Asset Management

Issue 1167 / 7 July 2022

European Commission

IFR - Commission Delegated Regulation (EU) 2022/1159 on RTS on the disclosure of firms’ investment policy published in OJ - 6 July 2022

Commission Delegated Regulation (EU) 2022/1159) supplementing the EU Investment Firms Regulation ((EU) 2019/2033) (IFR) in relation to regulatory technical standards (RTS) for public disclosure of investment policies by investment firms, has been published in the Official Journal of the European Union.

The European Commission adopted the Commission Delegated Regulation on 11 March 2022. It will enter into force on 26 July 2022.

Commission Delegated Regulation (EU) 2022/1159 of 11 March 2022 supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards for public disclosure of investment policy by investment firms

European Parliament

ELTIF Regulation - ECON publishes report on proposed amending Regulation - 1 July 2022

The European Parliament’s Economic and Monetary Affairs Committee (ECON) has published the text of its report (the Report), dated 28 June 2022, on the proposed Regulation to amend the Regulation on European long-term investment funds (ELTIFs) ((EU) 2015/760) (ELTIF Regulation). The amending Regulation forms part of the European Commission’s Capital Markets Union package, published in November 2021. ECON voted to adopt the report in June 2022, as previously reported in this Bulletin.

ECON will now open negotiations with the Council of the EU, which adopted its position on the amending Regulation in May 2022.

I Report on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) 2015/760 as regards the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules and as regards requirements pertaining to the authorisation, investment policies and operating conditions of European long-term investment funds (2021/0377(COD)) (A9-0196/2022)

Financial Conduct Authority

Sustainable Disclosure Requirements and investment labelling regime - FCA publishes update on Discussion Paper (DP21/4) - 4 July 2022

The FCA has published an update on its November 2021 Discussion Paper (DP21/4), which seeks initial views on sustainability disclosure requirements (SDRs) for asset managers and FCA-regulated asset owners, as well as a new classification and labelling regime for sustainable investment products. The Discussion Paper forms part of the SDR framework announced in the government’s October 2021 paper, ‘Greening Finance: A Roadmap to Sustainable Investing’.

The FCA notes that the Discussion Paper has now closed for comments. The FCA will use the feedback to help develop its proposed rules implementing the SDRs and sustainable investment labels. It had planned to consult on these rules in Q2 2022, but is now planning to do so in Autumn 2022 to take account of other international policy initiatives and to ensure stakeholders have time to consider the issues.

Updated webpage

Retail investment funds - FCA publishes Policy Statement (PS22/8) on separate unit classes - 6 July 2022

The FCA has published a Policy Statement (PS22/8) setting out its response to the feedback it received to its April 2022 Consultation Paper (CP22/08) on proposals to allow authorised fund managers (AFMs) of UK authorised investment funds to create separate unit classes, which the FCA terms ‘side pockets’, for retail investment funds affected by the Russian invasion of Ukraine. The Policy Statement and Consultation Paper follow the FCA’s statement on the potential use of side pockets, published in March 2022.

In light of the feedback received to the Consultation Paper, the FCA is proceeding with the rules to facilitate the use of side pockets broadly as consulted on, with amendments to clarify the proposed requirements. The FCA has also added rules and guidance to explain how AFMs should treat side pocket classes in certain situations, and wording to emphasise the need for AFMs to consider the impact of creating a side pocket class on other firms offering products or services through which investors have exposure to the fund.

Appendix 1 to the Policy Statement sets out the handbook instrument that makes the new rules and guidance. It comes into force on 11 July 2022. The FCA encourages AFMs looking to implement side pockets to engage with the regulator before submitting an application to modify scheme documents. The FCA will review the effectiveness of the use of side pockets in dealing with the Russian invasion of Ukraine before considering a wider future policy position on the broader use of side pockets.

FCA Policy Statement: Protecting investors in authorised funds following the Russian invasion of Ukraine (PS22/8)

Collective Investment Schemes Sourcebook (Side Pockets) (Russia) Instrument 2022 (FCA 2022/28)

Recent cases

CMC Spreadbet PLC v Robert Tchenguiz EWHC 1640 (Comm) - 1 July 2022 - FCA’s Conduct of Business Rules - Circumstances under which financial services providers can close out customers’ accounts

Mr Tchenguiz opened a spreadbetting account with CMC Spreadbet PLC (CMC), electing to be treated as a ‘professional client’ within the meaning of the FCA’s Conduct of Business Rules (COBS). This permitted him to operate his account at a deficit, subject to CMC being entitled to call in that debt, in accordance with the agreed contractual terms and conditions. CMC requested that Mr Tchenguiz make good the deficit on his account, but he failed to do so. CMC then closed out the positions and again asked Mr Tchenguiz to settle the debt on his account. Mr Tchenguiz again failed to do so. CMC issued proceedings to recover the sums due.

Mr Tchenguiz’s main argument was that CMC had failed in its obligations under COBS, asserting a variety of alleged breaches, and that he should never have been categorised as a professional client and therefore should never have been permitted to incur a debt on his account. Mr Tchenguiz also asserted that CMC should not have closed out the positions at the time or in the manner that it did, and pursued a counterclaim on this basis, citing the duty in Braganza v BP Shipping to exercise this power in a manner that is reasonable and not irrational, arbitrary or capricious.

The High Court found in favour of the CMC on all issues. The judge ruled that Mr Tchenguiz was lawfully categorised as a professional client and CMC did not fail to comply with the COBS duty to give appropriate warnings on the loss of protections and rights he would have enjoyed as a retail client but not as a professional client. The judge rejected Mr Tchenguiz’s contentions that in closing out his account, CMC breached the Braganza duty or failed to comply with COBS 2.1.1R (to act honestly, fairly and professionally in accordance with the best interests of its client). CMC was awarded damages of £1.31 million, together with interest due.

CMC Spreadbet PLC v Robert Tchenguiz EWHC 1640 (Comm)