Marketing Restrictions: Rounding up 2023 and horizon scanning 2024

Overview

Having said goodbye to another year packed full of financial services developments and regulation, we reflect on a few key themes and trends of 2023 and look ahead to what may be coming down the track in 2024, both in the EU and across the globe.

In this article we have focused on 7 key trends and themes that have and will impact our two aosphere online legal subscription services, Rulefinder Marketing Restrictions (sell-side) and Rulefinder Marketing Restrictions - Asset Management (buy-side).

Theme 1: No let up in either the UK or the U.S.

It was an eventful year end in the UK as the FCA, the PRA and the government pushed ahead with a range of proposals, aimed at building a “smarter regulatory framework” for financial services tailored to the UK. On the back of the Financial Services and Markets Act 2023 (which received Royal Assent in the summer), we saw a flurry of policy statements, consultations and draft statutory instruments covering:

• the overseas fund regime (OFR) (which will enable non-UK retail funds (including EEA UCITS) to access the UK retail market, subject to an assessment of equivalence and recognition);
• a comprehensive framework for crypto regulation;
• a new public offers regime; and
• a replacement for PRIIPs.

For many, these developments sign-post a response to the long-standing question as to what extent the UK will diverge from the EU in reformulating UK regulation post-Brexit.

There are no signs that such developments that strive for simplification in the UK are slowing down. In 2024 we can expect to see legislation on the retail disclosure framework, revised rules on the prospectus regime and the UK government’s response to whether EEA UCITS and/or funds from any other jurisdictions are considered equivalent for the purposes of the OFR. Changes to the well relied upon financial promotion exemptions for high-net-worth individuals and sophisticated investors are set to come into force on 31 January 2024 and the FCA’s new regulatory “gateway” for firms that approve financial promotions comes into force on 7 February 2024.

Responding to the fast-paced rulemaking agenda of the U.S.’ SEC, in particular the Private Fund Adviser Rule, adopted by the SEC in August 2023, has also dominated the agenda for many of our subscribers this year. This rule represents a significant update to the U.S.’ regulation of private fund advisers and will have a significant impact on private funds and private fund advisers, including unregistered advisers. The rule’s numerous new and amended provisions modify disclosure and transparency requirements and prohibit certain activities regardless of disclosure, in addition to various other prescriptive obligations. The rule is but one of a slew of initiatives from the SEC last year.

While a number are now being challenged in the courts, we know that many subscribers will need to keep preparing as the timelines for compliance are relatively short.

Theme 2: Facilitating (or tightening) cross-border access

Over recent years we have observed an ongoing tension between individual EU member states wishing to extend access to their markets and the EU seeking to control and tighten such access. This trend continued in 2023 and perhaps the most notable development came in September 2023 when Norway provided stability and certainty for many market participants by introducing a new permanent regime in relation to the provision of investment services by third country firms to eligible counterparties, subject to certain conditions. However, developments in relation to EU-wide pieces of legislation paint a more complex picture in terms of cross-border access:

• AIFMD II: After a fairly protracted process, in early November 2023, the Council of the EU published the final compromise text of the proposed Directive amending the AIFMD and the UCITS Directive (entry into force expected early February 2024 with the majority of the new requirements likely to apply from sometime in 2026). Key amendments include:
  • the requirement for AIFMs (including non-EU AIFMs marketing AIFs under national private placement regimes) and UCITS ManCos to report additional information to the regulator including on delegation arrangements concerning portfolio or risk management functions; and
  • new third country provisions that require non-EU AIFs and non-EU AIFMs to not be established in jurisdictions identified as high risk according to EU AML/CFT laws or located in a third country deemed non-cooperative in tax matters.
• CRD 6 and CRR3: At the end of December 2023, the finalised texts of this EU banking package were published following the conclusion of negotiations between the EU co-legislators. While much of the package focuses on implementing the Basel reforms, perhaps most controversially, the package introduces a requirement for third country undertakings to establish a branch in the EU in order to provide core banking services, subject to certain exemptions. While it is likely to be mid-2026 at the earliest for application of this requirement, it signifies a more restrictive and European centric direction of travel for the regulation of cross-border banking services into the EU.

Elsewhere, Australia made important progress in 2023 in clarifying the position for foreign firms looking to conduct cross-border activities in Australia, culminating in November with the introduction of a Bill to Parliament (the proposed commencement date is 1 April 2025). The aim is to implement a clear and comprehensive exemption regime for foreign financial service providers, resolving long-standing uncertainty about the available exemptions for foreign firms providing financial services in Australia.

Theme 3: Responding to digitalisation

The regulatory response to the pace of change brought about by digitalisation is not expected to slow down in 2024.

• In December 2023, Hong Kong’s HKMA flagged an increase in the use of digital channels for marketing activities promoting general banking products and services and issued a circular reminding authorised institutions to put in place proper consumer protection measures when conducting such activities.
• In the EU, ESMA issued a discussion paper (which closes for comment in March 2024) looking at the main trends in digitalisation that are linked to MiFID II investor protection topics with a view to assessing whether the current legislative framework is still fit for purpose amidst the new technological developments, or whether it requires adjustment.
• At international level, IOSCO also continued its policy work on this topic throughout the year, proposing a toolkit of measures to assist regulators tackling the particular challenges of misconduct perpetrated online (in its final report of its Retail Market Conduct Task Force in March 2023), and in a statement calling on regulators to respond vigorously and collaboratively to online harm (in December 2023).

