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Funds Annual Briefing 2022 - What you may have missed

Funds Annual Briefing 2022 - What you may have missed

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UK: Amendments to UK MAR

What is this?

Changes to the time period for announcing dealings of PDMRs.

Who does this apply to?

"Persons disclosing managerial responsibilities" and their "persons closely associated" (as both such terms are defined in UK MAR).

When does this apply?


Under UK MAR, all persons disclosing managerial responsibilities (PDMRs) and their "persons closely associated" (PCAs) must notify the issuer and the Financial Conduct Authority (FCA) of all dealings in any of the issuer's securities by them or on their account (including all dealings by their investment managers), and the issuer must announce such dealings to the market. In June 2021 the time period for announcing dealings of PDMRs and PCAs was amended to allow issuers two working days after receiving the notification from the PDMR or PCA to announce the transaction.

UK: European Single Electronic Format Requirements

What is this?

The introduction of structured electronic reporting for annual financial reports as part of the UK implementation of a wider cross-EU initiative.

Who does this apply to?

Issuers listed on the Main Market of the London Stock Exchange and those trading on the Specialist Funds Segment.

When does this apply?

The new format applies to financial periods starting on or after 1 January 2021.

The European Single Electronic Format (ESEF) (requiring issuers to publish and file their reports in XHTML format) applies to financial periods starting on or after 1 January 2021, for publication from 1 January 2022, and has been implemented in the UK pursuant to DTR 4.1.14. In early September the FRC's Financial Reporting Lab published "UK electronic reporting survey: Results and feedback", commenting on the preparations which have been made to comply with DTR 4.1.14 and providing a list of resources to help companies understand and implement these requirements. The FRC's Financial Reporting Lab is also currently reviewing a set of UK and EU ESEF filings where companies have complied with these obligations early, with the aim of publishing further guidance in October 2021.

UK: Listing and Prospectus regimes reviews

What is this?

Post-Brexit reform of the UK's Listing and Prospectus regimes.

Who does this apply to?

Issuers listed on the Main Market of the London Stock Exchange and those trading on the Specialist Funds Segment.

When does this apply?


In March 2021 HM Treasury published the UK Listing Review report following the review of the UK listing regime chaired by Lord Hill. The report identifies an urgent need to reform the Listing Rules and the Prospectus regime to ensure that the UK remains competitive post-Brexit. For further information, see our briefing note.

In a statement published by The Chancellor of the Exchequer in April 2021 the Government accepted the recommendations of the UK Listing Review report and the Chancellor committed to present an annual "State of the City" report to Parliament in satisfaction of recommendation 1. The Government subsequently published Consultation: UK Prospectus Regime Review in July 2021 which explains how the Government suggests reviewing and potentially replacing the UK Prospectus regime inherited from the EU. The consultation has four key objectives: (1) facilitating wider ownership of public companies; (2) improving the efficiency of public capital raising; (3) improving the quality of investor information; and (4) improving the agility of regulation in this area. For further information, see our briefing. The summary of consultation responses was published in December 2021, with the vast majority of respondents supporting the government's overall approach to reforming the UK Prospectus regime. The Government will set out its intended next steps in due course.

The FCA has also recently consulted on the effectiveness of the primary markets. The FCA is looking firstly at ways of improving the efficiency of the Listing regime (with four different listing models being discussed) and secondly at targeted changes to remove barriers to listing, with its main aim being to "ensure that the UK remains an attractive place to grow and list successful companies".

UK: Changes to the listing rules relating to eligibility requirements and SPACs

What is this?

New listing rules designed to increase investor protection whilst making the UK a more attractive jurisdiction to list SPACs, and changes to the eligibility requirements contained in the listing rules.

Who does this apply to?

Managers considering launching a SPAC and issuers admitted to trading on a UK regulated market.

When does this apply?


Following the UK Listing Review report, the FCA published a consultation, which resulted in changes to the Listing Rules relating to special purpose acquisition vehicles (SPACs) from August 2021. There is now an alternative route to market for SPACs demonstrating higher levels of investor protection; subject to certain criteria being met, the presumption in the Listing Rules that the listing of a SPAC will be suspended when it identifies a potential acquisition target has been removed. The FCA has introduced guidance stating that it will generally be satisfied that a suspension is not required where a SPAC:

  • has certain features built into its structure that provide investor protections; and

  • provides adequate disclosures to the market to mitigate key risks for investors.

The FCA's aim is to provide a more flexible regime potentially resulting in a wider range of SPACs listing in the UK, as well as increased choice for investors, and its proposals will put the UK regime on a similar footing to the regulatory regimes of competing financial centres such as the US. However there are concerns that the residual risk of a trading suspension will be too toxic to attract the necessary hedge fund investor appetite.

Following the consultation on the effectiveness of the primary markets, the FCA published a series of Listing Rule changes primarily in relation to eligibility requirements and which came into effect in December 2021, save for some further technical changes which came into effect from 10 January 2022.

The key changes made were as follows:

  • An ability to obtain a premium listing with a specific form of dual class share structure;

  • the 'free float' requirement reduced from 25% to 10%; and

  • minimum market capitalisation increased from £700,000 to £30 million.

The FCA also considered changes to the three-year financial 'track record' requirements for new applicants to the premium list, but has deferred any related rule changes until it has completed its wider review of the UK Listing regime to be undertaken in the first half of 2022.

Our briefing sets out further details.

UK: Secondary Capital Raising review

What is this?

Government review looking into improving further capital raising processes for publicly traded companies in the UK.

Who does this apply to?

All market participants.

When does this apply?

The Chancellor has asked Mark Austin, independent chair of the UK Secondary Capital Raising Review, to look into the review and report back with his recommendations in the spring of 2022.  

