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Q2 2022 regulatory update

Insight 2 August 2022

Q2 2022 regulatory update

The second quarter of 2022 saw a multitude of regulatory updates across many key jurisdictions. Those updates ranged from ESG, tax, AML and changes to several major regulations just in time for the summer.

Welcome to our Q2 2022 regulatory update.

EU updates

  • ESG took a central place during the quarter. ESMA started Q2 with issuing a final report on the carbon market before seeing the European Commission launching a consultation on environmental, social and governance ratings and sustainability risks in credit ratings in early April.
  • On the SFDR side, key developments involved certain gas and nuclear activities, with the EU Commission adopting a delegated act on those activities before mandating ESMA, EBA and EIOPA to develop regulatory technical standards on them. ESMA also updated its Q&A on the application of the SFDR and Taxonomy regulations. Other key updates include clarifications issued by ESMA, EBA and EIOPA on the draft SFDR regulatory technical standards and a mandate by the EU Commission to review principal adverse impacts under the SFDR.
  • Still on ESG, we also noted ESMA issuing guidance on the integration of sustainability disclosures in asset management, releasing a study looking at reasons for lower costs in ESG funds and results on a call for evidence focusing on ESG Ratings. On the diversity and inclusion front, we took note that the European Parliament agreed to improve gender balance on boards of listed Last, the European Council also agreed its position on European Green Bonds in early April.
  • Several key directives had updates during Q2. The European Parliament provided comments on the AIFMD II proposals (see our 2021 Insights for further details on the AIFMD II proposals). The European Council agreed a mandate for the European Parliament to negotiate and agree final version of the amended ELTIF In late May, ESMA provided its report on investment funds costs and fees carried out in 2021. On securitisation vehicles, the European Banking Authority released final draft technical standards on risk retention vehicles. Finally, the EU Council agreed its position on updated rules for hedge funds, private debt funds, and other alternative investment funds (including AIFMD and UCITS Directives).
  • Switching to MiFID II, ESMA published a final report on the regulation’s remuneration requirements, as well as a letter to the EU Commission on MiFID II’s suitability consultation, which saw the Securities and Markets Stakeholder Group (SMSG) publishing its advice to ESMA on the topic.
  • The PRIIPs regulation saw several changes, with ESMA, EBA and EIOPA issuing joint advice on the regulation. Later in the quarter, we noticed the same agencies releasing a call for evidence on improving product descriptions intended to retail investors, before seeing a note from the EU Commission announcing a delegated regulation to postpone the application date of certain PRIIPs-related disclosures. Whilst on the topic of retail investors, the European Commission opened a consultation on increasing retail investor participation in capital markets.
  • Cross border marketing topics saw a consultation by ESMA on the notifications for cross-border marketing and management of funds for AIFs and UCITS in May, as well as an update from the regulator on the application of the CBDF in each EU jurisdiction.
  • Moving on to AML, EBA, EIOPA and ESMA released a joint report relating to the withdrawal of authorisation for serious breaches of AML/CFT rules.
  • There was a lot of focus on the new AML/CFT package (AMLD6) in Q2, notably through the European Central Bank releasing its opinion on it, as well as the European Parliament issuing a draft report on AMLD6 . Also worthy of note was the partial agreement by the EU Council on the creation of a new EU Authority for Anti-Money Laundering.
  • Tax-wise, the quarter started with a consultation by the EU Commission on a potential new EU system to avoid double taxation. Importantly, the EU also announced a new draft directive on Debt-Equity Bias Reduction Allowance (please see our Insights for further details).
  • In addition to the above, we also noted the announcement of a new template and electronic format for country-by-country reports, as well as a planned consultation focusing on tax evasion and aggressive tax planning in the EU.
  • On the digital side, notable updates included a European Commission consultation on a digital Euro as well as an agreement reached by the EU Council and EU Parliament on the MiCA regulation. In addition to this, the EU Council also reached a provisional agreement on the transparency of crypto-asset transfers, paving the way for regulatory obligations for crypto-asset service providers.
  • The European Union agreed its position on the European Single Access Point (ESAP) regime, which is aimed at providing a single point of access to public financial and sustainability-related information about EU companies and EU investment products.
  • As per the usual, ESMA released several newsletters for March, April, May and June 2022, as well as several Q&As in April (Benchmarks Regulation, ESMA Guidelines on Alternative Performance Measures, MiFIR data reporting and SFTR data reporting) and May (AIFMD, UCITS, Central Securities Depositaries, European crowdfunding service providers, MiFID II and MiFIR transparency topics). Another useful publication from ESMA is its 2022 planned consultation table.
  • Other noteworthy updates included: ESMA issuing a practical guide on notifications of major holdings under the Transparency Directive, a corporate reporting enforcement and regulatory report, as well as a supervisory briefing on the use of tied agents.

