Investment & Capital Markets

2021 in review

Foreword

Sustainability and Responsible Investment

Industry Contribution to Climate Action
TCFD
Net Zero Transition
The EU’s Sustainable Finance Disclosure Regulation (SFDR) and equivalent UK FCA measures
The UK Government’s Roadmap to Sustainable Investing and Follow-on Publications
Green Gilts

Fund Liquidity Management & Measurement

Foreword

From Galina Dimitrova

Foreword

It is a great pleasure to welcome you to this first edition of the IA’s Investment & Capital Markets policy report.

Investment & Capital Markets is a key policy area within the IA and our team’s main mission is to assist IA members as investors and users of capital markets to the benefit of their clients. This includes support for our members’ ability to invest in a diverse range of asset classes, e.g., equity, fixed income, FX, infrastructure and private markets. This also extends to policy work on matters directly affecting the practice of dealing/trading for investment management firms, including market structures, relationships with other market participants and post-investment operations.

Our team also has an oversight and coordination role for all IA activity on sustainability and responsible Investing, including assisting industry with embracing sustainability as one of the defining features of investing and helping firms explore the wider role investment managers play in a more sustainable economy, society, and planet. This, of course, is a key priority for the whole of the IA, and we place a great emphasis on ensuring full coordination and collaboration amongst the different IA policy teams and the various strands of our sustainability work.

We do recognise that this work is broad and varied, and members who are not directly represented on the IA’s Investment Committee and related groups may find it more challenging to navigate and access.

Indeed, the creation of this new report was borne out of a request from members that key messages and work conducted by the IA, and specifically that of the Investment & Capital Markets team, are presented in a format which allows them to be more effectively communicated within, and disseminated throughout, member firms.

To that end, we would encourage members to share and circulate this report with all colleagues that may find it useful as we hope it will provide you with a ‘one stop’ reference to the IA’s work in investments and capital markets, including IA contacts and key resources.

Our first report will serve as an annual round-up of the Investment & Capital Markets policy team’s key areas of focus in 2021. It will come as little surprise to members that this includes considerable efforts in the area of sustainability and responsible investment, a hugely important and evolving space for our industry and one that will continue to be so for many years to come.

The attention of the team is not, however, limited to this area, and significant work has been undertaken in relation to the LIBOR transition, private markets, capital markets reform, FX markets, and investment operations, which will all be covered in this newsletter, as well as other areas of the capital markets sphere.

Going forward, we will look to publish this report on a quarterly basis, providing a more up-to-date look at the going’s on within our team.

We do hope you find this a useful resource and please, do not hesitate to get in touch if you have any questions or feedback.

Galina Dimitrova
Director, Investment and Capital Markets

Investment and Capital Markets hub page can be found here.

Sustainability and Responsible Investment

Sustainability and responsible investment remains the stand-out issue for our industry, with attention focused more than ever on working together towards an economy, society, and planet fit for the future.

The IA’s work in this area is led by our team, however, as might be expected, it cuts across, and requires extensive collaboration between, all IA policy teams.

Some of the main areas of the IA’s focus are explored in the following pages:

Industry Contribution to Climate Action
TCFD
Net Zero Transition
The EU’s Sustainable Finance Disclosure Regulation (SFDR) and equivalent UK FCA measures

The UK Government’s Roadmap to Sustainable Investing and Follow-on Publications

Green Gilts

Industry Contribution to Climate Action

In November 2020, the IA set out our first industry position paper on how investment managers aimed to support and fulfil their role in bringing about transition to reach the government’s Net Zero target by 2050. The paper confirmed climate change as one of the single biggest systemic risks facing society and the planet today and brought together an industry plan for climate action. Since then, we have been working together with members to progress a number of commitments, including:

1. Supporting the disclosure of climate related risk in line with TCFD and in particular:

Engagement with investee companies on climate-related disclosures.
Working with pension fund clients to help them meet their climate-related disclosure requirements.
Development of investment managers’ TCFD disclosures.
TCFD reporting by large private companies.

2. Empowering clients to make informed choices aligned with climate objectives, and in particular, supporting the improvement of sustainability-related disclosures at the fund-level.

