Feedback on Consultation Paper No. 1 2021 Disclosure requirements related to Sustainable Investments

Sustainable Investment: An investment or investments which contribute to either an environmental or social objective.

When a Fund/JPF/Registered person is marketed on the basis of investing in a Sustainable Investment as part of its investment objective, it must disclose (via website or pre contractual document/prospectus or documents in which the terms of investing in the Fund/JPF are contained such as a subscription agreement) all material information in relation to the Sustainable Investment strategy and objectives; including but not limited to:

• alignment with any specific taxonomy or where there is no alignment to a specific taxonomy a statement to that effect;
• the proportion of investments that are sustainable;
• the basis on which due diligence, benchmarking, and performance measurement and reporting, are likely to be conducted; and
• any limitations to methodologies and data.

Transition Period

Upon effective date for new funds (15 July 2021), with a six month transition for funds existing prior to 15 July 2021 (17 January 2022).

When a registered person provides investment advice to its Client in relation to a fund that is marketed on the basis of investing in a Sustainable Investment as part of its investment objective, the registered person must inform, and make available to the Client, the appropriate disclosure information in relation to the sustainable investment strategy and objectives of the fund.  If no such information is available the Client must be informed of that fact.

Transition Period

Upon effective date (17 January 2022); effectively a six month transition period.

Feedback/concern

Suggestion made to change the definition to include ‘an investment or investments’, and to rearrange the marketing sentence for improved clarity given a Registered person does not have an investment objective as such.

JFSC comment

The JFSC agreed with the suggestion.

Outcome

The change has been made.

Feedback/concern

1. Requirement should only apply to those Registered persons that have the responsibility around the investment objective and marketing of a Fund.
2. Where there are multiple responsible service providers this could cause confusion.
3. Should the requirement apply where it is already caught by the CIF Code?

JFSC comment

1. The JFSC agrees and worked with the respondent to narrow the requirement accordingly. For those Registered persons that are carved out, they are now required to notify the JFSC if they become aware of a Fund not disclosing in accordance with the requirements (see outcome below).
2. The JFSC discussed this with the respondent and there was agreement that this would be overly prescriptive and practically difficult, given the different permutations, for the JFSC to determine which provider is most suitable/appropriate to take responsibility. The changes applied as a result of point 1 regarding the scope of responsibility mitigate this scenario further.
3. The provision for this scenario was already catered for by way of paragraph 2.11 of the FSB Code “With reference to paragraph 2.10, where a Certified Fund is subject to the equivalent requirement contained in the Code of Practice for Certified Funds, the Registered person will need to comply with paragraph 2.10 only in the circumstance that Registered person cannot evidence that the Certified Fund has complied with the equivalent requirement in the Code of Practice for Certified Funds.”; again this is further reinforced by way of the changes applied as a result of point 1.

Outcome

Changes made:

• paragraph 2.12 has been added to the FSB Code “The requirement in paragraph 2.10 applies only to those Registered persons that are the governing body of the Fund or that otherwise accept responsibility or part thereof for the website, pre-contractual document, prospectus, or documents in which the terms of investing in the Fund are contained such as a subscription agreement.”
• paragraph 2.13 has been added to the FSB Code “Where a Registered person is not subject to the requirements of paragraph 2.10 the Registered person must still notify the JFSC, in writing, within five business days of the Registered person becoming aware of the Fund not disclosing such material information in relation to the sustainable investment strategy and objectives of the Fund.”

Feedback/concern

Do these regulations directly replicate the fund requirements that fall under the EU Sustainable Finance Disclosure Regulation (SFDR) such as Article 8 and 9?

JFSC comment

No these requirements are not a direct replication of SFDR.

In line with the JFSC approach to introduce requirements that are commercially viable, proportionate, and meeting international standards, and in-line with consistent Industry feedback, these requirements concentrate on disclosure related to any fund that has a sustainable investment and is marketed on that basis. The JFSC has intentionally steered clear of a complex set of requirements that alter dependent on the nature and degree of the sustainable objective.