In October 2021, HM Treasury announced the launch of the UK Secondary Capital Raising Review (Press Release). The Review, which has been established in response to proposals made by Lord Hill, will consider how to improve secondary capital raising processes for UK listed companies and make appropriate recommendations to the government in this regard. Its scope and objectives are set out in the Terms of Reference, which have been drawn up by the Treasury. In an accompanying Call for Evidence, the Chair of the Review, Mark Austin, requests that all interested parties, including market participants, expert practitioners, representative bodies and academics, provide views on the key themes of the Review. He, in turn, has been asked to provide a report and recommendations to the government in spring 2022.

The Terms of Reference state that the focus of the Review is on making recommendations to improve the capital raising process so as to increase the number of rights issues and open offers taking place (which are done on a pre-emptive basis but with greater cost, time and uncertainty and involves the preparation and publication of a prospectus) as opposed to private placings (which exclude and dilute existing shareholders in the company). The Review is, however, of relevance to investment companies as it will also look at secondary fundraisings in general and whether fund-raising mechanisms adopted in other jurisdictions (such as Australia) may be worth considering in the UK.

UK: Board diversity and listing rules

What is this?

FCA proposals setting out various targets relating to diversity and inclusion.

Who does this apply to?

All market participants.

When does this apply?

The consultation closed on 22 October 2021 and amendments were to apply to accounting periods starting on or after 1 January 2022 but this has now been delayed.

The FCA has published a consultation paper on its proposals to amend the Listing Rules (LRs) and Disclosure Guidance and Transparency Rules (DTRs) in relation to diversity on boards and executive committees. The FCA's proposals include a proposal to insert new provisions in the LRs to require companies to include a statement in their annual financial reports setting out whether they have met the following targets (and if they have not met the targets, an explanation as to why):

  • at least 40% of the board are women (including individuals self-identifying as women);

  • at least one senior board member (chair, CEO, SID or CFO) is a woman; and

  • at least one board member is from a non-white ethnic minority background.

In addition, it is proposed that the DTRs be amended to indicate that a company's disclosure on its diversity policy should also include the diversity policy applied to its remuneration, audit and nominations committees; and also cover aspects such as ethnicity, sexual orientation, disability and socio-economic background.

Separately, for regulated entities, in July 2021 the FCA, the Prudential Regulation Authority and the Bank of England issued a joint Discussion Paper which is intended to form the basis of proposed rules and guidance on diversity and inclusion in the financial sector. The closing date for feedback on the Discussion Paper is 30 September 2021. Our briefing note sets out further details on the proposals.

UK: Change to DTR 5 notification procedure

What is this?

A new major shareholdings notification portal.

Who does this apply to?

Issuers admitted to trading on a UK regulated market.

When does this apply?


In March 2021, the new portal for submission of DTR 5 notifications to the FCA was launched.

Holders of shares in a UK issuer admitted to trading on a regulated market must notify the FCA of major shareholdings under DTR 5.1.2. Instead of emailing TR-1 forms to the FCA, investors now need to complete an electronic TR-1 form which is sent via an online portal. That form will be able to be downloaded and sent to the issuer. Since March, investors have no longer been able to submit TR-1 Forms to the FCA via email. More information is available on the FCA's website.

UK: Audit reforms and proposals to replace the FRC with a new independent regulator, the Audit Report and Governance Authority, ARGA

What is this?

Consultation on corporate governance and audit reform.

Who does this apply to?

All market participants.

When does this apply?

The consultation closed in July 2021 and further updates are awaited.

Following the Kingman and Brydon reviews, it is proposed to implement audit reforms and to replace the FRC with a new independent regulator, the Audit Reporting and Governance Authority (ARGA). In March 2021, the Government published "White Paper: Consultation on restoring trust in audit and corporate governance". The White Paper sought views on wide-ranging reforms intended to strengthen the UK's audit, corporate reporting and corporate governance system, and responded to recommendations made by the Kingman review on the regulation of the audit industry and the Brydon review into the quality and effectiveness of audit.

In particular, the White Paper proposed that (a) large public companies would be held to higher standards of governance; and (b) directors would have increased liabilities (for example greater accountability for internal controls, dividends and capital maintenance, new reporting requirements, investigation and enforcement powers for the audit regulator to deal with wrongdoing by directors and strengthening malus and clawback provisions within executive directors' remuneration). A further proposal was to expand the definition of "public interest entity" to include large private companies with two possible options for the meaning of "large" in this context. We have reviewed the impact this may have on reporting by large UK private companies.

UK: Extension of the current Investigation and Enforcement Regime under the Company Directors Disqualification Act 1986 to include former directors of dissolved companies

What is this?

Extension of the Company Directors Disqualification Act to dissolved companies.

Who does this apply to?


When does this apply?

The Act received Royal assent in December 2021 with the substantial majority of the provisions of the Act relating to directors' disqualification coming into force two months after this date.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act has been introduced to Parliament and includes provisions to extend the scope of the current investigation and enforcement regime under the Company Directors Disqualification Act 1986 to include former directors of dissolved companies. In particular, the Bill would give the Secretary of State and the official receiver powers to investigate the conduct of former directors of dissolved companies without there being a requirement to first restore the company to the register, commence disqualification proceedings against them in appropriate circumstances, and seek compensation where their conduct has caused loss to creditors. The Bill also provides that these new powers will have retrospective effect. The Bill is currently passing through the House of Lords.

UK: Changes to the UK's "Hybrid" anti-avoidance rules

What is this?

Changes to the UK's "hybrid" anti-avoidance rules.

Who does this apply to?

UK corporation taxpayers and counterparties to transactions with them.

When does this apply?

The different rules have different dates for coming into force, with some being retrospective back to 1 January 2017.

A number of significant changes were made last year to the UK rules which aim to counteract "tax mismatches" which arise from arrangements with a hybrid element or which are designed to create that mismatch (the Regime). We set out below some of the key changes relevant to the funds sector.

Acting together

One aspect of the changes is that they have the effect of reducing the situations in which fund investors being deemed to be "acting together" will be problematic. This is important because when parties act together in relation to another person, broadly, the aggregate rights and interests those parties have in the other person are attributed to each other when assessing whether either of those parties controls or is related to another person. The presence of a control relationship or persons being related is often critical for the hybrids rules to apply. Attributing investors' rights to each other as a result of the "acting together" rules was therefore bringing benign fund arrangements within the scope of possible counteraction.

