Each month, FactSet's Regulatory team offers a rundown of the most important developments in compliance and regulatory news. Read on to see which stories dominated the conversation last month.
Environmental, Social, and Governance (ESG)
The European Union (EU) regulation on sustainability-related disclosures (SFDR) entered into force as of March 10, 2021. The SFDR will improve the transparency on the green features of financial products and on sustainability policies of financial market participants and advisors.
The European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA) have issued a joint consultation paper on taxonomy-related sustainability disclosures. According to these European Supervisory Authorities (ESAs), the proposed draft Regulatory Technical Standards (RTS) intends to facilitate disclosures to end investors regarding the investments of financial products in environmentally sustainable activities and will help to create a single rulebook for sustainability disclosures under the SFDR and the EU Taxonomy Regulation. The consultation closes on May 12, 2021.
ESMA has also published its final report on advice under Article 8 of the Taxonomy Regulation, which covers the information to be provided by non-financial undertakings and asset managers to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD).
On March 17, 2021, the U.S. Commodity Futures Trading Commission (CFTC) announced the establishment of a Climate Risk Unit, which will be dedicated to addressing climate risk in the financial system in various dimensions, including a focus on standards and taxonomies. The establishment of this unit follows the CFTC’s issuance of a comprehensive report entitled Managing Climate Risk in the U.S. Financial System in September 2020.
Anti-Money Laundering (AML)/Sanctions
The EBA published final revised guidelines on money laundering and terrorist financing (ML/TF) risk factors. The revisions take into account changes to the EU AML/CFT [Countering the Financing of Terrorism] legal framework and address new ML/TF risks. The guidelines are addressed to both financial institutions and supervisory authorities. The guidelines will apply three months after publication in all EU official languages.
The EBA also launched a public consultation on changes to its guidelines. The deadline for the submission of comments is June 17, 2021.
On March 3, 2021, the EBA published an opinion on risks of money laundering and terrorist financing affecting the EU’s financial sector and identified new risks that have emerged from the COVID-19 pandemic.
The Financial Action Task Force (FATF) has published its final guidance on applying a risk-based approach to AML/CFT supervision. These guidelines aim to help local supervisors address the full spectrum of risks and encourage them to move beyond a tick-box approach in monitoring the private sector’s efforts to curb money laundering and terrorist financing.
Sanctions are not only a matter of anti-money laundering. On March 29, 2021, ESMA published an advice to the European Commission (EC) on the application of administrative and criminal sanctions under the Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments (MiFIR) regulations. This addressed the need to further harmonize the administrative sanctions set out for infringements of MiFID II/MiFIR requirements.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) has published five new regulatory guides to help reporting entities review and strengthen their AML/CTF programs, systems, and controls. These regulatory guides cover governance, risk assessments, customer due diligence, International Funds Transfer Instructions (IFTI) reporting, and correspondent banking relationships.
European Single Access Point (ESAP)
In January 2021, the EC opened a consultation on the creation of an ESAP by the EC for companies’ financial and sustainable investment-related information made public pursuant to EU legislation. Various regulation and financial associations have responded to the consultation:
Insurance Europe considers that the ESAP should be established as soon as possible and should prioritize ESG data relating to the NFRD, SFDR, and the EU taxonomy.
The Federation of European Securities Exchanges (FESE) welcomes the creation of the ESAP and suggests that it should include information already disclosed by companies listed on regulated markets and SME [small- and medium-sized enterprises] growth markets, as well as information from non-listed companies but should not introduce new mandatory disclosure requirements for companies.
France’s Autorité des Marchés Financiers (AMF) supports the EC initiative to launch the ESAP on certain conditions detailed in their response.
On March 3, 2021, the Division of Examinations of the U.S. Securities and Exchange Commission (SEC) announced the release of its 2021 Examination Priorities. The press release announcing the release contains a concise overview across registered investment advisers, mutual funds, exchange-traded funds, and market infrastructure participants. Highlights include a focus on ESG disclosures to investors, climate risk, and the SEC's Regulation Best Interest (Reg BI).
The EBA published its final draft Implementing Technical Standards (ITS) on the supervisory reporting and disclosures of investment firms under Article 49(2) of Regulation (EU) 2019/2033 (Investment Firm Prudential Requirements). The final draft ITS aims to ensure a proportionate implementation of the new prudential framework for investment firms. The disclosure requirements will be applicable from June 26, 2021.
The International Organization of Securities Commissions (IOSCO) launched its Thematic Review of the Recommendations for Liquidity Risk Management for Collective Investment Schemes originally issued by IOSCO in 2018. The recommendations are meant to ensure that liquidity risk is managed to safeguard and protect the interests of investors, including in stressed market conditions. IOSCO is seeking comments by asset managers in this survey on their liquidity risk management practices and experiences during the March 2020 market turmoil.
ESMA published the results of the 2020 Common Supervisory Action (CSA) on Undertakings for the Collective Investment in Transferable Securities (UCITS) liquidity risk management (LRM). ESMA finds the compliance globally satisfactory but also highlights areas for vigilance.
ESMA updated its Brexit statement on provisions of the EU Benchmark Regulation (BMR). This latest update specifies the EU's regulatory approach towards UK-based third-country benchmarks as well as UK-endorsed and recognized benchmarks. ESMA also updated accordingly its Questions and Answers on the BMR.
The ESAs issued their first joint risk assessment report of 2021. The report highlights how the COVID-19 pandemic continues to impact short-term recovery prospects. The report highlights an expected deterioration of asset quality and several vulnerabilities in the financial markets.
ESMA published guidelines on Internal Control for Credit Rating Agencies (CRAs). These guidelines apply from July 1, 2021.