SFDR: Commission delays Level 2 RTS by a further 6 months

What are the reasons for the delay?

Similarly to the initial delay, the Commission noted that further time was necessary because of:

• the length and technical detail of the 13 regulatory technical standards included within the Level 2 measures;
• the late submissions of the draft Level 2 measures to the Commission; and
• the need to facilitate the smooth implementation of the Level 2 measures by product manufacturers, financial advisers and supervisors.

What does this further delay mean?

Although the further delay has been expected and will largely be welcome given the many outstanding issues with implementation, this further delay simply prolongs a lot of uncertainty and indeed the letter raises additional confusion in relation to the PAI requirements, as set out below.

Updates that can be delayed:

• Pre-contractual disclosure will not require further amendment until 1 January 2023;
• Website disclosures will not require further amendment until 1 January 2023; and
• Periodic reports issued during 2022 will not need to comply with the Level 2 standards.

Updates that cannot be delayed:

• There is no change to the upcoming 1 January 2022 deadline for pre-contractual and periodic disclosures under Level 1 of the EU Taxonomy;
• There is no change to the implementation dates of the delegated acts amending UCITS, AIFMD and MiFID.

Uncertainty over PAI

The Commission’s letter differentiates principal adverse impacts (PAI) reporting from the rest of the Level 2 delay – which is perhaps an odd position given that the detailed PAI requirements are set out in Level 2 and means that there would be a retrospective application of the Level 2 standards in respect of PAI.

The Commission notes that, despite the other delays, financial market participants publishing statements under Article 4(1)(a), 4(3) or 4(4) (ie, those entities opting to take PAI into account or those entities caught by the mandatory reporting requirements), will be required to comply with the relevant disclosures on PAI for the first time by 30 June 2023 – meaning that the first reference period will be 1 January 2022 to 31 December 2022.

As such, managers falling within Articles 4(1)(a), 4(3) or 4(4) will need to proceed with their work on PAIs on the assumption that the first calculation period will start in one month.

We understand that EFAMA will be engaging with the Commission for further clarity on this (and other) points.

We will keep our clients up to date on the changing regulatory landscape in this area. Please do contact us if you require any assistance with your implementation programmes or to discuss the implications of this latest delay.