Asset Management & Investment Funds: EU & International Developments – November 2024

Report on the principal adverse impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR) 

The European Supervisory Authorities (ESAs) published a report on PAI disclosures under SFDR, building on previous reports. This report concerns PAI disclosures published up to 30 June 2023, for the period from 1 January 2022 to 31 December 2022. 

The PAI entity-level disclosures are only mandatory for financial market participants (FMPs) with more than 500 employees. Smaller FMPs can explain why they do not consider PAIs but if they choose to disclose on their PAIs, they must use the mandatory template.

The report observes positive progress overall on several elements when compared with previous years. These include improvements on the location of the disclosures, which are becoming more accessible to retail investors, and on the level and quality of the information disclosed. Significant improvements were identified in product PAI disclosures, although the share of products disclosing SFDR PAI information remains quite low.

The report provides: 

• A list of good and bad practices identified by NCAs and an overview of lessons learned from the third year of implementation of the voluntary disclosure.
• Recommendations to the European Commission in the context of its comprehensive assessment of the SFDR.
• Recommendations to national competent authorities (NCAs) to ensure convergent supervision of FMP practices.
• A summary of the good and bad disclosures practices identified by the ESAs.

Listing Act: consultation on the Prospectus Regulation and call for evidence on prospectus liability

The EU is advancing the EU Listing Act project.

It comprises three pillars:

• Regulation (Regulation (EU) No 2024/2809) amending the Prospectus Regulation, the Market Abuse Regulation and the Markets in Financial Instruments Regulation
• Directive (Directive (EU) No 2024/2811) amending the EU Markets in Financial Instruments Directive as regards investment research and repealing the Listing Directive
• Directive (Directive (EU) No 2024/2810) on multiple-vote share structures in companies that seek admission to trading of their shares on a multilateral trading facility.

ESMA published a consultation paper to inform its draft technical advice for the Prospectus Regulation and on updating the CDR on metadata. The consultation contains recommendations which aim to simplify listing requirements (including a harmonised prospectus and summary prospectus) and to streamline and reduce regulatory burden. It also includes proposals for non-equity securities that are advertised with ESG features and proposals to update the data reporting requirements.

In an investment funds context, the prospectus regulation applies only to closed- ended funds.

As part of the Listing Act, the European Commission is tasked with producing a report on liability for information provided in securities prospectuses (prospectus liability) to the European Parliament and the Council by 31 December 2025. The European Commission requested ESMA to deliver technical advice in this context. The Listing Act calls for an analysis of liability for the information given in a prospectus and an assessment of whether further harmonisation is warranted. It also calls for proposals of amendments to the liability provisions to be presented if relevant. ESMA is launching this Call for Evidence (CfE) to obtain feedback on whether further harmonisation should be considered.

The consultation and CfE close on 31 December 2024. ESMA will publish in Q2 2025 its final technical advice to the European Commission in two separate final reports based on feedback received.

Listing Act: ESMA consultation on the MiFID II research regime

ESMA announced a consultation to inform its technical advice to the European Commission on proposed amendments to the research provisions in the MiFID II Delegated Directive in light of changes to be introduced by the Listing Act. The consultation is primarily aimed at research providers, investment firms and investors.

Currently, Article 24(9a) of MiFID II and Article 13 of the MiFID II Delegated Directive set out the conditions that the provision of research by third parties to investment firms (and associated payments for research) must meet in order not to be regarded as an inducement.

Article 24(9a) of MiFID II allows for joint payments of execution services and research covering issuers whose market capitalisation does not exceed €1bn. The Listing Act will introduce changes that enable joint payments for execution services and research for all issuers, irrespective of the market capitalisation of the issuers covered by the research.

The consultation paper includes proposals to amend Article 13 of the MiFID II Delegated Directive to align it with the new payment option offered.

In particular, ESMA’s proposals aim to ensure that:

• the annual assessment of research quality is based on robust criteria
• the remuneration methodology for joint payments for execution services and research does not prevent firms from complying with best execution requirements

The consultation period will close on 28 January 2025. ESMA aims to provide its technical advice to the European Commission in Q2 2025.

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.