UK/EU Investment Management Update (December 2024)

1. UK — MiFID

2. UK — Asset Management Consultations

3. UK — FCA Enforcement

4. UK — Financial Crime

5. UK — ESG

6. UK — Operational Resilience

7. UK — Immigration

8. EU — ESG

9. EU — MiFID II

10. EU — T+1 Trade Settlement

11. EU — AIFMD / UCITS

12. EU — EMIR

1. UK — MiFID

UK MiFID to be reformed

On 14 November 2024, HM Treasury published a policy paper to announce its intentions to make legislative changes to the UK MiFID framework. This follows from the HM Treasury’s Wholesale Market Review, which was launched in 2021 to consider reforms of UK capital markets post-Brexit.

The HM Treasury’s objectives for the legislative changes are to help reinvigorate the UK’s capital markets for investors and firms and to support growth across the UK. The policy paper set out the following:

• Commodity derivatives. To further support the FCA’s work in the commodity derivatives market, HM Treasury intends to expand FCA powers regarding the reporting of over-the-counter (OTC) positions. This move aims to improve transparency about OTC positions that are “proportionate to the risks associated with different markets.” In addition, the FCA would be able to intervene where it considers that a position “presents a risk to market stability.”
• Markets in Financial Instruments Regulation (MiFIR) and transaction reporting. HM Treasury also intends to revoke MiFIR requirements relating to transaction reporting and delegate the setting of a new regime to the FCA (see “FCA discussion paper on improving the UK transaction reporting regime” below).
• MiFID Organisational Regulation. HM Treasury will also revoke firm-facing regulations in the MiFID Organisational Regulation. The FCA will be responsible for transferring these requirements into the FCA Handbook (see “FCA consults on MiFID Organisational Regulation” below).

Transaction reporting — FCA discussion paper DP24/2

On 21 November 2024, the FCA published a discussion paper, DP24/2: Improving the UK transaction reporting regime, on opportunities to improve the transaction reporting regime. The regulator has highlighted two main objectives; the first is to enhance the quality of data that is reported, and the second is to reduce reporting burdens on market participants.

DP24/2 is relevant for MiFID investment firms, UK branches of third-country investment firms with transaction reporting obligations, Undertakings for Collective Investment in Transferable Securities (UCITS) managers, Alternative Investment Fund Managers (AIFMs), and others.

Of particular interest to investment managers is that the FCA is reviewing whether to extend the transaction reporting requirements to AIFMs and UCITS management companies (in each case with MiFID portfolio management permissions — that is, collective portfolio management investment, or CPMI, firms). At present, only MiFID investment firms are subject to the transaction reporting regime.

The FCA is also interested in the range of reportable financial instruments, identifiers for OTC derivatives, and the requirement for submitting instrument reference data. Finally, the FCA is seeking views on the content of transaction reports (e.g., evaluating existing fields and trading scenarios that do not meet policy objectives in practice and potential new fields).

The discussion paper seeks feedback from all stakeholders by 14 February 2025.

FCA Market Watch 81 newsletter on market conduct and transaction reporting

On 7 November 2024, the FCA published Market Watch 81, its newsletter on market conduct and transaction reporting issues. The newsletter notes that the FCA has continued to observe incomplete and inaccurate transaction reports, particularly with data quality issues. As such, Market Watch 81 addressed five key causes for reporting issues:

1. Change management. Organisational changes that are poorly managed can create significant roadblocks to reporting. This includes changes such as developing new business and functional requirements and implementing new reporting systems. Without systematised practices for change management, the FCA observed, firms face difficulties with keeping adequate documentation and oversight of third parties, which can lead to reporting gaps or discrepancies.
2. Reporting process and logic design. The regulator has observed that firms reporting without due consideration of their business context can lead to misreporting, ad hoc assignment of resources, and unclear deliverables. The FCA recommends that firms ensure that clear reporting processes and logic design documents are put in place.
3. Data governance. The FCA has observed that many firms gather data from different sources, which can lead to fragmented integration of external data, incorrect data mapping, and poor documentation of data lineage and record-keeping. These problems can lead to misreporting, unreported transactions, and difficulties in auditing and correcting errors. Accordingly, the FCA highlights that effective data governance is crucial for accurate transaction reporting.
4. Control framework. Poorly designed control frameworks prevent firms from identifying data quality issues. For example, some firms may conduct reconciliations only on an irregular basis, which does not enable them to identify errors and changes that are needed.
   
