Asset Management & Investment Funds: EU & International Developments: Dec 2019

ESG

On 9 December 2019, the following Regulations were published in the Official Journal of the EU:

  • Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (Disclosure Regulation). It lays down harmonised rules for financial market participants (including UCITS ManCos and AIFMs and financial advisers) on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes, as well as the provision of sustainability-related information. The Disclosure Regulation enters into force on 29 December 2019. Most of the provisions will apply from 10 March 2021. Article 20(3) sets out some provisions which apply from 29 December 2019 and others which apply from 1 January 2022.
  • Regulation (EU) 2019/2089 amending the Benchmarks Regulation as regards EU climate transition benchmarks, EU Paris-aligned benchmarks and sustainability-related disclosures for benchmarks (Low Carbon Benchmarks Regulation). It amends the Benchmarks Regulation by introducing a regulatory framework that lays down minimum requirements for EU climate transition benchmarks and EU Paris-aligned benchmarks at the EU level, to ensure that these benchmarks do not significantly harm other environmental, social and governance (ESG) objectives. The Low Carbon Benchmarks Regulation entered into force on 10 December 2019.
  • The Investment Firms Regulation and the Investment Firms Directive will update the prudential requirements of investment firms (including AlFMs & UCITS ManCos) so as to factor in size, nature and complexity. They will amend the Capital Requirements Regime, the Markets in Financial Instruments Regime, the EBA Regulation and the Investment Firms Directive. The current capital requirements regime is based on international standards intended for banks and does not take account of the nature of investment firms. In future, investment firms will be subject to the same key measures, in particular as regards capital holdings, reporting, corporate governance and remuneration, but the set of requirements they will need to apply will be differentiated according to their size, nature and complexity.
  • The proposed Regulation establishing an EU-wide classification system, or taxonomy, has yet to be finalised. It aims to provide businesses and investors with a common terminology to identify the extent to which economic activities can be considered environmentally sustainable.

ESMA's pan-EU review on the use of supervisory sanctions for UCITS

ESMA issued its second annual report on sanctions (penalties and measures) imposed by national competent authorities (NCAs) under the UCITS Directive. This report covers the year 2018. 

ESMA Q&As on the application of AIFMD

ESMA updated its Questions and Answers on the application of the AIFMD to clarify how AIFMs should report the results of liquidity stress tests for the closed-ended unleveraged funds that they manage. Closed-ended unleveraged AIFs are exempt from implementing liquidity risk management systems and from conducting stress tests so AIFMs should mark N/A in the report for those AIFs unless the AIFM has conducted stress tests.

ESMA recommends measures to further strengthen supervision of MAR suspicious transactions and order reports.

ESMA published a peer review report on how NCAs handle suspicious transactions and order reports (STOR) under the Market Abuse Regulation (MAR). The Report sees a significant increase in suspicious transaction and order reporting. It highlights good examples of NCAs’ supervision and enforcement of STOR requirements. ESMA identified bespoke areas for improvement in NCAs’ supervision and enforcement of the STOR requirements.

More EU capital markets union measures

On 5 December 2019, the Council of the EU published its conclusions on the deepening of the capital markets union (CMU). Further action is required to deepen the CMU, including adopting the remaining legislative acts and identifying potential gaps. The Council supports six principles that should underpin the deepening of the CMU. These principles cover increased access to equity and debt finance (especially SMEs), identification and removal of structural and legal barriers for increased cross border capital flows, incentives to enable well informed investors to invest in capital markets (especially long-term investments), active support of a transition to sustainable economies, embracing technological progress and digitalisation, and the strengthening of global competitiveness of EU capital markets. The Council outlines steps the Commission and member states can take to further the principles.

Whistleblowing Directive

Directive (EU) 2019/1937 on the protection of persons who report breaches of Union law (the Whistleblowing Directive) was published in the Official Journal on 26 November 2019.

The Whistleblowing Directive was adopted in response to scandals such as Dieselgate, Luxleaks, the Panama Papers, and the Cambridge Analytica revelations, which showed that whistleblowers can play an important role in uncovering unlawful activities and that whistleblower protection was fragmented and uneven across the EU. Member states must implement the Whistleblowing Directive by 17 December 2021, except for legal entities in the private sector with 50 to 249 workers, where member states must implement the obligation to establish internal reporting channels by 17 December 2023.

Council of EU strategic AML and CTF priorities

On 5 December 2019, the Council of the EU set out its conclusions on strategic anti-money laundering (AML) and countering terrorist financing (CTF) priorities. The fight against money laundering and terrorist financing remains a high propriety for the EU, and further work is needed to determine the areas in which the current legal framework could be further harmonised throughout the EU. The Council calls on the European Commission to take a number of specific steps, which include:

  • To thoroughly assess, as a priority, any possible restrictions stemming from existing legislation, or lack of it, on efficient information exchange and co-operation among all relevant authorities involved in implementing and supervising the EU AML and CTF framework. If appropriate, the Commission should present legislative proposals to address its findings.
  • To further explore actions to enhance the EU framework, including by considering whether some aspects could be better addressed through an EU regulation, as well as exploring the opportunities and challenges in using technological innovation for AML and CTF. The Commission should prioritise the financial sector, but also consider further enhancements to the framework for other sectors.
  • To consider ways to ensure high quality and consistent AML supervision throughout the EU, while paying particular attention to the robustness and efficiency of enforcement practices, and when cross-border aspects and co-operation among authorities are involved. Specifically, the Commission is to explore the possibilities, advantages and disadvantages of conferring certain AML responsibilities and powers (including direct powers vis-à-vis regulated entities) to an EU body with an independent structure. The Commission is to present legislative proposals.

The Council asks the Commission to report on this initiative every six months, starting in June 2020.

For more information in relation to this topic please contact your usual contact on the A&L Goodbody Asset Management & Investment Funds team.

Date published: 16 December 2019