SFDR /taxonomy

Proposed Updates to the SFDR Level 2 and Product Disclosure Templates

As referenced in our November bulletin, the EU Commission proposed amendments to SFDR Level 2 as a result of the Complementary Climate Delegated Act (made under the Taxonomy Regulation). The amendments are currently subject to scrutiny by the European Parliament and the Council. If neither object, the Delegated Regulation was expected to be published in the OJ by 1 February 2023 and was expected to take effect three days after being published. The amendments involve updates to the SFDR product disclosure templates (the Annexes). This creates a potential need for funds to update the annexes so that the up to date version is used. Industry awaits clarification from the EU on the required approach.

A corrigendum to SFDR Level 2 was published on 27 December 2022. A further corrigendum to SFDR Level 2 was published on 12 January 2023. Both made minor amendments updating formatting and making other minor non-substantive refinements. The word templates available on ESMA's website do not reflect the changes introduced to Annex I in the above Corrigenda.

Taxonomy Regulation – draft notice with FAQs – Disclosures Delegated Act

The EU Commission published a draft notice on the interpretation and implementation of the Disclosures Delegated Act under Article 8 of the Taxonomy Regulation on the reporting of taxonomy-eligible and taxonomy-aligned economic activities and assets.

The notice with FAQs aims to provide specific guidance to non-financial undertakings falling within the scope of Article 8 of the Taxonomy Regulation (who must commence reporting their taxonomy key performance indicators as of 1 January 2023). It contains general FAQs as well as specific FAQs on turnover KPI, CapEX KPI and OpEX KPI.

The notice (with FAQs) has been approved in principle by the EU Commission and its formal adoption will take place when the language versions are available.

As referenced in our November ALG AMIF bulletin the EU Commission had previously published FAQs on the Taxonomy Regulation to clarify the content of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation

The Disclosures Delegated Act requires financial undertakings to use the KPIs disclosed by their counterparties (such as non-financial undertakings) when they calculate their green asset ratio/green investment ratio. In addition, the SFDR requires financial market participants to use the KPIs disclosed by investee companies for assessing the level of environmental performance of marketed financial products.

Both FAQs complement the 22 FAQs published by the EU Commission on 20 December 2021, on how financial and non-financial undertakings should report taxonomy-eligible economic activities and assets in accordance with the Disclosures Delegated Act

Taxonomy Regulation – draft notice with FAQs – Taxonomy Climate Delegated Act

The EU Commission also published a draft notice on the interpretation and implementation of certain legal provisions of the EU Taxonomy Climate Delegated Act which sets down the technical screening criteria for economic activities that contribute substantially to climate change mitigation or climate change adaptation and do no significant harm to other environmental objectives.

The notice with FAQs aims to facilitate the effective application of the EU Taxonomy Climate Delegated Act and to provide technical clarifications on the technical screening criteria.

The notice (with FAQs) has been approved in principle by the EU Commission and its formal adoption will take place when the language versions are available.

ESMA draft RTS/ITS for cross-border marketing and management of investment funds and the cross-border provision of services by fund managers under the UCITS directive and the AIFMD.

ESMA published a final report specifying the information to be provided, and the templates to be used, to inform NCAs of the cross-border marketing and management of investment funds and the cross-border provision of services by fund managers.

Under the UCITS Directive and the AIFMD, ESMA is empowered to draft optional RTS and ITS for the notifications of cross-border activities. The purpose of the draft ITS and RTS is to facilitate the process for notifying cross-border marketing and management activities in relation to UCITS and AIFs, as well the cross-border provisions of services by fund managers, by standardising the content and the format of the information to be submitted.

The RTS specify the information to be provided by UCITS ManCos and AIFMs wishing to carry out their activities in host Member States. The ITS contain the templates to be used by UCITS ManCos, UCITS and AIFMs to notify their intention to carry out their activities in host Member States and specify the procedure for the communication of information between NCAs as regards these notifications.

ESMA has submitted the RTS and ITS to the EU Commission for adoption within three months in the form of a Commission Delegated Regulation and a Commission Implementing Regulation. Following their adoption, the Commission Delegated Regulation and the Commission Implementing Regulation will then be subject to the non-objection of the European Parliament and of the Council.

