Asset Management & Investment Funds: EU & International Developments – June 2022

ESAs provide clarifications on key areas of the RTS under SFDR

The European Supervisory Authorities (ESAs) published clarifications on the draft regulatory technical standards (RTS) issued under the Sustainable Finance Disclosure Regulation (SFDR), which include the financial product disclosures under the Taxonomy Regulation (TR). Topics include:

  • clarifications related to disclosure of principal adverse impact (PAI) of investment decisions on sustainability factors
    • uses of sustainability indicators
    • PAI calculation methodology
    • look-through approach and investment instrument scope for PAI disclosures
    • disclosures for direct and indirect investments in pre-contractual and periodic disclosures
    • further guidance on the adverse impact indicators in Tables 1-3 of Annex I
  • guidance related to pre-contractual financial product disclosures
  • guidance related to periodic financial product disclosures
  • guidance related to taxonomy-related financial product disclosures
  • guidance related to “do not significantly harm” (DNSH) disclosures
  • guidance related to disclosures for financial products with investment options

The statement is part of the ESAs’ on-going work to promote a better understanding of the disclosures required under the technical standards of the SFDR ahead of the planned application of the rules on 1 January 2023, as laid out in the Delegated Regulation.

Application date of new PRIIPs rules confirmed- 1 January 2023

Commission Delegated Regulation (EU) 2022/975 (published in the Official Journal on 24 June 2022) postpones the application date of Commission Delegated Regulation (EU) 2021/2268), which is the new RTS for the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs), to 1 January 2023 (instead of 1 July 2022).

As anticipated, the delegated regulation also prolongs the application of Article 14(2) of Commission Delegated Regulation (EU) 2017/653 , permitting UCITS to continue to use the UCITS KID until 31 December 2022 (instead of 30 June 2022).

The EU Commission issued a Statement noting that while the delegated act enters into force on 14 July 2022, the intention of the co-legislators is clearly to:

The Commission notes that national competent authorities (NCAs) should take into account these elements of timing when discharging their supervisory tasks.

The ESAs issued a statement drawing the attention of stakeholders to the EU Commission statement.

AIFMD/ UCITS Directive updates

The Council of the EU agreed its general approach on the proposed directive amending AIFMD and the UCITS Directive as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services, and loan origination by alternative investment funds. In the press release, the Council highlights its focus on:

  • Consistent harmonisation of liquidity risk management with a focus on improving the availability of liquidity management tools (LMTs) and new requirements on fund managers to provide for the activation of LMTs. The aim is to ensure fund managers are well-equipped to deal with significant outflows in the event of financial turbulence
  • Supporting the EU Commission's proposed EU framework for loan-originating funds (meaning funds providing credit to companies), supplemented with requirements to alleviate risks for financial stability and ensure an appropriate level of investor protection.
  • Further clarifying the rules on outsourcing and the delegation of functions by fund managers to third parties. Also, increasing the supervisory co-operation in this area and introducing new reporting requirements on delegation arrangements. The Council considers that specific reporting obligations in relation to outsourcing will reduce the possibilities for creating "letterbox" companies.
  • Clarifying a framework for the provision of cross-border services by depositaries, introducing new reporting obligations for UCITS for the purpose of risk monitoring and new transparency rules to enhance investor protection.

The Council will enter into trilogue negotiations with the European Parliament to agree on a final version of the text. The Council of the EU published the final Presidency compromise text of the proposed directive. The legislative process continues.

EBA guidelines on governance and the role of AML/CFT compliance officers will apply from 1 December 2022.

The European Banking Authority (EBA) published its final report containing guidelines on policies and procedures in relation to compliance management and the role and responsibilities of the anti-money laundering and countering the financing of terrorism (AML/CFT) compliance officers under 4AMLD.

The guidelines will apply from 1 December 2022 to all existing management body structures, irrespective of the board structure used. They are designed to complement other guidelines issued by the ESAs on wider governance arrangements and suitability checks.

The guidelines set out detailed expectations of:

  • The role and responsibilities (and duties and tasks) of the management body in the AML/CFT framework, in its supervisory (non-executive) and management (executive) functions. The guidelines specify that financial institutions should appoint one member of the management body (or, where no management body is in place, a senior manager) who will ultimately be responsible for the implementation of AML/CFT obligations, and clarify the tasks and functions of that person.
  • The level, suitability requirements, reporting line, role, tasks and responsibilities of the AML/CFT compliance officer.

Importantly, the provisions in these guidelines are to be applied in a manner that is effective and proportionate to the financial institution’s type, size and internal organisation, the nature, scope and complexity of its activities, and the ML/TF risks to which it is exposed.

The guidelines provide that a management body may decide not to appoint a separate AML/CFT compliance officer and require that the reasons be justified and documented, and explicitly refer to minimum criteria. Outsourcing and group AML/CFT structures are also covered. 

ESAs' joint report on withdrawal of authorisation for serious breaches of AML/CTF rules

The ESAs published a joint report that discusses the completeness, adequacy and uniformity of the applicable laws and practices on the withdrawal of authorisation for serious breaches of AML/ CFT rules.

The report is in response to the request to the ESAs (in the Council of the EU's 2018 AML action plan) to clarify aspects of the interaction between serious breaches of AML and CFT rules.

The report identifies areas of improvement for the legislative framework or where additional analysis is needed. It also sets out criteria for the notion of serious breach of AML/CFT rules.

The ESAs suggest introducing a specific legal ground to revoke authorisation for serious breaches of AML/CFT rules and that competent authorities ensure that adequacy of AML/CFT arrangements and processes is a condition for granting authorisation or registration.

FATF

The Financial Action Task Force (FATF) June plenary outcomes included: ​

  • As a result of the Russian invasion of Ukraine, FATF agreed to severely limit the Russian Federation's role and influence within the FATF. See: FATF statement on the Russian Federation. The US Treasury commended the "unprecedented censure" of Russia by FATF.
  • Gibraltar was added to the list of jurisdictions under increased monitoring (FATF's grey list).
  • Malta is no longer subject to increased monitoring (removed from FATF's grey list).
  • The list of High-Risk Jurisdictions subject to a Call for Action (FATF's black list) remains unchanged from February 2020.
  • Reports will be published by FATF in the coming weeks on: Information Sharing and Data Protection:  Risk-based Approach Guidance for the Real Estate; Guidance to Implement the FATF Standard on Beneficial Ownership Information for legal persons (expected in October 2022);  Strengthening the FATF Standard (25) on Beneficial Ownership Information for trusts and other legal arrangements -FATF released a white paper for public consultation, closing 1 August 2022.

For more information please contact a member of the Asset Management & Investment Funds team.

Date published:  30 June 2022