Guidelines indicate when asset managers may legitimately use ESG or sustainability-related terms in their fund names.

By Nicola Higgs, Laura Ferrell, and Charlotte Collins

On 14 May 2024, ESMA published its final Guidelines on funds’ names using ESG- or sustainability-related terms. The Guidelines aim to address the risk of funds’ names misleading investors by ensuring that their names can be supported in a material way by evidence of sustainability characteristics or objectives that are reflected fairly and consistently in the fund’s investment objectives and policy.

ESMA originally consulted on the Guidelines in November 2022 (see this blog post), but finalisation has been delayed while reviews of the AIFMD and UCITS Directive were completed. Notably, ESMA received substantive feedback on the consultation and made several amendments to the Guidelines accordingly.

The SFC exercises its powers to order the suspension of trading in shares in a listed company to protect investors’ interests.

By Dominic Geiser, Truman Mak, Evangeline Tsui, and Charlotte Wong

On 15 April 2024, The Stock Exchange of Hong Kong Limited (SEHK) suspended trading in the shares of Tianyun International Holdings Limited (Company) pursuant to directions from the Securities and Futures Commission of Hong Kong (SFC). In ordering the suspension, the SFC exercised its powers under section 8(1) of the Securities and Futures (Stock Market Listing) Rules (SMLR), which empowers the SFC to make such directions to maintain an orderly and fair market and protect the investing public’s interests.

This latest example of strategic coordination between Hong Kong regulators confirms a broader regulatory mission and shared objectives.

By Dominic Geiser, Truman Mak, Evangeline Tsui, and Charlotte Wong

On 5 March 2024, the Hong Kong Stock Exchange (HKEx) issued a Statement of Disciplinary Action (Statement) against two former directors (the Former Directors) of a company listed on the Growth Enterprise Market (GEM) of the HKEx for misappropriating company funds during the listing process. The disciplinary action followed efforts by the HKEx and the Securities and Futures Commission (SFC) to investigate the directors, and highlights strategic coordination on enforcement actions on IPO-related misconduct. The Monetary Authority of Singapore (MAS) also provided assistance.

Implementation of Basel Committee cryptoassets standard to provide additional clarity for banks looking to engage in cryptoassets business.

By Simon Hawkins and Adrian Fong

On 7 February 2024, the Hong Kong Monetary Authority (HKMA) released a consultation paper on its proposal for implementing new regulations on the prudential treatment of cryptoasset exposures (Consultation Paper).

The Consultation Paper comes shortly after the Financial Services and the Treasury Bureau and the HKMA issued a consultation paper in December 2023 outlining their legislative proposal for a regulatory regime governing stablecoin issuers in Hong Kong (see this Latham blog post). On 20 February 2024, the HKMA also published guidance on digital asset custody services and sale and distribution of tokenised products conducted by banks. Together, these papers offer guidance and greater certainty to banks interested in providing digital asset services (including digital asset issuance, custody, and dealing services).

The European Parliament and the Council of the EU have made some significant changes to the European Commission’s proposal.

On 5 February 2024, the European Parliament and Council of the EU announced that they had reached a provisional political agreement on the text of the ESG Ratings Regulation (the Regulation). The agreed text was subsequently published on 14 February 2024. The Regulation was initially proposed by the Commission in June 2023, and seeks to introduce a new regulatory regime for ESG ratings providers “operating in the Union”. Refer to this Latham blog post for previous commentary on the proposal.

Benchmark administrators should review the quality of their ESG benchmark disclosures ahead of a review by EU regulators during 2024.

By Nicola HiggsBecky Critchley, Anne Mainwaring, Ella McGinn, and Charlotte Collins

On 13 December 2023, the European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, announced its plans to launch a Common Supervisory Action (CSA). Along with National Competent Authorities (NCAs), ESMA plans to review the mandatory disclosures of benchmark administrators providing benchmarks that pursue ESG objectives under the EU Benchmarks Regulation (EU BMR).