EU Ecolabel: Calibrating green criteria for retail funds

ESMA published a TRV risk analysis report entitled EU Ecolabel: Calibrating green criteria for retail funds. The report considers the proposal for an EU ecolabel for retail financial products and sets out findings from an analysis of the three key Ecolabel criteria proposed on a sample of 3,000 sustainability oriented UCITS equity funds. Only 0.5% of the funds sampled would meet the proposed minimum portfolio greenness threshold of 50% and exclusion requirements. While the analysis focuses on funds, it is proposed that the ecolabel would apply to a broad range of retail financial products, including retail equity, bond and mixed investment funds, insurance-based investment products, and fixed-term and savings deposits.

Corporate sustainability reporting directive

The Corporate Sustainability Reporting Directive entered into force on 5 January 2023 and must be transposed by member states by 6 July 2024.

For AIFs and UCITS the following provisions (which are inserted into the Accounting Directive) are disapplied:

  • Articles 19a - Sustainability reporting
  • 29a - Consolidated sustainability reporting
  • 29d - Single electronic reporting format

Other updates to public interest entity requirements (such as diversity policy disclosures) are not disapplied.

You can read more on this topic here.

You can also read more on sustainability reporting standards here.


The ESAs published an updated Q&A on the PRIIPs KID. This followed the updated Q&A discussed in our November bulletin. The latest iteration of the Q&A reflects the new/updated requirements.

The joint ESA supervisory statement concerning the performance scenarios in the PRIIPs KID of 6 March 2019 was updated on 13 January 2023 to reflect that the statement no longer applies. This supervisory statement responded to concerns that the performance scenarios could, in certain cases, provide retail investors with inappropriate expectations about the possible returns they might receive.

A corrigendum to the Delegated PRIIPs Regulation was published. The corrigendum corrects the title of the Delegated PRIIPs Regulation to reflect Commission Delegated Regulation (EU) 2021/2268 in its title.

ESMA AIFMD Q&A on whether managers of SPACS are subject to AIFMD

ESMA issued an update to its AIFMD Q&A with a new Q&A looking at whether managers of special purpose acquisition companies are subject to the AIFMD. It concluded that the issue must be assessed on a case by case basis and provided helpful analysis.

Gender balance on boards – EU directive for listed companies

Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies and related measures has been in the legislative pipeline for ten years. It applies to listed companies with their registered office in an EU Member State and with shares admitted to trading on an EU regulated market. It does not apply to ICAVs as ICAVs are not companies. Member States must transpose into national law by 28 December 2024.

Listed companies will have to report, once a year, on the gender representation of their boards to the relevant authority set up in their jurisdiction. If the objectives have not been met, companies will need to explain how they plan to attain them. This information will have to be published on the company's website in an easily accessible manner.

By 30 June 2026 all in-scope listed companies must comply with one of the following objectives:

  • members of the underrepresented sex hold at least 40% of non-executive director positions
  • members of the underrepresented sex hold at least 33% of all director positions, including both executive and non-executive directors

ESMA peer review report on NCAS handling of firms' relocation to the EU in the context of the UK's withdrawal from the EU

ESMA published a peer review report on National Competent Authorities' (NCAs') handling of firms' relocation to the EU in the context of the UK's withdrawal from the EU. The peer review forms part of ESMA's other Brexit initiatives and is focused on how NCAs approach authorisations. The peer review was launched to assess how NCAs met applicable requirements, including ESMA opinions, when authorising relocating entities and activities from the UK to the EU. A key concern for ESMA was to ensure a level playing field.

The peer review covers the assessment of three sectors, namely MiFID firms, trading venues and fund managers, with the most prescriptive guidance for fund managers. For fund managers, France, Ireland, Luxembourg and the Netherlands were selected as those NCAs authorised the highest number. The peer review focused on the two key areas of governance and substance requirements for relocating firms and was undertaken by an ad hoc peer review committee. The recommendations are intended to strengthen future supervisory convergence in the authorisation process and may be subject to follow-up two-years' from the publication of the report. The findings were based on NCA responses to the questionnaire, virtual on-site visits and engagement with stakeholders. Differences in NCA's approaches to fund manager authorisations were identified.

