IOSCO is requesting feedback, until August 15, 2021, on the proposed recommendations on sustainability-related regulatory and supervisory expectations in asset management. The recommendations cover five areas: asset manager practices, policies, procedures and disclosures; product disclosures; supervision and enforcement; terminology; and financial and investor education. The recommendations aim to address various challenges, such as existing gaps in skills and expertise and the risk of fragmentation caused by divergent regulatory approaches. These challenges may further contribute to a lack of comparability for sustainability-related products, creating difficulties for investors’ monitoring and decision-making and, therefore, facilitating greenwashing.
The consultation report on proposed recommendations outlines the types of greenwashing at the asset manager and product levels, describes the different regulatory approaches taken by securities regulators to address sustainability-related risks and opportunities, and provides an overview of the financial and investor education initiatives conducted by regulators. The consultation report further discusses asset managers’ sustainability-related practices and firm-level disclosures, which are broadly categorized into governance, strategy, risk management, and metrics and targets. This categorization is consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The consultation report proposes the following recommendations designed to provide a list of potential areas for regulatory consideration, in line with the domestic regulatory frameworks:
- Asset Manager Practices, Policies, Procedures, and Disclosures. Securities regulators and/or policymakers, as applicable, should consider setting regulatory and supervisory expectations for asset managers in respect of the development and implementation of practices, policies, and procedures related to sustainability-related risks and opportunities, along with the related disclosures.
- Product Disclosures. Securities regulators and/or policymakers, as applicable, should consider clarifying and/or expanding on the existing regulatory requirements or guidance or, if necessary, creating new regulatory requirements or guidance, to improve product-level disclosures to help investors better understand sustainability-related products and material sustainability-related risks for all products.
- Supervision and Enforcement. Securities regulators and/or policymakers, as applicable, should have supervisory tools to ensure that asset managers and sustainability-related products are in compliance with regulatory requirements and enforcement tools to address any breaches of such requirements.
- Terminology. Securities regulators and/or policymakers, as applicable, should consider encouraging industry participants to develop common sustainable finance-related terms and definitions to ensure consistency throughout the global asset management industry.
- Financial and Investor Education. Securities regulators and/or policymakers, as applicable, should consider promoting financial and investor education initiatives relating to sustainability, or, where applicable, enhance existing sustainability-related financial and investor education initiatives.
The consultation report also highlights a clear need to address challenges associated with the lack of reliability and comparability of data at the corporate level as well as the environmental, social, and governance (ESG) data and ratings provided by third-party providers. The recently published report on sustainability-related issuer disclosures addresses data gaps at the corporate level, while a separate IOSCO report, to be published in July, will cover the proliferation of data and ESG ratings providers.
Comment Due Date: August 15, 2021
Keywords: International, Banking, Securities, Disclosures, Sustainable Finance, ESG, Climate Change Risk, TCFD, IOSCO
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.