European Commission Publishes Legislative Proposals on Sustainable Finance Which Impacts Asset Managers

The EU Commission presented a package of measures on 24 May 2018, as a follow-up to its action plan on financing sustainable growth. The package includes 3 proposals aimed at:

• Establishing a unified EU classification system of sustainable economic activities ('taxonomy'). 
• Improving disclosure requirements on how institutional investors integrate environmental, social and governance (ESG) factors in their risk processes.
• Creating a new category of benchmarks which will help investors compare the carbon footprint of their investments.

In addition, the Commission is, from 24 May to 21 June 2018, seeking feedback on amendments to delegated acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients. The new requirements shall apply 18 months after the date of entry into force.

The proposed new legal rules could have a significant impact on asset managers, institutional investors, insurance distributors and investment advisors as they will have to disclose how they integrate ESG risks in their investment decision-making and advisory process.

The Commission has published a Factsheet for further information.

Read: Factsheet: Delivering on sustainable finance for a greener and cleaner economy: First actions.

BaFin Publishes New Circular Addressing Anti-Money Laundering Customer Due Diligence

BaFin published the Circular Letter 7/2018 (GW) on 5 May 2018, in which BaFin names various third-countries (North Korea, Iran, Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Laos, Syria, Uganda, Vanuatu, Yemen, Ethiopia, Sri Lanka, Trinidad and Tobago and Tunisia), for which an enhanced customer due diligence standard shall be applied. Bodies in the financial sector subject to the money laundering supervision of BaFin include not just credit institutions, financial services institutions and payment institutions, but amongst others also life insurance undertakings, German asset management companies (Kapitalverwaltungsgesellschaften) and branches of EU or foreign management companies.

With regard to all countries mentioned above, BaFin requires from covered entities when doing business or transactions with these countries or with natural or legal persons domiciled in those countries, to apply at a minimum the enhanced customer due diligence standard further described in section 15 (3b) and (4) of the German Federal Act on the Prevention of Money Laundering and Terrorist Financing (Geldwäschegesetz – GwG).

In addition, BaFin requires that the results of the respective due diligence and monitoring measures are documented in a comprehensible manner for internal audit, year-end or special audits.

For business or transactions with North Korea additional requirements apply, for example with regard to the determination of the beneficial owner, in particular when legal persons and companies are involved.

Read: BaFin's Circular Letter 7/2018 (GW) (in German).