Recommendations for NCAs fall under the following categories:

  • governance
  • the use of checklists
  • policies and procedures
  • committee structures
  • conflicts of interests
  • proportionality
  • the role of internal audit functions
  • human and technical resources
  • delegation arrangements
  • monitoring of white-label services

The report also identifies the key role of ESMA in driving the discussion on the cross-cutting issues of risk-based approach, the proportionality principle and outsourcing/delegation arrangements, all of which require follow-up work at EU level.


ESMA issued a consultation paper on the review of the methodology included in the Guidelines on stress test scenarios under the MMF Regulation.

This consultation aims at updating the methodology in section 4.8 of the guidelines in respect of the liquidity and macro scenarios. The proposed liquidity scenario aims at better taking into account the interaction between liquidity and redemption pressures, in light of the stress event experienced in March 2020. This complements the update that took place in 2020, with significant tightening of the parameters of the liquidity and redemption scenarios. The proposed addition to the macro scenario is intended to better capture the macroprudential impact of the scenario, by including assumptions on the underlying markets and other market participants.

The consultation paper also sets out ESMA’s considerations on a potential climate risk scenario, noting the short-term, sharp shock events usually associated with MMF stress testing, given the nature of their activities.

Stakeholder’s views are sought on the methodology, including data and the calculation of the impact. The calibration of the stress test scenarios is not part of the consultation.

Following this public consultation, ESMA will publish a final report in 2023 which will include both

  • a revised methodology on stress test scenarios and
  • the annual calibration in accordance with Article 27 (8) MMF Regulation.

ESMA published its annual update of its Guidelines On stress test scenarios under the MMF Regulation. The guidelines establish common reference parameters for the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs. The guidelines apply from 27 March 2023 (with respect to parts in red, which have been updated – the other parts of the Guidelines already apply).

As noted in our December bulletin, ESMA had published its Final Report on the 2022 update of guidelines on MMF stress tests under the Money Market Funds Regulation (MMFR) in November. The guidelines have since been translated and so are published in this annual update. The 2022 update takes into account economic uncertainties and risks for MMFs, including the recent stress episode on the GBP money market. The guidelines are updated at least every year considering the latest market developments. ESMA worked with the European Systemic Risk Board and the European Central Bank in calibrating the new risk parameters.

EMIR reporting guidelines

ESMA published its final report containing guidelines for reporting under EMIR, which includes detailed commentary on the feedback it received to its consultation. The guidelines will apply from 29 April 2024. The changes to the EMIR reporting standards that were published on 7 October 2022 take effect from 29 April 2024.

EU-US Data Privacy Framework

The EU Commission began the process to adopt an adequacy decision for the EU-U.S. data privacy framework, which will facilitate trans-Atlantic data flows and address the concerns raised by the Court of Justice of the European Union in its Schrems II decision of July 2020.

The proposal follows agreement in principle on a new EU-US data privacy framework announced in March 2022 involving new binding safeguards to address the concerns raised in the Schrems II judgement. It imposes limitations and safeguards on access to data by US intelligence agencies, and establishes a mechanism to handle complaints.

Once the adequacy decision is adopted, European entities will be able to transfer personal data to participating companies in the US, without having to put in place additional data protection safeguards. US companies will be able to certify their participation in the EU-US data privacy framework by committing to comply with a detailed set of privacy obligations (such as purpose limitation and data retention, as well as specific obligations concerning data security and the sharing of data with third parties).

It will take some time before the EU Commission can adopt the final adequacy decision.

The EU Commission developed questions and answers (Q&As) to provide practical guidance on the use of the SCCs available here.

Digital operational resilience for the financial sector

Regulation (EU) 2022/2554 on digital operational resilience for the financial sector and Directive (EU) 2022/2556 as regards digital operational resilience for the financial sector (DORA) entered into force on 16 January 2023. Member States have until 17 January 2025 to transpose the Directive into national law, which is also the date from which the Regulation will apply.​ Almost all financial entities (including UCITS ManCos and AIFMs) will be subject to DORA. Key proposals include:

  • Developing a robust, risk sensitive framework that boosts the ICT security of the financial sector.
  • Introducing a requirement for critical third-country ICT service providers to EU financial entities to establish an EU subsidiary, to ensure effective EU regulatory oversight.
  • Adoption of an additional joint oversight network, with the aim of strengthening coordination between the ESAs in respect of this area.
  • Carrying out of penetration tests in functioning mode, with the possible inclusion of several member states' authorities in the test procedures.
  • Restricted use of internal auditors in penetration tests in a number of narrowly defined circumstances and subject to satisfaction of conditions.
  • Building upon the Network and Information Security (NIS) directive, which continues to apply.
  • Providing financial entities with full clarity on the rules on digital operational resilience with which they must comply, i.e. under DORA and/or the Network and Information Security directive.

