Fast track process for SFDR updates

Summary

The Central Bank of Ireland (the “Central Bank”) has confirmed that it will implement a fast track process to deal with the significant number of prospectus updates that will need to be filed by 10 March 2021 in accordance with the Sustainable Finance Disclosure Regulation (SFDR).

Background

The Sustainable Finance Disclosure Regulation (the "SFDR") will become directly applicable in Ireland on 10 March 2021.  The SFDR contains various mandates for the European Supervisory Authorities (the "ESAs") to develop level 2 measures - the regulatory technical standards which provide the details of the content, methodology and presentation of sustainability-related disclosures.

The original deadline for these level 2 measures was 31 December 2020, however the ESAs have indicated that, partly due to disruption caused by covid-19, they will not meet this requirement.  The level 2 measures are instead likely to be available during January 2021, and this prompted the Commission to write to the ESAs to confirm that the level 2 measures would apply at a later stage.  A summary of the effect of this delay on the SFDR generally is available here. 

Application to Investment Funds

Irrespective of the delay, financial market participants such as AIFMS and UCITS ManCos will be required to comply with the following obligations on a high level and principled basis from 10 March 2021:

• new disclosure requirements for all funds and additional requirements on funds which are classified as 'Light Green' (under Article 8 of the SFDR) or 'Dark Green' (under Article 9); and

• disclosures required under Article 6 and Article 7 of the SFDR which apply to all funds.

From a practical perspective, this means that a large number fund prospectuses will need to be updated and filed with the Central Bank before the March deadline.  The Central Bank points out that responsibility rests with the relevant fund manager to ensure that their disclosure is appropriate to their particular funds and has confirmed that it does not intend to issue guidance on any aspect of the SFDR at this time, to avoid diverging from the European approach.

Fast track

To ensure orderly implementation, the Central Bank has confirmed to the Irish Funds trade association that it will establish a fast-track filing process for prospectus updates based on the SFDR Level 1 text, under which fund managers will be able to self-certify their compliance with the SFDR.

The Central Bank will not subject prospectus updates which are limited to SFDR compliance to a post authorisation review until the Level 2 measures do come into effect.

Importantly, the Central Bank has underlined that the fast-track regime should not be seen as providing scope for a lesser quality of disclosures than would otherwise be produced.

The Central Bank has also advised that 2021 will see it focussing on the impact of proposed SFDR-related changes to the UCITS and AIFMD frameworks and its supervisory role in respect of these changes.

Conclusion

We expect to see a formal communication of the fast-track process in the coming weeks. In the meantime, the Director of Financial Regulation at the Central Bank has made some additional remarks on the implementation of the SFDR, including:

• The synchronisation issues that exist between the SFDR, the Taxonomy Regulation and the Non-Financial Reporting Directive; and

• The cross-over in relation to concepts such as 'do no significant harm' and 'sustainable investments'; and to the availability of enhanced and timely data from the non-financial sector, which again ties in with the Non-Financial Reporting Directive.

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