This problem has been addressed in part by, broadly, disapplying counteraction under the Regime in respect of any investor that holds (together with certain connected persons) less than 10% of a tax transparent alternative investment fund or collective investment scheme, other than in relation to "structured arrangements".

Dual inclusion income

The Regime includes provisions that counteract arrangements that generate double tax deductions for payments made by a hybrid entity that are also deductible for an investor in it. Broadly, these provisions can apply if the hybrid or the investor is within the charge to corporation tax and either they are related or the arrangement is designed to deliver (or share the economic benefit of) the double deduction.

An example of when the provisions could potentially apply would be expenses (e.g. employee salaries) incurred by a UK subsidiary of a US parent where a "check the box election" (CTB Election) has been made to disregard the subsidiary for US tax purposes. Absent the Regime, these expenses would be deductible for both the US parent and UK subsidiary (subject to any normal (non-hybrid) restrictions on deductibility).

There is an exemption from the disallowance where the double deduction is used against "dual inclusion income" but that term had been too narrowly defined, leading to UK taxpayers being unable to claim tax deductions in some common benign situations, typically involving supplies between a UK service provider which has been subject to a CTB Election and a related overseas customer.

In 2018, HMRC tried to remedy the situation by allowing the deduction to be set off against a further type of income (section 259ID income) as well as dual inclusion income. However, the concept of section 259ID income was itself too narrowly drawn to be relevant in many situations, and under the recent changes has been abolished. Instead, in double deduction situations, the concept of "dual inclusion income" (essentially, an amount that is ordinary income of both the hybrid entity and an investor in it) has been expanded. Under the new rules, the circumstances in which ordinary income is treated as received by an investor are increased by deeming it to include amounts, broadly, for which nobody in any jurisdiction is entitled to a tax deduction (for these purposes, assuming persons resident in zero-tax jurisdictions are tax resident in the UK) and where the hybridity of the hybrid entity is the reason why the investor does not get a deduction in its home jurisdiction.

The extension of the definition of dual inclusion income is an improvement on the concept of section 259ID income but, unfortunately, not a complete answer. Helpfully, it broadens the situations in which payments from US parents to UK subsidiaries are eligible to count as dual inclusion income and should also potentially apply where the payment is made by a US sister entity which has also been disregarded for US tax purposes as a result of a CTB Election. However, payments from related entities in other jurisdictions are still unlikely to fall within the definition (as the related entities are likely to get a local tax deduction for the payments they make to the UK company).

The definition of dual inclusion income has similarly been extended in the section of the Regime that potentially denies deductions where a UK company that has been subject to a CTB Election for US purposes makes a payment to its US parent. In that situation, as the US parent would not recognise any taxable income (due to the election), the Regime would potentially deny the UK company a corporation tax deduction unless there is dual inclusion income from the arrangement.

In addition, rules have been introduced that enable companies to surrender dual inclusion income to other members of their group.

Qualifying institutional investors

Under the Regime, situations in which a corporation tax deduction can be denied to a UK corporation taxpayer include where:

  • a payer makes a potentially tax deductible payment to a hybrid entity which does not give rise to taxable income for either the hybrid or an investor in it (e.g. if the hybrid is tax transparent in its own jurisdiction but seen as opaque in the jurisdiction of an investor); or

  • a (potentially) tax deductible payment is made by a hybrid which is not recognised as taxable income for the investor (e.g., where a payment is made to its US parent by a UK company that has made a CTB Election for US tax purposes).

However, a problem with the rules was that, although for counteraction to apply the relevant mismatch had to be caused by the hybridity, wide-ranging deeming provisions meant that this requirement could be met where there would be no tax on the receipt of the payment, even if there was no hybridity present, due to the recipient being a tax exempt investor (e.g. a pension fund). To address this situation, the Regime has been amended so that, broadly, hybridity is deemed not to be the cause of the mismatch so far as the mismatch is attributable to a "qualifying institutional investor" (a QII).

A QII is a "good" institutional investor for the purposes of the Regime and has the same meaning as in the substantial shareholder exemption from corporation tax on capital gains. QIIs include trustees or managers of certain pension schemes, certain life assurance companies, persons who cannot be liable for corporation tax or income tax (as relevant) due to sovereign immunity, charities, investment trusts and authorised investment funds and trustees of exempt unauthorised unit trusts that meet the "genuine diversity of ownership condition".

In addition, the Regime's definition of "ordinary income" has been expanded to benefit QIIs. This is important because mismatches can potentially arise to the extent a deduction is not matched by "ordinary income", and this has been problematic for tax exempt investors as "ordinary income" is, broadly, taxable income. Under the change, "ordinary income" now includes income which would be brought into account for the purpose of calculating the taxable profits of a person but for the fact that the person is a QII (and, if the person is based in a territory without relevant tax on the kind of income in question, if the territory had such a tax).

Imported mismatches

The Regime contains rules which can deny deductions to UK corporation taxpayers where, in essence, the payment funds a hybrid mismatch between two non-UK entities. Under the changes, the conditions for these rules to apply have been amended. In particular, previously, it was, broadly, necessary that there was no "equivalent provision" under the laws of a foreign jurisdiction which would apply to the mismatch, but, in practice, determining this equivalence was often not straightforward. This condition has been changed so that, essentially, the rules do not apply to the extent that the non-UK mismatch is capable of being considered for the purposes of determining the tax treatment of a person (other than the UK payer) under the laws of a country that has given effect to the OECD's BEPS anti-hybrids report. Less helpfully for taxpayers, one of the other technical conditions for the imported mismatches rules has been removed (broadly, in most cases, it was necessary that, had the UK payer been a party to the non-UK hybrid arrangement, it would have been caught by the anti-hybrid rules).

UK: Developments in relation to the meaning of "management" in the VAT exemption for fund management

What is this?

Developments in the scope of the VAT exemption for fund management around what constitutes "management".