3. Collaboration, including linking with advanced initiatives to support the Disclosure of Paris-Alignment of Portfolios and support for the work of the FCA-PRA Climate Financial Risk Forum.

4. Supporting the creation of investible opportunities, including

Green Gilts
UK government to facilitate sector-specific pathways to transition.

Below, we unpack some of our key positions and actions to date.

Further information:

Sally Springer Senior Policy Adviser - Sustainability & Responsible sally.springer@theia.org

IA website hub page can be found here.

TCFD

The IA is backing all efforts to make reporting in accordance with the TCFD’s recommendations mandatory throughout the UK economy, including clear expectations of investee companies (public and private), as well as supporting pension fund clients to help them meet their climate-related disclosure requirements and the development of investment managers’ own TCFD disclosures.

TCFD Working Group - Response to FCA Consultation CP21/17
Our policy efforts are supported by a dedicated ‘TCFD Disclosures for Investment Managers’ working group. This working group was crucial in shaping the industry’s response to the FCA’s consultation CP21/17 on enhancing climate-related disclosures by asset managers, life insurers, and pension providers.

This consultation proposed specific rules that would enhance climate related disclosures at both entity and product/portfolio level for asset managers, life insurers and FCA-regulated pension schemes and we are imminently awaiting the final FCA policy statement. Under the proposals, in scope firms will be required to publish annually:

An entity level report on how they are taking climate related matters into account in managing investments on behalf of their clients and consumers; and
A core baseline set of product/portfolio disclosures including metrics related to scope 1, 2 and 3 emissions and the carbon footprint of their portfolio.

The IA’s response welcomed the FCA’s proposals and supported the broad aims and approach taken in areas such as scope, timing, alignment with pension funds clients’ climate related disclosure obligations, and the flexibility to provide entity-level reports at group level.

The IA did, however, raise a number of overarching concerns, which it considered could result in misleading disclosures to clients and as a result, potential mis-pricing of assets and mis-allocation of capital if not addressed. These included a need for greater coherence of approaches to TCFD reporting through the investment chain and the use of proxy data and assumptions to address data gaps at an asset class level.

Carbon Emissions Template
Another major activity and achievement was the development by IA colleagues of a pan-industry TCFD client reporting template driven by the DWP requirements for trust-based pension schemes. The joint PLSA/ABI/IA Working Group has finalised this Carbon Emissions Template (CET) and it will be formally launched for use by industry in the coming weeks.

The template is designed to help pension schemes meet their obligations under the Climate Change Governance and Reporting Regulations and associated DWP Statutory Guidance, and to help insurers and asset managers fulfil their obligations under the FCA’s new ESG Sourcebook as set out in PS21/24. The template should be used to provide data for use by pension schemes in relation to their scheme year ending 31 December 2021. The template can be found in the "TCFD reporting" section of our Data Delivery Frameworks webpage together with tools to help create CET output manually.

Further information:

Sally Springer
Senior Policy Adviser, Sustainability & Responsible Investment
sally.springer@theia.org

Flora Tudhope
Policy Adviser, Sustainability & Responsible Investment
flora.tudhope@theia.org

Net Zero Transition

As part of the UK's presidency of COP26, the UK Government encouraged industry to commit to support the Race to Zero and its objective of transitioning the economy to net zero greenhouse gas emissions by 2050.

Net Zero Asset Managers initiative and a dedicated IA Net Zero Forum
This year, the IA was announced as the first supporting partner organisation to the Net Zero Asset Managers (NZAM) initiative. By becoming a supporting partner organisation of NZAM, the IA is formalising a commitment we made with the full support of the IA Board to support the Race to Zero, the Net Zero Asset Managers initiative and any members considering becoming signatories.

IA members with AUM in the UK of £7trn (nearly three-quarters of UK AUM) have now signed up to the Net Zero Asset Managers initiative.

To support members who have made, or wish to make, this commitment, the IA established a dedicated Net Zero Forum open to all members. This new group was first launched in October 2021 and its main goal is to enable peer-to-peer knowledge sharing and provide a platform for all IA members to raise questions and find solutions on their journey to become net zero.

Monthly net zero news bulletin
The IA also publishes a monthly net zero news bulletin, 'The Path to Net Zero'. This newsletter keeps members updated on developments from the IA and UK policymakers towards the goal of tackling climate change.

