Lux regulator to ‘fast track’ ESG disclosures

Article published on 24 November 2020 www.igniteseurope.com

The Luxembourg financial regulator is to launch a fast-track procedure for environmental, social and governance disclosures as fund firms battle to meet impending EU rules.

The Commission de Surveillance du Secteur Financier says it will rely on fund boards to self-certify their compliance with the sustainable finance disclosure regulation ahead of the looming March deadline.

The implementation of SFDR, which requires asset managers with more than 500 employees to disclose the negative environmental and social impacts of their investments, has been beset with problems.

Although the European Commission recently announced that it will delay the imposition of the underlying technical standards for the regulation, the rules will still come into force in March, with asset managers required to produce “high-level and principle-based” disclosures from next year.

Fund houses complain that this vagueness over what exactly they have to disclose coupled with a lack of available data from investee companies make it difficult for firms to adequately comply with the regulation in time.

Marco Zwick, director at the CSSF, says the regulator is “mindful of the difficulties that the market may encounter” with SFDR compliance and will introduce a fast-track procedure for prospectus updates.

Mr Zwick, who was speaking yesterday at a conference organised by the Association of the Luxembourg Fund Industry, says asset managers should “limit their changes to the prospectus in particular” as otherwise the CSSF may not be able to process disclosures in time for the March deadline.

Fund boards will also have to self-certify that their funds are meeting the requirements of SFDR alongside any fast-track applications to the CSSF.

“We are not going to challenge everything from day one but we are going to do a number of checks and we are also going to do some ex-ante verifications,” says Mr Zwick.

Mr Zwick says these checks and verifications will be “on a sample basis” as the CSSF lacks the capacity to process documents for the some 15,000 funds and sub-funds under its supervision.

Lawyers have warned that the two-tier implementation stage for the underlying technical standards could also see asset managers having to submit a new set of more detailed updates to regulators within the next 12 months.

The three European supervisory authorities concluded a consultation on product disclosure templates that firms could use last month.

According to the ESAs, disclosure formats must be standardised but also be able to be deployed for various purposes, including prospectus updates and annual reports.