UK/EU Investment Management Update (August 2023)

1. UK — Securitisation Regulations

2. UK — MiFID II / MiFIR — Research Unbundling and Transaction Reporting

3. UK — MiFID II / MiFIR — Share Trading Obligation and Consolidated Tape

4. UK — Short Selling Regulation

5. UK — Consumer Duty

6. UK — Enforcement (Illegal Collective Investment Scheme)

7. UK — Brexit

8. UK — Liquidity Management

9. EU — MiFID II / MiFIR

10. EU — Open Finance Framework

11. EU — Environmental, Social, and Governance

12. EU — Cryptoassets

1. UK — Securitisation Regulations

HM Treasury publishes near-final draft of updated Securitisation Regulations

On 11 July 2023, HM Treasury published a near-final draft statutory instrument (Draft SI) of the UK Securitisation Regulations 2023 (UKSR) together with an accompanying policy note.

The UKSR is set to replace the existing retained UK law version of the EU Securitisation Regulation (Retained EUSR).

The Draft SI makes numerous reforms as compared to the current framework under the Retained EUSR.

Of particular note for asset managers, the Draft SI amends the “institutional investor” definition related to alternative investment fund managers (AIFMs), such that the risk retention due diligence requirements for investing in securitisations apply only to UK-authorised AIFMs (and not also to non-UK AIFMs).

This amendment was deemed necessary as the definition of “institutional investor” in the Retained EUSR does not specify the jurisdiction in which the AIFM must be authorised or have its registered office. HM Treasury notes that this has given rise to ambiguity as to whether non-UK AIFMs that market alternative investment funds (AIFs) in the UK should be considered in scope of the risk retention due diligence obligations under the Retained EUSR. As outlined in HM Treasury’s 2021 review, HM Treasury considers that this scope may disincentivise certain non-UK AIFMs from seeking investors in the UK and may create extraterritorial problems in terms of supervision and enforcement.

Note that the approach of HM Treasury on the application of the due diligence requirements to third-country AIFMs contrasts with commentary made by the European Commission (Commission) in its report on various aspects of the EU Securitization Regulation in October 2022 (see the section EU — Securitisation Regulation in our November 2022 Update for further details). The Commission’s view in that report was that non-EU AIFMs should be caught by the “institutional investor” definition.

The Draft SI also provides that sub-threshold AIFMs are outside scope of the UK due diligence requirements. The Draft SI provides the FCA with rulemaking power to make due diligence requirements for small, registered UK AIFMs investing in securitisations.

Other changes of interest to asset managers include those relating to institutional investors that act as delegates of occupational pension schemes (OPS).

HM Treasury notes that in cases where institutional investors delegate their due diligence obligations to another institutional investor, questions have been raised as to which party would be responsible for a failure to comply with those obligations. The Draft SI clarifies the following in respect of OPS:

• Where an OPS delegates its investment management decisions and due diligence obligations for investing in a securitisation to another institutional investor (whether another OPS, or an FCA- or Prudential Regulation Authority (PRA)-authorised firm), sanctions for failure to comply would be imposed on the managing party (the delegate investment manager) and not the delegating party.
• Conversely, where an institutional investor that is an FCA- or PRA-authorised firm delegates its investment management and due diligence obligations to an OPS, sanctions for failure to comply would not be imposed on the OPS as the managing party. They would be imposed on the delegating party. HM Treasury notes that this approach was taken as authorised firms are expected to be better placed to fulfil the due diligence requirements than OPS in such a scenario (though such a scenario is expected to be rare in practice).

It is anticipated that the UKSR will be enacted before 2023 concludes.

Many elements of the Retained EUSR, such as risk retention requirements, are not detailed in the UKSR but will instead be set out in FCA and/or PRA rules to be issued following consultation. In this regard the PRA published its consultation CP15/23 — Securitisation: General requirements on 27 July 2023, while the FCA published its consultation CP23/17 — Rules relating to Securitisation on 7 August 2023. In relation to the FCA’s consultation, please see also under the heading FCA publishes guidance on the repeal and replacement of retained EU law below.

