January 2022
Regulatory Round-up - Q4 2021

In this edition we cover:

United Kingdom

  • Discussion Paper on Sustainability Disclosure Requirements (SDR) and investment labels
  • Changes to UK MIFID’s conduct and organisational requirements
  • Review of the Appointed Representative Regime
  • Consultation on Financial Promotions Exemptions for HNWIs and Sophisticated Investors
  • The FCA: further extension of measures for firms to issue 10% depreciation notifications
  • The FCA’s expectations for remote & hybrid working arrangements
  • FCA Decision Notice against BlueCrest Capital Management (UK) LLP (BCMUK)
  • National Security and Investment Act 2021
  • FCA publishes new rules on climate-related disclosures
  • Natwest fined £264.8 million for anti-money laundering failures


United States

  • SEC’s new marketing rules

Discussion Paper on Sustainability Disclosure Requirements and investment labels

In November 2021, the FCA released DP21/4, its Discussion Paper on Sustainability Disclosure Requirements (“SDR”) and investment labels.  The SDR and investment labels regime is the UK’s equivalent to the EU’s Sustainable Finance Disclosure Regulation (“SFDR”) which is already in place and to which many UK firms are already subject by virtue of conducting cross-border business into the EU.


The Discussion Paper sets out the Regulator’s intention to implement a structure which will result in firms delivering a consistent approach throughout the design, delivery and disclosure of sustainable investment products. Proposals include the implementation of:


  • SDR: which could include two levels of disclosure: (i) consumer facing disclosures providing standardised information on a product’s key sustainability attributes; and (ii) entity and product level disclosures providing more granular details on sustainability risks, opportunities and impacts; and


  • Sustainable Investment Labels: which will require certain investment products to display a standardised product classification label reflecting its sustainability characteristics. Such labels are expected to complement the entity and product level SDR disclosures. 
    The FCA has indicated that it will consider mapping investment labels against those already in place under SFDR and could be as follows:
  • Not promoted as sustainable: Article 6
  • Responsible and Sustainable ‘Transitioning’ categories: Article 8
  • Sustainable ‘Aligned’: Article 9
  • Sustainable ‘Impact’: a category in its own right, comprising only a (small) subset of Article 9 funds.


The FCA has confirmed that further clarity on its intended approach will be set out in a Consultation Paper which it expects to issue in Q2 2022.

Changes to UK MIFID’s conduct and organisational requirements

In its Q2 2021 Regulatory Round-Up, Portman reported on the FCA’s proposals for making changes to best execution and research rules first introduced by MiFID II in January 2018. The FCA has since confirmed, in its Policy Statement PS21/20, that it will proceed with its proposed changes.


Therefore, effective 1 December 2021, best execution reporting under RTS 27 and RTS 28 no longer applies. 


In addition, effective 1 March 2022, the following research services will exempted from the inducement rules and, instead, considered “minor non-monetary benefits” meaning that they will not need to be paid for: 


  • Research on listed and unlisted SME’s (small and medium-sized enterprises) with a market capitalisation below £200 million;
  • Research focusing on fixed income, currency and commodity instruments;
  • Research from independent research providers who are unconnected, either directly or with other group entities, to execution or brokerage services and
  • Written research that is openly available to other firms or to the general public.

Review of the Appointed Representative Regime

The Treasury has published a “Call for Evidence” and the FCA has launched a Consultation on improving the AR Regime in order to reduce the potential harm to consumers and markets.  The Treasury is seeking views on four key aspects of the scheme:


  • The scope of the FSMA s39 exemption (permits authorised firms to appoint non-authorised persons to undertake some regulated activities);
  • Enhancing the FCA’s role and regulatory tools
  • Imposing further, direct regulatory requirements on ARs; and
  • Reviewing the role of the Financial Ombudsman Service in respect of ARs.

The FCA Consultation Paper focuses on two key areas for potential change, a) further information regarding ARs and notification requirements for principal firms, and b) providing further clarity (guidance) of the role and expectations of principal firms in respect of their ARs.  The proposals include a greater level of regulatory oversight of ARs generally. The Paper is also requesting feedback on regulatory hosting. Both Consultations close on 3rd March 2022.

Consultation on Financial Promotions Exemptions for HNWIs and Sophisticated Investors

The Treasury has published its Consultation Paper reviewing some of the exemptions within the Financial Promotion Order.  The FPO includes a number of exemptions from the requirements of the FSMA. These exemptions enable unauthorised persons/businesses to communicate financial promotions without requiring the approval of an authorised firm.  The Consultation is specifically reviewing three of these exemptions, including those for:


  • Certified HNWIs
  • Sophisticated Investors; and
  • Self-certified Sophisticated Investors.


Anyone wishing to contribute to the Consultation may do so before 9th March 2022.

