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.

FOCUS

ESMA Announces Brexit Related MiFID II Developments

Following its statement on the impact of Brexit on MiFID II/MiFIR, the European Securities and Markets Authority (ESMA) has published several related statements:

• The share trading obligation outlining that trading shares with an EEA ISIN on a UK trading venue in GBP by EU investment firms will not be subject to the EU share trading obligation
• In relation to the derivatives share trading obligation the EU has not opted to change its position, requiring firms to shift trading to EU venues in specified instances (see also the further statement on technical standards in this area)
• However, where trades are legitimately executed on UK venues by EU firms, following a statement on post-trade transparency and commodity derivatives and updated opinions on trade reporting and position limits, firms will not have to post-trade report in the EU. Moreover, commodity derivative contracts traded on UK trading venues on the position limits list will not be considered as economically equivalent over-the-counter contracts for the EU position limit regime.

ESMA is also consulting on the Market Data provisions within MiFIR and have updated the Product Governance Q&A on the subject of costs and charges.

European Union

Commission Consults on Revamping AIFMD

• On October 22, 2020, the European Commission published a Consultation on the Alternative Investment Fund Managers Directive (AIFMD). Responses are due by January 29, 2021. A legislative proposal is planned for Q3 2021. The consultation follows earlier ESMA and Commission assessments of the regime (summarized in our September newsletter).
• Given the breadth of matters under consideration and the earlier reviews, this development could herald a fundamental upheaval in EU funds regulation.

ESG

EU Unveils Several ESG Regulatory Initiatives and Developments

• ESMA is consulting on delegated legislation on the content, methodology, and presentation of disclosures under the Non-Financial Reporting Directive (NFRD) pursuant to Article 8 of the Taxonomy Regulation
• The European Commission has also announced a consultation on delegated legislation pursuant to Articles 10 and 11 of the Taxonomy Regulation, which is due for adoption on December 31, 2020
• The European Commission has further announced a Consultation on updating the EU’s Corporate Governance Regulatory Framework in line with its broader ESG policy agenda.
• The European Banking Authority has launched a consultation on incorporating ESG risks into the governance, risk management, and supervision of credit institutions and investment firms
• The European Commission has published a letter to the European Supervisory Authorities confirming that adoption of the Sustainable Finance Disclosure Regulation (SFDR) delegated legislation has been postponed but that SFDR compliance deadlines will remain the same, with firms having to rely on the general principles in the level 1 texts when making disclosures, in lieu of details from level 2 delegated legislation

Other ESG Initiatives

• The Autorité des Marchés Financiers (AMF) and its Dutch counterpart, the Autoriteit Financiële Markten (AFM), call for a European regulatory framework for ESG data, ratings, and related services to prevent misallocation of investments, greenwashing, and ensuring investor protection.
• In early December, Japan joined the International Platform on Sustainable Finance, which was created in October 2019. The platform aims to encourage the environmentally sustainable investment of private capital at a global level and to promote integrated markets for environmentally sustainable finance.

United Kingdom

UK Launches “Green Industrial Revolution” and Other ESG Initiatives

• The UK Treasury has announced measures to launch a green recovery covering financial services, which includes mandatory Task Force on Climate-Related Financial Disclosures (TCFD) disclosures by 2025
• The FCA further announced that premium listed issuers will from January 1, 2021, be required to make TCFD aligned disclosure. It further committed to consulting on extending the rules to asset managers, life insurers, and pension providers during the first half of 2021.
• Finally, the UK Competition and Markets Authority (CMA) has announced an investigation into how products and services claiming to be “eco-friendly” are being marketed in the UK, and whether consumers are being misled. As part of the investigation, the CMA has launched a call for information asking consumers, businesses, and stakeholders to complete surveys on the subject.

UK Consults on a Post-Brexit Future Financial Regulatory Framework

United States

On November 2, the Securities and Exchange Commission (SEC) adopted the final version of new rule 18f-4, applicable to nearly the entire U.S. fund industry (mutual funds, ETFs, closed-end funds, and BDCs, but not money market funds). Compliance with the provisions of Rule 18f-4 and related reporting requirements will be required beginning 18 months after the effective date. We will publish a future article dedicated to the topic of 18f-4.

Marine Hutinel, Barrie C. Ingman, and Nels Ylitalo contributed to this article.