2. UK — MiFID II / MiFIR — Research Unbundling and Transaction Reporting

HM Treasury publishes outcome of Investment Research Review

On 10 July 2023, HM Treasury published the final outcome of the Investment Research Review (the Review).

One of the key recommendations relevant to asset managers is to relax the MiFID II research unbundling rules. These rules currently require UK buy-side firms to pay for research either out of their own resources or by using a research payment account, which requires that the firm comply with detailed operational controls and disclosures.

The Review recommends that buy-side firms have the option to pay for investment research either out of their own resources, by making a specific charge directly to their clients for the costs of research, or by combining the cost of research with execution charges.

The recommendation includes a number of related conduct requirements, including that the buy-side firm allocate the costs of research fairly between its clients, have a structure for the allocation of payments between the different research providers (such as commission sharing agreements), and periodically undertake benchmarking or price discovery in relation to the research it uses. It is not, however, recommended that the specific consent of the buy-side firm’s underlying clients to the relevant arrangements be mandatory.

One of the aims of this recommendation is to seek to remove barriers that prevent UK buy-side firms from paying for investment research in other jurisdictions where payment on a bundled basis is standard practice, such as the United States.

The Review also recommends that the FCA review the UK regulatory regime for investment research more generally, with a view to considering whether any areas could be simplified and/or clarified, or whether it may be appropriate to have a bespoke regime relating specifically to investment research.

Other recommendations made by the Review include:

• introducing a research platform to help generate research;
• allowing greater access to investment research for retail investors;
• involving academic institutions in supporting investment research initiatives;
• supporting issuer-sponsored research by implementing a code of conduct; and
• reviewing the rules relating to investment research in the context of initial public offerings.

The FCA would need to consult on any changes to its current rules in order to give effect to these recommendations. However, in respect of research unbundling specifically, the FCA may be able to complete such a process within a few months, possibly resulting in new rules by the end of 2023.

FCA Market Watch 74 gives insight into transaction reporting shortcomings

On 25 July 2023, the FCA published Market Watch 74 in which it described recent supervisory observations in relation to regulatory technical standard (RTS) 22 transaction reporting (as well as the submission of financial instrument reference data by trading venues and systematic internalisers under RTS 23).

Despite a trend of improved data quality since 2018, the FCA notes certain persistent issues. In relation to transaction reporting, these issues include the following:

• Reconciliations. Certain firms are failing to regularly make data extract requests, and some are either not aware of the Market Data Processor Entity Portal or relying on data extracts from Approved Reporting Mechanisms for their reconciliations. The FCA notes that Article 15(3) of RTS 22 requires firms to reconcile front-office records with data samples provided by the FCA.
• Identification of Investment and Execution Decision Makers. The FCA has observed a range of practices in firms’ determination of the natural person assigned responsibility for an investment or execution decision; some identify the individual trader, investment manager, or portfolio manager making the investment or execution decision at a transaction level, while others have identified a head of desk, head of trading, or other senior manager overseeing a team responsible for making investment and execution decisions. The FCA challenges firms to consider whether it is appropriate to assign primary responsibility to senior managers who oversee investment or execution decisions but have limited practical involvement in those decisions at a transaction level.
• Complex trades. FCA notes failure to report spread trades in conformance with the approach for complex trades set out in the ESMA transaction reporting guidelines (in particular, populating a single price for each leg of the complex trade in field 33). The FCA reminds firms that they are expected to continue to apply ESMA guidelines and recommendations to the extent they remain relevant.
• Transmission agreements. Certain firms had not submitted transaction reports on the basis that they were a “transmitting firm” for the purposes of Article 26(4) UK MiFIR but had not entered into a transmission agreement with the relevant “receiving firm” in accordance with Article 4 of RTS 22. Firms are encouraged to ensure that such agreements are in place and can be evidenced in order to be relieved of their transaction reporting obligation in accordance with the order transmission regime.
• Looking through the chain. The FCA notes it does not expect firms to look through a chain of intermediaries in scenarios other than the transmission of orders meeting the conditions of Article 4 of RTS 22. Some firms had misidentified funds as the buyer or seller when dealing with a fund manager. Similarly, where a firm executes a transaction with an intragroup subsidiary, the firm should not identify the subsidiary’s client as the buyer or seller, even where those details are known to the firm. (Sidley comment: Thus, in the context of a U.S. hedge fund manager with a UK MiFID sub-manager, the UK sub-manager should record the U.S. hedge fund manager as its client for purposes of its transaction report rather than the fund for whom the transaction is entered into. This is consistent with the advice Sidley has given to its sub-manager clients since MiFID II introduced transaction reporting for buy-side firms from 3 January 2018).

