Regulatory Update: March 2023

Learn about the most important compliance and regulatory news developments courtesy of FactSet's Regulatory team.

Sustainable Finance – European Union

• The EC announced the composition of the new Platform on Sustainable Finance. The Platform aims to advise the Commission on the EU Taxonomy and the EU sustainable finance framework more broadly, with a reinforced focus on usability. This new mandate runs for two years.

• The French Market Authority - AMF is proposing the introduction of minimum environmental requirements in European law that must be met by financial products to be classified as Article 8 or Article 9 under the Sustainable Finance Disclosure Regulation (SFDR).

• The Council and the European Parliament reached a provisional agreement on creating European green bonds standards. This agreement has yet to be confirmed and adopted by both to enter into force. It will start applying 12 months after its entry into force.

Sustainable Finance – APAC Region

• The SEC Philippines issued guidance on the issuance of sustainability-linked bonds under the ASEAN sustainability-linked bond standards (SLBS) and invites any interested parties to comment and give inputs.

• The Indian SEBI revised and strengthened its Green Bonds Framework, introducing blue bonds for funds raised for sustainable water and yellow bonds for funds raised for solar energy generation; alongside the publication of guidance on avoiding greenwashing.

• The Indian SEBI also published a circular on the DOs and DON’Ts relating to green debt securities to avoid occurrences of greenwashing.

• The Green Finance Industry Taskforce (GFIT), set up by the Monetary Authority of Singapore (MAS), launched its last public consultation on a green and transition taxonomy for Singapore-based financial institutions. The GFIT seeks comments on the detailed thresholds and criteria for classifying green and transition activities in five sectors.

General – European Union

• ESMA & FCA signed a Memorandum of Understanding (MOU) on critical benchmarks establishing cooperation arrangements and enabling ESMA to start recognizing benchmarks administrators from the UK.

• ESMA also consults on proposed changes to the RTS on authorization and registration. The objective is to safeguard equal treatment between EU and non-EU benchmarks administrators.

• The EU commission launched a regulatory Sandbox for innovative use cases for Distributed Ledger Technologies (DLT). The sandbox establishes a pan-European framework for regulatory dialogues to increase legal certainty for innovative blockchain technology solutions.

General – United Kingdom

• The Financial Conduct Authority seeks input to update its asset management regulatory framework to better serve investors and improve competition.

General – United States

Proposed SEC Rule: Safeguarding Advisory Client Assets

On February 15, the SEC issued a proposal for a new rule under the Investment Advisers Act of 1940 to safeguard client assets with corresponding amendments to the recordkeeping rule under the Advisers Act and to Form ADV. The SEC cited section 223 of the Dodd-Frank Act as authority for the rulemaking and cited certain instances of malfeasance, asset type changes (crypto, privately offered securities), and industry practice changes (custodial disclaimers) as reasons for the amendments.

The breadth of proposed amendments is significant. The proposal’s discussion of the amendments spans over 200 pages and includes topics such as in-scope assets and activities, qualified custodian protections, notice and client communication requirements, and surprise examination requirements.

In-scope firms should acquaint themselves with the proposal and engage in the rule-making process. Comments will be accepted up to 60 days following the publication of the proposal in the Federal Register.

Final SEC Rule: Shortening the Securities Transaction Settlement Cycle

Following the 2017 reduction of the standard securities settlement cycle from T+3 to T+2, on February 15, the SEC issued final rules and rule amendments, outlined as follows:

• Amending paragraph (a) of Rule 15c6-1 to shorten the standard settlement cycle for most broker-dealer transactions from T+2 to T+1

• Amending paragraph (b) to exclude security-based swaps from the paragraph (a) requirements

• Amending paragraph (c) to shorten the standard settlement cycle for firm commitment offerings priced after 4:30 p.m., eastern time from T+4 to T+2

• Adopting a new rule Rule 15c6-2 to require a broker-dealer to either enter into a written agreement or implement policies and procedures that address completing allocations, confirmations, and affirmations no later than the end of the trade date

• Amending Rule 204-2 under the Advisers Act to require registered investment advisers to record allocations, confirmations, and affirmations for 15c6-2(a) securities transactions

• Adopting a new Exchange Act rule, Rule 17Ad-27, to require CMSPs to implement policies and procedures to facilitate straight-through processing (STP) and to file a related annual report with related XBRL format requirements.

The compliance date for each of the final rules is May 28, 2024.

Marine Hutinel and Nels Ylitalo contributed to this article.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or 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.