Regulatory Update: January 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

• The EU Taxonomy Delegated Regulation establishing technical screening criteria for Objectives 1 and 2 climate change mitigation and adaptation has been published in the Official Journal of the European Union.
• The European Commission (EC) began consultations with the Member State Expert Group on Sustainable Finance and the Platform on Sustainable Finance on a draft text of a Taxonomy Complementary Delegated Act covering certain gas and nuclear activities. The EC considers that there is a role for natural gas and nuclear as a means to facilitate the transition towards a predominantly renewable-based future.

World

• The Singapore Exchange (SGX) has unveiled its roadmap for issuers to provide climate-related disclosures, based on the Task Force on Climate-related Financial Disclosure (TCFD) recommendations.

According to the roadmap, all issuers must provide climate reporting on a “comply or explain” basis in their sustainability reports from the financial year starting in 2022. Climate reporting will subsequently be phased in and mandatory for issuers in the financial, agriculture, food and forest products, and energy industries from fiscal year (FY) 2023. The materials and buildings and transportation industries must do the same from FY 2024.

• The Hong Kong Monetary Authority (HKMA) published the results of its first climate risk stress test (CRST). The results showed that under extreme scenarios climate risks could potentially cause significant adverse impacts on the banking sector and that banks need to take early actions to manage them. Another CRST should be conducted in two years.
• The Ministry of Ecology and Environment (MEE) of China published new rules for companies about mandatory disclosures for environmental Information. The rules will come into force from February 2022 and require companies to compile annual environmental information disclosure reports for submission by mid-March of each year.

European Union

• The European Banking Authority (EBA) issued its final guidelines on cooperation and information exchange between prudential supervisors, anti-money laundering/combating the financing of terrorism (AML/CFT) supervisors, and financial intelligence units (FIUs). The guidelines frame out how prudential supervisors, AML/CFT supervisors, and FIUs should cooperate and exchange AML/CFT information.
• The EBA published its revised guidelines on risk-based supervision of credit and financial institutions’ compliance with AML/CFT obligations. The Guidelines provide guidance through multiple steps for supervisors to ensure adequate AML/CFT oversight of their sector and support the adoption, by credit and financial institutions, of effective ML/TF risk management policies and procedures.
• The FinDatEx Solvency II technical working group published an update of the Solvency II Tripartite Template (TPT), TPT V6, making modifications to ensure compliance with the current Solvency II Directive. V6 can be used with the effective start date of March 31, 2022.

SEC Proposed Rules

On December 15, 2021, the U.S. Securities and Exchange Commission (SEC) published several proposed rules: Share Repurchase Disclosure Modernization, Money Market Fund Reforms, and a set of three new rules to combat misconduct in relation to security-based swaps.  

With respect to share repurchases, the proposed amendments would require issuers to provide more timely disclosure on a new Form SR regarding purchases of equity securities for each day that it, or an affiliated purchaser, makes a share repurchase, and enhance the periodic disclosure requirements about such purchases.

The additional set of money-market-fund reforms have been under consideration since the global pandemic riled financial markets. Primary proposed reforms include:

1. Elimination of liquidity fees and redemption gates, focusing reliance on liquidity buffers
2. Requirement for institutional prime and institutional tax-exempt money-market funds to implement swing pricing policies and procedures
3. Increases in daily and weekly liquid asset minimums to 25% and 50%, respectively
4. Amendment of certain reporting requirements on Forms N-MFP and N-CR, as well as conforming changes to Form N-1A
5. Certain rule amendments to address how money-market funds with stable net asset values should handle a negative interest rate environment
6. Amendments to specify how funds must calculate weighted average maturity and weighted average life

The SEC’s proposal with respect to security-based swaps are embodied in three proposed rules, as follows:

1. A ’34 Act rule to prevent fraud, manipulation, and deception in connection with effecting transactions in, or inducing or attempting to induce the purchase or sale of, any security-based swap
2. A rule to make it unlawful for any officer, director, supervised person, or employee of a security-based swap dealer or major security-based swap participant, or any person acting under such person’s direction, to directly or indirectly take any action to coerce, manipulate, mislead, or fraudulently influence the security-based swap dealer’s or major security-based swap participant’s chief compliance officer (CCO) in the performance of their duties under the federal securities laws or related rules and regulations
3. A new rule requiring disclosure of security-based swap positions exceeding a certain threshold

Marine Hutinel and Nels Ylitalo contributed to this article.

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.