   As such, the FCA recommends that firms implement a comprehensive control framework to ensure the accuracy and completeness of transaction reporting. This process should facilitate the firm’s identification of data quality issues. This framework should be updated from time to time to take account of new requirements, processes, or systems. As a particular note, the FCA cautions against excluding third-party services and data from this oversight as it can create monitoring gaps.
5. Governance, oversight, and resourcing. Poor governance and organisational structures can cause systemic issues, and firms should be aware of the following pitfalls: siloing transaction reporting risk outside of the wider management framework; unclear or deficient organisation (including the allocation of responsibility); a lack of accountability, expertise, or oversight; and insufficient resources. As such, the FCA notes that good governance is a key element for effective transaction reporting practices.

Firms should pay attention to these themes in creating and updating their transaction management processes to ensure smooth and accurate reporting in line with requirements and the FCA’s expectations.

MiFID Organisational Regulation – FCA consultation paper CP24/24

On 27 November 2024, the FCA published consultation paper CP24/24: The MiFID Organisational Regulation. The consultation covers firm-facing conduct rules and systems and conduct rules. In particular, the FCA is consulting on the proposal to restate firm-facing requirements in the FCA handbook (with no policy changes) when HM Treasury commences the repeal of the MiFID Org Reg.

CP24/24 is relevant for MiFID investment firms (including CPMI firms), UCITS managers, AIFMs, MiFID optional exemption “Article 3” firms, third-country firms, and others.

The FCA is not proposing any new requirements on firms; it is proposing to retain the current substance of the requirements for continuity. In this regard, the consultation seeks views on their approach to restating the MiFID Org Reg requirements.

However, the FCA is also consulting on potential amendments to streamline requirements that stem from MiFID and remove overlapping rules, particularly from the UK implementation of EU directives (where this would not lead to a substantive change in the obligations of MiFID firms).

The FCA has highlighted the following as potential areas for improvement:

• rationalising MiFID II-derived conduct and organisational rules derived from various EU directives (mostly in COBS and SYSC) that are duplicative;
• replacing ineffective distinctions between different types of firms (e.g., the FCA examines the effectiveness of client categorisation rules);
• introducing flexibility on how firms can meet existing obligations by taking an outcomes-based approach;
• considering rules that do not meet their intended objective; and
• reviewing the body of level 3 materials that firms may rely on for interpreting rules.

The consultation seeks feedback from all stakeholders by 28 February 2025.

2. UK — Asset Management Consultations

Investment research — FCA consultation on payment optionality (CP24/21)

On 5 November 2024, the FCA published CP24/21: Investment research payment optionality for fund managers, outlining proposals to enable pooled funds to use joint payments (as a new payment optionality) to pay for third-party investment research.

CP24/21 builds on CP24/7 and earlier changes made for MiFID firms in July 2024 (PS24/9) (the UK Investment Research Review), which was discussed in Sidley Update Implications of Final UK FCA Rules on Payment for Investment Research.

The UK Investment Research Review gave MiFID investment firms new payment options when paying for investment research, whereas the current consultation proposes extending this payment optionality to managers of pooled vehicles, including full-scope UK AIFMs, small authorised UK AIFMs, UCITS management companies, and others.

CP24/21 proposes several requirements for fund managers who opt for joint payments. These guardrails are designed to ensure transparency in research spending. For example, fund managers must establish a written policy on joint payments, set research budgets, allocate costs fairly, and periodically assess the value and quality of research. They must also provide appropriate disclosures to investors.

The FCA expects that the proposals may lower research procurement costs and improve access to research, especially for smaller and entrant firms. The consultation will close on 16 December 2024.

