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

Additional SFDR queries for the EU Commission

The European Supervisory Authorities (the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority — ESAs) submitted to the EU Commission some further queries relating to the interpretation of the Sustainable Finance Disclosure Regulation (SFDR).

The questions concern the following -

  • Article 2(17) SFDR
    • Application of the definition of “sustainable investment" in Article 2(17) SFDR to investments in funding instruments that do not specify the use of proceeds, such as the general equity or debt of an investee company
    • Interpretation of “investment in an economic activity that contributes to an environmental objective" or “investment in an economic activity that contributes to a social objective" in Article 2(17) SFDR
  • Article 9(3) SFDR, carbon emissions reductions and other benchmark questions
  • PAI "consideration"
  • 500 employee PAI threshold
  • Periodic disclosure frequency for portfolio management services.

ESMA report on Trends, Risks and Vulnerabilities

The European Securities and Markets Authority (ESMA) published its second Trends, Risks and Vulnerabilities (TRV) report of 2022.

Findings include the following -

  • The Russian war on Ukraine, against a backdrop of already-increasing inflation, has profoundly impacted the risk environment of EU financial markets, with overall risks to ESMA’s remit remaining at its highest level
  • Contagion and operational risks are now considered very high, like liquidity and market risks. In the first half of 2022 financial markets saw faltering recoveries, increasing volatility and likelihood of market corrections
  • The Russian war drove a commodities-supply shock which added to pre-existing pandemic-related inflation pressures. Monetary policy tightening also gathered pace globally, with markets adjusting to the end of the low interest rates period
  • Separately, crypto-markets saw large falls in value and the collapse of an algorithmic stablecoin, highlighting again the very high-risk nature of the sector.

ESAs report on risks and vulnerabilities in the EU financial system - Autumn 2022

The ESAs issued their Autumn 2022 joint risk report, highlighting that the deteriorating economic outlook, high inflation and rising energy prices have increased vulnerabilities across the financial sectors. The ESAs advise national supervisors, financial institutions and market participants to prepare for challenges ahead.

Wolfsberg Group guidance on requests for information best practice

The Wolfsberg Group published best practice guidance on requests for information (RFI), which are used as part of an anti-money laundering transaction monitoring process.

The guidance focuses on RFIs initiated as a result of transaction monitoring and is not intended to address inquiries issued relating to transactions blocked or rejected as a result of sanctions screening or payment transparency events.

An RFI is used when a provider of payment services (a correspondent) seeks to understand the background of a transaction that has been processed through an account or relationship in its books and is directed at the customer entity that sent the payment instruction to the correspondent. The RFI process is seen as a vital source of information that allows a correspondent to see how a respondent's anti-money laundering programme works.

The Wolfsberg Group is an association of leading international financial institutions that aims to develop frameworks and guidance for the management of financial crime risks, particularly with respect to know your customer, anti-money laundering and counter terrorist financing policies.

EBA AML/CFT newsletter

The European Banking Authority (EBA) issued its newsletter which covered -

  • Guidelines on the role and responsibilities of the AML/CFT compliance officer (these apply from 1 December 2022)
  • Update on EuReCA (the EBA's new AML/CTF database)
  • Joint ESAs Report on the withdrawal of authorisation for serious breaches of AML/CFT rules
  • Report on the functioning of AML/CFT colleges.

In terms of future developments, the newsletter flags a public consultation, later in 2022, on guidelines on effective ML/TF risk management and access to financial services (Anti-derisking Guidelines).

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

Date published: 20 September 2022