Asset

Asset management and investment funds: developments in the EU and internationally – December 2021

Additional delay for environmental disclosures of the EU taxonomy of SFDR as of January 1, 2023

The European Commission has confirmed in a letter November 25, 2021 that the date of entry into force of the Level 2 Regulatory Technical Standards (RTS) for SFDR, as amended by the EU Taxonomy Regulation, will be postponed for an additional six months to January 1, 2023. An implication of this for SFDR A8 and A9 UCITS and AIFs and their management companies, is that the prospectus disclosure models contained in the RTS must be published as part of the prospectus or supplement no later than January 1, 2023.

The letter also confirmed that the first reporting period for Principal Adverse Impact Statements (PAIs), for financial market participants who will publish a PAI statement, will be from January 1, 2022 to December 31, 2022 and the first publication date. will be on June 30, 2023. These financial market players will have to start evaluating PAIs using the PAI indicators defined in the RTS adopted by ESA.

The delay in the RTS does not affect compliance with the disclosures required under Level 1 of the EU Taxonomy Regulation by January 1, 2022.

EU Climate Taxonomy Delegated Act

The delegated act on the climate of the EU taxonomy regulation (the DA climate) was published in the Official Journal on December 9, 2021. The DA climat establishes the technical selection criteria to determine the conditions under which an economic activity is considered to contribute substantially to the mitigation of climate change or to the adaptation to climate change and to determine whether this economic activity does not result in material prejudice to any of the other environmental objectives. It applies from January 1, 2022. For SFDR A8 and A9 investment funds making environmental disclosures related to EU taxonomy under level 1 of the EU taxonomy regulation on January 1, 2022 , the climate DA does not modify or supplement the legal text of the disclosure requirements. This means that the technical criteria by which funds can assess the taxonomic alignment of the economic activities undertaken by the underlying investments are now confirmed in EU law.

A8 Delegated act EU Taxonomy

A8 of the EU Taxonomy Regulation obliges entities subject to the Non-Financial Reporting Directive (NFRD) to publish information on how and to what extent their activities are associated with economic activities classified as environmentally sustainable under the EU taxonomic regulation. The NFRD currently applies to large EU public interest entities with more than 500 employees, including listed companies, banks and insurance companies. A delegated act (the TR transparency DA) specifying the content and presentation of the information to be disclosed and the methodology to comply with the disclosure obligation A8 of the EU taxonomic regulation was published on December 10, 2021. It applies from January 1, 2022. The TR Transparency DA reporting requirements do not apply to UCITS or AIFs as they are not subject to the NFRD. SFDR A8 or A9 UCITS and AIFs investing in entities which must publish information under A8 may receive this information from the underlying entity and take it into consideration for the assessment of the taxonomic alignment of the underlying assets of the UCITS or the AIF.

ESMA UCITS Q&A – Fee Reduction Agreements – Time to Look at Existing Agreements

UCITS management companies (ManCos).

ESMA has updated its Questions and answers on UCITS with a new Q&A (Section XII, Question1) on the rules relating to ManCo UCITS fee rebate agreements. The new Q&A confirms that the payment of rebates by a ManCo UCITS out of its own resources to individual investors is subject to the UCITS incentive rules. The new Q&A serves as a useful reminder of the need to ensure that UCITS ManCos can meet the expectations of NCAs with respect to rebate agreements.

A summary of the requirements follows.

UCITS rules (and in particular Article 29 of Directive 2010/43 / EU) 34) set strict conditions for fees or commissions paid or received to / from a third party in relation to the management of investments and the administration of the UCITS. These conditions ensure that ManCos acts in an honest, fair and professional manner. They guarantee the best interests of UCITS, the fair treatment of investors and the transparency of UCITS operations.

ManCos must ensure, as part of the fee remission mechanism:

  • Prior communication to the UCITS, in a transparent, complete, precise and understandable manner, of the existence, nature and amount of fees, commissions or benefits or, when the amount cannot be determined, the method of calculating this amount.
  • That the payment of the fees or the commission, or the provision of the non-monetary benefit is designed to improve the quality of the service concerned and not to undermine the fulfillment of ManCo’s duty to act in the best interest of the UCITS.

ManCos must ensure that they are able to demonstrate that:

  • These provisions will “improve the quality of the service concerned” for the UCITS. This requirement is aimed at the quality of the UCITS’s services for the benefit of all investors and not just investors who benefit from these systems.
  • These provisions “will not hinder compliance with ManCo’s duty to act in the best interests of the UCITS”. In particular, Article 22 of Commission Directive 2010/43 / EU sets out the rules relating to the “duty to act in the best interests of UCITS and their unitholders”. Under this article, ManCos is obligated to treat all unitholders fairly, to act in the best interests of unitholders and to refrain from placing the interest of a group of unitholders above others. Consequently, ManCos should be able to justify that all investors pay their fair share in the operation of the fund (taking into account the discount on management fees) and in the cost structure of the UCITS. These agreements should not have a negative impact on other investors.

The Q&A emphasizes that ManCos should be able to provide precise and documented justifications to the relevant national authorities upon request.

Cessation of LIBOR and EONIA

ESMA issued a statement from Euro risk-free rate working group (RFRWG) on the discontinuation of EUR, GBP, CHF and JPY LIBORs and EONIA, and the discontinuation of the use of USD LIBOR in new contracts, at the end of 2021

The RFRWG reminds market participants to stop entering into new contracts using EONIA and EUR, GBP, CHF, JPY and USD LIBORs as soon as possible and in general terms by December 31, 2021. The statement refers to RFRWG recommendations as well as positions taken by the European Commission, FCA and US regulatory authorities.

The President of the RFRWG has sent a letter to the European Commission formally requesting the designation of a statutory replacement rate for GBP and JPY LIBORs under the EU Benchmarks Regulation. The results are still pending.

EBA consultation on the draft guidelines on the use of remote customer integration solutions.

The European Banking Authority (TSA) launched a public consultation on the draft guidelines on the use of remote customer integration solutions. The consultation ends on March 10, 2022.

The draft guidelines establish common European standards on the development and implementation of a strong and risk-sensitive initial customer due diligence (CDD) policies and processes for remote client onboarding. They define the measures that financial institutions must follow when choosing tools for remote customer integration and when assessing the suitability and reliability of these tools, in order to comply effectively with their obligations in this area. AML / CFT and data protection.

Once adopted, these guidelines will apply to all financial sector operators falling within the scope of the AML / CFT directives.

Financial institutions have seen a growing demand for remote customer integration solutions, amplified by movement restrictions caused by the COVID-19 pandemic.


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