We did it, so you don’t have to. Here is a compilation of the latest regulatory changes and market research in the funds and investment sector. Our intention is to provide a summary relevant to both managers, investors and institutions navigating the world of funds.
Fund Managers
PRIIPs Regulation is now applicable on actors in the funds market
As of 1st January 2023, Regulation (EU) No 1286/2014 on key information documents for packaged retail investment and insurance-based products (“PRIIPs Regulation” and “PRIIPs”, respectively) applies to actors in the funds market. Instead of a key investor information document (Sw. faktablad), UCITS and AIF managers will now have to provide non-professional investors with a PRIIPs key information document (“KID”).
Following the widened scope of the PRIIPs Regulation, the Swedish Financial Supervisory Authority (“SFSA”) has amended two of its regulations regarding UCITS and AIF managers. The amendments include, e.g., clarifications such as that the PRIIPs Regulation takes precedence over Swedish law as regards the language requirements for PRIIPs KIDs and which provisions of Swedish AIFM law that apply to foreign AIF managers conducting business in Sweden.
Find the SFSA’s amended regulations regarding UCITS here and AIF managers here (both in Swedish).
The SFSA finishes in-depth analysis of fund managers’ valuation function
The SFSA has finished their in-depth analysis of the valuation function of eleven UCITS and AIF managers in regard to the valuation of less liquid assets and has found that certain managers’ internal policies are inadequate and do not contain the information required under the Commission Delegated Regulation (EU) No 231/2013. The SFSA stresses the importance of clear policies relating to the valuation of assets in order to reduce the risk relating to less liquid assets.
The SFSA has conducted this analysis as a part of a wider European initiative aimed at mapping problem areas relating to the valuation of certain asset classes and ESMA will make a collective assessment of the conclusions reached in the different European jurisdictions.
Find more information on the SFSA's website (in Swedish).
ESMA publishes technical standards on notifications regarding cross-border activities under UCITS and AIFMD
ESMA has recently published a final report containing draft technical standards specifying the information to be provided, as well as the content of and a template for notification letters to be submitted by management companies, UCITS and AIF managers to authorities when conducting cross-border activities.
According to feedback from the public consultation, the draft technical standards are generally welcomed although some respondents expressed concerns regarding the additional burden and costs they might entail as they, if adopted, will require the provision of more information than before.
The technical standards have been submitted to the European Commission for adoption before the end of Q1 2023, after which they will be subject to scrutiny by the European Parliament and the Council.
Find the draft technical standards on ESMA’s website (in English).
Sustainability
EFRAG publishes draft ESRS
The European Financial Reporting Advisory Group (“EFRAG”) has published the first set of drafts of the European Sustainability Reporting Standard (“ESRS”) following the adoption of the Corporate Sustainability Reporting Directive (EU) No 2022/2464 by the European Commission. The European Commission will now consult EU bodies and the Member States regarding the draft ESRS prior to adopting final acts in June 2023. The reporting regime will be phased in starting with the financial year 2024 to be reported in 2025.
Find the draft ESRS on EFRAG's website (in English).
ESMA launches a consultation on guidelines for the use of ESG or sustainability-related terms in funds’ names
ESMA is seeking input on draft guidelines regarding the use of ESG or sustainability-related terms in the name of funds.
The consultation seeks the views of stakeholders on a proposal to promote supervisory convergence in the assessment by national competent authorities of the use of ESG or sustainability-related terms in funds’ names.
The objective is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims while providing both national competent authorities and asset managers with clear and measurable criteria to assess names of funds including ESG or sustainability-related terms.
The main elements of the draft guidelines for the use of ESG or sustainability-related terms in funds’ names on which ESMA is seeking feedback are:
A quantitative threshold (80%) for the use of ESG related words.An additional threshold (50%) for the use of “sustainable” or any sustainability-related term only, as part of the 80% threshold.Application of minimum safeguards to all investments for funds using such terms (exclusion criteria); andAdditional considerations for specific types of funds (index and impact funds).
ESMA will consider the feedback it receives to this consultation after it closes on 20th February 2023 with a view to finalising the guidance afterwards. ESMA proposes that the draft guidelines become applicable from 3 months after the publication of their translation on the ESMA website. Furthermore, a transitional period of 6 months is suggested for those funds launched prior to the application date.
Find the draft guidelines here (in English).
The ESAs propose disclosures for fossil gas and nuclear energy investments
The three European Supervisory Authorities (EBA, EIOPA and ESMA, jointly the “ESAs”) have delivered to the European Commission their final report with draft regulatory technical standards (“RTS”) regarding the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under Regulation (EU) No 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”).
In the amending final draft RTS, the ESAs propose to add specific disclosures to provide transparency about investments in taxonomy-aligned gas and nuclear economic activities. These disclosures, which are in line with the definitions in the Complementary Climate Delegated Act (Commission Delegated Regulation (EU) No 2022/1214), will help investors make informed decisions.
The changes to the pre-contractual templates include a yes/no question to identify that a product intends to invest in gas and/or nuclear taxonomy-aligned activities. If the product intends to invest in such activities, the graphical representation will require the identification of the relevant proportions.
Find the final report by the ESAs here (in English).
Several asset managers downgrading their SFDR article 9-funds to article 8-funds
NordSIP has recently reported about Storebrand’s decision to reclassify six of its funds from SFDR article 9 to article 8, affecting around EUR 6.5 billion in AUM. NordSIP cites the tightening requirements for funds to be marketed as sustainable as the reasoning behind the decision.
