January 17th, 2022 Posted by Anne BeckerBusiness 0 thoughts on “Survey: SFDR and ESG”
2022 will bring many changes to our industry and the related fund documentation.
We are always happy to assist you in all challenges ahead. In order to provide the best possible service to you, it would be helpful for us if you could complete our survey:
If you had 3 wishes that would make your life easier when it comes to ESG/SFDR, what would these be? (multiple answers possible)
Full support to produce your fund documentation
Automating updates to reduce delivery times
Automating updates to improve consistency
Coordination & communication support between different teams
What are your biggest challenges? (multiple answers possible)
Filing deadlines
Volume of updates
Managing multiple updates
Keeping updates consistent (across various documents)
Internal communication between teams/ involved parties
Translation & integration of updated fund documentation
Layout
For which documents would you need assistance? (multiple answers possible)
Prospectus
Annual and semi-annual reports
UCITS KIIDs
PRIIP KIDs
Factsheets
Website updates
Regulatory forms
Shareholder mailings
Marketing and sales documents (presentations, brochures, etc. …)
Tell us more about your SFDR requirements in the comments. If you would like you can also fill out our survey here; and send it to prisma(at)prisma.lu. We thank you for your time!
January 14th, 2022 Posted by Anne BeckerBusiness 0 thoughts on “SFDR overview”
Introduction
The EU has introduced the Sustainable Finance Disclosure Regulation (SFDR) in 2019,appliying to financial market participants (FMP), such as asset managers, banks, financial advisors. The first level has come into effect on 10 March 2021 and will continue rolling out deadlines for disclosures that are required by FMPs. This regulation is focused within Europe but is being adopted by other countries around the globe. Its aim is to assist European commitments on climate control and Sustainability objectives, encouraging investors to chase greener opportunities which do no harm to the ESG (Environmental, Social and Governance).
SFDR Purpose
The purpose of the SFDR is to reorientate FMPs capital towards more sustainable investments. It’s also designed to ensure that all disclosures are transparent, easy to understand and clearly show the sustainability characteristics of their products, by doing this they can also counter greenwashing.
Greenwashing is the process of providing misleading information on how sustainably friendly a company’s products are. Often rebranding or repackaging, saying recycled materials are used, exaggerating this fact when only 5% of their material may be recycled would be some examples of green washing. With the SFDR requiring a paper trail of sources and evidence, they hope to eliminate this misleading information.
SFDR Scope Impacted Funds / Companies
The SFDR applies to FMPs, these are defined as investment firms such as asset managers. The financial products they offer include mutual funds, insurance-based investment products, private pensions among others..
SFDR is applicable to Alternative Investment Fund (AIF), portfolio managed services or Undertakings for the Collective Investment in Transferable Securities (UCITS) funds which are subject to be classified as article 6, 8 or 9 products to clearly show how sustainable a fund is.
Article 6
Covers funds which do not have any sustainable investments and could involve stocks excluded by the ESG.
Article 8 (Light Green)
Covers products that promote ‘E’ or ‘S’ whether or not the investment is made out of ESG components, or the product was not made to have an impact on the environment or society.
Article 9 (Dark Green)
The objective is to specifically impact ‘E’, ‘S’ or ‘G’, and the majority of the components are usually ESG investments.
What do you need to do? Timeline and Documents to be updated
10 March 2021
(Level 1) SFDR comes into effect, requiring FMPs to disclose SFDR related information at an entity level (i.e, if they comply or explain why they don’t).
1 January 2022
The first Taxonomy Alignment (Level 1) comes into effect, requiring additional disclosures on climate change. The Taxonomy Alignment is a guiding force to assist SFDR in identifying ‘green’ products.
1 January 2023
Regulator Technical Standards Final Draft (Level 2) comes into effect. The Regulatory Technical Standard is a guidebook on how to comply with SFDR, defining terms and deadlines for all those it applies to.
Second Reference Period (Level 2) – Second Taxonomy Alignment comes into effect, requiring additional disclosures on environmental funds. PAI disclosures at entity level and annual reporting on PAI to begin.