In 2024 we expect regulators to continue to grapple with the complexities of regulating financial promotions online and the constraints in addressing entities outside the scope of their respective regulatory perimeters. These issues are particularly amplified when promotion is by way of social media and 2023 kept regulator spotlight on the activities on finfluencers. We note that the UK’s FCA is due to release updated guidance for financial promotions on social media following a July 2023 consultation.

Theme 4: Retail engagement and protection

Retail investor protection continued to be a key focus for many regulators in 2023, often coupled with an increase in enforcement activity and we expect it to continue to receive significant attention throughout 2024.

• The UK FCA’s consumer duty, which became effective on 31 July 2023, builds on the central requirement that promotions are fair, clear and not misleading, and has arguably raised the bar in all areas of retail financial services.
• ASIC, the Australian regulator, was particularly active in bringing enforcement proceedings in relation to greenwashing and the promotion and distribution of unsuitable products for retail. 
• Notwithstanding a previous 2021 consultation on the complex products regime, MAS, the Singapore regulator, announced it will be launching a fresh consultation in the first half of 2024 to consult on broader proposals on the complex products regime, including a review of the safeguards applicable to specified investment products, as well as enhancements to product highlight sheets for investment products.
• In May 2023, the EU demonstrated its commitment to encouraging retail investor  participation in EU capital markets with the European Commission’s adoption of a wide-ranging retail investment package. Of particular focus is the desire to protect retail investors from misleading marketing communications and practices by ensuring that investment firms are fully responsible for the use of their marketing communications (including where made by third parties). During 2024, we expect to hear from European Parliament and the Council of the EU as to their respective positions on the proposed reforms. Further, in an attempt to improve the attractiveness and participation in ELTIFs to retail investors across the EU, revisions were made to the ELTIF Regulation, due to enter into force on 10 January 2024.

Theme 5: The crypto asset evolution

Another area that has seen emerging frameworks and rapidly evolving regulation across the globe relates to crypto assets and related services. In the EU, the Markets in Crypto-Assets Regulation (MiCA), being the first cross-jurisdictional regulatory and supervisory framework for crypto assets, is due to come into force in 2024 and a number of other key financial hubs are at various stages of consulting on, drafting and implementing laws to introduce new frameworks or extending the regulatory perimeter of existing frameworks to bring crypto assets within scope.

Whilst some national regulators have publicly announced their plans to become global centres for digital assets, technology and innovation, there have been frequent calls for international cooperation and following its May 2023 consultation on the global regulation of crypto assets, in November 2023, IOSCO, driven by an intention to protect investors and ensure that crypto asset markets operate fairly, efficiently and transparently published a series of policy recommendations for regulators looking to supervise crypto and digital assets.

Theme 6: The sustainability of ESG

ESG considerations continued to heavily influence the global financial and regulatory landscape and while the EU-wide regime is arguably the most evolved and detailed, efforts were also made by several regulators in the other key financial hubs across the globe to implement national sustainable finance strategies, conduct data collection exercises and increase their monitoring of disclosure requirements. One such initiative saw the ASEAN Capital Markets Forum introduce a “green lane” under the ASEAN CIS Framework to facilitate and streamline the procedures for the cross-border distribution of sustainable and responsible funds in participating jurisdictions (Singapore, Malaysia, Thailand and the Philippines).

Whilst the industry continues to grapple with the practical application of various (and sometimes contradictory) considerations, what is clear is a global desire to achieve genuine sustainability standards beyond labels and box ticking exercises and we expect regulators to continue to strive for clarity throughout 2024.

• In Q2 of 2024, ESMA is due to issue an update regarding its draft guidelines on the use of ESG and sustainability-related terms in fund names; and
• the UK’s FCA is due to release guidance to complement its recently introduced anti-greenwashing rule.

Theme 7: International collaborations

Over the course of 2023, there were a number of notable international collaborations, perhaps the most significant being the signature of the Berne Financial Services Agreement between the UK and Swiss governments right on the cusp of the festive break. The agreement establishes a framework providing for mutual recognition of the UK and Swiss regulatory and supervisory frameworks applicable to certain wholesale financial services sectors, including asset management, corporate banking, insurance and investment services and possibly sets a standard for fostering reciprocal market access with other jurisdictions. In the progression of UK-EU relations, we also witnessed the inaugural meeting of the EU-UK Financial Regulatory Forum in October 2023 (established following the signing of the UK-EU Memorandum of Understanding on Financial Services Cooperation on 27 June 2023) and note that a follow up meeting is scheduled for Spring 2024.

In APAC, several revisions and enhancements (including amendments to investor eligibility criteria and eligible products) were made to the Wealth Management Connect Scheme which enables eligible Mainland China, Hong Kong SAR and Macao SAR residents in the Guangdong-Hong Kong-Macao Greater Bay Area to invest in wealth management products distributed by banks in each other’s markets provided certain requirements are complied with. Further in May 2023, northbound trading under the interest rate Swap Connect scheme between Mainland China and Hong Kong SAR commenced. We understand that further upgrades to these connect schemes are planned for 2024.

Final thoughts

Whilst 2023 was marked with continued economic volatility and market uncertainty, it was a jam-packed year in terms of shaping the global regulatory landscape and we look forward with cautious optimism to further economic recovery and stabilisation in 2024.

Regulation of the financial services and asset management industry is often layered, complex and subject to an ever-increasing pace of change. Our two online legal subscription services, Rulefinder Marketing Restrictions and Rulefinder Marketing Restrictions - Asset Management, can help you navigate these regulatory complexities by providing practical guidance applicable to the marketing of financial products and services and the marketing of open and closed-ended funds and managed accounts, covering the position for institutional and retail investors across 85+ jurisdictions.