Investment management update - September 2023

04 October 2023

Welcome to the latest edition of our investment management update. This publication has been tailored to highlight topical news, cases and changes in the law impacting the investment management sector.

On 25 September 2023, the FCA and PRA jointly consulted on mandating large regulated firms to make diversity-related disclosures as well proposing changes to better integrate non-financial misconduct considerations into staff fitness and propriety assessments, the application of the Conduct Rules and the Threshold Conditions. The proposals would update the existing regulations on ethnicity and gender reporting on a “comply or explain” basis to instead require firms with more than 250 employees to report across a range of diversity-related characteristics. The largest firms would also be required to have targets and a strategy to address under-representation. The consultation will close on 18 December 2023 and reporting would begin in 2026.

On 14 September 2023, the European Commission published a consultation on potentially wide-ranging reforms to the Sustainable Finance Disclosure Regulation (SFDR). The consultation included a targeted questionnaire which requests views on all aspects of the regime, including the SFDR’s aims and impacts on the market, and suggests possible changes such as the creation of an explicit fund labelling regime (as the AMF has called for) and a requirement for all products (and not only ESG products) to make sustainability-related disclosures. The consultation concerns possible changes to the SFDR’s Level 1 legislation. The ESAs are separately considering changes to the Level 2 legislation and the SFDR’s reporting templates. The Commission is not likely to announce its intentions for reform until early-to-mid 2024 at the earliest. Read more about the consultation and its relation to the UK’s upcoming ESG regime in our analysis note.
On 6 September 2023, the ESAs announced a Common Supervisory Action (CSA) on sustainability-related disclosures and the integration of sustainability-related risks. ESMA, EIOPA, and the EBA will work with national competent authorities to assess compliance with the SFDR, the Taxonomy Regulation, and the UCITS and AIFMD requirements in relation to ESG. The ESAs will design a common methodology to ensure consistent assessment across the EU, with an aim to reinforcing consistent implementation of the regulations. The CSA will continue until the third quarter of 2024.
On 5 September 2023, the Global Reporting Initiative (GRI) and EFRAG released a joint statement confirming the interoperability of the GRI Standard and the European Sustainability Reporting Standards (ESRS), which form the core of the EU’s Corporate Sustainability Reporting Directive. The statement claims that although there is not complete alignment in the standards, the consistency of definitions, concepts, and the double materiality approach (i.e., considering sustainability-related risks on the company and the company’s potential impact on the wider world) minimise the reporting burden on companies that disclose under both standards.

On 20 September 2023, the Taskforce on Nature-based Financial Disclosures (TNFD) published its final recommendations for company nature and biodiversity-related reporting. TNFD reporting is a voluntary standard, similar in structure to the Task Force on Climate Related Disclosures (TCFD) standard for climate-related reporting. The TNFD has received widespread backing, including from the UK Government, and it is possible that the standard will become mandatory in some jurisdictions. The ISSB has also said that it will consider the TNFD and TCFD in its future work, pointing to an eventual consolidated, universal standard for sustainability-related reporting. Read more on TCFD in our website article.
On 14 September 2023, IOSCO published a consultation on its recommendations for decentralised finance (DeFi). IOSCO’s recommendations cover six areas including the identification and management of risks, and cross-border cooperation in regulation and supervision. The proposals are intended to help governments and regulators develop policies in relation to DeFi, with a broader aim of addressing risks in developing technology in an equivalent way to traditional finance. The consultation will close on 19 October 2023.