Who does this apply to?

Fund managers and their clients.

When does this apply?


Under the EU's VAT Directive, there is a VAT exemption for "management" of a "special investment fund" (SIF). The meaning of management is not defined in the EU VAT Directive and has been developed through the case law of the Court Justice of the European Union (CJEU).

In 2020 in the case of Blackrock Investment Management (UK) Ltd v Commissioners for Her Majesty's Revenue & Customs (C-231/19), the CJEU held that the exemption did not apply at all to a supply of a management platform that had been used for both SIFs and non-SIFs. This generated concern that the CJEU may have indicated that, for a service to constitute "management", it must be of a type that can only be made to SIFs, thereby significantly narrowing the scope of the exemption, as most management services can be provided to all types of fund (e.g. investment advice).

In June, the CJEU decided the joined cases of K (C-58/20) and DBKAG (C-59/20) and may have moved the dial slightly back in favour of fund managers. This is because although the decision supports the lesson learnt from Blackrock that supplies made to SIFs and non-SIFs should be kept separate, the tone used is more asset manager friendly. The decision also helpfully confirms that the exemption can apply to management services outsourced by fund managers to third parties, even if those services are not outsourced in their entirety.

Although (unlike Blackrock which does apply) the K and DBKAG decision is not binding on UK courts, they may well take note of it, at least until the government decides to depart from the EU position.

UK: New off payroll working rules came into effect on 6 April 2021

What is this?

The introduction of new employment tax rules for off payroll workers.

Who does this apply to?

Medium and large clients in the private sector, who use workers that provide their services through intermediaries.

When does this apply?

On and after 6 April 2021.

New rules relating to off-payroll working came into effect on 6 April 2021.

The new rules apply to medium and large clients in the private sector that have a UK connection. They affect fee payments made in respect of workers who provide their services through intermediaries such as personal service companies (PSCs). Asset managers and others in the funds sector engaging such intermediaries now need to decide whether, if the existence of the intermediary were ignored, the worker would be regarded as their direct employee (or office holder) for income tax purposes. If they would, then the client (or the agency paying the intermediary if different) must deduct income tax and NICs from the fees paid to the intermediary and account for employers' NICs (and apprenticeship levy if relevant) as if the fees were payments of salary.

Although HMRC announced that they would take a gentler compliance approach for the current tax year as companies adjust to the new rules, we understand that they have set up a new task force to look into unpaid tax. The government has also recently launched a call for evidence on the use of umbrella companies in the labour market over concerns that these are sometimes used for tax avoidance and evasion purposes. It is therefore important that those engaging workers understand the supply chain through which they are provided, are aware of their obligations under the rules, and have robust procedures in place to deal with the new rules.

UK: Social security for internationally mobile workers from 1 January 2021

What is this?

The post-Brexit rules on social security for internationally mobile workers.

Who does this apply to?

Internationally mobile workers going to the EU from the UK or vice versa and their employers.

When does this apply?


For UK employers with workers in the EU, the EU/UK Trade and Cooperation Agreement (TCA) contained some welcome clarification on their social security obligations from 1 January. Importantly, a new Protocol on Social Security Co-ordination was agreed, replicating many of the previously existing EU rules, including those for 'posted' workers (to be known as 'detached' workers). All EU member states have opted into these new rules which means that workers moving temporarily between the UK and the EU will continue to pay social security contributions in their home state and receive necessary healthcare treatment in the country where workers are temporarily posted. It is still possible for EU Member States to opt-out at any time, however, they must give the UK notice and any postings that began before the opt-out will be protected. In November the UK and Switzerland also entered into an agreement on social security coordination which largely replicates the pre-Brexit rules.

EU: Sustainable Finance Disclosure Regulation (SFDR)

What is this?

New rules requiring firms to make disclosures in respect of sustainability.

Who does this apply to?

EU portfolio managers, investment advisers and AIFMs and UCITS management companies and non-EU firms marketing or distributing financial products in the EU.

When does this apply?

The first set of requirements have applied since 10 March 2021.

The majority of the provisions of the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR) began to apply from March 2021.

Broadly, EU SFDR requires disclosures on the integration of so-called "sustainability risks" by firms in their investment decision-making and an assessment of the likely impact of such risks on investment returns. Firms will also have to say whether they consider the "principal adverse impacts of investment decisions on sustainability" and, if they do, make disclosures in relation to those impacts. Products which promote environmental and/or social characteristics, and those that have sustainable investment as their objective, are subject to further requirements. Disclosures are required to be made on the firm's website as well as at the pre-contractual stage and in periodic reports.

EU SFDR applies to portfolio managers, AIFMs, UCITS management companies, EuVECA managers and EuSEF managers as well as investment advisers. Although it principally applies to EU firms, some obligations in EU SFDR are also applicable to non-EU firms marketing or distributing financial products in the EU. UK and international firms will therefore be caught.

In July 2021, the European Commission published guidance regarding some of the SFDR's known unknowns. The Guidance provides some additional clarity on the application of the SFDR, but unfortunately does not clearly answer all the outstanding questions (as discussed in our client briefing).

The Guidance covers the following key topics:

  • The application of SFDR to non-EU AIFMs and sub-threshold AIFMs;

  • Principle adverse impacts:
    • The application of the "Comply or Explain" principle;
    • The calculation of the "500 employee test";

  • The scope of Article 8: a product which "promotes environmental or social characteristics";

  • The scope of Article 9: a product which has "sustainable investment as its objective"; and

  • Article 10 SFDR website disclosures for Article 8 and Article 9 products.

The draft Regulatory Technical Standards (RTS) to supplement the SFDR were originally issued by the European Supervisory Authorities (ESAs) in February 2021 and include provisions on the following areas:

  • Details of the content and presentation of the information on "do no significant harm";

  • Details of the content, methodologies and presentation of information in respect of certain sustainability indicators (the mandatory principal adverse impact indicators that certain firms will need to consider and report upon);

  • Details of the content and presentation of the pre-contractual information to be disclosed under Articles 8 and 9 EU SFDR;

  • Details of the content and presentation of the website disclosures under Article 10 EU SFDR; and

  • Details of the content and presentation of the information disclosed in periodic reports under Article 11 EU SFDR.

