Regulatory Update: May 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.

Sustainable Finance / Environmental, Social, and Governance (ESG)

Europe

• The European Insurance and Occupational Pensions Authority (EIOPA) has launched its first climate stress test to gain insights into the effects of environmental risks on the European occupational pension sector. The results are expected to be published in December 2022.
  
  
• The European Banking Authority (EBA) launched a Discussion Paper on the role of environmental risks in the prudential framework, considering whether and how environmental risks should be incorporated in the Pillar 1 prudential framework for credit institutions and investment firms. Key topics include time horizon, the inclusion of forward-looking elements in the prudential framework, and the calibration of own funds requirements. The EBA is seeking stakeholder feedback for incorporation into a final report to be delivered in 2023.
  
  
• The three European Supervisory Authorities (ESAs), which include the EBA, EIOPA, and the European Securities Market Authority (ESMA), consult on sustainability disclosures for simple, transparent, and standardized (STS) securitizations. The ESAs published a Consultation Paper seeking input on draft Regulatory Technical Standards (RTS) on the content, methodologies, and presentation of information in respect of the sustainability indicators for these STS securitizations.
  
  
• The Project Task Force on European Sustainability Reporting Standards (PTF-ESRS) of the European Financial Reporting Advisory Group (EFRAG) releases its Proposed European Sustainability Reporting Standards (ESRS) for public consultation with a deadline of August 8, 2022, defining the proposed rules and requirements for companies to report under the Corporate Sustainable Reporting Directive (CSRD). The current public consultation is seeking feedback from constituents on three key aspects of the Exposure Drafts (EDs): 
   
  • The relevance of (i) the proposed architecture, (ii) the implementation of the CSRD principles, and (iii) the overall content of each ED
  • The possible options for prioritizing/phasing in the implementation of the ESRS
  • The adequacy of each disclosure requirement mandated by each ED

World

• The Association of Banks in Singapore (ABS) has launched an industry Environmental Risk Questionnaire (ERQ) to help banks engage corporate clients to engage their corporate clients on environmental risk issues, gather data points, and identify opportunities to finance the transition to a low carbon economy
  
  
• The Financial Stability Board (FSB) issued some guidance for regulators on climate-related risk aiming to assist supervisory and regulatory authorities in developing their approaches to monitor, manage, and mitigate risks arising from climate change and to promote consistent approaches across sectors and jurisdictions
  
  
• The Stock Exchange of Thailand (SET) introduced a new Sustainability Reporting Guide to be used by listed companies together with ESG metrics for each industry group, covering ESG material topics to be used as guidelines on the disclosure of sustainability-related information with transparency, quality, and standardization
  
  
• The Securities and Exchange Board of India (SEBI) constituted a new advisory committee on ESG matters. The committee will work to address mis-selling and greenwashing risks and explore the introduction of prudential requirements for ESG funds
  
  
• The Green Finance Industry Taskforce (GFIT), convened by the Monetary Authority of Singapore (MAS), published a consultation on the Second Version of its Green and Transition Taxonomy detailing thresholds and criteria for economic activities in the energy, transport, and real estate sectors. This consultation is also coming with a user guide for financial institutions and companies to apply the taxonomy.
  
  
• A group of U.S. state insurance regulators, meeting at the national meeting of the National Association of Insurance Commissioners, adopted a new climate risk reporting standard for insurers that is in alignment with the Task Force on Climate-related Financial Disclosures (TCFD). Under the new standard, the number of insurance companies reporting on a TCFD-aligned basis will increase from under 30 in 2021 to over 400 in 2022, representing approximately 80% of the U.S. insurance sector.

Europe

• ESMA has provided its response to the European Commission (EC) on a targeted review of the European Market Infrastructure Regulation (EMIR) with respect to the European Union (EU) central clearing framework. The EC is now expected to develop a legislative proposal. ESMA’s recommendations included:
   
  • Increase the attractiveness of cleared EU market
  • Improve the clearing obligation framework
  • Incenting EU clearing participants to reduce exposures to UK central counterparties (CCPs)
  • Enhance the EU supervisory framework for CCPs
  • Mitigate risks remaining at UK CCPs

• ESMA issued a Final Report containing technical advice to the EC on a range of MiFID II investor protection topics across disclosure, digital disclosure, and digital tools and channels. ESMA’s lengthy set of advice heralds another overhaul of investor protection disclosure requirements ranging from high level and systemic to detailed and targeted. Some of the changes are remedial based on MiFID II experience, while some are driven by or intended to facilitate investor protection in the digital age.
  
  
• EBA published a statement exhorting financial institutions and supervisors to “make every effort” to provide basic financial products and services to Ukrainian refugees and clarifying how various anti-money laundering/combating the financing of terrorism (AML/CFT) and other compliance matters are to be addressed in the current context.
  
  
• EIOPA published an Opinion proposing a targeted amendment to the Solvency II Directive, empowering EIOPA to publish individual results of insurance stress tests in addition to the aggregated results EIOPA currently publishes.
  
  
• The joint committee of the ESAs published a 150-page document presenting technical advice on the review of the PRIIPs (packaged retail and insurance-based investment products) regulation. Section 3 contains the substantive technical advice on the content, structure, accessibility, and provision of the Key Information Document (KID), including in view of the use of digital media. In keeping with a broader, global regulatory trend toward modernizing and digitizing investor disclosures—such as Rule 30e-3 and the Marketing Rule in the U.S., and the investor protection MiFID II Final Report discussed above—the ESAs address making the KID digital, mobile, and interactive.

Marine Hutinel and Nels Ylitalo contributed to this article.

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