Asset Management & Investment Funds: EU & International Developments – August 2022
The long awaited Commission Delegated Regulation containing 13 Regulatory Technical Standards (RTS) under the Sustainable Finance Disclosure Regulation (SFDR) was published in the EU’s Official Journal.
The RTS specify the details of the content and presentation of the information in relation to the principle of 'do no significant harm'. The RTS specify the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts. This includes the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports. The RTS did not contain any material changes from earlier drafts. The RTS apply from 1 January 2023.
Helpfully, ESMA published word versions of the disclosure templates at Annex 1-5.
The Irish Funds ESG Reporting Sub Group compiled an FAQ document on the periodic report disclosure requirements and related templates applicable under the SFDR RTS. The ESAs clarified that every in-scope report published on/after 1 January 2023, regardless of the reference period, will need to comply with the provisions of the SFDR RTS relating to periodic reports.
PAIs under SFDR
The three European Supervisory Authorities (EBA, EIOPA and ESMA, the ESAs) published the first annual report on the extent of voluntary disclosure of principal adverse impact under SFDR.
The ESA report gives a preliminary, indicative and non-exhaustive overview of good examples of best practices, and not as good examples of voluntary disclosures. This is based on a survey of National Competent Authorities (NCAs). The ESAs found:
- the extent of compliance with voluntary disclosures varies significantly, but, overall, the first disclosures since the application of the SFDR are not very detailed - this is expected to change for the disclosures made for the 2022 reporting period once the SFDR Delegated Regulation applies
- there is an overall low level of disclosure on the degree of alignment with the objective of the Paris Agreement – when disclosure of alignment is made, it is often vague
- there is a low level of compliance with the details required for explaining why financial market participants do not take into account the adverse impact of their investment decisions.
The good examples of best practices in section three of the report are helpful. The report also includes a set of recommendations for NCAs to ensure appropriate supervision of financial market participants' practices, such as running regular surveys in their own market to determine whether supervisory entities comply with Article 4 SFDR disclosures. The detailed regulatory technical standards on these disclosures are not yet applicable.
ESMA UCITS and AIFMD Q&As - delegation, depositaries, reconciliations
ESMA published Q&As for UCITS and AIFMD with the following updates. The answers were provided by the European Commission.
- On the topic of delegation and responsibility to ensure compliance with the rules governing marketing communications, the Q&A notes that responsibility is with the fund ManCo/AIFM, not with a third party distributor.
- On the topic of depositary and reconciliation frequency for funds trading on a daily basis, the Q&A notes that if an AIF or UCITS with a weekly dealing frequency trades on a daily basis, daily reconciliations are required.
- On the topic of depositary and reconciliations with tri-party collateral managers, the Q&A notes that where a tri-party collateral manager (which is not the depositary) is appointed by the asset manager, it also needs to be the delegate of the depositary. The tri-party collateral manager must transmit the end-of-day positions on a fund-by-fund basis or, if applicable, on a compartment-by-compartment basis. The information provided allows the depositary to record the end-of-day positions and allows the depositary to verify that the quantity of the identified financial instruments recorded in the financial instruments accounts opened in its books matches the quantity of the identified financial instruments held in custody by the third party (tri-party collateral manager).
AML and environmental crime
The Basel AML Index is adding environmental crime data to its set of indicators of money laundering and terrorist financing risk. The data will come from the Global Organized Crime Index.
The FATF identifies environmental crimes as one of the designated predicate offences for money laundering.
For more information please contact a member of the Asset Management & Investment Funds team.
Date published: 25 August 2022