20 April 2021

PRIIPS: speculation continues

Our latest update on PRIIPs, AIFMD, EU-PEEP and Sustainable Finance / ESG.

1. PRIIPS: speculation continues

There remains no formal indication of how the European Commission (EC) intend to proceed with the legal application of the draft PRIIPS key information document RTS received from the European Supervisory Authorities (ESAs) back in February,  i.e. with less than 9 months of the UCITS funds exemption left.   But there will be an announcement in a matter of weeks.  Keep watching this space.

2. AIFMD: EC consultation results awaited

The EC are also expected shortly to publish a summary of feedback obtained during their AIFMD level 1 public consultation that concluded back in January 2021.  These will be issued in advance of their subsequent AIFMD II directive proposals (currently predicted to appear in the second half of this year).

3. EU-PEPP: no product providers, tax incentives (yet)

Following the publication of the long-awaited pan-European Personal Pension product regulation last month, the European Insurance and Occupational Pensions Authority (EIOPA) has launched a survey to measure the potential take-up by eligible PEPP providers (running until 31 May 2021).

Up until now, no prospective asset manager, insurance company or occupational pension firm has publicly declared their intention to operate in this fledgling marketplace (i.e. in accordance to the challenging rules and one-percent fee cap prescribed by the EC and EIOPA).  Moreover,  despite recent reports of local tax incentives reinvigorating demand for the European long-term investment fund (ELTIF) in Italy,  there is no sign of national third-pillar inducements or EU-wide tax neutrality measures in support of the activated EU-PEPP legislation.

 4. Sustainable Finance / ESG latest

a) ESAs: public event – Taxonomy-related product disclosures

Last Friday, following the launch recent of their latest Sustainable Finance consultation, the ESAs announced they will organise an online public event on 29 April.

The ESAs will present latest draft Regulatory Technical Standards (RTS) proposals for the Sustainable Finance Disclosure Regulation (SFDR), covering additional rules and obligations resulting from the separate Taxonomy Regulation [TR].    As before, these will concern financial products that either promote environmental characteristics (c/o SFDR article 8) or directly invest in economic activities that contribute to an environmental objective” (SFDR article 9).   The ESA proposition will be opened up for dialogue with online attendees.   NB: this 4 ½ hour event is already over-subscribed (with the maximum number of participants now reached).

b) Schroders: edits ESG references from fund prospectus

The leading article in yesterday’s FT Ignites edition contained reports of the asset manager notifying investors of the removal of ESG factors previously applied to the investment strategies of 24 funds domiciled in Luxembourg (i.e. subsequently classified as SFDR article 6 products).

5. UK financial services developments

 a) Blackrock: ‘backs UK climate disclosure approach’

Meanwhile, over in the UK – the Government has so far refrained from onshoring the European Commission’s SFDR and TR regimes onto its statute book.   Instead, it now consults on their proposed alternative climate disclosure measures aligned with recommendations from the Task Force on Climate-related Financial Disclosure (TCFD). These include regulations coming into force on 06 April 2022 (facing large public and private companies).

In his latest annual letter to Shareholders, the Blackrock CEO appeared to support these post-Brexit plans for UK corporate climate disclosure.

 b) FCA: ‘need to re-write Assessment of Value rules’

“Each authorised corporate director is not applying the guidelines in the same way or with the same methodology, which creates an unfair playing field. This creates an imbalance and problems.”

Last year, the UK Financial Conduct Authority (FCA) imposed an Assessment of Value (AoV) reporting obligation on local authorised fund managers (AFMs).  Each AFM must now publish an annual AoV statement containing information necessary to meet 7x key criteria including quality of service, fund performance, costs & charges, economies of scale and share class comparisons.

The first wave of AoV reporting last year was seen as a ‘disappointment’ by some governance experts.

More recently, the UK Chartered Financial Analyst (CFA) Society published results of detailed analysis based on AoV statements issued by 145 AFMs (equating GBP 1.3 trillion assets under management).

The CFA society concluded current AoV statements “fail to meet the need of investors”, given key findings:

  • 76% of reports made no reference to ESG (or how / if value was being provided in this area)
  • 62% percent of reports failed to mention any specific risks
  • 87% of reports declined to comment on liquidity
  • 42% of reports failed to state the ongoing charges figure (OCF) at individual fund level, i.e. “…one of the most basic features that ought to be available to retail investors”.

It was reported today that several experts are calling for the FCA to re-write the current value assessment rules to enable a “fairer, more consistent approach”.  Others suggest the FCA provide “more guidance on best practice”, including a review of previous AFM disclosure supplied “…highlighting disclosure examples that do not meet the spirit of the rules”.

Meantime, a reminder that some in the industry currently anticipate ESMA may seek to emulate the FCA’s AoV reporting model (i.e. on conclusion of their common supervisory action reviewing supervision of UCITS costs and fees).

c) LTAF: 2022 launch target

In the latest edition of Investment & Pensions Europe (IPE),  it is reported that the UK chancellor of the exchequer has personally set an ambitious timetable to fast-track the launch of the new UK-authorised Long Term Asset Fund (LTAF) vehicle before the end of 2021.    This would be used as a means to “help alleviate difficulties generated by COVID and Brexit” by directing pension savings into alternative investments (including “a safer way to invest in private equity”) .

NB: the LTAF was originally proposed in 2019 by the UK Investment Association (the IA), which includes Kneip as a member.

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