Laws and Regulations

Technical standards with which sustainability information must comply are becoming clearer as far as the European supervisory authorities are concerned. They published a comprehensive consultation paper with a high level of detail and many calculation formulae on the level 2 implementation of the EU’s Sustainable Finance Disclosure Directive, or SFDR. The industry can propose amendments up to 4 July.

Fund firms face the prospect of EU rules setting standards of “value for money” for their investment products under the Retail Investment Strategy due to be unveiled on 24 May. This could include disincentives, for example, to charging active management fees for an investment that underperforms an index fund. For all the discussion of a ban on inducements for investment advice, the commission has decided to propose a more limited inducement ban on execution-only investments. 

Europe’s top regulator for securities and financial markets on Wednesday said it believes there is a need for EU-level legislation to make sure investors do not bear costs that are considered excessive, unnecessary, or unreasonable when they put their money in investment funds.

Current efforts to address global biodiversity loss are inadequate and face a financing gap of between 598 billion and 824 billion dollars per year, a new study has concluded. To address this gap, governments and businesses need to support the introduction of ‘biodiversity credit markets’, to be modelled in a manner similar to the carbon credit markets that already exist.

André Bauler, member of the Luxembourg parliament for the Democratic Party, on Friday was appointed by the parliament’s finance and budget committee to coordinate the different political positions for the upcoming discussions on a proposal to update the grand duchy’s investment fund laws.

Luxembourg is set to modernise its legislation for investment funds under a proposal that will first be discussed later this week in the grand duchy’s parliament. The bill seeks to improve the various structuring options for investment funds. 

The parliament budget and finance committee on Friday will discuss Bill 8183, which was submitted at the end of March. At the 5 May meeting the committee is due to appoint a rapporteur who will coordinate the legislation.

The presentation of the European Commission’s long-awaited retail investment strategy, has now been delayed once more, from an early May to a tentatively scheduled 24 May date, according to a person familiar with the policymaking process in Brussels.

In Luxembourg, the financial sector is concerned about whether the Commission will opt for a ban on inducements on investment advice as part of its strategy.

The Luxembourg government clarified its application of the reverse hybrid rule in the EU’s second anti-tax avoidance directive (ATAD-2) last November, in 2022. It made clear that tax-exempt investors are exempt from the application of the reverse hybrid rules and clarified when they do apply to other investors. With the “quite helpful” clarification bringing simplification in one area, the quest for certainty has moved to related issues, such as allocating the potential tax burden if a given investor triggers it.

The Luxembourg financial community is concerned that schemes such as ATAD-3, which targets shell companies or the Pillar II implementation on international corporate taxation could intentionally or unintentionally affect until now perfectly legal tax or investment fund structures.

Luxembourg management companies are drawing attention to the increasing reporting burden that often lands on their shoulders when European level regulation, such as the cross-border fund distribution directive, is passed. These requirements, they argue, often simply serve to placate national authorities over their lost jurisdiction. “It’s creating an additional burden on the investment fund manager,” said Chloé Piquet, a senior manager in regulatory services at Deloitte.