The FCA: further extension of measures for firms to issue 10% depreciation notifications

The FCA has extended the (temporary) measures first issued in March 2021, that permit firms to issue 10% depreciation notifications to investors, until 31st December 2022. The FCA has indicated that it will not take action against a firm for breach of COBS 16A.4.3 UK, for services offered to professional investors, provided the firm has allowed professional clients to opt-in to receiving notifications. Firms must still ensure that they treat their customers fairly (COBS Principle 6) and communicate to them in a way which is clear, fair and not misleading (COBS Principle 7).

The FCA’s expectations for remote and hybrid working arrangements

The FCA has released a statement setting out its expectations for firms implementing remote or hybrid working arrangements.


Covid-19 and resulting government-imposed lockdowns has forced firms to implement remote working arrangements.  However, going forward, where firms are considering making remote or hybrid-working a more permanent arrangement, the FCA has set out areas for consideration around how such firms operate their business.


Specifically, firms must be able to demonstrate that they have satisfactory planning in place before making any temporary arrangements permanent and that this plan is reviewed on a periodic basis to ensure it remains appropriate.  Consideration should be given to areas including (but not limited to) how: effective governance and oversight can be implemented; compliance and risk functions can carry out their functions unaffected; policies, procedures and firm culture can be cascaded to staff; and systems and controls remain appropriate.


The FCA note that a lack of centralised location must not affect a firm’s ability meet the threshold conditions nor to overseeing its functions, including any outsourced functions.  In addition, the arrangement must not cause detriment to consumers, damage market integrity nor increase the risk of financial crime.


Any material changes to the way a firm operates should be notified to the FCA and change of business addresses reflected on the Financial Services Register.

FCA Decision Notice against BlueCrest Capital Management (UK) LLP

The FCA has issued its Decision Notice (“DN”) against BCMUK for failing to fairly manage a conflict of interest between October 2011 and December 2015. The FCA found that BCMUK’s systems and controls did not manage the risk that portfolio managers could be allocated in a way that favoured investors in an internal fund over investors in an external fund.


The FCA has provisionally determined that a financial penalty of over £40M should be imposed on BCMUK, alongside a requirement for BCMUK to pay redress to clients who have suffered a loss as a result of those failings. BCMUK has, however, referred the case to the Upper Tribunal.

National Security and Investment Act 2021

The National Security and Investment Act 2021 (“NSIA”) officially came into force on 4 January 2022.


Under the NSIA, mandatory notifications will need to be made to a new Government authority, the Investment and Security Unit, where either the percentage of shares or voting rights acquired in a ‘qualifying entity’ exceeds 25%, 50% or 75% or where the acquisition of voting rights enables or prevents the passage of any class of resolution governing the affairs of a ‘qualifying entity’.


Further details on the NSIA is provided in Portman’s Q2 2021 Regulatory Round-Up; while the UK Government has provided a flowchart to help decide when notification obligations arise.

FCA publishes new rules on climate-related disclosures

The FCA has published two policy statements (PS21/23 and PS21/24) in December 2021 confirming final rules and guidance to promote better climate-related financial disclosures.


PS21/42 is focused on issuers of standard listed shares or equity shares represented by certificates. Impacted firms will be expected to include a statement in their annual financial reports stating whether their disclosure meets the recommendations of the Taskforce on Climate-related Disclosures (“TCFD”).


PS21/24 is focused on FCA-authorised asset managers (AIFMs and MiFID investment managers). Firms will be expected to make firm-level disclosures relating to how they take climate-related risks and opportunities into account when managing their investments. They will also have to make product-level disclosures. These requirements came into effect on 1 January 2022 for the largest firms (with £5 billion or more under management) and will be phased in for smaller firms in 2023.  

Natwest fined £264.8 million for anti-money laundering failures

National Westminster Bank Plc (Natwest) was fined £264.8 million on 13 December 2021 following convictions for offences of failing to comply with money laundering regulations. The bank was found to have failed to properly monitor the activity of Fowler Oldfield, a commercial banking customer and jewellery business based in Bradford. When Natwest took on the customer it understood that it would not handle cash from the business. However, during the course of the relationship approximately £264m was deposited with the bank in cash. Several “red flags” were reported by the bank’s staff, but the appropriate action was not taken. Firms should ensure they are comfortable with the arrangements they have in place to counter financial crime. In particular, the case highlights the importance of carrying out appropriate ongoing due diligence and monitoring.

SEC’s new marketing rules

The SEC modernised its rules governing the advertising and cash solicitation practices of investment advisers (i.e., managers) registered or required to be registered with the SEC will need to comply with new rules/requirements by 4 November 2022.


The marketing rules seek to address evolving market practices (including technological advances) by modifying the definition of advertisement. Advertisements include any direct or indirect communications from an adviser to more than one person that offers the adviser’s investment advisory services (i.e., management services) or offers new services to existing clients.


The updated rules provide various clarifications, including that nonwritten communications, such as online videos or audio recordings, will be considered advertisements. The updated rules also stipulate communications with existing investors or clients that do not offer any additional services will not be considered an advertisement.


Firms are expected to update their policies and procedures to reflect these new rules and any marketing materials (advertisements) ahead of the new rules coming into force in November 2022.