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In this quarterly update, we focus on the key regulatory changes for the UK and Europe with specific focus on ESG, sustainable finance, performance data for PRIIPs and the new Task Force on Climate-Related Financial Disclosures (TCFD).
The year certainly feels like it is moving quickly and we already find ourselves in quarter three. Normally summer represents a quieter, and more reflective time in the regulatory space. This year, however, the unrelenting pace has continued. So, what should we consider, or look out for towards the end of 2022?
Sustainable Finance, or ESG, has shown no sign of slowing and developments continue to come thick and fast. Up first is the only hitherto effective regulation, the Sustainable Finance Disclosure Regulation (SFDR):
What about the other regulations; is it only ESG that is in focus? There have been amendments to existing regulation, however the material focus still remains on building sustainable finance across Europe and the UK. So, what are the key changes and considerations?
Consumer Duty key dates:
The first version of the EET was prepared to accommodate the exchange of a limited set of data points for the purposes of the 2nd August MiFID and IDD changes to the suitability assessment process. It is expected that, during quarter three and four, firms will complete the EET with more granular information required under SFDR RTS which apply from 1st January 2023.
The EET structure was based on draft SFDR RTS, however the final RTS published in July were unchanged. Therefore, amendments to the EET V1 are likely to be only minor clarifications and enhancements. The complexity for firms will be the amount of additional data to complete once they have complied with the full detail of the disclosures required under the SFDR RTS. Work is already underway on the EET V2 and on 31st August there was a meeting of the FinDatEx working group to gather industry experience to date. Weekly meetings have been held throughout September and beyond to further enhance the EET.
It is clear that there is still confusion on how to complete data fields, and distributors and insurers are finding problems with the templates they receive. How firms complete the template with regards to interpretation of sustainable investments, taxonomy alignment, and translation could have implications on the filtering and selection process carried out by distributors and insurers.
Understanding what the insurer or distributor is looking for in the EET is fundamentally important as there remain ambiguities and differences of interpretation on the template, as well as the regulation. If expectations are different, this may result in misaligned understanding of how the template is completed, even if product documentation is compliant.
From January 2023, the PRIIPs RTS (European Commission C(2021) 6325 final, requires financial market participants to publish the fund’s past performance and prior performance scenario calculations to a public website. This also needs to be referenced via a URL in the PRIIPs KID under the “Other Relevant Information” section. The past performance data is to be updated annually, while the performance scenario calculations data is to be updated monthly.
By doing so, the additional insights will help investors compare products more easily, by making their potential performance and associated risks more transparent. This will affect all asset managers who are presently preparing PRIIPs KID, and those who are marketing their UCITS KIIDs in Europe.
In other PRIIPs news, the European PRIIPs Template (EPT V2.1) has been launched to accommodate the new UK PRIIPs regime, as amended by FCA in March 2022. The EPT V2.1 is now live and includes an additional section required for the UK market. Despite the inclusion of UK specific information, it is expected that the EPT V2.1 and EPT V2.0 will coexist.
On 29th July, the FCA published their findings from a review of the first climate related disclosures made in compliance with their rules under PS20/17. The rules applied to premium-listed commercial companies, and to their disclosures from the start of 2022. These companies are required to include a statement in their Annual Financial Report (AFR) on whether they have made disclosures consistent with the Task Force on Climate-Related Financial Disclosures’ (TCFD) recommendations, on a comply or explain basis.
The review was carried out jointly, with the Financial Reporting Council (FRC) who also published a separate analysis of the disclosures of 25 premium listed companies, weighted towards larger companies in climate-intensive sectors
The FCA was broadly pleased with the improvements and consistency of disclosures with the TCFD framework, but provided a list of areas for firms to be aware of and encourages firms to refer to the examples of better practice in the FRC’s complementary thematic review report.
Broadridge Fund Communication Solutions has extensive expertise in managing fund data and understands the challenges involved. We offer ESG, MiFID II and PRIIPs KID solutions, providing complete support for all aspects in the composition, maintenance and document distribution of documents in all jurisdictions. Benefit from increased operational and cost efficiencies across your business with Broadridge Fund Communication Solutions as your single digital platform, supporting all your data, documents and regulatory reporting needs across the life cycle of funds.
2 Commission de Surveillance du Secteur Financier
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