An overview of fund industry regulatory changes scheduled for the coming months and years was given by Nathalie Dogniez, an independent director, and Michèle Eisenhuth, a partner at Arendt & Medernach. The session began with topics that require the most immediate attention.
ESG top of mind
“No surprise, but SFDR will need attention,” said Ms Dogniez, citing the suggested amendments to the regulatory technical standards (RTS) made in December by the three European Supervisory Authorities. As well as refinements to targets and standards, she highlighted the planned simplification of the SFDR templates. She said it remains to be seen if these changes will be implemented before the European Parliament elections in June.
She expressed her concerns that ESMA’s recent proposal on ESG fund naming standards could add complexity with minimal potential upsides. She was more positive about the Commission’s recommendation on transition finance, particularly the tone of the paper which “recognises that sustainability is a journey towards a more sustainable framework.”
Marketing, ELTIF II, & the KID
The CSSF’s observations on marketing and communication published last year highlighted disclosure inconsistencies. “Boards need to ensure procedures are in place and that sufficient resources and oversight are allocated to ensure delegates fulfil these tasks effectively,” said Ms Eisenhuth.
The ELTIF II RTS final report was published on 19 December 2023, and the Commission has three months to adopt these recommendations. So although the ELTIF II was implemented on 10 January this year, key details on eligible assets, definitions of investors and master-feeder arrangements have yet to be finalised. Directors were advised to ask about how funds are considering the different transition possibilities. The end of December also saw an updated PRIIPs KID Q&A from the ESAs, featuring changes on applicability and disclosure rules, the definition of the manufacturer, performance scenarios and mandatory disclosures.
ICT regulation plus AIFMD II and UCITS VI reform
The recently published CSSF circular 24/847 which features an obligation to report ICT-related incidents comes into force on 1st April, but with ManCos having until 1st June to comply. Then the EU’s Dora (Digital Operational Resilience Act) takes effect on 17 January 2015. Ms Dogniez said boards needed to ask questions about the readiness of their organisation and their service providers for both these regulations.
More longer term, there is AIFMD II and UCITS VI which are due for Q1 2026, with implementation in 2028. They will feature updates on substance, delegation, reporting, liquidity management tools, loan origination and ancillary activities. Now is the time for impact assessments and resource monitoring & oversight of delegates.
More ESG, onsite inspections, and more
The Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) will come into force this year for listed very large companies, 2025 for all very large companies, and 2026 for listed SMEs. “This is much more than just about disclosure,” said Ms Dogniez. “This is sustainability reporting, and that's a pretty significant project, and you have to assess to what extent you will be impacted and implement a project accordingly.” She also warned against relying on parent companies to do this work, as someone local will have to sign off on information which will be audited.
The audience was also reminded of the need for readiness for CSSF onsite inspections. Corporate governance, delegation oversight, AML/CFT, ESG, valuation and costs & fees are the main focus areas and fund firms need procedures, said Ms Eisenhuth. On the AML package, recent agreement between the European Council and Parliament means this is now due for Q4 2024. There were also reminders of the need to check up on capabilities regarding T+1 settlement in the US, the planned update this quarter of CSSF Circular 02/77, recently changed rules on ancillary liquid assets, and the reporting of large redemptions.
Further down the line will be the Retail Investment Strategy which will impact AIFMD, PRIIPS, and UCITS with inducement bans of “execution-only” sales, “value for money” benchmarks, rules on “undue costs”, and more. This is due for early 2027. Before then, the Corporate Sustainability Due Diligence Directive could see the day in 2026, which although it would exclude the financial sector, would impose due diligence on the value chain.
Ending on what she sees as a positive note, Ms Dogniez mentioned the European Single Access Point which is currently under consultation with a view to implementation in 2027. “It's a central machine readable database of financial and sustainability information about companies in Europe. It will put all key information at your fingertips without having to pay providers,” she said.