Regulatory Update: February 2022

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)

European Union

• FinDatEx (Financial Data Exchange Templates), the joint structure established by representatives of the European financial services sector, published updated versions of the European ESG Template (EET) and the European MiFID templates (EMT). These updates are open to consultation and reflect current regulatory requirements from the Sustainable Finance Disclosures Regulation (SFDR) level 1 and regulatory technical standards (RTS), as well as the delegated acts complementing the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD). Feedback to the two templates can be submitted through February 25, 2022. Final versions of the template should be available to the public by mid-March.
• A multi-stakeholder consortium composed of investors, asset managers, and civil society organizations calls for the prompt implementation of the reform on corporate sustainability reporting (CSRD) and EU standards.
• The Project Task Force on European Sustainability Reporting Standards (PTF-ESRS) of the European Financial Reporting Advisory Group (EFRAG) has published working papers on the first draft standards on sustainability reporting.
• Last month, the European Commission published an FAQ on entity-level disclosures under the EU Taxonomy Article 8 Disclosures Delegated Act. Additionally, the Platform on Sustainable Finance also published its considerations on voluntary information as part of taxonomy eligibility reporting. The voluntary reporting under the taxonomy framework can enable non-financial entities and financial institutions to explain the eligible proportion of their full operations, investment profile, or balance sheet since it may include both Non-Financial Reporting Directive (NFRD) and non-NFRD entities.
• The European Securities and Markets Authority (ESMA) sent a letter to co-legislators on the proposed EU Green Bond standard, welcoming the commission’s proposal and underlying the challenging timeline and work induced by the amount of the future level 2 texts, the functioning of the third country regime, and the use of ESMA resources needed under the foreseen regime.
• The European Central Bank (ECB) launched its 2022 supervisory climate risk stress test to assess how well banks are prepared to face financial and economic shocks stemming from climate risk. The exercise will be conducted in the first half of 2022 after which the ECB will publish aggregate results.
• ESMA published a call for evidence on ESG ratings with the purpose of gathering information on the market structure (size, resourcing, revenues, and product offerings) for ESG rating providers operating in the EU. Responses must be submitted by March 11.
• The European Commission has accepted the Taxonomy Complementary Climate Delegated Act on climate change mitigation and adaptation covering certain gas and nuclear activities and introducing additional economic activities from the energy sector into the EU Taxonomy (Gas & Nuclear) under strict conditions. It also Introduces specific disclosure requirements for businesses related to their activities in the gas and nuclear energy sectors.

World

• Otoritas Jasa Keuangan (OKK), the Financial Services Authority of Indonesia, in collaboration with ministries/institutions, the financial services industry, academics, and international and national non-governmental organizations has launched the Green Taxonomy 1.0 as a guideline in supporting the Sustainable Finance Program in Indonesia.
• The Securities and Exchange Board of India published a Consultation Paper on Environmental, Social and Governance (ESG) Rating Providers for Securities Markets unveiling its regulation plans for the ESG ratings sector.

European Union

• The European Banking Authority (EBA) consults on its draft guidelines on the use of remote customer onboarding solutions in line with applicable anti-money laundering/combating the financing of terrorism (AML/CFT) legislation and the EU data protection framework. Once approved, these guidelines will apply to all financial sector operators in scope for the Anti-Money Laundering Directive (AMLD). The consultation is open until March 10, 2022.
• EBA consults on its draft RTS on the liquidity requirements for investment firms. The consultation is open until March 10, 2022.
• EBA published its draft RTS on a European central database on AML/CFT in the EU. The European Reporting system for material AML/CFT weaknesses called EuReCa will be an important tool for coordinating efforts to prevent and counter money laundering and terrorism financing within the EU.
• EBA published its final draft implementing technical standards (ITS) on Pillar 3 disclosures on ESG risks, in line with the requirements laid down in the Capital Requirements Regulation (CRR).
• ESMA consults on certain aspects of suitability requirements under MiFID II to update its suitability guidelines. The consultation is open until April 27, 2022.
• The European Insurance and Occupational Pensions Authority (EIOPA) published its third paper on methodological principles of insurance stress testing climate risks. This methodological paper focuses on the climate change component and is a further step in enhancing EIOPA’s stress-testing framework.
• The three European Supervisory Authorities (ESAs), which include EBA, ESMA, and EIOPA, published a joint thematic repository on financial education and digitalization initiatives of National Competent Authorities (NCAs), with specific attention on cybersecurity, scams, and fraud. The repository contains 127 national initiatives that provide consumers with helpful information on how to improve their financial literacy.
• As of January 1, 2022, ESMA is now the supervisor of EU critical benchmarks administrators and EU-recognized third-country administrators. There are now eight benchmark administrators under ESMA’s direct supervision and seven recognized third-country administrators.

World

• The Board of the International Organization of Securities Commissions (IOSCO) published a set of good practices related to the use of global supervisory colleges in securities markets and pledged for increasing cooperation and information sharing among securities regulators.
• The People’s Bank of China (PBOC) announced a three-year nationwide campaign against money laundering and published new rules on customer due diligence effective March 1, imposing stricter requirements on beneficial owner identification and verification, including for non-bank financial firms.

United States

• On January 13, the U.S. Securities and Exchange Commission (SEC) published a proposal to amend Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”). The proposed amendments would impact the availability of the affirmative defense under Rule 10b5-1(c)(1). The proposal includes new insider trading policy disclosure requirements, executive and director compensation disclosures regarding equity compensation awards, and various Forms 4 and 5 amendments.
• On January 26, the SEC published a proposal to amend Form PF, the reporting form for certain SEC-registered investment advisers, to require current reporting of key events such as “extraordinary” investment losses and significant margin and counterparty default events. The proposal would decrease the reporting threshold for large private equity advisers and includes new requirements regarding large liquidity adviser reporting.
• In one of its larger and more technical January proposals, the SEC is considering amending the statutory definition of “exchange” under Section 3(a)(1) of the Securities Exchange Act of 1934 to include certain “communication protocol systems.” This proposal is sure to receive significant scrutiny and commentary from stakeholders. It is accompanied by proposed coordinate changes to Regulations ATS and SCI as well as various form changes.
• Pay for performance is back. On January 27, the SEC re-opened the comment period regarding its proposal to implement Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The proposed rule would amend the current executive compensation disclosures to require a description of how executive compensation actually paid related to the financial performance of the company, where the proposal includes a definition of “financial performance.”

Marine Hutinel and Nels Ylitalo contributed to this article.

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