UK Stewardship Code — FRC consultation on reforms

On 11 November 2024, the Financial Reporting Council (FRC) opened its consultation on the UK Stewardship Code (Code Consultation), a voluntary framework for asset managers and service providers to UK savers and pensioners.

The FRC has proposed the following reforms as outlined in the Code Consultation:

• updating the 18 principles set out in the 2020 Code to reduce reporting volume;
• issuing the first FRC reporting guidance on the Code;
• introducing Policy and Context disclosures, need to be updated less frequently; and
• cross-referencing between different reports to fulfil Code requirements.

The Code Consultation is public and will accept feedback until the closing date of 19 February 2025.

3. UK — FCA Enforcement

Enforcement transparency (“name and shame”) proposals — further FCA consultation

On 28 November 2024, the FCA published Part 2 of its consultation CP24/2 regarding its enforcement investigations. This follows on from Part 1 of CP24/2, published in February 2024, which we covered in our March 2024 Update.

In Part 1, the FCA proposed to announce publicly when an investigation was opened in addition to providing periodic progress updates. These proposals raised some concerns; in particular, the FCA has been accused of proposing to “name and shame” firms.

As a result, this has led to the FCA’s publishing the aforementioned Part 2 of the consultation. The regulator has amended its original proposals in response to feedback, through which the FCA aims to achieve greater transparency and clearer communication in relation to its enforcement investigations.

The FCA’s amended proposals involve:

• expanding the assessment of whether disclosure regarding an investigation would be in the public interest, to explicitly consider (i) the potential negative impact on a firm and (ii) possible disruptions to public confidence in the financial system or market;
• giving firms 10 days’ notice ahead of an announcement being made (in addition to two business days’ notice before publication), rather than one day’s notice, during which a firm can make representations; and
• making proactive announcements only of investigations made after the proposals come into effect.

In light of the updated proposals, the FCA has stated that proactive announcements of investigations would occur only in a small number of cases. The consultation is open for responses until 17 February 2025.

FCA charges three individuals and two firms over unauthorised business activities

On 5 November 2024, the FCA commenced criminal proceedings against three individuals and two firms for carrying out regulated activities without being authorised in relation to the sale of luxury vacuum cleaners.

In particular, they were found to have breached of Section 23(1) of the Financial Services and Markets Act 2000 (FSMA) by carrying out debt administration and debt collection, entering into regulated credit agreements and hire agreements, and effecting and carrying out contracts of insurance with retail customers for vacuum cleaners without authorisation.

The three individuals are also being prosecuted as company officers under Section 400 of FSMA for consenting, conniving, or neglecting to act in relation to the firms’ misconduct.

This case serves as a reminder to firms that carrying out unauthorised business is an offence punishable by a fine and/or up to two years’ imprisonment.

FCA fines Metro Bank PLC £17 million for poor financial crime controls

On 12 November 2024, the FCA published its decision to fine Metro Bank PLC (Metro Bank) almost £17 million for inadequate anti-money-laundering (AML) controls. Specifically, Metro Bank failed to monitor transactions worth a total value of £51 billion over four years. The bank’s automated monitoring system was set up in 2016, but issues in the system meant that transactions taking place in the interim period between an account setup and relevant checks to the account went unmonitored.

Banks, amongst other entities regulated by the FCA, must adhere to the FCA’s Principles for Businesses. In particular, Principle 3 mandated Metro Bank to “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.” Relatedly, Metro Bank was required to create, implement, and monitor its policies for adequacy in preventing financial crime.

The FCA determined Metro Bank “did not have a sufficient understanding of the level of AML risk associated with unmonitored transactions.” While some transactions were reviewed at a later time, this allowed a long interim period before suspicious activity could be identified. Accordingly, the FCA found that Metro Bank had breached Principle 3 in its failings to monitor these transactions, but, more fundamentally, to assess its systems and controls for adequacy.

Metro Bank would have been fined more than £23 million but benefitted from a standard FCA discount for settlement and cooperation.

Director banned from performing senior management functions after grievous bodily harm (GBH) conviction

On 18 November 2024, Ari Harris, the former sole director of Reeds Motors Ltd, was banned by the FCA from working in financial services and performing senior management functions for a variety of reasons in relation to Harris’ GBH conviction.

