SFDR Prospectus Filings – Full Steam Ahead!
Prospectus updates due under the EU Sustainable Finance Disclosure Regulation (SFDR) will benefit from a fast-track filing process, according to a letter received by Irish Funds from the Central Bank of Ireland (the “CBI Letter”). The new process will allow both UCITS Managers1 and AIFMs (“Fund Managers”) to self-certify that the updated prospectus documentation for the relevant fund complies with the SFDR’s requirements.
The CBI Letter follows on from an earlier European Commission (“EC”) decision to postpone the application of the SFDR level 2 regulatory technical standards (“RTS”), which did not, however, apply to the disclosures which are still due on 10 March 2021. According to the CBI Letter, the Central Bank will not review prospectus updates limited to SFDR compliance until the RTS becomes applicable. However, the fast-track regime should not be seen as providing scope for a lesser quality of disclosures than would otherwise be produced.
We expect the Central Bank to issue an industry communication on the SFDR filing process over the coming weeks.
The SFDR, which forms part of the EC’s action plan on sustainable finance, imposes new transparency and disclosure requirements, including prescribed pre-contractual disclosures, on Fund Managers as well as on other financial market participants (see our briefing here). It also provides for further detail on the contents of the relevant requirements to be set out in draft RTS to be developed by the European Supervisory Authorities (“ESAs”), for the most part by 20 December 2020. The ESAs published a consultation on the proposed RTS on 23 April 2020, which closed on 1 September 2020.
The time-frame for developing the proposed RTS was a challenging one, even without the COVID-19 pandemic. However, industry concerns grew as it became increasingly clear that the RTS would not be finalised in advance of the 10 March deadline. Ultimately, on 20 October 2020, the EC wrote to the ESAs (here) stating that the RTS would not apply to the March disclosures but would become applicable at a later date. The EC also confirmed that the postponed application of the RTS does not impact on the obligation to make those disclosures in accordance with the SFDR, on the basis that, “the application of the Regulation is not conditional on the formal adoption and entry into force or application of the regulatory technical standards.”
Prior to the EC’s letter, Irish Funds had written to the Central Bank requesting that UCITS be permitted to self-certify that updated prospectus documentation complies with the requirements of the SFDR and file that documentation for noting 24 hours prior to the compliance deadline of 10 March 2021, in the same way as AIFMs/AIFs.
Next Steps for Fund Managers
The fast-track filing process is a welcome development as it will allow Fund Managers more time to update their prospectuses to comply with the SFDR disclosure requirements. Moreover, the fact that the Central Bank will not review the relevant updates until after the RTS start to apply is also significant as, in the absence of the RTS, there is some degree of uncertainty as to what is expected by way of content in the required disclosures as well as on how to classify products as non-green, light green or dark green for the purposes of the SFDR.
Nevertheless, Fund Managers still have a body of work to complete before 10 March 2021, in order to comply with their SFDR obligations, including updates to websites, remuneration policies and pre-contractual documentation. In so far as the latter is concerned, Fund Managers will need ensure that they update each fund’s prospectus to:
- include information on the integration of sustainability risks into the investment decision-making process and, where relevant, the likely impact of sustainability risks on the fund’s return;
- provide a clear and concise explanation as to why the Fund Manager deems sustainability risks not to be relevant, where applicable; and
- include additional disclosures around green products, where relevant.
According to a recent speech delivered by Gerry Cross, Director of Financial Regulation at the Central Bank, the responsibility rests with the relevant Fund Manager to ensure that their disclosure is appropriate to their particular funds as well as to determine the relevant fund’s appropriate product classification.
While all eyes are currently focused on 10 March 2021, it’s also important to remember that in reality this is a start date rather than an end date, as additional SFDR requirements will start to apply over the coming months. Moreover, as stated by Mr Cross in his recent speech, the Central Bank expects that the quality of disclosures will no doubt improve over time.
- This term includes self-managed UCITS.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.
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