The FCA states that it may conduct further work on the areas discussed to ensure that firms take appropriate remedial action.

FCA announces supervisory flexibility on transaction reporting

On 27 July 2023, the FCA announced it will put in place temporary measures for the reporting of certain fields in transaction reports.

This follows the implementation of temporary measures for the reporting of the short selling indicator under UK RTS 22 in January 2022, pursuant to which the FCA had confirmed that until the future of the short selling indicator field had been determined, it would not take action against firms that did not meet requirements for this field.

The FCA has now announced similar measures in respect of the following fields: waiver indicator (field 61); over-the-counter post-trade indicator (field 63); commodity derivative indicator (field 64); and securities financing transaction indicator (field 65).

The FCA has stated that until its reviews of these fields are determined, it will not take action against firms that fail to populate them in accordance with requirements and that it does not expect firms to notify it about issues affecting these fields using errors and omissions notification forms.

3. UK — MiFID II / MiFIR — Share Trading Obligation and Consolidated Tape

Revocation of UK Share Trading Obligation

As noted in our July 2023 Update, the Financial Services and Markets Bill (the Bill) received royal assent on 29 June 2023 and is now the Financial Services and Markets Act 2023 (the Act).

The Act revokes the share trading obligation (STO) derived from MiFID II with effect from 29 August 2023. As a result, UK investment firms will no longer be required to ensure that shares admitted to trading in the UK are traded on a UK-regulated (or EU-regulated — see below) market, multilateral trading facility, systematic internaliser or equivalent third-country venue. Such shares may be traded over the counter or on any UK or overseas venue of the firm’s choice.

Note that since Brexit (i.e., 1 February 2020), UK investment firms have been permitted to continue to trade shares on EU trading venues and systematic internalisers, as well as those in the UK, in accordance with the FCA’s transitional direction on the STO.

For an overview of other key topics set out in the Bill, please see our August 2022 Update.

FCA consults on a framework for a UK consolidated tape in bonds

On 5 July 2023, the FCA published CP23/15 on a proposed framework for establishing a consolidated tape (CT) for bonds in the UK. This forms part of the wholesale markets review (WMR) the FCA is conducting in collaboration with HM Treasury.

The CT would amalgamate numerous trading data sources into a single stream of information, thereby enhancing market transparency, reducing data access costs, and ensuring higher data quality.

The concept of a CT was introduced in the EU under MiFID II, but to date no entity in either the EU or the UK has sought authorisation to function as a CT provider (CTP) under this system.

The consultation paper (CP) describes the FCA’s proposed outline for a CT dedicated to bonds, a priority recommended by the WMR. It encourages feedback regarding the suggested criteria for the operation of a CTP and the selection process for appointing a CTP.

The CP also contains a section discussing a CT for equities. Although the FCA’s ideas are not fully formed in this area, they anticipate that an equities CT framework will be implemented once a bonds framework has been set up.

The FCA plans to conduct a competitive tender process to authorise a single CT provider specifically for bonds. They aim to have the CT for bond data functioning by 2025.

The FCA, using the information provided by the CTP, will evaluate whether the CT is resilient. The absence of CT latency will be a critical consideration, as will data quality.