By way of summary, Harris served three years in prison after he was convicted in July 2020 of GBH without intent for stabbing a man in the neck. The FCA found that Harris and the firm misled the regulator as to Harris’ conviction. During his sentence, Reeds Motors Ltd applied to the FCA for an additional approved person. When the FCA inquired why this was necessary, the regulator was told that Harris was overseas for business reasons when he was in fact in prison.

As a senior manager, Harris was obligated to disclose information to the FCA that might affect his “on-going fitness and propriety.” In its decision, the FCA Regulatory Decisions Committee took into account (i) the nature of the offence (“a serious offence of violence”), (ii) the length of sentence imposed, (iii) the failure to inform the FCA, and (iv) the attempt to mislead the FCA.

The FCA considered that the factors described above showed a lack of fitness and propriety necessary to work in financial services. On this basis, the FCA decided to remove his senior management function approval and ban him from working in financial services. The firm’s permissions were also cancelled.

UK bank fined for serious control failures (fictitious trades)

On 18 November 2024, the FCA issued a Final Notice announcing that a UK bank (the Bank) had been fined more than £13m for breaching of Principle 3 of the FCA Principles for Businesses. In particular, the FCA found that the Bank “did not take reasonable care to control its affairs responsibly and effectively, with adequate risk management systems.”

The Bank had discovered that from June 2020 to February 2022, a Metals and Bulks trader had recorded over 400 fictitious trades in order to conceal his trading losses, which cost the Bank close to US$58 million to unwind. The FCA found various failings and significant weaknesses in the Bank’s internal systems and controls and risk management system that prevented the Bank from detecting the fictitious trades at an earlier stage. For example, the Bank had been made aware of certain weaknesses but failed to implement effective and timely plans to mitigate and remedy them.

The FCA acknowledged that the fictitious trades did not affect the overall market or any customers. However, the FCA was ultimately concerned that the deficiencies in the Bank’s systems prevented the Bank from having proper oversight and control over its trading activities. Moreover, it found that failures in the risk management framework contributed to the continuation of such deficiencies. The FCA highlighted the importance for firms to ensure that projects seeking to remediate systems and controls issues have “effective governance, appropriate resourcing models and timely assurance.”

The FCA has also banned the trader from performing any function in relation to any regulated activity. As the trader was a Certified Employee at the Bank in relation to client dealing, the trader was therefore subject to the FCA’s Individual Conduct Rules, including the requirement to act with integrity. A fine of £72,000 would also have been imposed on the trader if not for his serious financial hardship.

4. UK — Financial Crime

FCA updates financial crime guide

On 29 November 2024, the FCA published PS24/17 setting out changes to its Financial Crime Guide (FCG). These changes follow on from the FCA’s consultation in CP24/9, as part of the FCA 2022–25 strategy.

The FCA’s changes will affect all FCA financial crime supervised firms as well as any firms that the FCA supervises under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). Additionally, the updated FCG will be relevant for individuals and organisations providing services to such firms.

In particular, the changes aim to provide further guidance in areas where firms were seeking a clarification of the FCA’s expectations and reflect both the FCA’s recent supervisory work and publications.

The key changes are to the following areas of the FCG:

• Sanctions. The FCG will be updated to reflect the FCA’s extensive reassessment of firms’ systems and controls relating to sanctions, which was undertaken following the Russian invasion of Ukraine in 2022. The updated guidance particularly provides examples of good practice in relation to sanctions screening and outlines in detail the process for firms to report potential breaches of sanctions.
• Transaction monitoring. The FCA is providing guidance on how firms can implement and maintain transaction monitoring systems, including new technological approaches and supporting responsible innovation. In particular, the new guidance references the use of machine learning and artificial intelligence tools, with the inclusion of good practice examples and a case study for transaction monitoring.
• Proliferation financing. The FCG will now explicitly reference proliferation financing throughout (e.g., recent changes to the MLRs that require firms to conduct relevant risk assessments) where appropriate.
• Cryptoasset business. The FCA’s changes intend to clarify that cryptoasset businesses registered under the MLRs should refer to the FCG.
• Consumer Duty. The updated FCG will specify that firms should evaluate whether their systems and controls can be considered with their Consumer Duty obligations.

