Subscribe
Featured Image

Regulatory Update: November 2021

Regulations

By FactSet Insight  |  November 15, 2021

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)

Focus

  • The Task Force on Climate-related Financial Disclosure (TCFD) has updated its implementation guidance for the first time since 2017. The revised annex includes additional guidance on decision-useful disclosures by the financial sector across TCFD’s four reporting pillars: governance, strategy, risk management, and metrics and targets.
    • The TCFD also published its Guidance on Metrics, Targets, and Transition Plans report, which provides guidance for organizations disclosing plans and progress for the transition to a low-carbon economy
    • The TCFD highlighted the need for five fundamental principles for strong transition plans:
      • Alignment with business strategy
      • Use of quantitative metrics and targets
      • Insight into governance processes
      • Actionable initiatives to drive plan forward
      • Disclosure of limitations, constraints, and uncertainties in the plan
  • In October, the UK government published a report on Greening Finance: A Roadmap to Sustainable Investing just days ahead of the Glasgow COP26 aiming to set out sustainability disclosures for the corporate and financial sectors. The report underlines the UK sustainable finance roadmap:
    • The report outlines the details on the Sustainability Disclosure Requirements (SDR) to help businesses prepare for what they will have to report and by when and introduces the future UK Green Taxonomy
    • The new disclosures are expected to be implemented by 2022 and will equally apply to asset managers, insurers, pension schemes, financial advisors, and investment products
    • The government plan to update and adapt its Green Finance Strategy in 2022
  • The European Supervisory Authorities (ESAs), which include the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA), have proposed new rules for European Union (EU) taxonomy-related product disclosures. They have published their final report with draft regulator technical standards (RTS) regarding content and presentation of disclosures with respect to the Sustainable Finance Disclosures Regulation (SFDR) and especially Articles 8, 9, and 11. The draft also emphasizes the specific treatment of sovereign bonds and requires the disclosure of the taxonomy alignment of investments in two ways: both including and excluding sovereign exposures from the calculation.

In Brief

  • The Economic and Financial Affairs Council (ECOFIN) published its conclusions on climate finance and outlined, through 10 statements, the urgency of the implementation of the Paris Agreement
  • France’s Autorité des Marchés Financiers (AMF), the country’s stock market regulator, published the initial conclusions and identified issues of the first Climate and Sustainable Finance Commission on the carbon neutrality of companies
  • The BIS (Bank for International Settlements) has published an opinion paper entitled “A Taxonomy of Sustainable Finance Taxonomies,” developing five principles for designing effective taxonomies and related policy actions
  • New Zealand finalized Climate Reporting Legislation introducing mandatory climate disclosures for the financial sector from early 2024, for annual reporting periods that start on or after January 1, 2023
  • The Securities and Exchange Board of India (SEBI) has issued a new consultation paper on introducing disclosure norms for ESG mutual fund schemes and proposing enhanced disclosure requirements for ESG-labeled funds

Anti-Money Laundering (AML)

The Monetary Authority of Singapore (MAS) announced the introduction of the digital platform COSMIC, enabling a regulatory framework for financial institutions to share relevant information on customers and transactions to prevent money laundering and terrorism financing.

European Union (EU)

Focus

  • The ESAs have opened a call for evidence regarding the PRIIPs (packaged retail and insurance-based investment products) regulation and are seeking advice on the actual practical application of the existing key information document (KID), the complexity and readability of the KID, and the scope of the regulation. The call for evidence is open until December 16, 2021.
  • The FinDatEx PRIIPs technical working group provided an update of the European PRIIPs Template (EPT), making changes related to the new draft PRIIPs RTS published by the European Commission (EC) in September 2021. EPT 2.0 is now under public consultation until November 22, 2021.
  • The EC published a new banking package completing the implementation of Basel III introducing:
    • New rules on internal models
    • Enhancement of EU supervision with stronger tools to oversee EU banks, including complex banking groups. Minimum standards will be introduced to supervise third-country branches of banks in the EU.
    • The introduction of sustainability criteria: banks will be required to take environmental, social, and governance (ESG) risks into account when managing their business

In Brief

  • EIOPA welcomes the Solvency II proposals of the EC on further action in sustainable finance, in particular the introduction of sustainability risk and inclusion of climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
  • The Financial Stability Board (FSB) launched a new Financial Stability Surveillance Framework to support the comprehensive, methodical, and disciplined review of vulnerabilities, helping to identify and address new and emerging risks to financial stability.

United States

In late September, the U.S. Securities and Exchange Commission (SEC) proposed a set of rule and form changes to enhance, simplify, and modernize proxy voting disclosures by U.S. investment companies and institutional investors. By adjusting Form N-PX disclosures to categorize voting matters by type, linking descriptions of voting matters to issuers’ forms of proxy, and switching to a machine-readable format for proxy voting disclosures, asset owners and investors should find fund proxy voting records easier to access and analyze. Enhanced Form N-PX disclosures represent a technical improvement enabling, among other things, more effective ESG monitoring and implementation by investors.

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.

the-sfdr-and-taxonomy-regulation

Comments