4. UK — Short Selling Regulation

HM Treasury publishes response to UK Short Selling Regulation Review

On 11 July 2023, HM Treasury published the government’s response (the Response) to its Call for Evidence on the UK Short Selling Regulation (UK SSR).

Most significantly for asset managers, HM Treasury confirms in its Response that:

• the current public disclosure regime (based on individual net short positions) will be replaced with an aggregated net short position disclosure regime; as such, instead of the details of individual short sellers’ being published, the government will implement an aggregated model whereby the overall net short position in a company’s shares will be published; and
• the current disclosure threshold for net short position reporting to the FCA will increase from 0.1% to 0.2%.

The FCA will also be given power to make rules about exempt share arrangements. This follows calls from respondents highlighting the complexity of the current arrangement for identifying overseas shares — whereby the FCA is required to maintain a “negative” list of shares that are exempt from key obligations in the UK SSR due to their principal trading venue being in an overseas country — and suggesting it be replaced with a “positive” list of shares in scope of such obligations.

On 11 July 2023, the HM Treasury also published a new Call for Evidence on the government’s proposal to delete the elements of UK SSR related to sovereign debt and credit default swaps. This topic was not covered in the original Call for Evidence. The deadline for responses was 7 August 2023.

5. UK — Consumer Duty

Consumer Duty comes into force

The FCA’s new Consumer Duty (Duty) came into force on 31 July 2023. As a reminder, the Duty imposes a standard of care on FCA-authorised firms towards consumers in retail financial markets, emphasising good outcomes for consumers of retail products in matters of price and value, understanding, governance, and support.

For more information on the scope of the Duty, see our Sidley Updates of February 2023, January 2023, and May 2022.

6. UK — Enforcement (Illegal Collective Investment Scheme)

FCA enforcement of illegal collective investment scheme

On 28 July 2023, the High Court ruled in favour of the FCA in a civil case that an investment scheme concerning investments in long-term leases of rooms in care homes was unlawful and amounted to an unauthorised collective investment scheme (CIS). The CIS received £57 million from 380 investors between 2016 and 2020.

The director of the scheme was found liable to be carrying out a regulated activity without authorisation, despite having received independent legal advice that had said his investment scheme was outside the scope of financial services regulations. The High Court found that while it is “absurd to suggest” a client should not be able to rely on legal advice he has received, the client can be expected to have considered the facts on which the advice is based. If those facts do not correspond with the truth as he knows it, he cannot rely on the advice for any purpose “because he knows it to be based on false premises.”

The High Court found that the returns promised to investors under the CIS by the director were never likely to be achievable and the director had made false and misleading statements to investors about the sustainability of the CIS. The High Court noted that the director was also previously connected to another similar unauthorised CIS.

The FCA will now ask the High Court to determine the sums that the defendants, including the director of the scheme, should be required to pay back to investors. The FCA is also pursuing action against the main sales agent for the CIS for unlawful financial promotions.

7. UK — Brexit

FCA publishes guidance on the repeal and replacement of retained EU law

On 14 July 2023, the FCA published a statement about its intended approach and timing for next steps relating to the replacement of retained EU law (REUL) due to be repealed.

The FCA sets out the next steps for various files in relation to REUL. In particular:

• UK MiFID/MiFIR and WMR. The FCA plans to consult on commodities derivatives and transparency reforms in Q4 2023. The FCA has also published a CP on plans for a UK CT, as detailed further below.
• UK packaged retail and insurance-based investment products (PRIIPs). The FCA notes it is working with HM Treasury to introduce a more proportionate and targeted disclosure regime once the PRIIPs Regulation is repealed; a CP is noted as forthcoming to follow its initial discussion paper (DP22/6) on this topic, although specific timing is not given.
• UKSR. As noted in HM Treasury’s review of the UKSR, most firm-facing requirements in the UKSR are to be replaced with FCA and PRA rules. The FCA launched a consultation on its rules in this regard on 7 August 2023 with its publication of CP23/17 — Rules relating to Securitisation.
• UK SSR. The FCA plans to consult on reforms to the UK SSR in 2024.

