Global Trustee and Fiduciary Services Bite-Sized Issue 8 2023

Global Trustee and Fiduciary Services Bite-Sized | Issue 8 | 2023 10 QUICK LINKS ANTI-MONEY LAUNDERING CBDC COSTS & CHARGES CRYPTOASSETS CULTURE & CONDUCT CYBERSECURITY EMIR FINTECH FSB FUND LIQUIDITY MIFID II/MIFIR SUSTAINABLE FINANCE/ ESG AUSTRALIA ASIA IRELAND NORTH AMERICA UNITED KINGDOM IOSCO Proposes Detailed Guidance for Open-Ended Fund use of Anti-Dilution Liquidity Management Tools On 5 July 2023 the IOSCO published a consultation report on Anti-dilution Liquidity Management Tools (LMTs) – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes. The consultation report provides detailed guidance to support greater and more consistent use of anti-dilution liquidity management tools by responsible entities for open-ended funds – in both normal and stressed market conditions. IOSCO states that anti-dilution LMTs form a critical component of an overall liquidity risk management framework OEFs. Remaining OEFs investors are disadvantaged, and transacting investors potentially benefit, if transacting investors do not bear the costs of liquidity associated with fund subscriptions/redemptions. IOSCO says that I consistent use of well calibrated anti-dilution LMTs by responsible entities addresses these investor protection concerns by passing on to transacting OEF investors the costs of liquidity otherwise born by the portfolio, by adjusting the price at which they transact to account for explicit and implicit costs of trading. In a stressed market scenario, the deployment of well- calibrated anti-dilution LMTs can also dampen the impact of OEF buying and selling activities in underlying asset markets (including those associated with a potential first mover advantage) – and thus support financial stability. IOSCO is publishing this consultation report in coordination with the FSB’s consultation on Addressing Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds – Revisions to the FSB’s 2017 Policy Recommendations (see above). Implementation of the revised FSB Recommendations, combined with the new IOSCO guidance on anti-dilution LMTs, is expected by these standard setting bodies to lead to a significant strengthening of liquidity management by OEF managers compared to current practices. The guidance identifies five anti-dilution liquidity management tools: swing pricing, valuation at bid or ask prices, dual pricing, anti-dilution levies, and subscription/redemption fees. The guidance covers the design and use of anti-dilution LMTs by OEFs, including calibration of liquidity costs and appropriate activation thresholds; oversight of liquidity management tools by fund boards, managers’ boards or depositories; disclosure to investors; and overcoming barriers to effective implementation. The consultation period ends on 4 September 2023. Link to the Consultation here MIFID II/MIFIR National Regulators Strengthen Their Supervision of the Compliance Function On 13 July 2023 the European Securities and Markets Authority (ESMA) published its follow-up report to the peer review on certain aspects of the compliance function under MiFID I. The report shows that, overall, the National Competent Authorities (NCAs) assessed improved their practices following the 2017 peer review’s findings and recommendations. ESMA says that the NCAs included in this follow-up report have made progress by strengthening their supervisory frameworks, undertaking investigations and thematic reviews and making use of their enforcement tools to deter poor behaviour by firms. Link to the Report here ESMA Publishes Final Report on Revised Technical Standards for Passporting On 11 July 2023 the ESMA published its Final Report on the review of the technical standards for passporting under Article 34 of MiFID II. ESMA’s proposals include targeted amendments to the existing RTS and ITS that would add new information requirements to the list of details investment firms have to provide at the passporting stage. A new investment services and activities passport notification will also provide National Competent Authorities (NCAs) with additional information on a firm’s planned or existing cross-