Investment Manager Regulation – Global Investment Law Watch

PFAR Appeal Timeline Runs Out

Jul 24 2024

The clock ran out Monday, 22 July 2024 for the SEC and its timeline to appeal the unanimous decision of the US Court of Appeals for the Fifth Circuit to vacate the Private Fund Adviser Rules (PFAR). The 2023 August adoption of PFAR and the Fifth Circuit’s 2024 June subsequent decision to vacate, has caused both controversy and compliance confusion across the private fund sector over the last few years. Even in the absence of an appeal, open questions remain surrounding the implications of future rulemaking under Section 206(4) of the Advisers Act and the SEC’s stated goal to enhance transparency in the private funds space.

While the next steps for the SEC remain to be seen, managers and investors alike will still need to gauge market reaction to the core principles of PFAR and how they may drive industry initiatives separate and apart from any future regulatory efforts. For example, Institutional Limited Partners Association (ILPA) continues to adjust the parameters of the “Quarterly Reporting Standards Initiative” which was launched in early 2024 and proposes model reporting forms that are substantively similar to what was proposed in the Quarterly Statements provision of PFAR. Now that the “wait and see” attitude on PFAR is past us, it can be expected that private fund industry participants will continue to explore the parameters of the goals that PFAR tried to achieve.

Europe: European Commission adopts Delegated Regulations for ELTIF 2.0 and rejects key changes proposed by ESMA

Jul 23 2024

By: Gayle Bowen and Shane Geraghty

The European Commission (EC) has adopted the long awaited ELTIF 2.0 Delegated Regulation (RTS). Its version rejects a number of key proposals previously introduced by ESMA. In particular, the EC has returned to its original versions of Annex I and Annex II, with minor amendments.

NSW Anti-Slavery Commissioner Proposes a Financial Services Code of Practice to Combat Modern Slavery

Jul 18 2024

By: Jim Bulling and Emre Cakmakcioglu

In May 2024, the NSW Anti-slavery Commissioner (Commissioner) published a Discussion Paper introducing a draft Code of Practice (Code) to reduce modern slavery in the financial services sector. The Commissioner sought feedback on both the Discussion Paper and Code by 15 July 2024.

Where to Next for ASIC? Senate Economics References Committee Releases its Report

Jul 10 2024

By: Daniel Knight and Simon Kiburg

On 3 July the Senate Economics References Committee handed down its report on ASIC. The Senate referred an inquiry into ASIC in October of 2022 to examine the capacity and capability of ASIC to undertake proportionate investigation and enforcement action arising from reports of alleged misconduct. The report is generally critical of ASIC’s performance as a corporate regulator. The report identifies several key issues. Chief among these is the broad remit of ASIC, ASICs approach to investigation and enforcement, and ASICs wider culture.

ISDA Publishes Framework to Facilitate Close-Out of Derivatives Contracts

Jul 08 2024

By: Kenneth Holston, Cheryl L. Isaac, Matthew J. Rogers, Jordan A. Knight, and Bradley D. Bostwick

On 27 June 2024, ISDA published the ISDA Close-out Framework, an interactive decision tree that market participants can use to help prepare for potential terminations of collateralized derivatives contracts that are documented under an ISDA Master Agreement. The ISDA Close-out Framework was launched in response to the March 2023 failures of Signature Bank and Silicon Valley Bank, which shed light on the complexities of terminating swaps and other over-the-counter derivatives in the multifaceted post-financial crisis swap regulatory regimes. ISDA designed this framework in response to feedback from the derivatives industry that factors such as segregated margin and stays on the exercise of termination rights and remedies makes terminating and closing out derivatives contracts increasingly complex.

Deciphering Derivatives Transaction Reporting

Jun 24 2024

By: Jim Bulling and Simon Kiburg

On 21 October 2024 the new ASIC Derivative Transaction Rules (Reporting) 2024 (2024 Rules) will come into effect replacing the current ASIC Derivative Transaction Rules (Reporting) 2022 (2022 Rules). In this post we set out some of the major changes to the 2022 Rules and some of the issues market participants in this space should be aware of.

5th Circuit Vacates the Private Fund Adviser Rules in Full

Jun 05 2024

By: Pablo J. Man, TJ Bright, Kenneth Holston, Christopher W. Phillips-Hart, and Tristen C. Rodgers

Earlier today, 5 June 2024, the US Fifth Circuit Court fully vacated the Private Fund Adviser Rules (PFAR) in a unanimous and highly anticipated decision curbing the Securities and Exchange Commission’s authority to regulate private funds. Absent a successful appeal of the decision, the PFAR will not come into effect.

Go Ahead and Take a CIP: SEC and Treasury Department Propose New Regulations for Investment Advisors

May 15 2024

By: Richard F. Kerr, Jennifer L. Klass, C. Todd Gibson, and Kenneth Holston

On 13 May 2024, the Securities and Exchange Commission (SEC) and the Department of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) jointly proposed rulemaking to implement section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (CIP Rulemaking), which would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish written customer identification programs (CIP).

Europe: ESMA publishes Guidelines on fund names using ESG or sustainability-related terms

May 14 2024

By: Áine Ní Riain, Dr Philipp Riedl, and Ruth Hennessy.

The European Securities and Markets Authority (ESMA) has published its much anticipated Final Report: Guidelines on funds’ names using ESG or sustainability-related terms (Guidelines).

This follows a consultation on the subject between November 2022 and February 2023 and an update provided by ESMA last December.

Acknowledging the significant impact of fund names on investor decision-making, ESMA has determined that a fund with ESG- or sustainability-related terms in its name must apply at least 80% of its investments to meet environmental or social characteristics or sustainable investment objectives.

The Guidelines also apply exclusion criteria for certain terms in fund names:

“Environmental”, “impact” and “sustainability”- related terms will require compliance with the exclusions applicable to Paris-aligned Benchmarks; and
“Transition, “social” and “governance”- related terms will necessitate compliance with the exclusions applicable to Climate Transition Benchmarks.

Use of “sustainability”-related terms in fund names will require a commitment to “invest meaningfully” in sustainable investments. Similar use of “transition” or “impact” – related terms will require that the relevant fund’s investments used to meet the 80% threshold are on a clear and measurable path to transition or are made with the objective to generate a positive, measurable impact alongside a financial return.

The Guidelines will apply to all EU UCITS and EU AIFs, and it currently seems likely that they will also apply to non-EU funds marketed into the EU (this is a point on which we will be watching developments closely).

The Guidelines are expected to come into force in Q3 or Q4 2024, subject to completion of administrative formalities including a decision by national competent authorities on whether to apply them locally (which is generally expected). Existing funds will have an additional 3-month transition period before compliance becomes mandatory.

Japan: FSA Requires Real Estate Funds Take Additional Safeguards Against Conflicts of Interest

May 08 2024

By: Tsuguhito Omagari, Yuki Sako, Jason Nelms and Charmaine Mok

Financial Services Agency of Japan (FSA) proposed amendments to its supervisory guidelines applicable to managers of investment trust (toshin) funds and real estate funds, and is currently accepting comments until May 13. Of those, amendments relating to real estate funds would require managers to take additional measures to manage transactional conflicts of interest, specifically:

Catagory:Investment Manager Regulation