Storebrand’s decision follows similar decisions by other asset managers earlier in 2022. In November of last year, Europe’s largest fund manager, Amundi, downgraded 100 of its funds comprising around EUR 45 billion in AUM. In the same month BlackRock and UBS Asset Management also downgraded 21 of their jointly managed exchange-traded funds, with a combined AUM of around EUR 21 billion.
Find NordSIP’s article together with references to other articles on the topic on NordSIP’s website (in English).
The SFSA prioritizes the risk of greenwashing in its supervision for 2023
On the 20th of January, the SFSA held a press conference announcing the priorities in its supervision for 2023. As the demand for sustainable products is high and the regulations still are in development, the SFSA believes there is a risk that companies may describe their businesses as more sustainable than they actually are. The SFSA has therefore included the risk of greenwashing in the financial sector as one of its supervisory priorities for the present year.
Find the SFSA’s press release here (in Swedish).
Market research
The SFSA publishes report on Swedish funds’ liquidity risks
The SFSA has conducted a stress test on Swedish funds in order to ascertain the handling of liquidity risk by Swedish funds that allow for daily redemption of investments in the fund. The SFSA conducted this stress test through the simulation of a large outflow of capital and how the funds could meet the increased capital demand through the realization of assets.
The SFSA has determined that a majority of Swedish funds are able to handle large outflows of capital in a satisfactory manner. However, the SFSA determined that 9% of funds dealing in corporate bonds and 38% of funds dealing in high risk corporate bonds can be subject to liquidity problems in stressed market conditions according to their simulations.
Find the report in full on SFSA's website (in Swedish).
SVCA publishes report showing that private equity investments have permanently increased Sweden’s GDP by up to 4.7%
The Swedish Private Equity & Venture Capital Association (“SVCA”) has published a report regarding the economic impact of private equity and venture capital investing in Sweden. The key findings in the report are the following:
Private equity and venture capital investments have led to a permanent 3.5%-4.7% increase in Sweden’s GDP per year. This corresponds to SEK 189-251 billion during 2021.Venture capital funds have during the last ten years invested around SEK 300 billion in Swedish companies and increased these companies’ profitability by 53%.The number of persons employed by private equity-owned companies increased by 7% in Sweden compared to the EU-average of 3%.Sweden has the second largest private equity market in the EU, measured as the share of raised capital compared to GDP.
Find SVCA’s announcement here (in Swedish) and the report in full here (in English).
EFAMA publishes a new edition of Asset Management Report
The European Fund and Asset Management Association (“EFAMA”) has recently published the 14th edition of their Asset Management Report, analysing the asset management industry as of the end of 2021 and detailing recent trends.
The report’s key findings include:
The share of assets managed in investment funds, contrary to discretionary mandates, has steadily been on the rise for the past 10 years, reaching a record of 56.6% at the end of 2021.While institutional investors remain the main client of the asset management industry, both the share of retail clients and other institutional clients, such as foundations, charitities and large corporations, are steadily increasing.Listed equity accounts for 33% of assets managed by asset managers, up from 28% in 2018, while other assets, such as infrastructure and private equity, broadly have accounted for 25% over the same period.
Find the report on EFAMA’s website (in English).
AML
SIMPT publishes new guidelines and updates to earlier guidelines on several topics
In November of 2022, the Swedish Anti-Money Laundering Institute (“SIMPT”) published new and expanded guidelines as well as updates to existing guidelines on a range of topics, including:
New and expanded guidelines regarding KYC for banks, finance companies and insurance companies.Expanded basic guidelines regarding KYC.Expanded and clarified guidelines regarding politically exposed persons and termination of business relationship etc.Updates to basic guidelines regarding general risk assessment, employees and contractors, monitoring and reporting, processing of personal data and routines on suitability assessments.
Find the guidelines on SIMPT’s website (in Swedish).
Wolfsberg publishes guidelines for the use of AI/ML in financial crime compliance
The Wolfsberg Group (“Wolfsberg”) believes that artificial intelligence and machine learning (“AI/ML”) can be and has been of great use for financial institutions in their financial crime compliance programmes. To guide financial institutions in the responsible use of AI/ML for such purposes, Wolfsberg has recently published its Principles for Using Artificial Intelligence and Machine Learning in Financial Crime Compliance.
The document identifies five elements that financial institutions should operationalize:
Legimate Purpose: Financial institutions must understand and guard against potential misuse or misrepresentation of data and biases that may affect the results of the AI/ML application, making the assessment of ethical and operational risks in their risk governance approach a key consideration.Proportionate Use: Financial institutions should ensure that the benefits of using AI/ML are being balanced against the risks that may arise from such technologies, and that the severity of potential financial crimes are appropriately assessed against the AI/ML solutions’ margin for error.Design and Technical Expertise: Financial institutions should have an understanding of the implications, limitations and consequences of the use of AI/ML, requiring staff to have appropriate skills to create, monitor and control the technology and senior stakeholders to have sufficient understanding for when and how to deploy it.Accountability and Oversight: Financial institutions are responsible for the use of and the decisions relying on AI/ML analysis. Staff should be trained on the appropriate use of the technology and assigned specific responsibilities for the ethical use of data in AI/ML.Openness and Transparency: Financial institutions should be open and transparent about their use of AI/ML, though care should be taken to not facilitate evasion of the industry’s financial crime capabilities.
Find the document on Wolfsberg’s website (in English).
