The German supervisory authority, BaFin, is radically changing its supervisory practice following the launch of European Securities and Markets Authority’s (ESMA) guidelines on fund names, as the new rules also apply to Spezialfonds open to pension funds and other institutional investors.
ESMA’s guidelines will “completely replace” BaFin’s old supervisory approach, introduced only two years ago, and involve the use of terms relating to sustainability only for mutual funds (Publikumsfonds) open to private investors, said Thorsten Pötzsch, the regulator’s executive director of securities supervision and asset management.
The guidelines now apply to all funds regulated in the European Union, including Spezialfonds only open to professional investors, he said, adding that in the future, the regulator will pay attention only to funds’ names, whereas previously it looked at how providers marketed funds to investors.
From now on, the question of whether a fund is marketed as “explicitly sustainable” no longer plays a role, the regulator added.
“ESMA’s guidelines are very important. We now have uniform rules for the entire EU,” Pötzsch said.
BaFin is already considering ESMA’s guidelines on fund names when processing applications to authorise asset management companies to launch funds in Germany, even though the guidance is valid for all new funds three months after their publication on the authority’s website in all EU official national languages, which could happen this month, it said.
“Existing funds that have sustainability-related terms in their names will likely have to comply with the requirements from spring 2025. The exact date for that will depend on the date of publication of the translations of the guidelines in all official EU national languages on the ESMA website,” Pötzsch said.
The regulator will refrain from considering adjusting investment terms of existing funds as a change of investment principles, or as a change in terms of “essential investor rights” that disadvantage investors, BaFin added.
This approach applies in particular if investment terms already meet BaFin’s requirements for sustainable investment funds specified in the old supervisory practice, and if the information in the pre-contractual ESG appendix to the sales prospectus of funds disclosing their sustainability characteristics in line with Article 8 or Article 9 of the Sustainable Finance Disclosure Regulation (SFDR) already has minimum commitments and exclusion criteria as binding characteristics of the ESG strategy matching exclusions in the ESMA guidelines, BaFin said.
ESMA’s guidelines establish three groups of names including transition, social or governance, environmental or impact-related, and sustainability-related funds.
“Transition” or “transformation” funds comply with the less strict exclusion criteria of the Climate Transition Benchmark, as opposed to the Paris-Aligned Benchmark.
This approach is “consistent” with the goal of these “special funds” to achieve change with the money invested particularly in companies that, for example, generate more than 10% of their revenues from the exploration, production, distribution or refining of crude oil, the regulator said.
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