ESMA addresses asset management industry on sustainable finance and systemic risk

On 24 March 2022, Natasha Cazenave, Executive Director of the European Securities and Markets Authority (ESMA), delivered her keynote speech to the participants of the ICI Investment Management Conference 2022.

In her speech, Cazenave addressed the two main themes of: (1) developing a framework for the asset management industry to positively contribute to the climate transition, and (2) strengthening the resilience of investment funds to market, credit and liquidity shocks.

On climate transition, ESMA:

  • together with the European Banking Authority (EBA) and European Insurance and Occupational Pensions Authority (EIOPA), will continue their cooperation with the US regulators and IOSCO to deliver the IOSCO sustainable finance work plan;
  • together with the EBA and EIOPA, are preparing for the review of the indicators for principal adverse impacts – a key part of the European Sustainable Finance Disclosure Regulation (SFDR) disclosures;
  • expects to provide technical advice to the European Commission on Articles 8 and 9 of SFDR to ensure that investors are offered financial products which match the sustainability features of their preferences;
  • will publish guidance and Q&As on stakeholder questions on the implementation and timing of the SFDR;
  • will ensure that investors are not subject to potentially misleading disclosures by product providers regarding the level of ambition of the taxonomy alignment of products or financial market participants;
  • continues to advocate for adequate oversight of ESG rating providers to ensure sufficient transparency on the methodologies used and the information provided to the market is reliable and comparable;
  • is working with national authorities to ensure consistent supervision of the sustainability disclosures for investor protection purposes; and
  • expects fund managers to provide a transparent and accurate description of the products for investors to make informed decisions.

As regards systemic risks:

  • ESMA actively contributes to the discussions with the ECB, the European Systemic Risk Board (ESRB) as well as the Financial Stability Board (FSB) and IOSCO and has made a number of concrete proposals in the area of investment funds with a view to strengthening the overall resilience of the financial system;
  • the European Commission is expected to launch the review of the EU Money Market Fund (MFF) Regulation by mid-2022 and ESMA has made the following specific proposals:
    • removing the possibility to use amortized costs for Low Volatility NAV MMFs (LVNAV);
    • decoupling regulatory thresholds from suspensions, gates and redemption fees, for LVNAV, and for Constant NAV (CNAV) MMFs;
    • increasing the daily liquid asset/weekly liquid assets ratios of Variable NAV MMFs (VNAV) and LVNAV MMFs;
  • ESMA has issued guidelines in liquidity stress testing and is actively monitoring liquidity risks within open-ended funds (these risks are particularly significant in the case of leverage funds); and
  • ESMA has launched  the ESMA “Common Supervisory Action” on fund valuation – with a special focus on authorised managers investing in less liquid assets (e.g. unlisted equities, unrated bonds, corporate debt, real estate, high yield bonds, emerging markets, listed equities that are not actively traded, bank loans).

FIN. Team