The CSA is the first that ESMA will conduct since it assumed its direct supervisory role under the EU BMR. As part of the CSA, ESMA and the NCAs will share knowledge and experience to harmonise how they supervise ESG disclosure requirements for benchmark administrators.

The FCA reminds market soundings recipients of their obligations under UK MAR best practices for trading during the market sounding period.

By Nicola Higgs, James Inness, Rob Moulton, and Jonathan Ritson-Candler

On 31 October 2023, the FCA published Market Watch 75 reminding firms of the importance of robust market soundings procedures. In particular, the publication sets out the FCA’s recent observations around the practices of market soundings recipients (MSRs) and their conduct in the period between being asked to consent to being sounded by disclosing market participants (DMPs), and the sounding itself taking place.

Market soundings can involve the communication of confidential and/or inside information under UK MAR and act as a safe harbour to an unlawful disclosure offence on the basis that a compliant market sounding is performed in the normal exercise of a DMP’s employment, profession, or duties. The market soundings process includes standardised arrangements and information requirements to ensure that no potentially sensitive information is unnecessarily disclosed.

As regulatory thinking evolves, firms must ensure that any current or planned use of AI complies with regulatory expectations.

By Fiona M. Maclean, Becky Critchley, Gabriel Lakeman, Gary Whitehead, and Charlotte Collins

As financial services firms digest FS2/23, the joint Feedback Statement on Artificial Intelligence and Machine Learning issued by the FCA, Bank of England, and PRA (the regulators), and the UK government hosts the AI Safety Summit, we take stock of the government and the regulators’ thinking on AI to date, discuss what compliance considerations firms should be taking into account now, and look at what is coming next.

The FCA recently highlighted that we are reaching a tipping point whereby the UK government and sectoral regulators need to decide how to regulate and oversee the use of AI. Financial services firms will need to track developments closely to understand the impact they may have. However, the regulators have already set out how numerous areas of existing regulation are relevant to firms’ use of AI, so firms also need to ensure that any current use of AI is compliant with the existing regulatory framework.

The FCA has reviewed firms’ progress to embed the Duty into their businesses, providing good and poor practice examples for firms to improve and direct their implementation work.

By Nicola HiggsBecky CritchleyJaime O’Connell, and Dianne Bell

The Consumer Duty (Duty) rules (as set out under the FCA’s Policy Paper (PS22/9) and guidance document FG22/5) come into force at the end of July 2023. On 25 January 2023, the FCA published feedback on firms’ current implementation progress via its Multi-firm review: Consumer Duty Implementation Plans. While the FCA notes a number of positives, the overall impression is that firms need to do more and do it quickly.

HM Treasury’s Transition Plan Taskforce aims to influence international standard setting and make the UK the world’s first net zero-aligned financial centre.

By Paul A. Davies, Michael D. Green, Nicola Higgs, Anne Mainwaring, James Bee, and Dianne Bell

On 25 April 2022, HM Treasury (HMT) announced the launch of the UK Transition Plan Taskforce (TPT) to help drive decarbonisation by ensuring that financial institutions and companies prepare plans to achieve net zero, as well as to support efforts to tackle greenwashing. This move is an important step connected with the UK’s development of the new Sustainability Disclosure Requirements (SDR) regime that Chancellor Rishi Sunak announced at his Mansion House speech in July 2021. HMT’s stated aim is to develop “a gold standard for climate transition plans” and for the UK to become the world’s first net zero-aligned financial centre.

An increasing number of companies are making public commitments to decarbonise their operations and reach net zero emissions, but transition plans announced so far are, according to the TPT, “varied in detail and quality”,[i] thereby limiting the ability of stakeholders to assess the credibility of such transition plans. Proposed rules announced by the Chancellor at COP26 would require large companies and certain financial sector firms to publish a transition plan from 2023. The TPT will, over the next two years, develop: (i) a sector-neutral framework for private sector transition plans; (ii) a sector-specific guidance for finance and other sectors; and (iii) recommendations regarding the preparation and use of transition plans. The TPT’s expectations are for such transition plans to be science-based and to help inform the UK’s SDR. (See Latham’s recent briefing for an outline of the SDR regime.)