Further information:

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA Website Hub Page can be found here.

THE EU’S SUSTAINABLE FINANCE DISCLOSURE REGULATION (SFDR) AND EQUIVALENT UK FCA MEASURES

IA Sustainable Disclosure Implementation Forum
The IA’s work to help members implement the Sustainable Finance Disclosure Regulation (SFDR) continued at a pace throughout 2021, most notably through the IA Sustainable Disclosure Implementation Forum.

The Forum, which meets on average on a monthly basis and is open to all full members, allows members to share views andinformation on challenges they are encountering with the implementation of this EU regulation, with law firms regularly invited to present and discuss relevant issues.

RTS Delay
Post 10 March 2021 SFDR application date, focus within firms shifted from the task of defacto classifying funds under the SFDR to applying the draft Regulatory Technical Standards (RTS) and Taxonomy Regulation, despite the fact that the underlying RTS’ are not yet in force. On 22 October 2021, the European Supervisory Authorities (ESAs) presented their final report to the European Commission on the RTS under SFDR regarding Taxonomy alignment disclosures. The Commission has already stated it will delay the application of the RTS to 1 January 2023 as it needs longer to adopt the RTS presented by the ESAs. The expectation is that the Commission will publish a delegate act encompassing all SFDR related RTS in Q1 2022 ahead of the new application date of 1 January 2023.

FCA Guiding Principles
In the UK, the only piece of published guidance on SFDR came from the FCA published in July 2021 in the form of its ‘Guiding Principles on its expectations on the design, delivery and disclosure of ESG and sustainable funds’. The FCA stressed that the Guiding Principles were a building block towards a future UK sustainable finance regulatory regime that aims to match the ambition in the EU Sustainable Finance Action Plan.

IA/Eversheds Sutherland Guidance
In order to help members interpret the Guiding Principles, the IA produced a guidance document and hosted a webinar for members in partnership with Eversheds Sutherland. The guidance provides commentary on the FCA principles, gives views on scope, timing of application of the principles to firms processes as well as, inter alia, a section on how we think the principles interact with SFDR. The guidance also provides fictious specimen funds, annotated to explain how the FCA principles may apply in practice.

Further information:

Carol Thomas
Retail Markets Specialist
carol.thomas@theia.org

The UK Government’s Roadmap to Sustainable Investing and Follow-on Publications

On 18 October, the UK Government published the highly anticipated ‘Roadmap to Sustainable Investing.’ The roadmap provided a degree of clarity on the plans for the future of sustainable finance rules in the UK, with a focus on:

1. Addressing the significant data gaps that continue exist for market participants and ensuring a flow of decision useful information on environmental sustainability from corporates to investment managers.
2. Defining what counts as ‘green’.
3. Being a responsible steward of capital.
4. International collaboration.

3 Levels of Disclosure
In particular, the roadmap sought to outline the actions the UK Government and regulators are taking - in partnership with the private sector to close the data gap for market participants.

They will do this by implementing a Sustainable Disclosures Requirements (SDR) regime, building on the UK’s TCFD implementation and will cover three types of disclosure:

1. Corporates - new requirements for companies to report under proposed international standards and reporting of environmental impact using the UK Green Taxonomy.

2. Asset managers and asset owners - new requirements (including on occupational pension schemes) to disclose how they take sustainability into account.

3. Investment product disclosure - new requirements for creators of investment products to report on products’ sustainability impact and relevant financial risks and opportunities.

This information will form the basis of a new sustainable investment labelling regime.

All three levels of disclosure will be subject to consultations by the various regulators.

Government & Authorities
The Government and authorities will also:

Deliver a UK Green Taxonomy and ensure it has been road-tested in the market as a useful investment tool.
Lower the barriers to investors acting as effective and responsible stewards of capital.
Lead international efforts to bring about global and systematic change in the financial system.

Investment Managers' Responsibilities
Investment managers are expected to provide leadership by joining a Race to Zero -accredited net zero initiative and back up any commitment by publishing by the end of 2022 a high-quality transition plan, including near-term science-based targets and setting out their organisation’s pathway to net zero financed emissions.

