United Kingdom Regime Review underway, focusing on Environmental, Social, and Governance (ESG) factors and Europe's plan for a sustainable finance structure

United Kingdom Regime Review underway, focusing on Environmental, Social, and Governance (ESG) factors and Europe's plan for a sustainable finance structure

The UK's review of the UK funds regime, known as UK AIFMD II, is actively underway, with proposals issued and consultations ongoing. Initial proposals were published in April 2025 by HM Treasury and the Financial Conduct Authority (FCA), aiming to replace the current “full-scope”/“sub-threshold” distinction with a more tailored regulatory approach based on Alternative Investment Fund Managers (AIFMs)’ size and activity, using a three-tier classification by net asset value (NAV). This would apply a proportionate set of requirements depending on size (large, mid-sized, small) and activities undertaken. The consultation process has involved extensive industry engagement, and updates are ongoing.

However, there is a current delay of about two months in the Financial Conduct Authority’s (FCA) change in control notification process. The FCA recommends providing all relevant information and documents in the initial submission to reduce the delay.

The Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent on 14th March 2022. The Act amends Commission Delegated Regulation (EU) 2021/2178, requiring large listed non-financial and financial companies to disclose the proportion of their activities linked to gas and nuclear energy.

In response to the Russian invasion of Ukraine, on 28th February 2022, the UK government published a draft Economic Crime Bill (ECB) early, aiming to strengthen its ability to impose sanctions on Russian oligarchs. The FCA published a statement on 22nd February 2022 regarding new financial sanctions measures relating to Russia. Firms are advised to screen against both the UK sanctions list and the Office of Financial Sanctions Implementation (OFSI) list of asset-freeze targets and obtain a license if necessary.

On 11th February 2022, the European Commission approved a Complementary Climate Delegated Act, setting conditions for including nuclear and gas energy in the list of economic activities covered under the EU Taxonomy Regulation.

The EU Platform on Sustainable Finance published a report on 28th February 2022 setting out a proposed structure for a social taxonomy, a potential future development in the EU ESG legislative framework. The social taxonomy is similar to the existing environmental taxonomy but contains sub-objectives that specify different aspects of three social objectives: decent work, adequate living standards and wellbeing for end-users, and inclusive and sustainable communities and societies.

ESMA published its sustainable finance roadmap for 2022-24 on 11th February 2022, focusing on tackling greenwashing, building capacities in the sustainable finance sector, and monitoring ESG markets and risks. ESMA's priorities include contributing to the Commission’s focus on minimum sustainability criteria for products related to article 9 of the Sustainable Finance Disclosure Regulation, reviewing SFDR technical standards, and collecting data on the distribution of ESG products.

The FCA is experiencing delays in processing change of control notifications, with a current delay of about two months. The FCA recommends providing all relevant information and documents in the initial submission to reduce the delay.

On 28th March 2022, a Funds Legal Update was published, discussing UK developments, the government's review of the UK funds regime, delays to the change in control notification process, and the UK's response to the Russian invasion of Ukraine.

The government's priorities for the UK funds regime review include reviewing the genuine diversity of ownership condition, reforming real estate investment trusts (REITs), and exploring options for a new unauthorized contractual scheme fund structure. The ECB includes the creation of a new Register of Overseas Entities, requiring information on beneficial owners and powers to compel overseas entities to register if they own land. The ECB also proposes reforms to the Unexplained Wealth Orders regime, which has not been widely used since its introduction in 2018.

For detailed updates on the FCA’s procedural timelines for change in control notifications, direct communication with the FCA or specialized legal advisories monitoring FCA regulatory process timelines might be necessary.

1. The proposed changes to the UK funds regime, known as UK AIFMD II, aim to move towards a more tailored regulatory approach in environmental-science, with a focus on Alternative Investment Fund Managers (AIFMs)’ size and activity, using a three-tier classification by net asset value (NAV).
2. In light of the Russian invasion of Ukraine, the UK government has published a draft Economic Crime Bill (ECB) early, aiming to strengthen its ability to impose sanctions on Russian oligarchs and has advised firms to screen against both the UK sanctions list and the Office of Financial Sanctions Implementation (OFSI) list of asset-freeze targets and obtain a license if necessary.
3. The FCA is experiencing delays in processing change of control notifications, with a current delay of about two months, and it has been recommended to provide all relevant information and documents in the initial submission to reduce the delay.
4. As part of the government's priorities for the UK funds regime review, reforming real estate investment trusts (REITs) and exploring options for a new unauthorized contractual scheme fund structure are under consideration, along with the creation of a new Register of Overseas Entities, requiring information on beneficial owners and powers to compel overseas entities to register if they own land.

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