Firms subject to the FCG should consider the FCA’s changes in detail and consider any subsequent adjustments to systems or controls (e.g., governance, training, policies, and monitoring) that may be necessary.

5. UK — ESG

HM Treasury consults on Green Taxonomy

On 14 November 2024, the HM Treasury published the UK Green Taxonomy Consultation (Green Taxonomy Consultation). The UK government is considering the merits of implementing a green taxonomy. Accordingly, the consultation seeks to understand whether and how it can bring value to the UK’s sustainable finance policies.

The Green Taxonomy Consultation notes that whilst a taxonomy may certainly support sustainable investments and mitigate risks of greenwashing, the government is conscious that the introduction of a taxonomy may bring undue complexities to the investment industry and that feedback back on its value is “mixed.”

Accordingly, the consultation invites feedback on the potential use cases and design features of a UK Green Taxonomy, a classification tool that would define economic activities that support climate, environmental, or wider sustainability objectives (Green Taxonomy).

The Green Taxonomy Consultation explores whether and how a Green Taxonomy may achieve the following goals:

• mitigate greenwashing and channel private capital to sustainable endeavours;
• complement the UK’s existing sustainability reporting and general climate policy; and
• address anticipated design challenges, in particular:
  • interoperability with international standards;
  • scope of sectors to be covered;
  • scope of environmental principles to be included;
  • accounting for the “Do No Significant Harm” principle, which dictates that progress to a new sustainability goal should not prejudice other sustainability goals; and
  • governance of the framework, including how often it should be updated.

The consultation is open for responses from stakeholders until 6 February 2025.

Speech by Emily Shepperd on financial services infrastructure and net zero

On 6 November 2024, Emily Shepperd, the chief operating officer of the FCA, delivered a speech at the UK Sustainable Investment and Finance Association Leadership Summit. Shepperd discussed the importance of regulatory infrastructure in supporting sustainable finance. In particular, she highlighted the FCA’s ambitions for the UK financial services to play an important role in UK’s goal of achieving net zero carbon emissions by 2050.

The speech highlighted the following key points:

• Recent regulatory initiatives. The FCA has introduced and implemented various regulatory changes and initiatives to promote sustainable finance and investment, such as the Sustainability Disclosure Requirements and investment labels regime, anti-greenwashing guidance, and involvement in the government’s Transition Finance Market Review and Transition Plan Taskforce.
• Future proposals. The FCA also plans to consult on strengthening expectations for listed companies’ transition plan disclosures and regulating ESG ratings providers. In addition, the FCA aims to support the global adoption of International Sustainability Standards Board (ISSB) standards, taking into account the ISSB’s new Biodiversity, Ecosystems and Ecosystems Services project.
• Policy objectives. The FCA policy programme is intended to build industry trust, reduce greenwashing, promote competition, and strengthen wider market integrity while supporting green finance to scale with integrity. This is intended to be done in a proportionate, flexible manner,
• Promotion of market competition. The FCA highlighted its regulatory efforts to reform markets to make them more attractive and competitive, such as by changing the listing rules, allowing greater freedom in how asset managers pay for investment research, proposing a new public offer and admissions regime, and improving retail access to fixed-income markets.

Private Equity International (PEI) Responsible Investment Forum Europe 2024

On 20-21 November 2024, PEI hosted its Responsible Investment Forum in London. The forum was attended by institutional investors, asset managers, and advisers in private equity and discussed key topics in sustainability and ESG-related in the sector.

For further information, see our Sidley Update Five Key Takeaways From the Private Equity International Responsible Investment Forum Europe 2024.