They are also expected to apply to become signatories to the UK Stewardship Code and use their rights and influence to monitor and challenge investee companies to generate sustainable value.

FCA Follow-up Publications
The FCA has now published three follow-up papers to the Roadmap:

1. A Discussion Paper 21/04 on new sustainability disclosures and sustainable investment labels.
2. A new holistic ESG strategy - 'Strategy for positive change: our ESG priorities.’
3. A Climate Change Adaptation Report, which sets out the FCA’s assessment of how they and firms they regulate, are adapting to climate change.

The deadline for responses to the discussion paper was 7 January and our final submission can be found here.

As members would be aware, this is a strategic discussion of utmost importance for our industry and one that paves the way for the future sustainable finance rules in the UK. We were grateful for the significant input received from members over the festive period and are looking forward to continue to work with members and the authorities, most notably through our active participation on the FCA’s Disclosures & Labels Advisory Group.

In line with our commitment to an evidence-based approach to policy development, our response was informed by an initial round of consumer research completed on our behalf by the Wisdom Council during the consultation period.

This has allowed us to identify some potential challenges with the FCA proposals as currently framed, and the results are outlined in the appendix to the IA response. We plan to explore the issues further with more in-depth consumer research in the first part of this year, which will facilitate our input to the next stage of the FCA process.

Further information:

Carol Thomas
Retail Markets Specialist
carol.thomas@theia.org

Sally Springer
Senior Policy Adviser, Sustainability & Responsible Investment sally.springer@theia.org

IA Website Hub Page can be found here.

Green Gilts

Following the Government’s announcement that it would be launching a green gilt, in January 2021, the IA established its Green Gilts working group to provide a forum for members to discuss the Government’s proposals, engage with key stakeholders and reach a consensus on the ideal features for such a gilt.

IA Position Paper
The IA published its position paper on Green Gilts in March 2021, to positive reaction from members and stakeholders. In the paper, the IA sets out ten key features which would make these instruments viable for investment managers, whilst also enabling the Government to effectively finance the UK’s environmental and social needs. These included:

A social element, with funding provided for green projects with social co-benefits.
Being forward-looking.
Having strict use of proceeds.
Being medium-to-long dated.

Being well scrutinised through the use of strong reporting, ongoing engagement, independent verification and the use of an audit committee.

Following the publication of its position paper, the IA met with HMT and the DMO, as well as the Impact Investing Institute and the Green Finance Institute, to discuss its position. The IA working group also met with HMT and the DMO in October following the publication of the Green Finance Framework, which set out the key features of the UK’s first green gilt, and the first issuance of the gilts.

Next Steps
Now that the Government is entering a new phase of the Framework and is looking towards reporting; HM Treasury emphasised its desire to engage with the IA’s Green Gilts Working Group to ensure that reporting is meaningful and useful to investors. The IA is currently engaging with the Green Gilts Working Group to discuss potential next steps.

Further information:

Hugo Gordon
Senior Policy Adviser, Capital Markets
hugo.gordon@theia.org

LIBOR Transition

LIBOR TRANSITION

Supporting members with the transition away from LIBOR has remained a key priority for the IA throughout 2021. From the end of 2021, LIBOR will be phased out by jurisdictions around the world – by that point there should be no further issuance in the UK of LIBOR-linked instruments and all outstanding LIBOR-linked securities should have been transitioned to a new rate.

The IA and its members have been strong supporters of the LIBOR transition process throughout, and have demonstrated that support through a number of initiatives. These include:

Engagement with working groups
The IA and a number of its members sit on the Working Group on Sterling Risk Free Reference Rates, established to support the transition of LIBOR to SONIA. Likewise, the IA and many of its members also sit on many of the working group’s sub-groups, focused on specific areas of the LIBOR transition process, including bonds, derivatives and loans. The IA has also established its own internal LIBOR Transition Working Group, providing a forum for investment managers to discuss and address issues related to LIBOR transition.

Publication of educational material and guidance
The IA has produced educational material for its members, guiding them through the transition process, including the 2019 LIBOR Transition Roadmap for Investment Managers, and the 2020 report ‘Time To Act Now: LIBOR Transition for Investment Managers’. In addition, the IA has hosted educational webinars and roundtables on the topic. We are also aware that many of our members have also produced their own educational material, aimed at guiding their clients, as well as the issuers in which they have invested, through the LIBOR transition process.

