Update on SFDR/Taxonomy for Luxembourg funds

Luxembourg

I. RTS applicable as of 1 January 2023

The main disclosure requirements under the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR) are applicable since 10 March 2021. Draft Regulatory Technical Standards (RTS) complementing and further clarifying the disclosure of the required information under the SFDR have been first developed by the European Supervisory Authorities (ESAs) in February 2021, with the final and updated draft of such RTS submitted to the European Commission on 22 October 2021. The latest draft RTS detail the content and presentation of the disclosures required under SFDR, as amended by the Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation) and their formal adoption by financial market participants and financial advisers is still conditioned to the European Commission’s ‘green light’.

The application date of the RTS, initially planned on 1 January 2022, had already been shifted to 1 July 2022 by the European Commission, recommending in parallel that the RTS be adopted into one single delegated act.

On 29 November 2021, the European Commission announced that, due to the technicality and extent of updates made to the latest version of the draft RTS, the application of such single delegated act encompassing the RTS will be further postponed by a period of six months, resulting to 1 January 2023.

II. What does it mean?

The delay in the application of the RTS gives more time to financial market participants and financial advisers to prepare for the detailed disclosures required under the SFDR and the Taxonomy Regulation, depending on the case, for “article 8” or “article 9” financial products. Such delay may also be deemed beneficial to investors who in turn can rely on more precise sustainability-related disclosures, as more accurate and comparable data may become available by the time that the RTS are entering into force.

However, the European Commission confirmed that the financial market participants which already consider principal adverse impacts on sustainability matters (PAI), or contemplate in doing so in the future, will have to proceed with the relevant required disclosures in the manner proposed by the concerned delegated act capturing the RTS on their website by 30 June 2023, with the first reporting period being 1 January 2022 to 31 December 2022.

As a result, financial market participants and financial advisers, which consider PAI, are urged to start collecting the relevant data as of the beginning of January 2022, while also addressing the challenges brought by the non-finalised rules.

III. Interim period

By a communication dated 2 December 2021, the CSSF encourages financial market participants and financial advisers to start using the templates provided in the final draft RTS dated 22 October 2021 for disclosure purposes. This applies especially to financial market participants and financial advisers, subject to the application of the SFDR, especially those who manufacture, distribute or advise on “article 8” or “article 9” financial products. The adhesion to the draft RTS during the transitional period should be done on a best effort basis.

IV. Taxonomy Regulation FastTrack procedure

In the same communication dated 2 December 2021, the CSSF brings awareness to the fast-track procedure eventually put in place to facilitate the amendment of the pre-contractual documents in compliance with the Taxonomy Regulation by 1 January 2022.

For UCITS prospectus reflecting the changes required under Article 5, 6 or 7 of the Taxonomy Regulation only, the prospectus must be submitted to the CSSF together with a specific confirmation letter, available on the website of the CSSF. To receive the visa stamp prior to 31 December 2021, complete and compliant submission under the Taxonomy Regulation FastTrack procedure should be received by the CSSF by 17 December 2021 the latest.

With regards to AIFs, the procedure is different as no specific confirmation letter is to be used. Financial market participants managing Luxembourg based AIFs, whether they are authorised or registered by the CSSF, should submit via email to the CSSF, the specific information required to disclosed in pre-contractual documents under SFDR and the Taxonomy Regulation. The information thus submitted to the CSSF must strictly be limited to the aforementioned disclosures. To facilitate the process, the financial market participant must clearly indicate where such information has been disclosed to the investors.

Although implemented only one month prior the application date of the Taxonomy Regulation, the FastTrack procedure is welcome and will allow financial market participants to be compliant with the Taxonomy-related disclosure requirements on time for 1 January 2022.