The FCA also sets out certain core principles it intends to follow in replacing REUL with FCA Handbook provisions. In particular, the FCA will aim to:

• consolidate requirements as far as possible so that, over time, the FCA Handbook becomes the ‘one stop shop’ for firm-facing regulatory requirements;
• use the current FCA Handbook structure, creating new sourcebooks only where necessary;
• rely on existing requirements in the FCA Handbook, where relevant, and consider whether it is necessary to reflect the repealed REUL provision in the FCA Handbook;
• rely on outcomes rather than prescriptive requirements, where appropriate; and
• reduce complexity, both in drafting style and by seeking to align standards across sectors, where appropriate.

8. UK — Liquidity Management

FCA warns asset managers to review their liquidity management

On 6 July 2023, the FCA published a Dear CEO letter to asset management firms, in parallel with the results of its liquidity management multi-firm review, highlighting concerns it has observed in relation to asset managers’ liquidity management frameworks and asking that firms increase their focus on liquidity risk.

Although the review focussed mainly on authorised fund managers and retail funds, the FCA notes its expectation that all asset managers, including private fund managers, consider its findings.

The FCA notes it has found that many firms need to intensify scrutiny of liquidity risks to avoid potential investor harm. It emphasised the need for robust liquidity management, warning that negligence could expose investors to significant risks and destabilise the wider market.

The FCA found that while some firms demonstrated exemplary compliance and understanding of liquidity risk management, there was a notable disparity in quality, with some exhibiting inadequate liquidity risk management frameworks. Firms typically had the necessary tools to manage liquidity, but their integration and application were often inconsistent.

The FCA stressed that governance and supervision of liquidity risk management were underemphasised by many firms, particularly in unstable conditions. Liquidity stress testing methods varied widely, with some strategies ill-suited to accurately gauge portfolio liquidity. The assumptions used were often not sufficiently conservative.

The FCA urges asset managers to heed these findings, aligning with the Duty and contributing to improved customer outcomes.

9. EU — MiFID II / MiFIR

Provisional political agreement reached on MiFID II/MiFIR reforms

On 29 June 2023, the European Parliament (EP) announced that it has reached provisional political agreement with the European Council (Council) on amendments to MiFID II and MiFIR.

While the latest versions of the proposed texts are not yet available, the press release from the EP highlights the following amendments:

• EU-level CTs. Similarly to the FCA’s proposals for the UK (see above), the EU plans to establish CTs for various financial instruments that are traded in the EU. Market data currently provided across different trading platforms will be brought together in the CTs with the aim of publishing information as close as possible to real-time.
• Ban on payment for order flow (PFOF). PFOF, a practice through which brokers receive payments for forwarding client orders to certain trading platforms, will be subject to a general ban across Europe, with immediate effect from the entry into force of the new legislation. Certain existing domestic PFOF practices will be subject to a transitional period until 30 June 2026.

The legislation remains in draft form and subject to further amendment. Updated texts are expected to be finalised in autumn 2023.

Notably, there does not appear to be any intention to relax the research unbundling rules unlike the UK (see above), even though it was the UK that had advocated for these rules at the time MiFID II was negotiated.

ESMA publishes supervisory briefing on the definition of advice under MiFID II

On 11 July 2023, ESMA published a supervisory briefing on the definition of advice under MiFID II (the Briefing). The Briefing is relevant both to EU investment firms and to non-EU firms that may be engaged in activities in the EU in assessing whether such activities could be regarded as investment advice requiring authorisation.

The supervisory Briefing covers:

• the definition of a “personal recommendation” for the purposes of the definition of investment advice;
• guidance is given on the circumstances in which certain forms of information, such as filtering, general recommendations, generic advice, presenting multiple products, or access to model investment portfolios, could constitute personal recommendations;
• guidance on when recommendations will be viewed as suitable for a client or based on a view of a person’s circumstances; and
• issues around the form of communication, including the internet, apps, social media posts, messages to multiple clients, and distinguishing corporate finance and investment advice.

