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The EU Listing Act reforms are leading to notable divergence between the EU and UK market abuse regimes, with key changes impacting disclosure requirements for issuers.

By Mark Austin, Nicola Higgs, James Inness, Rob Moulton, Anna Ngo, Jonathan Ritson-Candler, Charlotte Collins, and Johannes Poon

Until recently, the UK and EU post-Brexit market abuse regimes remained substantially aligned. However, the passing of the EU Listing Act reforms in 2024 has meant that UK and EU MAR have started to diverge meaningfully for the first time and we must now start to consider them as separate regimes. Although most of the changes to EU MAR took effect in late 2024, arguably the most impactful amendment (to when issuers need to announce inside information in certain circumstances) will not take effect until mid-2026. Generally, the EU Listing Act changes to EU MAR seek to reduce the regulatory burden for issuers and thereby make EU capital markets more attractive. Therefore, the amendments do not change the core offences under MAR or the definition of inside information, but rather aim to address some of the more onerous compliance aspects that issuers face and make these requirements more proportionate.

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The ESAs urge the European Commission to consider a labelling rather than a disclosure regime to help consumers understand the sustainability goals of financial products.

By Nicola Higgs, Jaime Martin, Sara Sayma, and Charlotte Collins

On 18 June 2024, the European Supervisory Authorities — the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), collectively the ESAs — published a joint opinion on the Sustainable Finance…

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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.

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

By Nicola Higgs, Becky 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 European Securities and Markets Authority proposes to restrict ESG- and sustainability-related terms in the naming of funds, with an eye on the US and UK fund naming regimes.

By Paul Davies, Nicola Higgs, Anne Mainwaring, and Dianne Bell

On 18 November 2022, the European Securities and Markets Authority (ESMA) published its consultation paper on guidelines in relation to funds’ names, including quantitative thresholds that would need to be met before ESG- and sustainability-related terminology can be used in funds’ names. The proposed rules would set common standards for AIFMs[1] and UCITS[2] management companies when promoting AIFs and UCITS using an ESG- or sustainability-related name, including when these funds are set up as EuVECA, EuSEF, and ELTIFs[3] to facilitate marketing of funds throughout EU Member States.

Proposed changes seek to reflect the integration of sustainability considerations into MiFID II.

By Nicola Higgs, Anne Mainwaring, Dianne Bell, and Charlotte Collins

ESMA is consulting on updates to its Guidelines on the MiFID II suitability requirements, in light of upcoming changes that will embed sustainability considerations into the MiFID II framework. These changes will require firms to consider sustainability preferences as part of the suitability process when providing advisory and portfolio management services. ESMA is considering how it needs to update its Guidelines to reflect these new requirements, in order to assist firms in understanding what is expected of them in an area potentially difficult to navigate given that many clients may have limited understanding of sustainability factors and ESG or sustainability-related products, and that the availability of such products is still reasonably limited.

The revised criteria allow UK-listed SPACs to avoid a suspension of their shares when announcing a de-SPAC deal.

By Nicola Higgs, David Berman, Chris Horton, James Inness, Rob Moulton, Anna Ngo, and Charlotte Collins

The UK, acting through the Financial Conduct Authority (FCA), will implement a new SPAC listing regime from 10 August 2021. This follows a consultation launched in April 2021 on the back of recommendations made by Lord Hill in his review of the UK listing regime.

The new regime removes the presumed suspension of a SPAC’s shares upon announcement of a de-SPAC until a prospectus on the enlarged group is published, which has been one of the main reasons that most recent SPAC activity in Europe has taken place on one of the Euronext exchanges, principally Amsterdam and Paris, rather than in London.

ESMA warns against investor protection risks and provides guidance on expected disclosures.

By Nicola Higgs, Chris Horton, James Inness, Rob Moulton, Oliver Seiler, Isabella Porchia, and Charlotte Collins

On 15 July 2021, ESMA published a statement on the prospectus disclosure and investor protection issues raised by special purpose acquisition companies (SPACs). SPAC activity in the EU has increased significantly in recent months, but there is not a harmonised regulatory approach to SPAC transactions across the EU, partly because structures and approach will depend on what is permitted under national law. Therefore, ESMA intends to clarify regulatory expectations regarding SPACs so that potential investors are provided with clear, comprehensible, and comparable information when making their investment decisions.

ESMA’s guidance aims to ensure a coordinated approach across the EU, including expectations as to how issuers should satisfy the specific disclosure requirements of the Prospectus Regulation, and how SPAC shares and warrants should be considered under the MiFID II product governance regime.

New ESMA guidance less strict than the established UK position on PFOF.

By Rob Moulton, Axel Schiemann, Thomas Vogel, and Charlotte Collins

On 13 July 2021, ESMA published a statement on payment for order flow (PFOF), the practice of brokers receiving payments from third parties for directing client order flow to these third parties as execution venues.

ESMA warns that the increase in retail client activity in the past year has highlighted the use of PFOF, both in the US and in some EU jurisdictions. ESMA explains that PFOF causes an inherent conflict of interest, as it incentivises brokers to choose the execution venue offering the highest payment, rather than the venue that will achieve the best outcome for the brokers’ clients.

Therefore, ESMA is of the view that, in most cases, the receipt of PFOF is unlikely to be compatible with MiFID II. ESMA requires firms to thoroughly assess whether, by receiving PFOF, they are able to comply with relevant MiFID II requirements, in particular those on best execution, conflicts of interest, inducements, and cost transparency. Interestingly, this contrasts with the stricter UK position. The UK FCA has made clear for many years that the receipt of PFOF is not compatible with firms’ obligations regarding conflicts of interest, inducements, and best execution. This is because the FCA considers that the price quoted by the execution venue will always be influenced by the fact that any profit will be reduced by the PFOF they are paying.