Communication with issuers and public calls for transition
At the behest of its members, the IA published an open letter in February to issuers of LIBOR-linked GBP bonds, calling on issuers to initiate transition plans as soon as possible, and to highlight investor support for past LIBOR transition consent solicitation processes. This letter was positively received, and has led to further conversations with issuers.

An 'orderly wind-down'
On 29 September, the FCA made announcements on orderly wind-down of LIBOR and also released a consultation paper on its proposed treatment of legacy LIBOR instruments. The consultation set out a broad proposed scope for the use of synthetic LIBOR – an artificial LIBOR set by the FCA and designed to help smooth out issues with tough legacy products until the end of 2022, when it will be reviewed. In our response, we were supportive of the proposals in general, but highlighted some instruments where there still may be issues – including Fix-to-Float instruments. The Group has also produced a paper on this issue which it has shared with the FCA.

Transition Progress
The transition away from LIBOR to new risk-free rates generally progressed well. However, there were some persisting issues which proved challenging for members, both in terms of confirmation of the regulatory approach as well as the timeline to make any changes by the deadline of end of December 2021. Tough legacy products more generally - ones that continue to have a LIBOR element and are active beyond December 2021 – remain a concern to members.

Next Steps for the IA
The LIBOR Transition Working Group will meet in January 2022 to take stock of the transition and discuss any outstanding issues.

Further information:

Hugo Gordon
Senior Policy Adviser, Capital Markets
hugo.gordon@theia.org

Capital Markets Reform

UK Listings Review

The IA and its members have an ambition to re-energise public markets and create a savings and investment ecosystem which delivers for end savers and that is attractive to both companies and global investors. We seek to widen UK and international businesses’ access to long-term pools of capital and maintain robust standards that will help deliver long-term returns to our clients and their beneficiaries, including retail and pension savers.

The UK Listings Review, chaired by Lord Hill and launched in November 2020, was an area of significant focus across the IA’s policy teams in 2021. The review, which aims to ensure that the UK remains one of the most attractive places to list and grow high-quality innovative companies, made a number of recommendations designed to make it easier for companies to access public capital.

The Review has raised important questions about whether the UK’s current listing regime continues to attract high quality, innovative and high-growth companies to list in the UK and whether the balance of industries represented is serving the needs of the UK’s economy and investors.

IA Initial Respose
Following member engagement, the IA submitted an initial response to Lord Hill’s call for evidence in January, and a follow-up letter to Lord Hill in February which provided further clarification on members’ views on dual class share structures and free float requirements. Throughout our engagement with this reform programme, we have emphasised that the over-riding objective must be to attract the highest quality companies not only to list but also to operate in the UK, to provide jobs, investment and tax revenues. We have also stressed the need for the Government to consider this reform as part of its broader policy objectives, including its commitments to net zero carbon emissions.

Listings Review Publication and Following Consultations
In March, Lord Hill’s Listings Review was published with 15 recommendations to improve the UK listing environment. We welcomed proposals to rebrand the standard listing segments and reform prospectus requirements.

This was followed by several related consultations, including an FCA consultation on investor protection measures for special purpose acquisition companies (SPACs) published in May. The IA engaged extensively with members on its consultation response via a member roundtable as well as committee and bilateral discussions.

In July, two further consultations were issued, taking forward recommendations from the review. The FCA’s Primary Markets Effectiveness Review focused on how primary markets can work more effectively for both companies and investors and included proposals for specific amendments to the current listing rules, including on dual class share structures, minimum market capitalisation and free float requirements.

This consultation also included a discussion paper on the purpose and structure of the UK listing regime. HMT’S UK Prospectus Regime Review outlined the Government’s proposals for overhauling the current prospectus regime, including proposals to grant the FCA powers to make rules in place of current prospectus regulations, which the IA supported. The IA established a Taskforce comprised of member firms to inform our response to both consultations.