6. UK — Operational Resilience

FCA, Bank of England (BOE), and Prudential Regulatory Authority (PRA) set out new rules on critical third parties and financial infrastructure

On 12 November 2024, the FCA published a webpage announcing new rules to oversee the operational resilience of critical third parties (CTPs) providing key services to financial firms. Certain financial firms rely extensively on CTPs for different infrastructure services. As a result, this has caused supervisory concern that disruptions or failure to these CTPs (e.g., cyberattacks and power outages) could significantly affect the firms, their clients, and the UK financial system’s stability.

Following consultation in consultation paper CP26/23, the FCA, BoE, and PRA have jointly published new rules via a policy statement (PS16/24) and a supervisory statement (SS6/24). The CTP rules will primarily affect third-party service providers that HM Treasury has designated as CTPs.

The rules do not impose additional requirements or expectations on financial firms including investment managers but are expected to complement the existing frameworks relating to operational resilience and third-party risk management. In other words, firms will remain accountable and responsible for managing the risks in any outsourcing or third-party arrangements they have with CTPs. However, aspects of the CTP rules, such as the information-sharing requirements on CTPs, may assist firms in managing these risks.

The rules align closely with international standards and regimes such as the EU’s Digital Operational Resilience Act (DORA). The key new requirements and expectations imposed on CTPs are:

• complying with six CTP Fundamental Rules (e.g., acting prudently and dealing with regulators in an open and co-operative way),
• abiding by eight CTP Operational Risk and Resilience Requirements applying to systemic third-party services (e.g., governance, risk management), and
• regular testing, self-assessment, and reporting obligations.

The final rules will come into effect on 1 January 2025 and will include amendments to the FCA Handbook.

7. UK — Immigration

UK Electronic Travel Scheme (ETA) comes into effect

Firms that have staff traveling to or through the UK should note that a new requirement has been introduced for non-visa nationals to apply for an ETA (similar to the U.S. Electronic System for Travel Authorisation (ESTA)) before travelling to, or (importantly) through, the UK.

The rollout began with Qatari nationals travelling to or via the UK on 15 November 2023. On 22 February 2024 the programme was extended to nationals of Bahrain, Jordan, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates. Next year it will be extended to cover a much wider range of nationals:

• From 8 January 2025, visitors from more than 40 countries including the U.S., Australia, and Japan will be included in the ETA scheme.
• From 2 April 2025, the list of countries will be further expanded to include EU nationals (although Irish citizens will be exempt).

Once a country falls under the remit of the scheme, travellers who do not require a visa to enter the UK (and do not have any existing UK immigration permissions) will need to have an ETA in place before they travel.

The ETA will be needed even for those who are “airside” at Heathrow for a short time between international flights.

How much will it cost?

An ETA costs £10 and lasts for two years or until an individual’s passport expires and will cover multiple entries.

When will travellers need to apply?

ETAs will normally be processed within three working days, though the expectation is that like the U.S. ESTA, the process will be much quicker. There may, however, be teething problems, so we recommend that individuals apply in advance of their travel dates where possible.

How will this affect travel arrangements?

• Firms whose staff travel to or through the UK should ensure that the ETA application is factored into plans. A failure to apply for the ETA in time could result in missed flights or connections.
• Be aware that if an individual is not eligible for an ETA, or if their application is denied, they may need to apply for a visa to visit the UK.

8. EU — ESG

Luxembourg CSSF fines Aviva Investors Luxembourg S.A. for failings in relation to ESG/sustainability aspects of fund

On 15 October 2024, the Luxembourg CSSF imposed a fine of €56,500 on an investment manager, Aviva Investors Luxembourg S.A. (Aviva Luxembourg), for failing to have “sound administrative procedures and adequate internal control mechanisms” as well as breach of certain conduct rules to act in the best interests of the relevant UCIT.

The fine relates to the CSSF’s investigation of the Aviva Luxembourg, from October 2022 through May 2023, on five sub-funds of an investment fund (the Fund), that were classified as promoting ESG characteristics under Article 8 of the Sustainable Finance Disclosure Regulation (SFDR).