The RTS were due to come into force on 1 January 2022 but this has been delayed until 1 January 2023 with the RTS to be bundled into a single delegated act.

Further details on the draft RTS are in this client briefing and details relating to delay of the RTS coming into force are in this client briefing.

UK: Implementation of the Taskforce on climate-related financial disclosure recommendations

What is this?

FCA rules requiring firms to make mandatory climate-related disclosures in respect of sustainability (TCFD-aligned disclosures).

Who does this apply to?

UK-authorised asset managers (including AIFMs & UCITS management companies).

When does this apply?

For asset managers with more than £50 billion AUM, the rules apply on 1 January 2022, with the first public disclosures required by 30 June 2023; for other asset managers with more than £5 billion AUM, the rules apply on 1 January 2023, with the first public disclosures required by 30 June 2024.

The FCA has confirmed the substance of what it consulted on in June 2021 regarding public, investor-facing mandatory climate-related disclosures for asset managers, life insurers and FCA-regulated pension providers. The new rules are set out in a new Environmental, Social and Governance sourcebook (ESG).

Further details are in our 2022 New Year Financial Services Briefing.

UK: Roadmap to sustainable investing

What is this?

The next phase in the Government's commitments as set out in its 2019 Green Finance Strategy – an "overlay" to existing TCFD-aligned disclosure regime.

Who does this apply to?

Corporates, asset owners and managers, investment products.

When does this apply?

The government will update the Green Finance Strategy in 2022 which will look beyond the timescales envisaged by the Roadmap – this will include an indicative timeline out to 2050 to align the financial system with the UK's net-zero commitment. Corporates and large asset managers are likely to be subject to the new regime 2-3 years after legislation is enacted (see specific FCA proposals).

In October 2021, HM Treasury, the Department for Work & Pensions (DWP) and the Department for Business, Energy & Industrial Strategy (BEIS) published a joint paper entitled Greening Finance: A Roadmap to Sustainable Investing (the Roadmap).

The Roadmap includes the government's high-level policy intentions in relation to two key legislative proposals:

  • A new UK Sustainability Disclosure Requirements regime (SDR) – which will build on, and go beyond, existing TCFD-aligned disclosures to which many sectors in the economy are, or will be, subject. The FCA subsequently published a discussion paper on such disclosure requirements (see "FCA proposals for sustainability disclosures"); and

  • A UK Green Taxonomy – which, from the perspective of the high-level Roadmap and the initial focus at least, will bear some considerable resemblance to the EU Taxonomy Regulation regime, with its prioritisation on the climate change mitigation and climate change adaptation environmental objectives.

The Roadmap sets out some indicative timelines over the next three to five years, although the detailed consultation and implementation process will be carried out on a sector-by-sector basis, and through a combination of legislation and regulatory rulemaking, so the specific timetable will be hostage to that.

Further details are in our client briefing.

UK: FRC statement of intent on ESG challenges

What is this?

Paper setting out areas in which such challenges relating to information on ESG aspects of a company's sustainability should be addressed.

Who does this apply to?

UK companies.

When does this apply?


Against the backdrop of increasing focus on how companies comply with ESG reporting requirements and meet the demands of stakeholders, in July 2021 the FRC published a statement of intent on ESG challenges. The statement identifies a number of challenges faced by companies: production, audit and assurance, distribution, consumption, supervision and regulation. The FRC outlines the actions it plans to take in relation to these challenges, with a view to developing ESG reporting using a common conceptual framework. As regards corporate governance and reporting, the proposed action includes continuing to consider the role of the UK Corporate Governance Code in ensuring boards are taking appropriate account of ESG issues in their consideration of the long-term success of the company and amending it as appropriate.

Global: COP26

What is this?

The UN Climate Change Conference hosted by the UK in November 2021.

Who does this apply to?

The conference was to enable countries to come together to set meaningful targets for reducing global carbon emissions in response to the climate crisis.

When does this apply?


In November 2021, the UK hosted COP26. The summit was seen as the first real chance for the world to assess what had been achieved since the implementation of the historic Paris Agreement and to enable countries to come together to set meaningful targets for reducing global carbon emissions in response to the climate crisis.

For commentary and analysis on COP26 and its implications on business, our COP26 page can be found here.

UK: Glass Lewis: Say on climate votes

What is this?

Governance body views on disclosure by the listed company of climate-related matters.

Who does this apply to?

Listed companies and their advisers.

When does this apply?


The governance advisory body Glass Lewis has published a paper setting out its views on "Say on Climate" votes. These type of votes (whereby shareholders of listed entities are given an opportunity to vote on climate-related matters), are growing in frequency. Generally, Glass Lewis strongly supports 'Say on Climate' vote proposals which relate to disclosure by the listed company of climate-related matters (which it notes will help ensure Task Force on Climate-Related Financial Disclosures (TCFD) aligned reporting). However, Glass Lewis says it will generally recommend against any proposals that offer a shareholder vote on a climate plan or strategy. For further detail, see the Glass Lewis paper here.

UK: ILPA publishes new and updated guidance and documentation

What is this?

New publications from the Institutional Limited Partners Association.

Who does this apply to?

General Partners and institutional investors.

When does this apply?


The Institutional Limited Partners Association (ILPA) published a number of important documents and resources in 2021, including:

  • A model Non-Disclosure Agreement (NDA). ILPA hopes that the model NDA will reduce the time-consuming process of negotiating NDAs for both general partners and limited partners. The model NDA:
    • does not include a prescribed term (only making a suggestion of a term of one year) to allow parties to determine the most suitable term for the circumstances;
    • treats all information communicated by the manager as confidential information (with the exception of information that is or generally becomes public or that is already in the possession of the signatory prior to the signing of the NDA);
    • states that in the event of discrepancies between the NDA and data room click-through agreements, the provisions of the NDA shall prevail; and
    • includes a provision that a manager will not knowingly furnish the recipient of the information with material non-public information relating to an issuer of publicly traded securities whether in respect of the manager's portfolio or otherwise.