Finalised Rules
The FCA has since finalised changes to the listing rules, including allowing a targeted form of DCSS within the premium listing; reducing the free float requirement to 10% and increasing Minimum Market Capitalisation (MMC) to £30 million. The IA supported the limited introduction of DCSS into the premium segment, recognising that the proposals on DCSS are aimed at reducing the barrier to entry to listing for companies in a proportionate and controlled way that gives due consideration to investor protection.

We await the outcome of HMT’s consultation on prospectus reform and the FCA’s next steps on the purpose and structure of the listing regime.

UK Secondary Capital Raising Review
In October, HMT released a Call for Evidence in connection with the UK Secondary Capital Raising Review, chaired by Mark Austin (Freshfields). This Call for Evidence was established by HMT in response to Lord Hill’s Listing Review recommendation to consider how to improve the efficiency of further capital raising by listed companies by re-establishing the Rights Issue Review Group. The IA held separate meetings with Mark Austin and its members ahead of submitting our response, and hosted a member roundtable with Mr Austin in January.

Going into 2022, the IA will continue to engage with members, HMT, and the FCA on further publications and next steps stemming from Lord Hill’s recommendations.

Further information:

Sarah Woodfield
Stewardship Manager
sarah.woodfield@theia.org

Hugo Gordon
Senior Policy Adviser, Capital Markets
hugo.gordon@theia.org

UK Wholesale Markets Review

In September, the IA responded to the UK Government’s Wholesale Markets Review consultation. This consultation proposed changes to the UK regime for secondary markets focusing on the on shored MiFID/MiFIR regime to ensure it is appropriate for the UK. The proposals included:

The establishment of a consolidated tape (CT)
The removal of the Share Trading Obligation
A major rethink of systemic internaliser (SI) regime
The removal of the Double Volume Cap
A new approach to ‘Reference Price Waiver’

The IA’s response supported many of the changes, and in particular, swift amendments to on shored regulations to ensure requirements remain appropriate for the UK market. The IA highlighted that in making any changes, the Government should keep in mind that in addition to serving the UK market, many of our members are established in the UK to serve wider businesses that operate across borders. As such, any measure that creates hurdles or barriers to that cross-border business or adds costs could damage the world-leading ecosystem that is established in the UK for businesses that operate in these markets.

The consultation also served as a useful opportunity for us to reiterate key points from our other recent responses and wider priorities, such as the UK Listings Review, the transition to a low carbon economy, our position on Long Term Asset Funds (LTAFs), and the FCA’s consultation on the consumer investments market.

Fund Liquidity Management & Measurement

Fund Liquidity Management & Measurement

Whilst not a piece of work led by the Investment & Capital Markets policy team at the IA, fund liquidity management and measurement has been an important topic of discussion for the Investment Committee due to its significance for the investment management industry.

In 2021, a range of domestic and international factors continued to drive regulatory and policymaker attention on fund liquidity, with market stress during the early phase of the Covid crisis providing greater impetus to existing debates about financial stability and the role of nonbank institutions.

HMT Call for Input
In January 2021, HM Treasury published a call for input on the future of the UK Funds Regime. The call for input discussed options for improving the current funds regulatory and tax regimes to make the UK a more attractive jurisdiction in which to domicile funds, as well as the possibility of new fund structures that would make the UK a more attractive fund domicile. The IA, together with its Fund Liquidity Management Working Group, formed a response to this call for input.

Bank of England and FCA Joint Survey
In March 2021, the Bank of England and FCA published a report detailing the results of the joint survey on liquidity management in open-ended funds. The survey covered a period of Q4 2019 - Q2 2020, which included the March 2020 market turbulence. This accompanied the March Financial Policy Committee (FPC) report, which announced that it would set out recommendations and liquidity measurement and approaches to fund pricing in July.

IA Engagement
Following its publication, the IA engaged with the Bank of England and FCA to discuss their findings and their impact on our own work on liquidity management and measurement. The IA also reconvened its Liquidity Measurement Working Group to provide a forum for member discussion and decision on next steps.

FPC Financial Stability Review
The July 2021 FPC Financial Stability Review provided a set of conclusions from the joint FCA/Bank work on fund liquidity mismatch. Consistent with the original principles for liquidity management set out in December 2019, the FPC wishes to see change in three areas: liquidity classification for open-ended funds; the calculation and use of swing pricing; and greater use of notice periods in illiquid assets.