ESMA also notes the importance of presentation in determining whether investment advice is being given: If a recommendation is put forward in such a way that a reasonable observer would view it as being based on a consideration of a client’s circumstances or presented as suitable, then — subject to the other four tests being met — this will amount to investment advice.

Additionally, the Briefing states that a firm that does not intend to provide investment advice should ensure that its internal systems and controls appropriately and consistently reflect the nature of the service it is providing — describing a service as non-advised in firm documentation will not be sufficient, on its own, to ensure that the services given do not amount to investment advice.

10. EU — Open Finance Framework

Commission proposes Open Finance Framework

On 28 June 2023, the Commission published a proposal on a regulation establishing a framework for financial data access, referred to as the Open Finance Framework (OFF).

The OFF aims to establish a legal framework in the EU for open finance. Open finance refers to the provision of access to customer data held by financial institutions for the purpose of facilitating the provision of financial and account information services by third-party providers. The OFF draws on the open finance principles established in the banking and payments sector under the revised Payment Services Directive (PSD2).

To achieve these aims, the OFF would establish rules for the access, sharing, and use of certain categories of customer data in the finance services sector as well as establishing a framework for the authorisation and operation of “financial information service providers” (FISPs), which would be permitted to access data held by financial institutions.

The OFF is proposed to apply to a range of regulated financial entities that hold customer data, including investment firms, AIFMs, and Undertakings for Collective Investment in Transferable Securities (UCITS) management companies. “Customer” for these purposes means any natural or legal person who makes use of the regulated entity’s financial products and services.

The OFF is proposed to apply in respect of various categories of customer data. Notably for asset managers, such data includes investments in financial instruments, insurance-based investment products, cryptoassets, real estate, and other related financial assets as well as the economic benefits derived from such assets, including data collected for the purposes of carrying out suitability and appropriateness assessments in accordance with the requirements of MiFID II.

The OFF proposes to impose various obligations on financial entities with a view to facilitating open access to customer financial data. This includes:

• mandating access for customers to their customer data on request;
• mandating access for data users (including financial entities or entities authorised as FISPs) to customer data, subject to permission of the relevant customers; and
• requiring financial entities to provide customers with financial data access permission dashboards to monitor and manage the permissions the customer has provided to data users.

The OFF also contemplates the establishment of financial data sharing schemes, requiring market participants to participate in such schemes with a view to determining matters including the development of common standards for customer data sharing and the contractual liability of members in cases of data security breaches.

In its current form, various aspects of the proposal appear to reflect the manner in which firms and customers interact in the retail banking and payments sector (such as the provision of real-time data through online dashboards) as opposed to the nature of client communications in other sectors included in its scope, such as the private fund management sector. This could, therefore, represent a significant compliance challenge for firms operating in such sectors. However, the proposal remains subject to change and is expected be subject to significant negotiation during the legislative process.

11. EU — Environmental, Social, and Governance

ESMA and National Competent Authorities launch Common Supervisory Action for sustainability disclosures in the investment fund sector

On 6 July 2023, ESMA announced the launch of a Common Supervisory Action with EU National Competent Authorities (NCAs) to assess the compliance of investment managers with the disclosure provisions in the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation as well as relevant provisions of the UCITS and Alternative Investment Fund Managers Directive implementing acts on the integration of sustainability risks.

The main goals of this initiative will be to:

• determine if financial market participants adhere to applicable rules and standards in practice;
• collect information on greenwashing risks within the sector (to contribute to ESMA’s upcoming Final Report on Greenwashing); and
• assess the need for additional supervisory and regulatory intervention.

ESMA states that during 2023 and until Q3 2024, NCAs will undertake their supervisory activities and share knowledge and experiences through ESMA to foster convergence in how they supervise sustainability-related disclosures and sustainability risk integration in asset managers.

Commission adopts first set of sustainability reporting standards under the Corporate Sustainability Reporting Directive

On 31 July 2023, the Commission adopted the first set of European Sustainability Reporting Standards (ESRS) supplementing the EU Corporate Sustainability Reporting Directive (CSRD). The Commission published an accompanying Q&A on the adoption of the ESRS.