  • a new ESG resource for the private markets industry, the ILPA ESG Assessment Framework. The Framework is designed to help limited partners evaluate and understand the various stages of ESG integration that peers are observing among general partners in the marketplace today, and was created with meaningful input from both LPs and GPs; and

  • an updated ILPA Due Diligence Questionnaire containing an expanded Diversity, Equality and Inclusion section and an expanded ESG section which was adopted from the Principles for Responsible Investment's LP Responsible Investment DDQ, together with a new ILPA Diversity Metrics Template.
UK: PERG publishes fourteenth annual report and latest good practice reporting guide

What is this?

Annual report reviewing the private equity industry's conformity with the Guidelines for Disclosure and Transparency in Private Equity recommended by Sir David Walker in 2007.

Who does this apply to?

The largest UK portfolio companies and their private equity owners.

When does this apply?

Not applicable.

The Private Equity Reporting Group (PERG) has published its 14th annual report on the private equity industry's conformity with the Walker Guidelines, as well as an updated version of its guide to good practice reporting by portfolio companies. PERG states that the Guidelines will be reviewed in 2022, taking into account changes in the broader narrative reporting landscape. The implementation timeframe for revisions is expected to be 2023-24, depending on the finalisation of proposed reforms to corporate reporting in the UK. In the interim, PERG has published recommendations which it considers should be implemented now. These include:

  • improving and enhancing the depth of disclosure on environmental matters;

  • improving and enhancing disclosures on gender diversity to cover policies and actions to promote diversity (including other characteristics such as ethnicity and sexual orientation);

  • improving the level of disclosure on non-financial KPIs that are monitored by the company to assess its performance, for example employee-related matters;

  • focussing on improving the timeliness and accessibility of reports; and

  • reviewing guidance to improve reporting, considering linkage to other requirements, including reporting on how directors have complied with their duty under s172 of the Companies Act 2006.

The good practice guide is in substantively the same form as the January 2021 version, although the examples have been updated.

UK: Data protection developments

What is this?

Recent data protection related developments.

Who does this apply to?

All industry participants.

When does this apply?

Various dates (see below).

Post-Brexit data bridge

In June 2021, just as the data bridge in the EU-UK Trade and Cooperation Agreement was about to expire, the EU formally approved an adequacy decision for the UK on data protection, meaning that for now, personal data can flow freely from the EEA to the UK. However, as we set out in this briefing, this doesn't mean that we can necessarily relax about data flows from the EEA to the UK.

Schrems II

Following on from the CJEU's decision in Schrems II, in early summer, the EU released its new set of EU standard contractual clauses (SCCs) for restricted personal data transfers to third countries. These clauses are designed to update the old set of EU model clauses following the implementation of GDPR, to address some of the issues about ensuring equivalent EU data protection in third countries which were raised in Schrems II, and to make the SCCs fit for purpose and reflective of the transfer scenarios that take place in the current market. Alongside that, the EDPB released guidance on carrying out transfer risk assessments when relying on SCCs as a safeguarding mechanism for transferring data out of the EEA.

The old model clauses ceased to be valid for use in relation to new data transfer arrangements with effect from 27 September 2021, and from thereon only the new SCCs can be used when putting in place arrangements which rely on model clauses for data transfers. Organisations which already have current agreements in place using the old model clauses, have a grace period until 27 December 2022 to update their agreements to the new SCCs.

For further details see our briefing.

UK CMA and ICO cooperation on digital markets

In early summer 2021, the Information Commissioner's Office (ICO) and the Competition and Markets Authority (CMA) set out their blueprint for co-operation in digital markets to ensure meaningful user choice and control, while at the same time helping to maintain standards and regulations to protect privacy.

Further details are in our briefing.

The ICO consults on its international data transfer agreement

The ICO recently launched a consultation on its draft International Data Transfer Agreement and accompanying transfer risk assessment toolkit, for use in respect of restricted data transfers to third countries under UK GDPR. The consultation closed on 7 October 2021. For further details of the issues raised, and a heads up on what organisations are likely to have to address when carrying out data transfers using the IDTA, please see our briefing.

Outcome of Lloyd v Google

This case concerned an attempt to bring a class action (also known as a representative action) in the English courts against Google for allegedly bypassing privacy settings on Apple iPhones, leading to the personal data of millions of users being processed by Google without their knowledge or consent. The relevance to Funds businesses is that it could have paved the way for similar claims on behalf of large numbers of individuals to be brought against any business which handles personal data (e.g. relating to employees or individual customers) and is alleged to have breached data protection law. The Supreme Court has now confirmed that the representative action cannot proceed and its ruling suggests that it will now be difficult for similar group claims to be brought in future. It also deals with a number of points which may assist data controllers when seeking to defend themselves against claims for breach of privacy/data protection rights. For more details, see our briefing.

Latest DCMS announcements

The Department for Digital, Culture, Media and Sport (DCMS) have made a number of announcements in relation to developments which could have a significant impact on businesses handling personal data, including:

  • with respect to their approach to granting adequacy decisions, and their list of priority countries for an adequacy assessment, notably the US, Singapore, the Dubai International Finance Centre, and Australia, and

  • launching a wide ranging consultation on data protection reform in the UK.

Further details are in our briefing.

UK: National Security and Investment Act: impact on share and asset acquisitions

What is this?

Legislation designed to strengthen the government's powers to scrutinise transactions on grounds of national security.

Who does this apply to?

A wide range of transactions.

When does this apply?

From 4 January 2022 (with the possibility for retrospective call-in of certain transactions on/after 12 November 2020).

The UK government has created an extensive new standalone regime, strengthening its powers to scrutinise transactions on grounds of national security. The new statutory regime under the National Security and Investment Act 2021 will come into force on 4 January 2022. Certain aspects of the NSI Act will, however, apply retrospectively between 12 November 2020 and the commencement of the new regime.