IA Work
The direction of travel is very much as expected, and we have been undertaking significant preparation for well over a year. Our work covers three broad areas:

An overarching liquidity management toolkit for the funds industry.
Approaches to liquidity measurement that can build on industry best practice to deliver the greater consistency regulators are looking for without unduly constraining fund managers in delivering a diverse range of investment strategies.
Approaches to swing pricing that again can draw on best practice, particularly given the extensive experience in the UK of this approach to fund pricing.

Our immediate activity is now focused on swing pricing, as it has become clearer both in the UK and internationally where regulators are heading and the IA’s swing pricing guidance is being revisited by a working group.

Next Steps
In 2022 we look forward to working with UK, European and international bodies as they publish new material on fund liquidity and will reconvene the relevant working groups, as appropriate.

Further information:

Rachel Ellison
Retail Fund Compliance Specialist
rachel.ellison@theia.org

Private Markets

Private Markets

Establishment of the Private Markets Committee
2021 saw the establishment of the IA’s Private Markets Committee. Work to establish the Committee began in 2019, following the IA Board’s identification of private markets as a key industry trend and area of strategic importance for the IA. Following this, the IA conducted a scoping exercise between October to December 2019, in order to gather market data and senior insight as to how to best support members in this space.

The conclusion of this research was that this would be most appropriately achieved through the establishment of an IA Private Markets Committee. While originally an objective for 2020, the establishment of this Committee was delayed by the COVID-19 pandemic. The first meeting of the Private Markets Committee, therefore, took place in April 2021. The membership of the Committee includes firms across the IA’s membership, including a representative from the Association of Real Estate Funds.

Key Objectives
The Committee has established its key objectives to be:

Champion the role of investment management industry in private markets.
Standardise industry definitions.
Increase transparency.
Improve access for investors.
Lead on regulatory and legislative matters.
Drive operational improvements.

Work of the Private Markets Committee
As part of its work to champion the role of investment management industry, the IA has completed a first draft of a policy explainer for private markets which is to be used in the IA’s advocacy efforts. Particular areas of focus for the Committee thus far have included the LTAF, SFDR and sustainability more broadly.

The Private Markets Committee does not yet have any subcommittees, although the IA runs an Infrastructure Investment Forum which operates independently of the Committee. As the Committee currently looks at quite a wide area of coverage, it is expected that subgroups or committees focusing on specific areas may be created in due course.

Next Steps
A Standards, Terms and Definitions Working Group is expected to be set up in 2022, focusing on identifying key terms that could be standardised across the industry to improve transparency and accessibility. The Private Markets Committee aims to continue to engage with key stakeholders this year in order to highlight the role of private markets in delivering the UK’s investment needs.

Further information:

Hugo Gordon
Senior Policy Adviser, Capital Markets
hugo.gordon@theia.org

FX Markets

Reject Code Standardisation

FX MARKETS

As part of the IA’s ongoing commitment to effective FX markets, the Investment & Capital Markets Team, along with the FX Committee, has called for standardisation of reject codes.

Standardisation of Reject Codes
Reject codes are electronic indicators sent out by liquidity providers when they reject a client's trade, to give a proximate reason as to why. Asset managers will analyse trades in order to ensure they are achieving best execution for their clients. The lack of standardised reject codes, however, impacts the ability of asset managers to rapidly analyse rejections to remedy any operational or procedural errors and raise issues with liquidity providers.

IA Position Papers
The IA’s first call for reject code standardisation in electronic FX markets was published in early 2020, when the IA published a paper setting out a number of proposed standardised codes and requested that liquidity providers begin to implement them when issuing trade rejects. A lack of progress on the part liquidity providers to implement these codes, due in part to the COVID-19 pandemic, led to a further call by the IA in August 2021, reiterating concerns and calling on liquidity providers to provide code mapping to asset manager clients by the end of Q3 2021, with full implementation to follow in the first half of 2022. The timing of the IA’s publication came shortly after updates to the FX Global Code which saw new language added calling for greater transparency around the use of reject codes.

IA Engagement
Following the publication in August of the IA’s position paper, the IA, alongside the Chair and Deputy Chair of the FX Committee, held a series of bilateral meetings with representatives of major banks and FX trading platforms in order to encourage progress.

