Global Financial Regulatory Blog

FCA Launches Discussion on Sustainability Disclosure Requirements and Product Labels

Posted in Environmental, Social and Governance (ESG)

The regulator is inviting views on potential criteria for classifying and labelling investment products, and on further entity- and product-level sustainability-related disclosures.

By David Berman, Paul A. Davies, Nicola Higgs, Anne Mainwaring, and Charlotte Collins

On 3 November 2021, the FCA published a Discussion Paper (DP21/4) on UK Sustainability Disclosure Requirements (SDR) and product labels. This paper was anticipated following the government’s recently published Roadmap to Sustainable Investing, which set out proposed timeframes for developments in this area. Continue Reading

FSOC Issues Recommendations on Climate-Related Financial Risk

Posted in Environmental, Social and Governance (ESG)

A wide-ranging report encourages regulators to take a concerted approach to combat climate-related risks to the US financial system.

By Jean-Philippe Brisson, Paul A. Davies, Nicola Higgs, Malorie R. Medellin, and Deric Behar

On October 21, 2021, the Financial Stability Oversight Council (FSOC) published a lengthy report on Climate-Related Financial Risk (the Report), marking the first time that FSOC has officially identified climate change as an emerging and increasing threat to US financial stability. FSOC issued the Report pursuant to a directive in President Biden’s May 2021 Executive Order on Climate-Related Financial Risk, which tasked FSOC to assess and collaboratively address climate-related impacts on US financial system stability.

The Report is another building block in the Biden Administration’s “whole of government” approach to combating climate change and the climate-related risks that threaten the US economy. The Report comes just days after the Administration issued “A Roadmap to Build a Climate-Resilient Economy” (the Roadmap), which heralded the Report as “the first step in a robust process of US financial regulators developing the capacity and analytical tools to mitigate climate-related financial risks.” (See this Latham post for more information.) Continue Reading

UK Government Releases Roadmap to Sustainable Investing

Posted in Environmental, Social and Governance (ESG)

The roadmap introduces sustainability disclosure requirements for UK companies and reveals further developments in relation to a UK Green Taxonomy.

By David BermanPaul A. DaviesNicola HiggsMichael D. GreenAnne Mainwaring, and James Bee

On 18 October 2021, the UK government released a report titled “Greening Finance: Roadmap to Sustainable Investing” (the Roadmap), which is intended to encourage UK businesses and investors to have regard to climate and other environmental, social, and governance (ESG) considerations in their decision-making processes. The Roadmap follows the government’s 2019 Green Finance Strategy, which set out a suite of policies to assist in aligning UK financial flows with a low-carbon planet.

The government states that it views the task of “greening the financial system”[1] as composed of three fundamental phases. The Roadmap addresses the first phase: informing investors and consumers and addressing the information gap in relation to environmental and sustainability  issues between corporates and investors.[2] Notably, the Roadmap also introduces sustainability disclosure requirements (SDR) for UK companies and reveals further developments in relation to the UK Green Taxonomy (Taxonomy). In addition, the Roadmap identifies proposed timeframes for further developments on each of these topics. Continue Reading

UK Net Zero Strategy: Understanding the Impact on Key Sectors

Posted in Environmental, Social and Governance (ESG)

The strategy sets out plans to reduce emissions from key sectors of the UK economy to ensure that the UK remains on track for net zero by 2050.

By Conrad Andersen, John Balsdon, David Berman, Paul A. Davies, Nicola Higgs, Sam Newhouse, Simon J. Tysoe, Michael D. Green, James Bee, and Anne Mainwaring

On 19 October 2021, the UK government published its climate change strategy, “Net Zero Strategy: Build Back Greener” (the Strategy), which outlines plans to support the UK economy’s transition to a greener and more sustainable future. On 31 October, the UK will host the 2021 United Nations Climate Change Conference, COP26, in Glasgow.

Last year, Prime Minister Boris Johnson set out a 10-point plan for a “green industrial revolution”, which laid the foundation for a green economic recovery from the impact of COVID-19. The Strategy builds on that approach to align the UK with its carbon budget and nationally determined contribution to the Paris Agreement, both of which aim to reduce economy-wide greenhouse gas (GHG) emissions by at least 68% by 2030 and 78% by 2035, compared to 1990 levels. Further, the Strategy details the UK’s vision for a decarbonised economy by 2050. Continue Reading

President Biden Presents a Roadmap for Mitigating the Climate Crisis

Posted in Environmental, Social and Governance (ESG)

A new national strategy report aims to combat climate-related risks to the US financial system.

By Jean-Philippe Brisson, Paul A. Davies, Nicola Higgs, Malorie R. Medellin, and Deric Behar

On October 14, 2021, the Biden Administration issued “A Roadmap to Build a Climate-Resilient Economy” (the Roadmap), a national strategy report with tangible initiatives that build on ideas set out in the May 2021 Executive Order on Climate-Related Financial Risk. The Roadmap is an ambitious and wide-ranging reflection of the Administration’s “whole of government” approach to combating climate change and the climate-related risks that threaten the US economy. Continue Reading

US Department of Labor Puts ESG Investing Back on the Menu

Posted in Environmental, Social and Governance (ESG)

A new proposal would amend changes made to ERISA less than a year ago that have proved to be detrimental to ESG investing.

