A focus on sustainability, digital resilience, and regulatory compliance will significantly influence investment strategies and operations, demanding heightened vigilance and adaptability from global asset managers. As Investment Officer Knowledge Partners, Tom Loonen, Lous Vervuurt and Jan Saalfrank at Pinsent Masons review key developments in Luxembourg and Dutch fund matters.
CSSF: Clarification on annual update in KID and KIID
In their latest December 2023 communication, the CSSF clarified, via corresponding updates of its FAQ on the UCI Law and its FAQ on the AIFM Law, the process to be adhered to by Ucits/AIFs when submitting the yearly update of their KIDs or Kiid.
For Ucits creating a KID in accordance with the PRIIPs Regulation, the CSSF expects an update of the KID every 12 months in the form of a general annual update. To be precise, there is no specific yearly timeline for this, which means that the 12 months begin to commence on the date of the last version of the Priips KID. This being said, it is the recommendation by the CSSF, to submit the general update within 35 business days after 31 December of each year as good market practice.
Same goes for the website or document where past performance of the UCITS is reported. It must be updated within 35 business days after 31 December of each year, unless the Priip manufacturer has included the past performance data in the Priips KID itself.
For AIFs that prepare a KID, the CSSF applies the same rules as aforementioned, i.e. an update every 12 months in the form of a general annual update, but AIFs are not bound by a specific yearly timeline, meaning that the 12 months timeline starts on the date of the last version of the PRIIPs KID.
The rules for the annual Ucits Kiid update remain unchanged.
Greenwashing: an evergreen topic
On 12 December 2023, the European Insurance and Occupational Pensions Authority (EIOPA) launched a public consultation on its draft opinion on sustainability claims and greenwashing (EIOPA Opinion).
The appetite of European insurance consumers and pension savers for buying sustainable insurance or pension products is on the rise. This has also been well noted by Eiopa as corresponding product offers by insurance and pension providers in the “Sustainability Sphere” are increasing, but at the same time a rising number of misleading sustainability claims are reported: “greenwashing”.
Consequently, the Eiopa Opinion aims to ensure consistent outcomes across the EU, by setting out a framework designed to assist competent authorities in their monitoring of insurance and pension providers regarding greenwashing and associated problems.
The Eiopa Opinion applies to all entities and products under Eiopa’s remit, except for points referring to specific regulatory requirements or to Eiopa’s guidance on the integration of sustainability preferences in the suitability assessment.
Four common principles have been outlined in the Eiopa Opinion that insurance and pension providers should observe when making sustainability claims:
- Sustainability claims made by a provider should be accurate, precise, and consistent with the provider’s overall profile and business model, or the profile of its product(s).
- Sustainability claims should be kept up to date, and any changes should be disclosed in a timely manner and with a clear rationale.
- Sustainability claims should be substantiated with clear reasoning and facts.
- Sustainability claims and their substantiation should be accessible by the targeted stakeholders.
Eiopa has also outlined examples for each principle, to make them more concrete on what is considered as “good” and “bad” practice. Hence, national authorities in the member states shall ensure adherence to the above principles, shall closely examine sustainability-related terms in product names and ultimately ensure regulatory compliance of all market participants in this field.
Comments to the Eiopa Opinion can be submitted until 12 March 2024 and Eiopa will assess within the next two years any actions taken by national competent authorities. So it is clear that Greenwashing will remain for now an evergreen topic on the radar of supranational and national authorities.
Dutch AFM priority: ‘A robust and adaptable asset management sector’
The supervisory agenda 2024 of the Dutch AFM contains major trends and risks and outlines the supervisory priorities and activities of the AFM in the upcoming year. For the asset management sector, the AFM indicates that it will closely monitor risks arising from digitalisation, sustainability and internationalisation trends. The AFM identifies major risks from e.g. “progressive outsourcing” of business processes, which may cause issues as cyber incidents. In that light, we remark that the Digital Operations Resilience Act (Dora) (applies from January 2025 onwards) provides an important set of regulations to be in control of the entire chain. The first set of final draft regulatory standards under DORA was published on 17 January 2024.
The AFM further specifically mentions the use of AI systems that can be of help, though asset managers must remain able to explain their models, to avoid that in the end, nobody will understand them. Not surprisingly, the AFM will focus on sustainability issues, the risks that go therewith and the transparency towards the investors. In that light, the AFM will follow up on risk control in respect of the use of ESG data by asset managers.
In closing
Important new financial legislation such as Dora, will come into effect soon. Furthermore, the Regulation on Financial Data Access (FIDA), which opens the transition from “open banking” to “open finance” (also applicable to AIF and Ucits manager) will be further elaborated on. The year 2024 will in many aspects be an interesting year for the fund sector.
Tom Loonen is professor of financial law VU University Amsterdam and special counsel Pinsent Masons Netherlands. Jan Saalfrank is an investment funds partner at Pinsent Masons Luxembourg. Lous Vervuurt is a lawyer at Pinsent Masons Netherlands and advises clients on financial regulation and anti-money laundering compliance. The law firm is a knowledge partner of Investment Officer.
Further reading on Investment Officer:
- Esma makes cyber risk top EU supervisory priority for 2025
- Iosco’s next goal: aligned supervision on greenwashing
- CSSF: Luxembourg funds, at €5,285 bln, back to growth