Asset Management and Investment Funds
The closing months of 2022 will be busy as usual for fund managers, with a number of looming key deadlines, as is often the case in the final quarter of the year.
This year, efforts will be focused on meeting the Central Bank of Ireland's ("Central Bank") deadline of 1 December 2022 for Sustainable Finance Disclosure Regulation ("SFDR") Level 2 filings and on preparing for the application of the Packaged Retail and Insurance-based Investment Products ("PRIIPs") Regulation requirements to UCITS from 1 January 2023.
Themes in Asset Management and Investment Funds
On 25 July 2022, the Level 2 measures under the SFDR, prescribing the form of pre-contractual and periodic disclosures for Article 8 and Article 9 SFDR products and the principal adverse impact statement, were published in the Official Journal of the EU. The final measures contained no material changes to the version published by the European Commission on 6 April 2022, featured in our Summer Horizon Tracker. The regulatory technical standards will apply from 1 January 2023.
On 4 October 2022, the Central Bank published formal confirmation of the fast track process for filings to implement the Level 2 requirements under the SFDR. Under the SFDR Level 2 requirements, funds within the scope of Article 8 and Article 9 of the SFDR must complete pre-contractual disclosure templates, which will be provided to investors together with the fund prospectus / supplement, and the form of which is prescribed in annexes to the delegated act adopted under the SFDR. These templates must be completed and made available to investors from 1 January 2023.
The publication of the confirmation from the Central Bank follows a meeting between the Central Bank and representatives of the Irish Funds ESG Policy, Legal and Regulatory Working Group (including Tara Doyle, Head of our Asset Management and Investment Funds Department) in September to discuss the Irish Funds submission to the Central Bank requesting a "fast-track" for the implementation of the SFDR Level 2 requirements.
At that meeting, the Central Bank confirmed its intention to apply a stream-lined review process to SFDR Level 2 filings. The Central Bank also confirmed that it intended to apply similar conditions to the Level 2 fast-track as applied to the previous fast-tracks for SFDR Level 1 and Taxonomy Level 1. The deadline for filings using this process will be 1 December 2022.
The Central Bank has now published a document setting out the final conditions applicable to the fast-track, which takes into account the various requests made by industry representatives at the September meeting.
We have summarised the relevant conditions applicable to the filing process in our briefing document here.
Despite the fact that the 1 January 2023 application date is just around the corner, a number of key elements of the requirements remain unclear, including the definition of "sustainable investment", which makes finalising the Level 2 templates challenging. On 8 September 2022, the European Supervisory Authorities ("ESAs") submitted further questions to the European Commission relating to interpretation of key aspects of the SFDR, including a request for clarifications relating to: (a) the definition of sustainable investment; (b) the classification of funds pursing carbon emissions reductions and other benchmark questions; (c) what it means to "consider" principal adverse impacts ("PAI") under the product-level disclosure requirements in Article 7 SFDR; (d) the application of the 500 employee threshold with respect to the requirement to consider PAI; and (e) periodic disclosure frequency for portfolio management services. We are aware that the Commission has begun to consider the questions, but it does not intend to reply to the questions before the end of this year.
"We welcome the Central Bank's confirmation of the fast track for SFDR Level 2 Filings. The manner in which European regulatory guidance has issued this year has presented challenges for managers in meeting their obligations. We note that the European Commission will not answer the latest series of questions from the ESAs until the new year and so managers now need to prepare for implementation on the basis of the guidance issued to date and hope that it will not be necessary to revisit documentation when those answers are published next year."
Tara Doyle, Head of Asset Management and Investment Funds
The Irish UCITS Regulations, transposing the EU UCITS Directive, have been amended so that, from 1 January 2023, the production of a PRIIPs "Key Information Document" ("PRIIPs KID") by a UCITS will satisfy the obligation to produce a UCITS "Key Investor Information Document" ("UCITS KIID") under the UCITS Directive. This will avoid the need to provide both a PRIIPs KID and a UCITS KIID for the same fund.
Due to the expiration of the exemption for UCITS from the PRIIPs Regulation requirements on 31 December 2022, from 1 January 2023, UCITS will be obliged to produce a PRIIPs KID for their EEA retail investors. The amended regulations ensure that it will not be necessary to also produce a UCITS KIID. Where a UCITS is distributed exclusively to professional investors, UCITS can choose to produce either a UCITS KIID or PRIIPs KID.
While there are similarities between the PRIIPs KID and the UCITS KIID, there are significant differences and increased data requirements, which UCITS management companies will have to address as they migrate in-scope UCITS from the UCITS KIID to the PRIIPs KID.
"Most fund managers have progressed their transitional arrangements in preparation for the application of the PRIIPs Regulation to UCITS; we continue to assist our clients in determining whether or not a PRIIPs KID will be required and in their transition planning to ensure PRIIPs KIDs can be provided from 1 January 2023."