Country updates

  • In Luxembourg, the CSSF released a new circular focusing on UCI administrators, which was then followed by an FAQ a month later. The regulator had also issued a circular specifically relating to outsourcing arrangements in Luxembourg.
  • Still in Luxembourg but on the real assets side, the regulator issued a communique on real estate levy tax filings in April as well as a circular focusing on new reporting obligations for lenders in commercial real estate.
  • On AML, the CSSF published an FAQ on AML/CFT compliance officers’ summary report for Luxembourg investment funds and Luxembourg investment fund managers. The regulator also notified that reports due in relation to circular 21/790 were available on eDesk.
  • Other news to note involved an updated FAQ on SICARs, another one on DAC6, a guidance note on virtual assets, a final list of plausibility checks under the CSSF/ECB reporting and a circular on the notifications and de-notifications in under the CBDF Whilst on the topic of passporting for the latter, the CSSF also introduced its new ePassporting module on eDesk.
  • Other key Luxembourg regulatory updates included an update on the SFDR and Taxonomy regulations, a working paper on investment funds liquidity management tools, a circular on MiFID II and ESMA's guideline application on appropriateness and execution-only requirements and a reporting handbook for Investment Firms under the IFPR/IFDR.
  • The CSSF also released its usual monthly newsletters for April, May and June.
  • Finally, the Luxembourg Chamber of Commerce issued a joint position paper on the EU’s proposal for a Directive on Corporate Sustainability Due Diligence.
  • Switching our attention to the UK, an important update on what the post-Brexit future may hold was the Queen’s speech introducing a revised Financial Services and Markets Bill, which may result in laws inherited from the European Union to be amended more easily. Over a month later, the UK Government released its response to a consultation focusing on data protection in the UK and potential divergence from the EU GDPR. Whilst on the topic of Brexit, the FCA provided an update on its Temporary Transitions Power which expired on 31 March 2022.
  • Companies House provided two updates (one in mid-June and another later in June) on the upcoming register of overseas entities (see our earlier Insights for further details). Still on AML/CFT, the UK Government also issued its review of the current AML/CFT regime in late June.
  • ESG was also a key topic in the UK. The FCA issued a Policy Statement in April detailing new diversity and inclusion requirements for company boards and executive management (see our Insights for further details), as well as published its feedback on the ESG integration in capital markets consultation. Later, in May, the UK Government called on for evidence on its Green Finance Strategy.
  • On the tax front, a key update was the signing of a new UK/Luxembourg double taxation treaty in early June. We also noted the delay in the implementation of the OECD Pillar Two to 2023, as well as an amendment to HMRC guidance on Qualified Asset Holding Companies trading activities.
  • The UK also communicated several times on digital assets. In April, HMRC published its response to a previous consultation on cryptoassets, stablecoins, and distributed ledger technology in financial markets on the same day the UK Government announced plans to turn the UK into a global crypto-asset hub. The FCA did however communicate in May about the risks of investing in crypto-assets.
  • The UK launched several consultations, with the first one focusing on removing charge caps for Defined Contribution funds investing in illiquid assets, another one on the UK Solvency II framework, one on the resilience of the UK’s money market fund regime and a further consultation aimed at reforming the UK’s listing regime. The Government also issued its response to a consultation on the strengthening of audit, corporate reporting and corporate governance standards in the UK.
  • Other UK noteworthy updates include: the FCA announcing its business plans for 2022 and 2023, an updated regulatory initiatives grid, a consultation on winding down synthetic sterling LIBOR and US dollar LIBOR, a letter on custody and fund services supervision strategy as well as a call for evidence on the venture capital market.
  • In Mauritius, the Financial Services Commission communicated in early June on digital assets, more specifically via a consultation on the rules for the Virtual Asset and Initial Token Offering Services Act 2021, as well as a communiqué on fees applicable to virtual asset service providers and initial token offering issuers.
  • In addition to the above in Mauritius and more specifically in relation to AML/CFT, the regulator issued a communiqué on updates to the competency standards for money laundering reporting officers and compliance officers (please see our Insights for further details).
  • The SEC had a busy quarter which started off with the release of its 2022 examinations priorities (see our Insights for further details), shortly followed by a Risk Alert on the misuse of material non-public information (see our Insights for further details). The regulator also introduced new SPAC rules.
  • The ESG agenda also came up in the U.S., firstly with an extension of a consultation relating to the enhancement and standardisation of climate-related disclosures for investors, as well as the introduction of ESG disclosure rules for certain investment advisers in late May.
  • Other notable developments included proposals to change the Funds Name rule, a consultation on whether index providers, model portfolio providers, and pricing services may meet the definition of “investment adviser” under the Advisers Act as well as the introduction of new rules for electronic filings.
  • The Cayman Islands joined the ESG party by issuing an update on its ESG supervisory framework in April. On the beneficial ownership and tax sides, the Ministry of Financial Services and Commerce amended three regulations (for Companies, Limited Liability Companies and Limited Liability Partnerships) to confirm the requirement to file valid and unexpired government-issued documents for beneficial ownership purposes for the former, and a notice on the enforcement of CRS and Economic Substance regulations for the latter.
  • Other Cayman specific updates included an updated list of approved stock exchanges, as well as an updated FAQ for Virtual Asset Service Providers.
  • Hong Kong had a busy quarter which started off with a circular release updating the Code on Real Estate Investment Trusts and a consultation on changes to the position limit regime in April. Another consultation was opened in June, focusing on amending the Securities and Futures Ordinance.
  • A key development took place in late June with the announcement that the Hong Kong government would review the current Foreign Source Income Exemption regime. Another noteworthy point to note was an update by the Hong Kong Steering Group on its progress on the Hong Kong’s green and sustainable finance development framework, which came a few months after an assessment of carbon market opportunities.
  • Other communications from the SFC included a reminder about risks behind Non Fungible Tokens, a guide on practices and procedures for application for authorisation of unit trusts and mutual funds and an FAQ update on open-ended fund companies.
  • Moving to Singapore, ACRA issued a consultation on amending regime for corporate services providers in May. This was followed a month later by an announcement informing that ACRA and the SGX have setup a Sustainability Reporting Advisory Committee. Whilst on ESG, the MAS also issued three papers on environmental risk management (for banks, insurers and asset managers).
  • We noted continued updates on the OECD’s Pillar One rules, notably through several consultations focusing on Amount A: draft rules for scope, regulated financial services exclusions, extractives exclusion and tax certainty.
  • The OECD also consulted on a Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard.
  • On ESG, the IFRS’ International Sustainability Standards Board (ISSB) also launched a consultation on new sustainability and climate-related disclosure regimes.

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Paul Séjournant Director, Product Development - United Kingdom
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