The ESRS, based on technical advice from the European Financial Reporting Advisory Group (EFRAG), will be mandatory for use by companies that are obliged by the EU Accounting Directive, as amended by the CSRD, to report certain sustainability information.

In line with EFRAG’s proposal, the Commission has adopted 12 ESRS, covering the full range of sustainability issues, as follows:

Cross-cutting

• ESRS 1 — General Requirements
• ESRS 2 — General Disclosures 

Environment

• ESRS E1 — Climate
• ESRS E2 — Pollution
• ESRS E3 — Water and Marine Resources
• ESRS E4 — Biodiversity and Ecosystems
• ESRS E5 — Resource Use and Circular Economy

Social

• ESRS S1 — Own Workforce
• ESRS S2 — Workers in the Value Chain
• ESRS S3 — Affected Communities
• ESRS S4 — Consumers and End Users

Governance

• ESRS G1 — Business Conduct

The Commission has, however, made certain modifications to the draft standards submitted by EFRAG. These include:

• introducing additional phase-in provisions, mainly applicable to companies with fewer than 750 employees, and generally postponing the relevant reporting requirements for one or two years;
• making all reporting requirements, with the exception of ESRS 2, “subject to materiality” (therefore able to be omitted by companies where they are not considered relevant in their circumstances). In contrast, EFRAG’s proposal had provided for more mandatory data points, including certain information about the company’s own workforce, and datapoints that correspond to information required under SFDR, the EU Benchmarks Regulation, or the “Pillar 3” disclosures under the EU Capital Requirements Regulation; and
• converting a limited number of mandatory datapoints proposed by EFRAG into voluntary datapoints, such as reporting a biodiversity transition plan and certain indicators about self-employed people and agency workers in the undertaking’s own workforce.

The ESRS delegated act adopted by the Commission will be formally transmitted in the second half of August to the EP and to the Council for scrutiny. The scrutiny period runs for two months, extendable by a further two months. The EP or the Council may reject the delegated act but may not amend it.

For further details on the CSRD, including timing of its phase-in, please see our Sidley Update EU Corporate Sustainability Reporting Directive — What Do UK- and U.S.- Headquartered Companies Need to Know?

12. EU — Cryptoassets

ESMA and European Banking Authority publish first consultations on MiCA

On 12 July 2023, ESMA published its first CP on the EU MiCA.

MiCA will establish an EU-wide regulatory framework for the issuance, offering to the public, and admission to trading of cryptoassets and the provision of certain cryptoasset services.

The first consultation requests feedback on RTS and implementing technical standards (ITS) relating to notifications to NCAs, complaints handling, management, and prevention of conflicts of interest, and acquisition information requirements.

The deadline for responses is 20 September 2023, and further consultations are expected to open in October 2023 and Q1 2024.

Also on 12 July 2023, the European Banking Authority (EBA) published its own CP on MiCA. The EBA is seeking feedback on draft RTS and ITS relating to the authorisation as issuer of asset-referenced tokens (ARTs) and the assessment of acquisition of qualifying holdings in issuers of ARTs.

Information required for authorisation in the draft RTS include the business model and internal governance, including ICT risk management, liquidity, reserve of assets, and sufficiently good repute of the members of the management body and of shareholders with qualifying holdings. The draft ITS set out the application letter, template, and applicable process.

Information required in relation to proposed acquisitions of holdings of ARTs in the draft RTS covers five criteria relating to (a) the reputation of the proposed acquirer, (b) the suitability of any person who will direct the target undertaking, (c) the financial soundness of the proposed acquirer, (d) the sound and prudent management of the target undertaking following the acquisition, and (e) money-laundering considerations.

The deadline for responses to the EBA CP is 12 October 2023. The EBA is also holding a virtual public hearing on the CP on 21 September 2023.

For further detail on the requirements to be introduced by MiCA, please see our Sidley Update How Will the EU Markets in Crypto Assets Regulation Affect Crypto and Other Financial Services Firms?