30 June 2023
Firms that consider PAI must publish annual PAI statements (Level 2) on First Reference Period by 30 June each year on the most recent reference period.
Taxonomy Regulation
The Taxonomy Regulation is a helping force assisting the SFDR in identifying ‘green’ products. It requires additional information on the objectives set out in the SFDR. The first two objectives lie under the climate category, climate change mitigation and climate change adaption. These are considered our first Taxonomy Alignment which is due the 1 of January 2022. We also have the following four objectives:
the sustainable use and protection of water and marine resources;
the transition to a circular economy;
pollution prevention and control;
the protection and restoration of biodiversity and ecosystems.
These are considered our Second Taxonomy alignment which is due 1 January 2023. During the Taxonomy Alignments, all taxonomy related disclosures will need to be updated with this additional information.
ESG and Sustainable Finance; and the role of Europe
Europe has a large role to play here, becoming the world leader in sustainable investments and working toward a greener more sustainable future. We can already see other countries adopting the European SFDR into their strategies or using the EU SFDR as basis for their national legal frameworks such as the UK.
Non-EU investment firms are also in scope of SFDR if they have any products that are marketed in the EU, meaning non-EU firms will be required to make disclosures at the same level.
Pitfalls, things to look out for
SFDR has several pitfalls though, which we should all look out for, given that it’s still in the very early days of development and adoption. Without an industry standard of rating/scoring, inconsistency is a common issue throughout FMPs. A company can have two entirely different ESG ratings from two data providers, as currently this is down to the ESG focus of the one rating.
Data gathering is another issue, putting aside the large quantities and inconsistent data, some investee companies are not yet required to disclose certain ESG related data until later dates, although others are required to release disclosures on this data very soon which leaves a data gap.
As SFDR is still a very early life stage, one can expect through experience and learning, once a higher level of maturity has been reached, that these pitfalls will become non-issues within the next few years.
What can Prisma do
At Prisma, we can help produce and update your documentation in a professional typeset layout, as well as translating these documents into all Western, European and Asian languages.
Worried about distribution of this information across the many platforms? Don’t worry, we’ve got you covered there, too. We offer physical and digital mailing distribution and can also create websites to display your disclosures. Find out how we can help today at https://www.prisma.lu/our-services/ or contact us at https://www.prisma.lu/contact/.
July 15th, 2021 Posted by Anne BeckerBusiness 0 thoughts on “Pre-contractual disclosures”
The next SFDR deadline is just around the corner with the disclosures for articles 8 and 9 products being required as of 1 January 2022. Good preparation is the key to the success.
If you need any support with this, contact us at esg@prisma.lu
January 27th, 2021 Posted by Anne BeckerBusiness 0 thoughts on “Luxembourg moves to make financial services industry more digital”
Article published on 24 November 2020 www.igniteseurope.com
Luxembourg has passed a law designed to make its financial services industry more digital, in a move that will enable local lenders and investment firms to electronically store bonds and other assets, Luxembourg Times reports.
Under the new legislation, approved by the parliament of the Grand Duchy yesterday, companies and investors will be able to store digital securities using blockchain technology.
The move comes after local lawmakers approved a legal framework in 2019 that boosted blockchain technology by granting transactions conducted through the technology the same legal status as traditional ones.
Luxembourg Times says the first local real estate fund handed out digital tokens to clients in October last year as it moved to blockchain technology to reduce costs.
Earlier this week FundsDLT, a Luxembourg-based blockchain-based technology platform for the investment fund industry that was initiated by the Luxembourg Stock Exchange, processed a fund purchase transaction that was settled via Deutsche Börse’s post-trade services provider Clearstream.
Zürcher Kantonalbank and Clearstream said this represented their first successfully processed live blockchain-based end-to-end fund transactions, with the two firms highlighting that the processing time for an investor order was reduced from several hours to just a few minutes.
Alfi said at its global fund distribution conference that blockchain would have a “major impact” on the fund industry, affecting the entire value chain from launching to distributing funds, and from managing fund accounts to the settling of trades.