CSSF observed the breaches in Aviva Luxembourg’s internal governance framework:

• One sub-fund had implemented an exclusion threshold to filter out assets with the least favourable ESG characteristics. This was disclosed in its Article 8 precontractual disclosures. However, the CSSF identified that between February and July 2023, the sub-fund held several bonds (representing 5% of the sub-fund’s net assets) whose ESG score was below its disclosed exclusion threshold.
• Other sub-funds had disclosed in their prospectus that they were “primarily targeting” certain United Nations sustainable development goals (SDGs). However, the CSSF noted that Aviva Luxembourg did not implement measures that allowed it to “ensure” that such SDGs were “effectively primarily targeted” by these sub-funds.

ESMA guidelines on fund naming come into effect

On 21 November 2024, the ESMA guidelines on funds’ names using ESG or sustainability-related terms came into effect (Fund Name Guidelines). The Fund Name Guidelines target greenwashing in fund names and introduce varying requirements on funds that fall within scope. Such requirements include quantitative thresholds, investment exclusions, and commitment to “sustainable investments” under the SFDR.

For further information, see our Sidley Update Implications of Final ESMA Guidelines on Use of ESG- or Sustainability-Related Terms in Fund Names.

EU to simplify due-diligence reporting obligations with “omnibus” regulation

On 8 November 2024, Commission president Ursula von der Leyen responded to a journalist at a press conference, announcing the EC’s intentions to introduce an “omnibus” regulation to consolidate EU ESG-related laws.

Specifically, the “omnibus” regulation is intended to reduce sustainability reporting bureaucracy in the EU by consolidating ESG reporting obligations from (i) the Taxonomy Regulation, (ii) the Corporate Sustainability Reporting Directive, and (iii) Corporate Sustainability Due Diligence Directive.

It remains to be seen what changes the “Omnibus Regulation” may introduce; however von der Leyen has noted that the content of the frameworks “will be maintained.”

The statement follows from the EU’s push to boost the competitiveness of European markets. As part of this vision, the European Council proposed 12 points in the Budapest Declaration. In particular, the fourth point proposed to launch a “simplification revolution,” requesting the Commission to make, without delay, concrete proposals to reduce reporting requirements for businesses by at least 25% in H1 2025.

Commission publishes FAQs on CSRD sustainability reporting requirements

On 13 November 2024, the Commission published 90 FAQs aimed at clarifying the interpretation of sustainability reporting provisions introduced by the CSRD (the FAQs).

The FAQs broadly cover the following areas:

• sustainability information to be reported under Articles 19a/29a of the Accounting Directive;
• sustainability information reported under Article 40a of the Accounting Directive (i.e., reporting on the level of third-country ultimate parent undertakings);
• assurance of sustainability reporting;
• key intangible resources;
• requirements for third-country undertakings; and
• interactions with the SFDR.

For more information on the CSRD, see our Sidley Update EU Corporate Sustainability Reporting Directive — What Do UK- and U.S.- Headquartered Companies Need to Know?

Commission publishes FAQs on implementation of EU Taxonomy

On 29 November 2024, the Commission published a set of FAQs to provide further guidance on the implementation of the EU Taxonomy.

The Commission’s publication aims to provide clarity on the use of the EU Taxonomy, as part of the Commission’s simplification agenda and ongoing efforts to reduce the administrative burden for EU companies pursuing sustainable finance.

The publication covers FAQs related to the following key topics:

• The Taxonomy Climate Delegated Act — the objective of
  • climate change mitigation (Annex I) and
  • climate change adaptation (Annex II).
• The Taxonomy Environmental Delegated Act — the objective of
  • water and marine resources (Annex I),
  • the transition to a circular economy (Annex II),
  • pollution prevention and control (Annex III), and
  • biodiversity and ecosystems (Annex IV).
• Generic “do no significant harm” criteria.
• The Taxonomy Disclosures Delegated Act.

9. EU — MiFID II

ESMA publishes compliance table on MiFID II Guidelines

On 6 November 2024, ESMA published a compliance table tracking compliance with ESMA guidelines across national competent authorities (NCAs) in EU and European Economic Area Member States. The compliance table outlines whether competent authorities are complying or intend to comply with ESMA’s Guidelines on certain aspects of the compliance function requirements under Directive 2014/65/EU on markets in financial instruments (MiFID II).

