A group of asset managers and financial industry organisations has sounded the alarm over the European Commission’s timescale for introducing new sustainability disclosure rules.
The European Fund and Asset Management Association (Efama) and seven other associations – including the Alternative Investment Management Association, Insurance Europe and PensionsEurope – wrote to the European Commission on 20 September, urging it to “take immediate action to ensure that the industry is provided with realistic time for implementation.”
The group’s concerns are focused around the EC’s application timeline for the Regulation on disclosures relating to sustainable investments and sustainability risks. This regulation sets out how the European Commission expects fund managers and other operators to adapt and update practices so they comply with the new rules.
The signatories said while they “support the European Commission’s objectives of financing a more sustainable economy,” they believe the regulation will become applicable before supporting Level 2 measures are adopted, which will create “significant compliance challenges and liability risks for market players, as well as confusion for investors.”
The Level 2 measures aim to clarify the understanding of the Level 1 requirements, many of which introduce new concepts, as well as how to comply with the regulation, the letter said.
However, the signatories said the Level 2 requirements are instrumental in ensuring the industry is prepared for the new rules, and therefore they need to be published well in advance of the regulation taking effect.
“If final Level 2 measures are not published well ahead of the entry into application of the regulation, or – as is highly likely – are published after the entry into application of the regulation, that would result in legal uncertainty for the industry and a lowering of investor confidence,” the letter said.
Draft guidelines
Helena Viñes Fiestas, global head of stewardship and policy at BNP Paribas Asset Management, agreed with the letter’s signatories, saying: “Requesting a realistic time period for implementing the sustainable disclosure regulation is fair and justified, as many questions remain unanswered as to how exactly financial market participants should respond to it.”
“The European Supervisory Authorities first need to deliver the draft technical standards, before the final guidelines can be implemented, leaving time for adjustments. However, financial actors can and should start getting ready. Asking for a delay in reporting obligations should not be seen as a way to delay action.”
The signatories said while the regulation on sustainability disclosures will apply 15 months from publication in the Official Journal of the European Union, Europe’s regulatory bodies will have 12 months and 20 days from publication to draft most of the Level 2 measures, which will then be followed by a scrutiny period. They said this is not long enough to ensure compliance.
The industry associations believe many of the concepts included in the regulation will be new to some fund managers and therefore presented the EC with a revised timeline that it believes will be more realistic.
“Endorsement by the commission and the scrutiny period of the Council and European Parliament will require several additional months before the Level 2 measures become final,” the signatories said. “Therefore, even if draft regulatory technical standards (RTS) are prepared in accordance with the deadline set in the regulation, it is very likely that the final RTS will not be published before the current application date of the regulation.”
To ensure enough time for the industry to prepare, the signatories recommended that the Level 1 regulation should come into effect 12 months after all Level 2 measures are published in the Official Journal of the European Union.
Expert Investor has approached Efama for further comment.
