course of its financial year or where a new AIF/UCITS has been created.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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