Agenda
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Highlights

Funds Congress Highlights

The Regulatory Roadmap of 2024: Top Five Trends Shaping the Future of Asset Management

Antonio Barattelli | Head of Investment Management Unit, European Securities and Markets Authority (ESMA)
Nike Trost | Head of Asset Management, Funds & Pensions Market Analysis & Policy, Financial Conduct Authority (FCA)
James O’Sullivan | Head of Fund & Firm Authorisations, Funds Supervision Division, Central Bank of Ireland (CBI)
Patrick Hoffmann | Internationa, Regulation and Enforcement, Commission de Surveillance du Secteur Financier (CSSF)
Richard Frase | Partner, Dechert LLP

Venturing into 2024, the regulatory landscape is set to undergo significant transformations with five regulatory trends defining the asset management sector in the years ahead. These trends encompass sustainability and ESG integration, financial stability, emerging retailisation of private assets, the non-banking sector’s role, and EU-UK regulatory alignment. Each of these trends presents unique challenges and opportunities for investment funds and asset management professionals and understanding them is crucial for navigating the evolving regulatory environment, driving compliance, and managing risk effectively.

Sustainability and ESG integration: In a pivotal year for Europe, underscored by national and European parliamentary elections, the regulatory agenda remains busy. In view of the huge growth in sustainable finance, implementing sustainability-related regulation and avoiding greenwashing remains a supervisory priority for the European Securities and Markets Authority (ESMA). A key area is the issue of fund names: with Articles 8 or 9 effectively acting as a “proxy label” for funds, ESMA’s primary concern is to ensure that the underlying investments are properly aligned with a fund’s name where those names use ESG or sustainability-related terms. ESMA will publish new guidelines on the use of ESG or sustainability-related terms in fund names in 2024.

Financial stability and liquidity: Amid a new macro-prudential environment, a renewed focus on financial stability has seen the Financial Stability Board scrutinising liquidity mismatches in open-ended funds, with the International Organisation of Securities Commissions reviewing liquidity management issues. With the EU focusing on monitoring the implementation of liquidity provisions by asset managers, some mandatory requirements on the use of liquidity management tools are likely through the Alternative Investment Fund Managers Directive (AIFMD) review – so called AIFMD 2.0, with ESMA due to draft technical standards specifying the available tools. In the area of leverage, AIFMD 2.0 also contains new rules on loan origination.

Emerging retailisation trends: One of the hottest topics of the year, the European Long Term Investment Fund (ELTIF) 2.0 structure has sparked a significant amount of work by national regulators committed to broadening investment in private funds; an area where Europe trails the United States. In its proposed Regulatory Technical Standards (RTS) for ELTIF 2.0, ESMA has made significant efforts to balance flexibility and agility against risks to financial stability. The draft RTS is now being reviewed by the EuropeanCommission.

The non-banking sector’s role: Debate surrounds the level to which the asset management sector will be called on to finance global climate transition. From a regulatory standpoint, fairness for investors must be balanced against maintaining the robustness on which the wider economy relies. The European Commission’s report considers these issues. Further work may be needed to examine the interconnectedness of the banking and non-banking sectors, though so many safeguards already exist at both the fund and macro levels, including stress testing, leverage limits and rules governing liquidity management and loan origination.

EU-UK regulatory alignment: In the UK, where the FCA has adoptedan outcomes-based philosophy exemplified by its Consumer Duty, the regulatory agenda has proved to be broadly aligned to that of the EU – in a global industry, after all, similar issues face all regulators, even if the timing and specificity of their responses may differ. Under the UK’s Overseas Fund Regime, a legislative framework for a new streamlined process to recognise overseas collective investment schemes domiciled in jurisdictions deemed ‘equivalent’ by the Treasury will make it easier for such schemes to market to retail investors in the UK. As a first step, the Treasury has deemed EEA states to be equivalent in relation to UCITS (except money market funds). The FCA is also working to streamline the recognition process for individual funds once their jurisdictions have been deemed equivalent.

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The Regulatory Roadmap of 2024: Top Five Trends Shaping the Future of Asset Management
Venturing into 2024, the regulatory landscape is set to undergo significant transformations with five regulatory trends defining the asset management sector in the years ahead. These[…]
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