The NSI Act broadens the range of investments which can be reviewed by the UK government on national security grounds and introduces a hybrid mandatory and voluntary regime, which includes a statutory requirement for parties to notify and obtain prior approval from the government in respect of relevant transactions in 17 of the most sensitive areas of the economy. Alongside a mandatory notification requirement, the government will also have a more extensive "call-in" power to enable it to assess deals which fall within scope of the voluntary regime and may give rise to national security risks. In each case, the review process will be subject to statutory time limits.

A number of direct and indirect share and asset acquisitions (of targets located in the UK or carrying on activities in (or partly in) the UK, or supplying goods or services to the UK), may be caught by the NSI Act.

  • Share acquisitions. As a broad guide, mandatory notification will apply to direct or indirect acquisitions in qualifying entities of more than 25%, more than 50%, or 75% or more (i.e. including increases in existing shareholdings) of the shares or voting rights in qualifying entities or voting rights that enable or prevent the passing of a company resolution if they fall within one or more of the 17 mandatory sectors. Acquisitions of "material influence" (commonly 15% or more of the shares/votes, and in some circumstances even less) in qualifying entities (active in any sector of the economy) are also within the scope of the voluntary notification regime; and

  • Asset acquisitions. A wide range of asset acquisitions may also fall within the scope of the NSI Act. In particular, attention should be paid to the acquisition of a right or interest in an asset providing the ability to: use the asset or use it to a greater extent than prior to the acquisition; or direct or control how the asset is used, or direct or control how the asset is used to a greater extent than prior to the acquisition. Assets within the scope of the NSI Act are land, tangible moveable property, and (covering intellectual property) any idea, information, or technique with industrial, commercial or other economic value (including assets/land outside the UK which are used for activities in the UK or for supply of goods/services to persons in the UK). Examples of assets within that last category include: (a) trade secrets; (b) databases; (c) source code; (d) algorithms; (e) formulae; (f) designs; (g) plans, drawings and specifications; and (h) software.

For more information on the NSI Act, see our briefing.

UK: LIBOR discontinuation

What is this?

The ongoing cessation of the publication of LIBOR settings.

Who does this apply to?

Any fund and/or fund manager which currently relies on any LIBOR in any way.

When does this apply?

Now – funds should already have transitioned from GBP and JPY LIBOR (which ceased to be published at the end of 2021) and should develop and implement plans to transition from USD LIBOR (which shall cease to be published on 30 June 2023).

Following its announcement several years ago, publication of the GBP and JPY settings of the London Interbank Offered Rate (LIBOR) ceased at the end of 2021.

In the build-up to cessation, the FCA encouraged market participants to stop issuing sterling LIBOR referencing loans that matured after 2021 and to transition their LIBOR-referencing contracts to "risk free" reference rates (often referred to as RFRs). The Bank of England's Working Group on Sterling Risk-Free Reference Rates (the RFR Working Group) ultimately recommended Sterling Overnight Index Average (SONIA) as its preferred replacement rate for LIBOR in sterling markets, though, in some circumstances, the Bank of England Bank Rate has also been deemed an appropriate alternative.

The FCA has reported that this transition has largely been successful, with SONIA uptake being high across the key loan and derivatives markets.

What if I haven't transitioned away from GBP or JPY LIBOR?

As of 1 January 2022, the FCA has designated the relevant GBP and JPY LIBOR settings as "Article 23A" benchmarks (referring to Article 23A of the UK Benchmarks Regulation (BMR)) which prohibits their further use by regulated entities, except where the FCA permits legacy use of the benchmark.

Despite the success of transition, the FCA has acknowledged that there are still many agreements that reference LIBOR such that, in order to avoid disruption to the market, the FCA has exercised its power under Article 23D of the BMR to continue to require publication of six GBP and JPY LIBOR settings on a changed or "synthetic" methodology (Synthetic LIBOR) for at least 12 months following 1 January 2022.

Supervised users of all financial contracts other than cleared derivatives are permitted to use these settings in respect of legacy contracts. References to Synthetic LIBOR in new contracts are largely prohibited.

Use of Synthetic LIBOR

The FCA has indicated there will be no extensions to publication beyond the end of 2022 in respect of the JPY settings, and that the GBP settings will be published "at least" until the end of 2022. Whilst Synthetic LIBOR therefore provides a useful safety net for those who have not managed to transition in time, it should not be relied upon in the long term and transition should still be implemented as a matter of urgency.

As the change to Synthetic LIBOR potentially raises questions of breach of contract, frustration and the priority of fallbacks, the Critical Benchmarks (References and Administrators' Liability) Act 2021 has been introduced to address these concerns. In summary, this Act:

  • provides that references to or descriptions of a benchmark that has been designated as an "Article 23A benchmark" (e.g., GBP LIBOR) should continue to be interpreted as references to that benchmark after publication continues on a synthetic basis (unless expressly excluded);

  • ensures that, where parties have referenced a benchmark in a contract before the Act came into force or before the benchmark was designated as an Article 23A benchmark, the contract will be treated as if it has always provided for the reference to include the synthetic benchmark; and

  • confirms in law the priority as between contractual fallbacks and Article 23A benchmarks that continue to be published. Where the fallback is triggered by events other than the cessation or unavailability of the benchmark in question, its operation will not be prevented. However, if a fallback operates only on cessation or unavailability of the benchmark, the Act operates to prevent the fallback taking effect, and references to the benchmark will instead be treated as references to the designated Article 23A benchmark which continues to be published on a changed methodology.

USD LIBOR cessation

Whilst most USD LIBOR settings will continue to be published, the FCA has used its powers under Article 21A of the BMR to prohibit new use of the overnight, 1 month, 3 month, 6 month and 12 month USD LIBOR settings, which IBA (the current administrator of the LIBOR benchmark) will cease to publish at the end of June 2023.

The prohibition on new use of the 2023 discontinued USD settings took effect from 1 January 2022. The FCA has outlined some exceptions to this, chiefly for market-making and risk management activity and novations related to USD LIBOR transactions entered into prior to the end of 2021.