The ESAs will develop relevant technical standards in due course. On 6 February 2023, the European Supervisory Authorities will hold a public event on the upcoming DORA. The ESAs seek industry initial views and potential concerns/areas of attention on the policy mandates the ESAs will need to deliver to the European Commission 12 months after DORA enters into force and on the policy mandates with a longer deadline, which are “interlinked/bundled” with these 12-month mandates.

Operational resilience and, in particular, cyber-resilience is a priority for the CBI. This places increased emphasis on the need for financial institutions to factor this into their horizon scanning, board updates and operational risk management plans. You can read more here.

ESMA's fifth annual report on the costs and performance of EU retail investment products

ESMA published its fifth annual report on the costs and performance of European Union (EU) retail investment products. In the report ESMA looks at the market between 2012 and 2021 and finds that the costs of investing in the most important retail financial products continued to decline, albeit at a very slow pace. The report gives statistics, market environment, covers UCITS, retail AIFs, structured retail products and gives a summary.

Yet again, the report reflects the substantial impact fund costs have on the final outcome of an investment for a consumer.

The key findings in the report are:

  • Costs: Costs have declined somewhat, but investors should continue to consider fund fees carefully in their investment decisions. Active UCITS remained more expensive than passive funds and ETFs, such that their net performance was on average lower in comparison. Costs were higher for cross-border funds than those for domestic funds, mainly due to differences in distribution channels.
  • Investment value and value-for-money: Investors paid around €3,000 costs for an investment of €10,000 over the ten years between 2012 and 2021. This led to a final net value of €18,500 at the end of this period. Beyond performance and costs, the overall utility that investors can derive from investment products, i.e. their value-for-money, is gaining growing attention. Cost efficiency, as well as product design and quality, determine final investor outcomes.
  • Inflation: After more than a decade of low inflation, the recent rise in price levels has started to weigh on investor returns. In addition to the average €3,000 fund fees paid for a ten-year €10,000 investment, investors typically lose €2,000 due to inflation, reducing the net value of that investment to €16,500. Inflation differences across Member States, measured at the level of the fund domicile, add to the persistent and high differences in fund costs across the EU.
  • ESG: While equity, bond and mixed ESG funds outperformed on average their non-ESG equivalents in 2021, results differ across asset classes. In 2021, equity and mixed ESG funds outperformed their non-ESG peers but the performance of ESG bond funds was lower than the performance of non-ESG bond funds. ESG funds remained cheaper than their non-ESG peers, with the exception of equity ESG ETFs which are more expensive compared to non-ESG equity ETFs.
  • Structured Retail Products: Total costs were largely attributable to entry costs and varied substantially by country and by pay-off type. Costs of products issued in 2021 increased for a majority of payoff types and issuers compared to products issued in the previous three years.

Cost and performance of retail investment products are key determinants of the benefits and risks for retail investors in the EU. Clear and comprehensive information on retail investment products can help investors assess the past performance and costs of products offered across the EU and foster retail investor participation in capital markets. ESMA's report helps to monitor progress in this regard by providing consistent EU-wide information on cost and performance of retail investment products. It also demonstrates the relevance of disclosure of costs to investors, as required by the MiFID II, UCITS and PRIIPs rules and the need for asset managers and investment firms to act in the best interest of investors especially considering their role in manufacturing and distributing investment products.

ESMA strategy, work programme and union strategic supervisory priorities

ESMA published its Strategy for 2023-2028. ESMA will focus on strengthening supervision, enhancing the protection of retail investors, fostering effective markets and financial stability, enabling sustainable finance, as well as facilitating technological innovation and effective use of data.

ESMA also published its 2023 Annual Work Programme (AWP). It sets out ESMA's priority work areas for the next year to deliver on its mission to enhance investor protection and promote stable and orderly financial markets.