EU Listing Act package adopted

On 14 November 2024, the EU Listing Act package (as described in further detail in our November 2024 Update) was published in the Official Journal of the European Union.

The package includes:

• Directive (EU) 2024/2811 amending MiFID II, to make public capital markets in the Union more attractive for companies and to facilitate access to capital for small and medium-size enterprises; the provisions must be transposed into national law to apply from 6 June 2026.
• Regulation (EU) 2024/280 amending MiFIR, the Market Abuse Regulation, and the Prospectus Regulation, for the same purposes as set out above; different provisions will apply on a staggered basis from 5 March 2025 to 5 June 2026.
• Directive (EU) 2024/2810 on multiple-vote share structures in companies that seek admission to trading on a multilateral trading facility; the provisions must be transposed into national law to apply from 6 June 2026.

10. EU — T+1 Trade Settlement

ESMA proposes to transition to T+1 trade settlement cycle in October 2027

On 18 November 2024, ESMA published a report providing an assessment of proposals to shorten the settlement cycle for transactions in transferable securities in the EU, following a legislative mandate under the Central Securities Depository Regulation (CSDR) and a consultation with stakeholders.

Currently, the time between the execution and settlement of a transaction involves a two-day cycle, under which transactions in transferable securities executed on trading venues must be settled by no later than the second business day after the trading takes place (T+2).

In its report, ESMA recommends that the transition from T+2 to a one-day cycle (T+1) should occur in Q4 2027, ideally on 11 October 2027, taking into account peak periods and quarter shifts. ESMA also recommends that this transition occur simultaneously across all relevant instruments.

ESMA explained that the move to T+1 is intended to promote the efficiency and competitiveness of settlement within the EU. In addition, it is expected to bring other benefits, such as reducing counterparty risk and margin requirements/costs as well as alignment with other jurisdictions such as the UK and USA.

11. EU — AIFMD / UCITS

ESMA collects data on pricing in investment fund sector

On 14 November 2024, ESMA published a press release to announce that ESMA, in collaboration with NCAs, are collecting data on costs related to investments in alternate investment funds and UCITS, with particular regard to management and distribution costs.

Presently this information is not transparent to retail investors and NCAs, and its publication will, in the perspective of ESMA, increase competition in the EU funds market.

This data will be presented in the form of a report to the EU Parliament, Council, and Commission in October 2025.

12. EU — EMIR

Council of the EU adopts revised EMIR 3 rules

On 19 November 2024, the Council of the EU adopted the new EMIR 3 package of amendments, which amend EMIR in relation to clearing services for OTC derivatives in order to increase the appeal of the EU clearing landscape. Accordingly, it is expected that EMIR 3 will be published in Official Journal of the European Union before the end of the year.

The new rules intend to streamline and shorten procedures, increase consistency between rules, and strengthen the supervision of central counterparties. The active account requirement (AAR) will also serve to reduce excessive reliance on systemic central counterparties.

ESMA consultation on EMIR active account requirement

On 20 November 2024, ESMA published a consultation paper on the AAR under EMIR 3 (see our June 2024 Update for further discussion of EMIR 3). The consultation paper also includes the draft regulatory technical standards specifying the conditions of the AAR.

The goal of the AAR is to address risks to financial stability by requiring certain counterparties exposed to systemically important clearing services to hold at least one active account at an EU central counterparty and clear a minimum representative number of derivatives trades in that account.

The consultation paper seeks feedback on the following aspects of the AAR:

• Operational conditions for ensuring that the active account is functional and suitable for clearing large transactions (e.g., necessary IT connectivity, internal processes, legal documentation).
• The representativeness obligation, which requires certain counterparties with a minimum notional clearing volume outstanding to clear at least five trades in each of the most relevant subcategories per class of derivative contracts at their EU account.
• Reporting requirements, under which all counterparties subject to the AAR must submit reports to their NCAs every six months containing the information necessary to assess compliance with the AAR (including, e.g., demonstrating that they meet the operational conditions and stress-testing obligations).

ESMA’s consultation is open until 27 January 2025.