By Jean-Philippe Brisson, Paul A. Davies, Nicola Higgs, Malorie R. Medellin, and Deric Behar

In a sweeping reversal of Trump-era policies, the US Department of Labor (DOL) has issued a proposed rule, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (the Proposal), that would allow retirement savings plans to choose investments using analyses that incorporate climate change risks and other environmental, social, and governance (ESG) criteria.

The Proposal, if adopted, would amend the DOL rule Financial Factors in Selecting Plan Investments (the Rule), which was published in November 2020. The Rule adopted amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and required fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular investment. In effect, the Rule was premised on the idea that ESG factors are at odds with financial factors and fiduciary responsibilities of plan sponsors, and therefore plan fiduciaries should be restricted from making investment decisions based on ESG factors that are not primarily “pecuniary in nature” (see this Latham post for more information). Continue Reading

Court of Appeal Takes Expansive View of Regulated “Arranging” Activities

Posted in Conduct of Business

This decision shines a spotlight on the activities of unregulated introducers.

By Rob Moulton, Nicola Higgs, and Charlotte Collins

In a recent decision, the Court of Appeal upheld the FCA’s findings that unregulated introducers had been carrying on regulated activities without permission by persuading individuals to transfer their personal pensions into alternative investment products and assisting them with this process. The case turned on the interpretation of the regulated activity of making arrangements with a view to transactions in investments. The ruling is significant because a number of High Court cases appear to have taken somewhat different approaches, and the Court of Appeal’s broad interpretation of this activity shines a spotlight on the business of unregulated introducers who take steps beyond the initial introduction. Both introducers and regulated firms that rely on referrals from introducers need to understand the scope of activities that unregulated introducers can legitimately carry on. Continue Reading

ESG in Asset Management: A Global Perspective

Posted in Environmental, Social and Governance (ESG)

A snapshot of the global regulatory landscape in the context of ESG-related disclosures.

By Nick Benson, David Berman, Paul A. Davies, Laura N. Ferrell, Simon Hawkins, Nicola Higgs, Farhana Sharmeen, Anne Mainwaring, Dominik Schoeneberger, Shirley Wong, and Charlotte Collins

The global asset management community has long been among the leaders in recognising the investment and risk management benefits of tracking the environmental, social, and governance (ESG) performance of the assets it invests in. This pressure from the asset management community has driven companies to make better disclosures in relation to ESG criteria. Concurrently, global regulator are recognising the important role of financial institutions in helping to achieve crucial ESG outcomes by introducing new regulations that place direct obligations on asset managers to produce both
entity- and (in some cases) product-level ESG disclosures.

This briefing pulls together the strands of regulation emerging across the US, the EU, the UK, and Asia to help global asset managers understand the requirements across jurisdictions. It also looks at the potential for global disclosure standards to be developed in this area.

Read the full publication here.

Private Bank Briefing – September 2021

Posted in Conduct of Business, Environmental, Social and Governance (ESG), Financial Crime, Fintech and Cryptocurrency, Individual Accountability and Governance, Retail Markets

By Rob Moulton, Nicola Higgs, Anne Mainwaring, and Charlotte Collins

The latest edition of our Private Bank Briefing provides a roundup of legal and compliance issues impacting private banks and their clients from Q3 2021.

In this edition, we include a summary of the latest sustainable finance developments, and pinpoint areas of post-Brexit regulatory divergence in relation to MiFID, PRIIPs, and the AML regime. We cover the FCA’s new ethos as set out in its Business Plan, and the regulators’ latest thinking on diversity and inclusion, as well as other key updates for private banks from the last three months.

We also include our regular features — TechTrends, Lessons from Enforcement, and Global Insights. This edition’s Lessons from Enforcement covers a recent case examining the impact of non-financial misconduct on an individual’s fitness and propriety.

View the full briefing.

Previous editions of Private Bank Briefing are available here.

FCA Proposes Enhanced Disclosures on Diversity and Inclusion for Listed Companies

Posted in Environmental, Social and Governance (ESG)

Proposals reflect growing investor focus on the ESG performance of listed companies.

By Chris Horton, James Inness, Rob Moulton, Anna Ngo, and Johannes Poon

The UK Financial Conduct Authority (FCA) has launched a consultation setting out proposed changes to its Listing Rules (LRs) and Disclosure Guidance and Transparency Rules (DTRs). The proposals seek to: (i) increase transparency for investors on the diversity of listed company boards and executive management; and (ii) improve considerations of broader diversity aspects within diversity policies and related disclosures by listed companies.

The consultation opened on 28 July 2021 and will close on 20 October 2021. Subject to consultation feedback and FCA Board approval, the FCA will seek to finalise the relevant rules by late 2021. Continue Reading

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