Update on Legal Funds | Examination of UK Regime, Environmental, Social, and Governance (ESG) Factors, and Europe's Sustainable Finance Blueprint

Update on Legal Funds | Examination of UK Regime, Environmental, Social, and Governance (ESG) Factors, and Europe's Sustainable Finance Blueprint

In the realm of financial regulation, significant developments have been unfolding in both Europe and the United Kingdom. Here's a roundup of some of the key changes and updates that have taken place recently.

On February 2nd, 2022, the European Commission approved a Complementary Climate Delegated Act, extending the EU Taxonomy Regulation to include nuclear and gas energy in the list of economic activities it covers. This move is part of a broader effort to establish conditions for the inclusion of these energy sources in the taxonomy.

Meanwhile, the European Central Bank (ECB) has introduced a streamlined process for implementing sanctions against individuals, as well as reformed the regime for Unexplained Wealth Orders. The ECB has also established a new Register of Overseas Entities, requiring information on beneficial owners and powers to compel overseas entities to register if they own land.

In the UK, the government has published a policy paper on the Review of the UK funds regime on February 10th, 2022. The purpose of this review was to identify options for making the UK more attractive for fund management. The current review is ongoing, with the Financial Conduct Authority (FCA) planning to consult and issue additional guidance on capital markets reforms in the second half of 2025.

The UK funds regime review has resulted in the introduction of a new tax regime for asset holding companies (AHC) and the FCA has introduced rules for long-term asset funds. The FCA has also published a statement on new financial sanctions measures relating to Russia.

Regarding delays in processing change of control notifications, while exact UK delays were not directly detailed, ongoing regulatory calibrations aiming at efficiency and proportionality are underway. These calibrations could influence processing times, as reforms and assessments around financial institutions’ reporting and disclosure requirements continue as part of broader regulatory updates.

The social taxonomy, which contains sub-objectives that specify different aspects of three social objectives, has also been a focus of attention. The EU Platform on Sustainable Finance published a report setting out a proposed structure for a social taxonomy on February 28th, 2022. The European Securities and Markets Authority (ESMA) has set out a roadmap for its sustainable finance work over 2022-2024, with priorities including tackling greenwashing, building capacities in the sustainable finance sector, and monitoring ESG markets and risks.

On February 28th, 2022, the UK government published a draft Economic Crime Bill (ECB) earlier than expected. The Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent on March 14th, 2022.

In summary, the UK funds review is advancing with concrete policy statements effective from mid-2025 and forthcoming consultations. The processing of notifications is subject to recalibrated regulatory frameworks aiming at efficiency and proportionality. Financial sanctions enforcement—especially related to Russia—remains a priority with ongoing risks and compliance challenges highlighted by recent assessments. The social taxonomy and sustainable finance continue to be key areas of focus for both the EU and the UK, with a strong emphasis on tackling greenwashing and promoting transparency.

1. Amidst the ongoing developments in financial regulation, environmental science and climate-change have also found a place in the discussions, as the European Commission has extended the EU Taxonomy Regulation to include nuclear and gas energy.
2. In the realm of wealth management, the European Central Bank has introduced measures such as a streamlined process for implementing sanctions, reformed the regime for Unexplained Wealth Orders, and established a new Register of Overseas Entities.
3. In the context of personal finance, the UK government's review of the funds regime aims to make the UK more attractive for fund management, and has introduced a new tax regime for asset holding companies, rules for long-term asset funds, and new financial sanctions measures relating to Russia.
4. As for business and finance, ongoing regulatory calibrations in the UK aim to improve the efficiency and proportionality of processing change of control notifications, and the social taxonomy, including tackling greenwashing and promoting transparency, remains a key area of focus for both the EU and the UK.

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