In relation to the USD LIBOR tenors that have now ceased to be published – i.e. the 1 week and 2 month tenors, under the ISDA Fallbacks Supplement, the tenors that continue to be published until June 2023 can be used to interpolate a replacement rate from 1 January 2022. The FCA has therefore proposed a specific exemption from the prohibition on new use of the 2023 discontinued USD settings where they are being used for the purpose of such linear interpolation.


In addition to LIBOR, the European Overnight Index (EONIA) also ceased to be published as of 3 January 2022. Within the European Union, Commission Implementing Regulation (EU) 2021/1848 (the EU Regulation) has been introduced so as to automatically amend references in contracts to EONIA to instead refer to ESTR plus 8.5 basis points (which has indeed been the same methodology used to calculate EONIA since 2019), but this only applies to contracts where (1) the governing law is that of a country in the European Economic Area (EEA) or (2) both parties to the contract are based in the EEA and the law of the contract is that of a third country that does not make other provisions for transition of EONIA.

Parties outside of the European Union must therefore consider how best to transition away from EONIA, if they have not already. Outside of amending contracts individually, one option is to adhere to ISDA's EONIA Collateral Agreement Fallbacks Protocol (the ISDA EONIA Protocol). Provided both parties to a contract have adhered to the ISDA EONIA Protocol, references to EONIA in derivatives and certain other contracts between them will be amended in much the same way as the EU Regulation operates.

What should funds be doing now?

Funds relying on EONIA but not covered by the EU Regulation should urgently seek to amend their documentation or adhere to the ISDA EONIA Protocol.

For those funds relying on Synthetic LIBOR, the immediate priority should be to ensure that a transition is implemented prior to the end of 2022, as there is no guarantee that these synthetic rates will continue to be published beyond this date.

In relation to USD LIBOR, as should have been done in relation to the GBP and JPY LIBOR settings, funds will need to establish what the impact of USD LIBOR transition will be and prepare a LIBOR transition plan to ensure that a consistent approach is taken and that they are not exposed to mismatches in replacement rates, imperfect hedges that result in basis risk, potential disputes and/or defaults. The Alternative Reference Rates Committee (AARC) (a group convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from USD LIBOR) have produced guidance to assist market participants with transition and this should be taken into account. Funds should also be mindful of the FCA's prohibition on new use of USD LIBOR.

Consideration should also be given to regulatory guidance on managing conduct and compliance risks relating to client communications during LIBOR transition. All UK funds, but debt funds in particular, should be mindful of the FCA's focus on "treating customers fairly" as a "customer" relationship exists between a debt fund and both its investors and borrowers.

The next step will be to engage with counterparties and commence the process of amending affected contracts. To assist with transition, industry bodies have been working on amendments to their standard form documentation and calculations to adjust to RFRs (with SOFR emerging as the preferred rate to replace USD LIBOR).

EU Investment Firms Regulation (IFR) and Directive (IFD)

What is this?

A new prudential regime introducing own funds, liquidity, remuneration, governance, and reporting requirements.

Who does this apply to?

EU MiFID investment firms.

When does this apply?

Since 26 June 2021.

The IFR and IFD introduced a new EU prudential regime for MiFID investment firms and began to apply to firms from 26 June 2021. The IFR/IFD introduced own funds, liquidity, remuneration, governance, and reporting requirements (which apply on a more limited basis to firms below certain thresholds).

During 2021, a number of draft and final Regulatory Technical Standards and Implementing Technical Standards continued to be issued, providing further detail on various requirements under the legislation.

EU: Cross-border distribution of funds

What is this?

New rules on the marketing of funds.

Who does this apply to?

EU AIFMs, UCITS management companies, EuSEF managers and EuVECA managers.

When does this apply?

Largely since 2 August 2021.

The regulation on cross-border fund distribution and the directive on the cross-border marketing of funds apply in the EU as from 2 August 2021.

The directive introduced a new definition of 'pre-marketing' and requires an AIFM to notify details of the pre-marketing to its home member state regulator. In addition, new requirements will apply when marketing units or shares in an AIF to retail investors.

In addition, new requirements will apply when an EU AIFM, UCITS management company, EuSEF or EuVECA manager is marketing units or shares in an AIF to retail investors. These include putting in place certain 'facilities' in the relevant member state to perform certain defined tasks and, where required by the relevant regulator, prior notification of the marketing communications which the AIFM intends to use.

As part of this new regime, in May 2021 the European Securities and Markets Authority published its final report on guidelines for funds' marketing communications (the ESMA Marketing Guidelines). The purpose of the ESMA Marketing Guidelines (which apply from 2 February 2022) is to clarify the requirements that funds' marketing communications must meet, which is to:

  • be identifiable as such;

  • describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner; and

  • contain clear, fair and not misleading information, taking into account the online aspects of marketing communications.

The UK government has decided that, post-Brexit, neither the CBD Regulation nor the CBD Directive will apply in the UK. However, the UK and other non-EU fund managers seeking to market their funds into the EU will be affected by any amendments that individual EU member states decide to make to their national private placement regimes following the changes introduced by the CBD Regulation and Directive.

More broadly, it is possible that the EU or individual member states may seek to increase the duties to which non-EU AIFMs marketing to investors in the EU or the relevant member state are subject. For example, they may require such non-EU AIFMs to treat the investors as their own clients and require them to comply with investor protection rules, such as those under MiFID and/or other more specific contents requirements such as any marketing communications being clear, fair and not misleading.

Further details are in our May 2019 briefing and in our 2020 New Year Briefing. We also gave an update on the regime and the ESMA Marketing Guidelines in our 2022 New Year Financial Services Briefing.


Please note that this briefing is for information purposes only. It is not legal advice and should not be relied upon. It is not a substitute for taking specific legal advice in any particular situation. No liability is accepted by Travers Smith, its employees, partners or any other person for the content of this briefing or for the consequences of any action taken or not taken in reliance upon it.

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