Topic Update Date Firm Type

FCA Consults on Extension of Financial Crime Reporting

On August 24, 2020 the FCA began a consultation (CP20/17) on a proposal to extend the scope of the Annual Financial Crime Reporting obligation (REP-CRIM) to include firms that conduct regulated activities which may pose a higher money laundering risk.

Under the proposal, firms who engage in one of more of the following activities (more are included in the consultation paper) would need to complete REP-CRIM irrespective of revenue:

  • Advising on investments and holding client money or safeguarding client assets
  • Arranging (bringing about deals) in investments and holding client money or safeguarding client assets
  • Dealing in investments as an agent
  • Dealing in investments as a principal
  • Managing investments
  • Managing a UCITS
  • Managing an AIF

The consultation period closed on November 23, 2020 and the FCA plans to publish a policy statement in Q1 2021.

Q1 2021

IM, B, AA, AC

Senior Managers & Certification Regime (SM&CR)

The SM&CR was introduced in December 2019 and all solo-regulated firms were required to ensure that, by December 9, 2020:

  • All relevant staff are trained on the five conduct rules and understand how these rules apply to their roles
  • All staff in certified roles are fit and proper to perform that role and are issued with a certificate
  • Data is submitted for directory persons working in financial services

The deadline to comply was extended to March 31, 2021 to ensure that any firms significantly affected by the COVID-19 pandemic had the necessary time to take the required action.

In addition, now that we are one year on from implementation there are a number of actions that SM&CR firms should be taking, including:

  • Re-train all relevant staff, including senior managers and certified staff, on the conduct rules
  • Review each senior manager’s “statement of responsibility” to ensure that they remain up to date
  • Complete an annual fit and proper assessment for all senior managers and certified staff
  • Issue annual certificates for all certified staff
  • Notify the FCA, via Connect, of all directory persons (including certified persons) by March 31, 2021—although the FCA has asked firms to provide this information as soon as they are able [Note: this deadline relates to the initial notification, once the FCA processes this notification, an authorized firm is required to submit all changes to directory persons as and when they occur on an ongoing basis]

Q1 2021

IM, B, AA, AC

Sustainable Finance Disclosure Regulation

Published in the Official Journal of the EU on December 9, 2019, the regulation on sustainability-related disclosures in the financial services sector (SFDR) will be effective from March 10, 2021.

From March 2021, these regulations require AIFMs, UCITS mancos and firms providing MiFID portfolio management services to include in their pre-contractual disclosures (i.e. prospectus, offering memorandum, MiFID disclosures, etc.) specific disclosures around how they factor sustainability risks into their investment decision making. Information and policies also need to be disclosed on firms’ websites covering the points above. Firms much also incorporate how they are consistent with the integration of sustainability risks into their remuneration policies (and to also publish this on their website). Additional requirements apply if firms manage ESG or products with sustainable investment objectives.

However, the SFDR legislation hasn’t been “on-shored” by the Treasury as part of preparation for the UK to leave the EU and so SFDR (and the associated taxonomy legislation) will not apply directly to UK firms from March 10, 2021.

The FCA issued PS20/17 on December 21, 2020 requiring commercial companies with a UK premium listing to include a compliance statement in their annual financial report, stating whether they have made disclosures consistent with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD), and to explain if they haven’t.

The FCA intends to consult, in early 2021, on potential client-focused TCFD-aligned disclosures by UK-authorized asset managers.

However, the SFDR will be relevant to any asset managers marketing services to EU investors since they will be required to disclose information to allow EU investors to make consistent investment decisions.

March 10, 2021

IM, AA, AC

UK Stewardship Code 2020

The Financial Reporting Council (FRC) published a revised version of the UK Stewardship Code (the 2020 Code) which came into effect on January 1, 2020.

Key changes include:

  1. Extended focus to include asset owners, service providers and asset managers
  2. Requirement to report annually on stewardship activity and its outcomes
  3. Taking environmental, social and governance (ESG) factors, including climate change, into account and ensuring investment decisions are aligned with the needs of their clients.
  4. Explain how stewardship is exercised across asset classes beyond listed equity (i.e. fixed income, private equity and infrastructure) and in investments outside the UK
  5. Explain an organization’s purpose, investment beliefs, strategy and culture and how these enable stewardship

Any firm that became a signatory to the previous version of the Code will remain so until the first list of signatories to the 2020 Code is published (likely to be in the second half of 2021).

To become a signatory to the 2020 Code, firms will need to produce an annual “stewardship report” explaining how they have applied the Code in the previous 12 months. The FRC will evaluate these against an assessment framework and those meeting the required expectations will be listed as signatories to the 2020 Code.

To be included in the first list firms must submit a final report to the FRC by March 31, 2021.

March 31, 2021

IM, AC

Investment Firm Prudential Regime

The Investment Firms Directive & Regulations (IFPR) were published on the EU Official Journal on December 5, 2019, came into forced on December 25,2019 and will be effective across the EU from June 26, 2021.

On November 16, 2020 the Treasury, the PRA and the FCA issued a joint statement confirming that they were targeting an implementation date of January 1, 2022 for IFPR.

This regime applies to all MiFID investment firms and UK collective portfolio management investment firms (although only in respect of their MiFID business).

The FCA published the first IFPR related Consultation Paper (CP20/24) in its planned programme of CPs and Policy Statements on December 14, 2020. This CP covers topics such as firm categorisation, own funds definitions and own funds requirements and the consultation period closes on February 5, 2021.

The new regime introduces a framework that includes the following components:

New three-class categorization of firms

Class 1 Investment Firms – Systemic firms permitted to deal on their own account; underwrite or place financial instruments on a firm commitment basis; or where total AUM exceeds €30bn. Full Capital Requirement Directive (CRD) rules continue to apply to these firms. Likely to all be dual regulated firms.

Class 2 Investment Firms – MiFID investment firms not classified as either class 1 or class 3. Class 2 firms are subject to the new framework and will be subject to all aspects of IFPR.

To be known as non “small non-interconnected” investment firms (non-SNI).

Class 3 Investment Firms - Firms with:

  • AUM < €1.2bn
  • Client orders < €100mn/day for cash or €1bn/day for derivatives
  • No safeguarding or administering of assets, client money, daily trading flow or net position risk
  • On and off-balance sheet < €100mn
  • Annual gross revenue < €30mn

A simplified version of the new regime applies to these firms.

To be known as “small non-interconnected” investment firms (SNI).

Capital requirements

Permanent minimum capital requirements (PMCR) are €75k, €150k or €750k.

Non-SNI requirements:

  • Hold own funds which is the higher of the PMCR, the fixed overhead requirement (FOR) and the K-factor requirement (see below)
  • Maintain one month of fixed overhead requirement (FOR) for liquidity purposes
  • Maintain an ICARA process (internal capital assessment process and internal risk assessment)

SNI requirements:

  • Hold own funds which are the higher of the PMCR and FOR
  • Maintain one month of FOR for liquidity purposes
  • The FCA will, via its discretion, apply the ICARA process to SNI firms (but is expected to clarify what a simplified ICARA process would look like)

The K-factor formula is a new capital calculation designed to capture the risk a firm’s business may pose to:

  • Customers,
  • Market access or liquidity, and
  • The firm itself.

January 1, 2022

IM, B, AA & AC (if AIFM with MiFID top-up or MiFID CPMI firm)

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