The IA has now received indications from many major liquidity providers and trading platforms that progress is being made on standardisation and that implementation is expected in Q1/Q2 2022.

Next Steps
As we move forward into 2022, the IA will continue to engage with liquidity providers to maintain forward movement on implementation and seek widespread adoption of the proposed codes.

Further information:

Hugo Gordon
Senior Policy Adviser, Capital Markets
hugo.gordon@theia.org

Investment Operations

CSDR, Transaction Reporting and ETD Post-Trade Flow

Investment Operations

Under the Investment & Capital Markets umbrella, the IA also supports the post-trade operations of our members, including middle and back office operations (as they relate to securities, derivatives and FX) and regulatory trade and transaction reporting. In 2021, we had a particular focus on:

CSDR – Mandatory buy-in delay and cash penalty readiness

CSDR remains a key focus for members and as such, the IA has taken an active role in supporting member readiness ahead of the February 2022 implementation date. This implementation will bring into force the Settlement Discipline Regime, with the two main aspects: the cash penalty regime and the mandatory buy-in regime. We have been engaging in advocacy work in conjunction with EFAMA to support a delay to the mandatory buy-in regime framework, given general member and market consensus that the process is not necessary, and not fit for purpose in its current guise.

Mandatory buy-ins are now confirmed to be delayed, with imminent announcements expected from ESMA as to how long the delay will be.

The IA has also worked with members to draft supporting documentation and material for members on our CSDR page. Additionally, the IA has been running regular well-attended working group sessions with members to assess and talk through common issues surrounding cash penalties and mandatory buy-ins. The IA has hosted Eurex, the sole buy-in agent offering, at one of our working groups as well as participating in a joint session with AFME and their various sell-side members to discuss cross buy/sell side issues.

Into 2022, the IA will continue to host these working groups to continue to disseminate information and talk through CSDR implementation to support members leading up to, and past, the cash penalty implementation date of the 1st February 2022.

MiFIR/EMIR/SFTR – Transaction reporting best practices and legislation refit

The IA has worked with members year-round on issues arising from trade and transaction reporting under EU and UK legislation, offering guidance and a forum for best practices. The IA has drafted a number of guides for MiFIR and SFTR reporting and have collaborated with ISDA and other trade associations to create EMIR reporting best practices, all of which can be found on our Regulatory Trade and Transaction Reporting page.

The IA is also currently working with members on both UK and EU EMIR refit. In the EU, ESMA and the European Commission are set to implement their own EMIR refit update based on the draft RTS published in December 2020. In the UK, the IA will be working with members to respond to a consultation from the FCA with a deadline of February 2022 on changes to reporting requirements, procedures for data quality and registration of Trade Repositories.

We continue to keep in close contact with the FCA on regulatory reporting requirements and will continue to engage with members as these evolve.

Post consultation EMIR reporting will likely undergo a major change that may require significant tech investment, with a move to ISO 20022 reporting and a big expansion on the amount of fields and product & transaction identifiers to be reported. We will be working with regulators and our members to support them through these changes once ESMA and the FCA dictate the go-live dates.

ETD Post-Trade flow

September 2021 saw the publication of the IA’s best practice document on ETD trade matching and reconciliation flow. The nature of exchanged traded derivatives is such that trades will be given up immediately for clearing. A key challenge for investment managers is that typically they lose sight of a trade's progress post-execution until they receive a statement from the clearing broker on T+1, when it will be more difficult to fix any errors in the allocation or fee calculations.

The purpose of the IA’s paper is to promote the leverage of electronic platforms to (a) establish a single golden source of the relevant counterparty and fee data and; (b) provide real-time trade matching and visibility of the progress towards clearing.

The IA has been engaging with the FIA (Futures Industry Association) and in 2022 will be looking to take an active part in a wider industry drive to enhance and improve the flow of ETD reconciliation.

Further information:

Alex Chow
Investment Operations Policy Lead
alex.chow@theia.org

IA Website Hub Page: CSDR, Regulatory Trade and Transaction Reporting

Heading 1

Subheading 1

This page contains resources regarding tokenised funds, sometimes known as 'digital', or 'on-chain funds'; what they are, why they can add value and how they work.