The fund body warned, however, that improvements were necessary to enable blockchain technology to process large amounts of data fast.
November 27th, 2020 Posted by Anne BeckerBusiness 0 thoughts on “Lux regulator to ‘fast track’ ESG disclosures”
Article published on 24 November 2020 www.igniteseurope.com
The Luxembourg financial regulator is to launch a fast-track procedure for environmental, social and governance disclosures as fund firms battle to meet impending EU rules.
The Commission de Surveillance du Secteur Financier says it will rely on fund boards to self-certify their compliance with the sustainable finance disclosure regulation ahead of the looming March deadline.
The implementation of SFDR, which requires asset managers with more than 500 employees to disclose the negative environmental and social impacts of their investments, has been beset with problems.
Although the European Commission recently announced that it will delay the imposition of the underlying technical standards for the regulation, the rules will still come into force in March, with asset managers required to produce “high-level and principle-based” disclosures from next year.
Fund houses complain that this vagueness over what exactly they have to disclose coupled with a lack of available data from investee companies make it difficult for firms to adequately comply with the regulation in time.
Marco Zwick, director at the CSSF, says the regulator is “mindful of the difficulties that the market may encounter” with SFDR compliance and will introduce a fast-track procedure for prospectus updates.
Mr Zwick, who was speaking yesterday at a conference organised by the Association of the Luxembourg Fund Industry, says asset managers should “limit their changes to the prospectus in particular” as otherwise the CSSF may not be able to process disclosures in time for the March deadline.
Fund boards will also have to self-certify that their funds are meeting the requirements of SFDR alongside any fast-track applications to the CSSF.
“We are not going to challenge everything from day one but we are going to do a number of checks and we are also going to do some ex-ante verifications,” says Mr Zwick.
Mr Zwick says these checks and verifications will be “on a sample basis” as the CSSF lacks the capacity to process documents for the some 15,000 funds and sub-funds under its supervision.
Lawyers have warned that the two-tier implementation stage for the underlying technical standards could also see asset managers having to submit a new set of more detailed updates to regulators within the next 12 months.
The three European supervisory authorities concluded a consultation on product disclosure templates that firms could use last month.
According to the ESAs, disclosure formats must be standardised but also be able to be deployed for various purposes, including prospectus updates and annual reports.
Luxembourg’s finance minister has warned asset managers to brace themselves for a hard Brexit and told UK firms that they will need a physical presence in the EU if they wish to continue doing business in the single market.
Pierre Gramegna, who has been a public supporter of maintaining the EU’s links with the UK financial sector, says Prime Minister Boris Johnson’s plans to rip up parts of the Brexit deal mean an agreement between the two sides is highly unlikely.
Mr Gramegna was speaking at the Association of the Luxembourg Fund Industry’s virtual conference this week after Mr Johnson received initial backing in parliament to change aspects of the EU withdrawal agreement.
Many critics say any changes would break international law and the EU has said the agreement is a “prerequisite for the negotiations on the future partnership” between the bloc and the UK.
Mr Gramegna has previously said he hoped Luxembourg and the UK would still have a “footbridge left” after the UK formally leaves the bloc, but this is “in doubt right now”.
Whatever the UK’s motive, “the likelihood that we will have a wide comprehensive agreement for the future relationship with the [UK] is obviously not anymore likely, so in other words, you should all prepare for a situation where […] the UK becomes a third country like any other”, Mr Gramegna says.
UK firms with no presence in the EU currently will have to set up subsidiaries to continue operating in the single market after December 31, according to the minister.
“They will not be able to work remotely […] they will have to have more presence, which means setting up subsidiaries and so on,” he says.
The UK and EU have sought to secure an equivalence regime during Brexit talks to ensure that financial services firms can continue to access EU markets.
The deadline to reach an agreement was missed in June, raising fears that asset managers in the UK would have to access European markets through a diverse range of national-level rules.
Luxembourg’s finance minister has warned that the UK’s plans to diverge from EU regulations for the financial services industry are threatening the country’s future access to the EU market post-Brexit, the Financial Times reports.
