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)/Climate

European Union (EU)

• In July, the European Commission (EC) announced new measures on sustainable finance including:
  • A new sustainable finance strategy through action across four key areas to accelerate the green transition:

1. • 1. Helping to finance the economic transition to sustainability
     2. Making sustainable finance more inclusive for small and medium-sized enterprises (SMEs) and citizens
     3. Making the financial system resilient to sustainability risks
     4. Stepping up global ambition
   • A European Green Bond Standard (EUGBS). Aligned with the EU Taxonomy, the EUGBS will act as a gold standard that can be used voluntarily by all types of bond issuers worldwide.
   • The adoption of the Delegated Act supplementing Article 8 of the Taxonomy Regulation

• The EC published its long-awaited Q&A on sustainability-related disclosures (Sustainable Finance Disclosure Regulation (SFDR) regulation) in response to queries raised by the European Supervisory Authorities (ESAs), which include the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA). The Q&A brings clarifications about some Level 1 requirements, including the 500-employee threshold, and requirements and distinctions between Article 8 and Article 9 products.
• The EU commission sent a letter to the EU parliament asking for a delay in the application of the SFDR regulatory technical standards (RTS). Due to (i) the length and technical detail of the RTS, (ii) the late submissions to the commission of the second batch due June 2021, but still not published by the ESAs, and (iii) envisaged amendments, the EC deems it necessary to ask for an additional delay to review all the documentation. The EC plans to bundle all 13 of the RTS in a single delegated act and defer the dates of application of January 1, 2022, by six months to July 1, 2022.

United Kingdom

• The UK's Financial Conduct Authority (FCA) consults on proposals to introduce climate-related financial disclosure rules and guidance for asset managers, life insurers, and FCA-regulated pension providers. This is part of the roadmap towards mandatory climate-related disclosures across the UK economy by 2025, aligned with the recommendations of the Financial Stability Board (FSB) Taskforce on Climate-related Financial Disclosures (TCFD).
• The FCA also consults on the possibility to extend the application of their climate-related disclosure requirements to issuers of standard listed equity shares. The FCA is seeking comments on select ESG topics in capital markets.

United States

On July 7, the Securities and Exchange Commission (SEC) Asset Management Advisory Committee published its ESG recommendations pertaining to both issuer and investment product disclosures. The recommendations can be summarized as, “the SEC should encourage adoption of disclosure frameworks and promote best practices but wait and see before promulgating any prescriptive or rule-based regulations.” Market participants’ reactions to these recommendations are likely to vary significantly. Ongoing efforts and publications of the Investment Company Institute (ICI) were repeatedly endorsed in the recommendations.

World

• The Securities and Futures Commission (SFC) of Hong Kong, China, has issued a circular providing guidance to asset managers on enhanced disclosures for funds that incorporate ESG factors as a key investment focus. From January 2022, ESG funds will have to disclose how they aim to reach their ESG objectives, referencing the ESG criteria, measurement methodologies, and benchmarks used.
• The board of the International Organization of Securities Commissions (IOSCO) consults on ESG ratings and data providers. This consultation report aims at assisting IOSCO members in understanding the implications of the activities of ESG ratings and data providers and in establishing frameworks to mitigate risks stemming from these activities. It also proposes a set of recommendations to mitigate these risks and address some of the challenges faced by users of products and services from ESG ratings and data providers and the companies that are the subject of these ESG ratings and data products. Comments may be provided on or before September 6, 2021.
• IOSCO consults on sustainability-related regulatory and supervisory expectations in asset management. This report focuses on investor protection issues and proposes that securities regulators consider setting regulatory and supervisory expectations for asset managers regarding sustainability-related risks and opportunities. Comments may be provided on or before August 15, 2021.
• International financial organizations (the Bank for International Settlements, the International Association of Insurance Supervisors, the Central Banks and Supervisors Network for Greening the Financial System, and the United Nations (UN) Sustainable Insurance Forum) unite with the central bank and financial supervisory community to launch the Central Banks’ and Supervisors’ Climate Training Alliance (CTA) ahead of the 26th UN Climate Change Conference of the Parties (COP26). This collaboration aims to enhance the availability of training resources for authorities responding to climate risks.

Sanctions / Anti-Money Laundering (AML)

• The Financial Action Task Force (FATF) finalized a set of reports on technological innovation, environmental crime, and asset recovery. The reports and white papers can be found here.
• The FATF issued a document on Guidance on Mitigating Proliferation Financing Risk that highlights the need for effective onboarding processes, ongoing monitoring, staff training, risk management, sanctions screening, and a strong compliance culture.
• The EC took a step forward in financial crime and AML violations, publishing stronger legislative proposals to protect EU citizens and the EU financial system from money laundering and terrorist financing. The package consists of four legislative proposals:
  • A regulation establishing a new EU AML/Combating the Financing of Terrorism (CFT) authority. The new authority would be able to directly oversee the financial firms operating across multiple member states and issue penalties for AML violations.
  • A regulation on AML/CFT containing directly applicable rules, including in the areas of customer due diligence and beneficial ownership
  • A sixth directive on AML/CFT (AMLD6), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and financial intelligence units in member states
  • A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto assets (Regulation 2015/847/EU).

The legislative package will be discussed by the European parliament and council. The AML authority should be operational in 2024.

In Brief

• The SEC Asset Management Advisory Committee Subcommittee on Private Investments unambiguously recommended expanding retail investor access to private investments, subject to key design principles, via an interim report dated July 7, 2021.
• EBA publishes final draft technical standards (RTS and Implementing Technical Standards (ITS)) to improve supervisory cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
• With clear cessation dates now confirmed for the use of the London Inter-Bank Offered Rate (LIBOR), the FSB asks supervisors for progress to accelerate to achieve a timely transition. The FSB encourages supervisors to set globally consistent expectations and milestones so that firms will rapidly cease using LIBOR.

Marine Hutinel and Nels Ylitalo contributed to this article.

Disclaimer: The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.