Notably, ESMA is changing its USSPs to include ESG disclosures alongside market data quality. The new priority of ESG disclosures replaces costs and performance for retail investment products. ESMA and the NCAs will work together to foster transparency and comprehensibility of ESG disclosures across key segments of the sustainable finance value chain including issuers, investment managers and investment firms, and in doing so, tackle greenwashing. ESMA aims to gradually promote an increased scrutiny on ESG disclosures through effective and consistent supervision.

Moreover, in 2023, ESMA expects to carry out a discretionary peer review on the depositary obligations under the UCITS Directive and AIFMD. The peer review would focus on the oversight and safekeeping functions of depositaries.

ESMA also plans to launch a peer review on delegation and outsourcing. The exact scope of the peer review, including sectors to be covered, will be further defined notably in light of the outcome of the peer review on NCAs’ handling of relocation to the EU in the context of the UK’s withdrawal from the EU (discussed above).


High-risk third countries

On 19 December, the EU Commission adopted a delegated regulation to amend Delegated Regulation 2016/1675 (the list of high-risk third countries for 4AMLD). The Commission proposes adding the Democratic Republic of the Congo, Gibraltar, Mozambique, Tanzania and United Arab Emirates and removing Nicaragua, Pakistan and Zimbabwe. The Parliament and Council had a one-month scrutiny period, which has now been extended by a further month.

EBA Guidelines on governance and the role and responsibilities of the AML/CFT compliance officer

The EBA guidelines on governance and the role and responsibilities of the AML/CFT compliance officer apply from 1 December 2022. The guidelines were discussed here.


The ninth package of sanctions against Russia were introduced in December 2022, adding additional individuals and entities, additional EU export bans and other measures.

Regulation (EU) 2022/2475 amends Regulation (EU) No 269/2014 and introduces an extended deadline for the derogation allowing divestments to 28 February 2023.

EU AML regulation and directive

The EU Council has agreed its position on the proposed AML regulation and AML directive and will progress to trilogue negotiations with the European Parliament.

Latest proposals include the following:

  • Third countries – scrapping separate EU lists: Third countries that are listed by FATF will also be listed by the EU. There will be two EU lists, a "black list" and a "grey list", reflecting the FATF listings. The Commission will not be required to redo the identification process performed by the FATF. This is to ensure that FATF lists are transcribed in a timely manner and to avoid wasting resources. Once a third country appears on one of these lists, the EU will apply measures proportionate to the risks posed by the country.
  • Beneficial ownership rules:
    • Beneficial ownership rules will be more transparent and more harmonised. In particular, beneficial ownership will be based on two components – ownership and control – which need to be analysed in order to assess how control is exercised over a legal entity. Rules for multi-layered ownership and control structures are also clarified. The Council also spells out further how to identify and verify the identity of beneficial owners across types of entities, including non-EU entities. Data protection and record retention provisions are also clarified.
    • Ownership thresholds: The threshold remains at 25% ownership with a control element. Helpfully, the 25% threshold applies to trusts operating as collective investment undertakings.
    • Public access to beneficial ownership information now include a balancing of privacy rights with transparency concerns.
  • New designated persons: Third-party financing intermediaries will also be subject to the obligations of the regulation.
  • The package also provides for the clarification of outsourcing provisions, the clarification of the powers of supervisors, a minimum set of information to which all financial intelligence units should have access, as well as improved cooperation among authorities.

EBA consultation on new guidelines on the management of ML/TF risks in the context of de-risking

The EBA launched a public consultation on new guidelines on the effective management of ML/TF risks when providing access to financial services. The EBA aims to ensure that customers, especially the most vulnerable ones, are not denied access to financial services without valid reason. The consultation closes on 6 February 2023.

EBA Guidelines on the use of remote customer onboarding solutions

The EBA published its final guidelines on the use of remote customer onboarding solutions. These guidelines set out the steps credit and financial institutions should take to ensure safe and effective remote customer onboarding practices in line with applicable AML/CFT legislation and the EU's data protection framework. The guidelines apply to all credit and financial institutions that are within the scope of 4AMLD/5AMLD.

Draft Directive to harmonise criminal offences and penalties in respect of EU sanctions and restrictive measures across the EU.

The EU Commission published a proposal for a directive on the definition of criminal offences and penalties for the violation of European Union restrictive measures. The draft directive sets out definitions for criminal offences related to violations of sanctions and also sets out minimum penalties for such violations for legal and natural persons.