Ashurst Quarterly Debt Capital Markets Update Q1 2023

Welcome to the second edition of the Ashurst Quarterly Debt Capital Markets Update for 2023. In this edition we summarise the key developments in debt capital markets in the first quarter of 2023.

We have a number of different developments to report on in this edition:

• Transparency Directive: sustainability reporting in annual financial statements
• ICMA publishes updated secondary market rules
• UK government consults on regulatory approach to cryptoassets
• New UK financial promotions regime for firms that market cryptoassets
• EU Benchmarks Regulation to be amended for non-EEA benchmarks
• ESAs warn retail investors and consumers on the risks of cryptoassets

Transparency Directive: sustainability reporting in annual financial statements

On 5 January 2023 the Corporate Sustainability Reporting Directive ((EU) 2022/2464 – "CSRD") entered into force and member states have until 6 July 2024 to bring most of its provisions into effect. Amongst other things, the CSRD expands the scope of the sustainability reporting requirements introduced by the Non-Financial Reporting Directive (Directive 2014/95/EU) (which was considered by the European Parliament to be deficient in a number of areas) to include all issuers (of whatever size and whether established in the EU or not) that have any transferable securities admitted to trading on an EU regulated market.

Issuers whose securities are admitted to trading on an EU regulated market are required by Article 4 of the Transparency Directive (2004/109/EC) (as transposed into national law) to prepare annual financial reports which include audited financial statements, a management report and responsibility statements. The CSRD amends Article 4 of the Transparency Directive to require that the management report must include full sustainability reports in accordance with new Article 19a (non-consolidated) or Article 29a (consolidated) of the Accounting Directive. These new requirements will apply on a staggered basis for financial years starting on or after 1 January 2024, 2025 or 2026, depending upon the nature of the issuer.

ICMA publishes updated secondary market rules

On 25 January 2023 ICMA published its updated Secondary Market Rules & Recommendations (the "ICMA Rules") to consolidate a number of updates over recent years in a single document. The ICMA Rules apply to all transactions conducted by members as buyer or seller, in either a principal or agency capacity in international securities. They cover a range of secondary market practices, including calculating coupon accruals, trading defaulted securities, interest claims for settlement fails, and, perhaps most famously, the process for issuing and executing buy-ins.

UK government consults on regulatory approach to cryptoassets

On 1 February 2023, HM Treasury published a consultation paper on the UK regulatory approach to cryptoassets. The consultation follows on from the government committing in April 2022 to introducing a new regulatory regime for cryptoassets. It sets out proposals for the future regime and marks the next phase of the government's approach to regulating cryptoassets. The consultation focuses specifically on the future UK regulatory framework for cryptoassets used within financial services, rather than the wider application of distributed ledger technology (DLT) in financial services or the use of cryptoassets outside financial services. The government's intention is to be technology agnostic ("same risk, same regulatory outcome") while also considering whether the technology, or its use, gives rise to additional risks.

New UK financial promotions regime for firms that market cryptoassets

On 6 February 2023 the FCA published a statement on the new UK financial promotions regime it plans to introduce for firms that market cryptoassets to UK investors. This follows on from the consultation paper on the UK regulatory approach to cryptoassets published on 1 February 2023 by HM Treasury.

Subject to Parliamentary approval, when the new regime comes into force there will be four routes to communicating cryptoasset promotions to UK investors:

• The promotion is communicated by an FCA authorised person.
• The promotion is made by an unauthorised person but approved by an FCA authorised person. Legislation is currently making its way through Parliament which, if made, would introduce a regulatory gateway that authorised firms will need to pass through in order to approve financial promotions for unauthorised persons.
• The promotion is communicated by a cryptoasset business registered under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 with the FCA.
• The promotion otherwise complies with the conditions of an exemption in the Financial Promotion Order.

Promotions that are not made using one of these routes will be in breach of section 21 of the Financial Services and Markets Act 2000 (FSMA), which is a criminal offence punishable by up to 2 years imprisonment.

Subsequently, on 27 March 2023, a draft version of the Financial Services and Markets Act 2000 (Financial Promotion) Amendment) Order 2023 was published on legislation.gov.uk, together with a draft explanatory memorandum.

EU Benchmarks Regulation to be amended for non-EEA benchmarks

On 2 March 2023 the European Commission published a call for evidence on the third-country regime of the EU BMR with a view to amending the EU BMR in Q2 2023 to ensure continued access to benchmarks worldwide for EEA businesses and investors. Current transitional arrangements for third-country benchmarks already in use in the EEA are scheduled to expire on 31 December 2023.

ESAs warn retail investors and consumers on the risks of cryptoassets

On 17 March 2023 the European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) published a stark warning to retail investors and consumers that many cryptoassets are highly risky and not suited for most retail investors and consumers as an investment or as a means of payment or exchange. According to the ESAs the headline risks are:

• you may lose all the money you invest;
• prices can fall and rise quickly over short periods;
• you may fall victim to scams, fraud, operational errors or cyber-attacks; and
• you are unlikely to have any rights to protection or compensation if things go wrong.

Visit our Finance Hub for analysis and commentary on developments affecting global financial markets, including the EU Prospectus Regulation, the EU Benchmarks Regulation, PRIIPs/KID, EU EMIR and LIBOR transition.