As of March 2021 the new Sustainable Finance Disclosure Regulation [SFDR] came into effect. This regulation is developed to drive sustainable investment. The SFDR will have big impact on asset managers, banks and fund brokers. In the upcoming weeks we will publish a blog series focusing on the SFDR, the obligations, the timelines, the definitions and the Adverse Sustainable Impacts Statement to help you get your head around the subject. And to ensure you are well prepared for the new regulation.
In this blog post we will talk you through all the steps that have to be taken to be fully compliant before the first reference period ends. To make it easy for you we created two comprehensive infographics. The first gives Financial Market Participants [FMPs] anoverview of all requirements and steps to take in the upcoming months. And the second does the same, but focuses on all the requirements for Financial Advisers [FAs]. We hope this will help you to get your priorities right.
This blog post was first published on February 16, 2021 and updated on May 5, 2021.
The road to SFDR compliance: important dates
A few weeks ago we already published a blog post about the timelines for SFDR. We mentioned all the important dates and corresponding requirements. So this time we will keep it short.
March 10, 2021: SFDR effective date; requires all level 1 obligations to be in place
January 1, 2022: First reference period starts
January 1, 2023: Second reference period starts
June 30, 2023: The final date on which FMPs and FAs need to report for the first time
June 30, 2024: The final date by which FMPs and FAs need to report for the second time. This reporting also included a comparison between the first two reference periods.
The road to SFDR compliance for Financial Market Participants
Financial Market Participants have to make many decisions on their road to compliance. As many stakeholders in the company are involved in this process, the road to SFDR compliance is complex and full of challenges. Even before starting the data collection for the Adverse Sustainability Impacts Statement, many things should be considered.
As shown in the infographic, it all starts with the following questions: ‘Does the FMP consider principal adverse impacts of investment decisions on sustainability factors?’ or ‘Does the FMP (or when part of a group on consolidated basis) exceed on their balance sheet dates the criterion of the average number of 500 employees?’. If one of the answers is YES, then the disclosure obligations on entity and product level apply. If the answer to both questions is NO, then the FMP is required to publish a ‘statement of no consideration of sustainability adverse impacts’ on their websites.
Our assumption is that the most FMPs will or have to consider principal sustainability adverse impacts, as not considering it could result in bad PR.
Disclosure obligations for FMPs on entity level
Next it is time to zoom in on the disclosure obligations for FMPs on entity level. FMPs have to keep three articles in mind: article 3, 4 and 5. They are all due before March 10, 2021, except for the indicators (article 4) related to the level 2 RTS. The first reference period starts on January 1, 2022.
Disclosure obligations for FMPs on product level
On a product level it is becoming more complicated as FMPs have to answer another important question. Does your investment product matches the article 8 or article 9 characteristics?
All disclosure obligations on product level are required as of March 10, 2021 (article 6,8,9, 10 and 11). The indicators required for articles 8,9,10 and 11 are due on June 30,2023.
The road to SFDR compliance for Financial Advisers
Looking at the infographic for Financial Advisers it might seem that they have an easier job. Though don’t underestimate the underlying work.
The first question is the same as for Financial Market Participants: ‘Does the FA consider principal adverse impacts of investment decisions on sustainability factors?’.
Regardless of the answer to this question Financial Advisers should comply to articles 3 and 5 on entity level and articles 6, 8 and 9 on a product level.
If the answer to the question above is YES, then also article 4 applies. If the answer to that question is NO, then also Financial Advisors are expected to publish a statement of ‘no consideration of sustainability adverse impacts’ on their websites.
Disclosure obligations for FAs on entity level
So regardless of considering principal adverse sustainability impacts Financial Advisers should comply to articles 3 and 5 on entity level. This means that as of March 10, 2021 they need to publish information on their websites about their policies on the integration of sustainability risks in their investment advice or insurance advice. They also need to include information in their remuneration policies on how those policies are consistent with the integration of sustainability risks.
As of the same date they also should publish on their website information as to whether they consider in their investment advice or insurance advice the principal adverse impacts on sustainability factors.
Disclosure obligations for FAs on product level
As of March 10, 2021 FAs should include information in pre-contractual disclosures on:
- the manner in which sustainability risks are integrated into their investment or insurance advice
- the result of the assessment of the likely impacts of sustainability risks on the returns of the financial products they advise on
Article 8 and 9 contains the pre-contractual disclosure obligations for FMP’s. FA’s however must take in these documents and must make them available to their clients when providing investment advice and before any agreement or transaction is done.
It’s ok if your focus today is on all the level 1 requirements. But don’t wait to long with taking up the level 2 requirements. We really recommend you make smart decisions on your ESG data landscape in the second half of 2021. If you want more information on our ESG data coverage solution, don’t hesitate to reach out or check out our SFDR Quick Scan. In one day we will kickstart your SFDR compliance and give you practical insights and guidelines to start your data collection.
We will continue to monitor and inform you about relevant news and updates on the SFDR regulation and the Level 2 RTS. To stay up to date, please subscribe to our regular blog updates on the right side of this blog post.
If you have any questions about our SFDR solutions or fund data flows, please contact:
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