European supervisors seek Commission clarification on SFDR, ahead of revised Level 2

It's not just the industry that is trying to figure out how the disclosures regime will work; the European supervisors may be uncertain too.

A couple of weeks ago, ESMA, EBA and EIOPA (the ESAs) sent a joint letter to the Commission on issues arising from the SFDR application. In the letter the ESAs flag priority questions “that would benefit from a more urgent clarification to facilitate an orderly application of SFDR from 10 March 2021”:

• the application of SFDR to non-EU AIFMs and registered AIFMs;
• application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group;
• the meaning of “promotion” in the context of products promoting environmental or social characteristics;
• the application of Article 9 of SFDR; and
• the application of SFDR product rules to portfolios and dedicated funds.

We understand the Commission started drafting guidance for interpretation on these issues at the end of last week and that this is its priority.

On the SFDR RTS:

• we understand that work on the SFDR RTS is very advanced and publication by the ESAs is expected very soon. The latest information we have suggests end of January.
• The Commission would have 3 months to decide whether to adopt the RTS or not.
• Once adopted, the Council and Parliament would have a 3 month objection period (can be extended another 3 months at their request) before the RTS is published in the OJEU.
• If the ESAs publish the draft RTS in late January, the final rules could then be in place by mid-2021.
• The application date remains the key question, and we understand there are suggestions this could be as late as March 2022 (instead of January 2022) although the Commission wants to keep to the January 2022 timetable. We are keeping an eye on this.