Pierre Gramegna, who has spoken out in favour of preserving the EU’s close links with the UK’s financial services industry, tells the publication that the UK government’s expectations of enhanced equivalence are “in contradiction” with its demand for sovereignty in terms of financial services rules.
Mr Gramegna says in the Financial Times interview that Luxembourg wants to “make sure that we still have a footbridge left” even if the links between the UK and the EU become looser, saying it “would be in the interest of both sides”.
He warns, however, that this “can only be achieved if both sides have the will to do so”.
Mr Gramegna believes the UK’s objectives are hard to reconcile, according to the Financial Times.
“The UK at the same time says ‘as soon as we will be out we will be 100 per cent sovereign again and be able to choose what we do with our own regulation’,” he tells the publication.
“That sounds to me in contradiction with the idea of having an enhanced equivalence. You cannot defend the two things in parallel.”
The EU and the UK last month missed a deadline to conclude equivalence assessments, with both sides blaming each other for failing to complete the assessments.
Michel Barnier, the European Commission’s chief Brexit negotiator, said in a speech last week that the UK had only completed four out of 28 questionnaires relating to areas of financial regulation where equivalence can be granted.
Mr Barnier noted the UK is demanding regulatory divergence from the EU while “trying to keep as many single market benefits as it can” to “make it easy to continue to run EU businesses from London, with minimal operations and staff on the continent”.
The Financial Times says Mr Gramegna’s warning shows that even sympathetic governments have lowered their expectations for their future relationships with the UK because of the UK government’s negotiating position.
The Grand Duchy has been at the forefront of EU governments demanding that the bloc adopt a pragmatic attitude towards market access for financial services.
Luxembourg is Europe’s largest investment fund domicile, with locally-registered funds being sold in over 70 countries globally and managing nearly €4.5 trillion in assets.
Non-EU fund managers will be able to service professional investors in Luxembourg without requiring a licence under new regulations that could be a boon for UK firms after Brexit.
The Commission de Surveillance du Secteur Financier recently passed two measures to ease access for third-country funds to investors in Luxembourg.
The CSSF says authorised portfolio managers and investment advisers from countries including the US, Switzerland, Japan, Canada, Hong Kong and Singapore can passport their services to Luxembourg without requiring a presence in the Grand Duchy, provided their clients are defined as professional investors under Mifid II.
This could include investment services such as managed accounts, funds of funds, private banks and family offices.
The CSSF says firms from these jurisdictions will only be required to obtain a licence if the firm already has a Luxembourg branch, is servicing retail investors or the Grand Duchy is the principal location where the firm’s principal business activities related to Luxembourg clients is taking place.
Benoit Kelecom, Luxembourg-based counsel at law firm Van Campen Liem, says it is likely that this principal business location “will generally be deemed to be located where the portfolio management or advisory teams are”.
Mr Kelecom says that with portfolio management teams at non-EU firms unlikely to be located in the Grand Duchy, third-country funds will not be deemed to be rendering services in Luxembourg and so will not require a licence.
“This is rather good news for UK asset managers in the context of the continuation of their services post Brexit,” he says.
Augustin de Longeaux, partner at Simmons & Simmons, adds that the new circular puts forward “a very relaxed and flexible regime” for third-country firms.
“Firms are still able to access the Luxembourg market without needing to register. It is only a sub-set of the market but it is a large and important one,” he says.
Mr de Longeaux says that while it is very likely that the UK will be added to the CSSF’s list of equivalent financial regimes after Brexit, an acrimonious end to the UK’s negotiations with the EU would threaten that status.
“If the EU deemed the UK as not equivalent, it would be very difficult for Luxembourg not to follow suit,” he says.
Mr de Longeaux adds that the circular is “a useful clarification” as to which jurisdictions the CSSF recognises as equivalent to its own regime.
“Before applications were decided case by case, now we have clarification that you can still access professional clients on a ‘reach-in’ basis,” he says.
Delegation arrangements for Ucits and alternative investment funds distributed to investors in Luxembourg will continue to be subject to the measures in Ucits and the Alternative Investment Fund Managers Directive.
