Written by Regulatory Watch #03 | January & February 2022
Welcome to our monthly Regulatory Watch.
It covers the key regulatory developments of the month that impact Investment Management and Banking industries, globally, in the EU and the UK.
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Executive Summary
The past two months have seen a number of significant regulatory developments.
A first set of EU taxonomy criteria going live while the fate of natural gas and nuclear remains uncertain
With the Commission Climate Delegated Act (DA) published in the Official Journal of the EU on 10 December 2021, the first two climate objectives became effective on 1 January 2022. The Platform on Sustainable Finance (PSF) is expected to submit its final recommendations to the Commission on the Technical Screening Criteria (TSC) for the other four environmental objectives in the Taxonomy (water, circular economy, pollution prevention & control, and biodiversity & ecosystems) in Q1 2022.
As of today, the DA does not include TSC for natural gas and nuclear energy. The Taxonomy Regulation reflects a delicate compromise on whether or not to include them in the EU Taxonomy and their inclusion has been subject to technical assessment.
On 31 December 2021, the European Commission began consultations on a draft text of a Taxonomy (complementary) Delegated Act including certain gas and nuclear activities. Taking account of scientific advice and transition challenges across Member States, the Commission considers there is a role for natural gas and nuclear to facilitate the transition towards a predominantly renewable-based future. Within the Taxonomy framework, this would mean classifying these energy sources under clear and tight conditions as they contribute to the transition to climate neutrality.
Once the consultation and usual scrutiny periods are over and assuming neither of the co-legislators object, the (complementary) Delegated Act will enter into force and apply.
Additional delay announced for SFDR level two implementation
The European Commission (EC) has once again delayed the implementation of the Sustainable Finance Disclosure Regulation (SFDR) level two measures. The Deputy Director-General of the EC announced in a letter the deferral of delegated act to 1 January 2023, due to the length and technical detail of the 13 Regulatory Technical Standards under consideration, the time of the submissions to the Commission, and to facilitate a smooth implementation. However, the letter envisages that the first entity level report on principal adverse impact indicators (PASI) under the delayed Regulatory Technical Standards (RTS) will be due by 30 June 2023, and that the first reference period for that report will be the 2022 calendar year. Therefore, firms will still be required to collect data on PASIs from 1 January 2022.
Mandatory climate-related disclosures for a larger scope of UK-registered compagnies
From 6 April 2022, over 1,300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis – in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD). This will include many of the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and £500 million in turnover.
Recently, the FCA published two policy statements confirming further rules and guidance to promote better climate-related financial disclosures. Moreover, the FCA extended the application of TCFD-aligned listing rule for premium-listed commercial companies to a wider scope of listed issuers and introduced TCFD-aligned disclosure requirements for asset managers and asset owners.
New climate-related disclosure rules apply from 1 January 2022 for the largest in-scope firms and 1 year later for smaller firms above the £5 billion exemption threshold. The first public disclosures in line with the FCA requirements must be made by 30 June 2023.
Last year, the Financial Reporting Council (FRC) published a report to help companies prepare for mandatory TCFD reporting.
These regulatory developments are covered in more detail in this month’s edition, alongside other significant updates and are organised by geography: International, European and the UK, main topic: Prudential Regulation, Sustainable Finance, Market developments…
Neofin Advisory 