Feedback/concern

Will the JFSC provide a template for the disclosure requirements?

JFSC comment

No the JFSC will not be providing a template. We understand that Industry are utilising templates for compliance with the requirements of other jurisdictions, and as long as they equally allow compliance to be demonstrated with the JFSC requirements, then those templates may be used, thereby avoiding unnecessary duplication of templates.

Feedback/concern

Does this apply when advising clients to a discretionary management solution?

JFSC comment

The requirements do not apply directly to the activity of discretionary management, but only to the activity of providing advice, and then only when in relation to a fund that is marketed on the basis of investing in a Sustainable Investment as part of its investment objective. Where the advice is for a fund as per above, which includes multiple funds and multiple disclosures, it is acceptable for the advisor to provide to the client an overarching disclosure.

[Inserted in Glossary]

Sustainable Investment: An investment or investments which contribute to either an environmental or social objective.

[Inserted 2.12]

2.12 When a Fund is marketed on the basis of investing in a Sustainable Investment as part of its investment objective, it must disclose (via website, or pre-contractual document, prospectus, or documents in which the terms of investing in the Fund are contained such as a subscription agreement) all material information in relation to the sustainable investment strategy and objectives; including but not limited to:

2.12.1 alignment with any specific taxonomy, or where there is no alignment to a specific taxonomy a statement to that effect;

2.12.2 the proportion of investments that are sustainable;

2.12.3 the basis on which due diligence, benchmarking, and performance measurement and reporting, are likely to be conducted; and

2.12.4 any limitations to methodologies and data.

Notes:

• With reference to paragraph 2.12, the effective date is 15 July 2021. For funds which existed prior to 15 July a transitional period with an effective date of 17 January 2022 applies.

Link to new CIF Code

Link to tracked change CIF Code

[Inserted in Glossary]

Sustainable Investment: An investment or investments which contribute to either an environmental or social objective.

[Inserted 2.10]

2.10 When a Registered person provides services as defined in paragraph 2.12, in relation to a Fund that is marketed on the basis of investing in a Sustainable Investment as part of its investment objective, the Registered person must disclose (via website, or pre-contractual document, prospectus, or documents in which the terms of investing in the Fund are contained such as a subscription agreement) all material information in relation to the sustainable investment strategy and objectives; including but not limited to:

2.10.1 alignment with any specific taxonomy, or where there is no alignment to a specific taxonomy a statement to that effect;

2.10.2 the proportion of investments that are sustainable;

2.10.3 the basis on which due diligence, benchmarking, and performance measurement and reporting, are likely to be conducted; and

2.10.4 any limitations to methodologies and data.

2.11 With reference to paragraph 2.10, where a Certified Fund is subject to the equivalent requirement contained in the Code of Practice for Certified Funds, the Registered person will need to comply with paragraph 2.10 only in the circumstance that Registered person cannot evidence that the Certified Fund has complied with the equivalent requirement in the Code of Practice for Certified Funds.

2.12 The requirement in paragraph 2.10 applies only to those Registered persons that are the governing body of the Fund or that otherwise accept responsibility or part thereof for the website, pre-contractual document, prospectus, or documents in which the terms of investing in the Fund are contained such as a subscription agreement.

2.13 Where a Registered person is not subject to the requirements of paragraph 2.10 the Registered person must still notify the JFSC, in writing, within five business days of the Registered person becoming aware of the Fund not disclosing such material information in relation to the sustainable investment strategy and objectives of the Fund.

Notes:

• With reference to paragraphs 2.10, 2.11, 2.12 and 2.13, the effective date is 15 July 2021, however for Registered persons which provided services as defined in paragraph 2.12 in relation to an existing Fund prior to the 15 July 2021, a transitional period with an effective date of 17 January 2022 applies.

Link to new FSB Code

Link to tracked change FSB Code

[Inserted: new part L]

L Sustainable Investment

Sustainable Investment is an investment or investments which contribute to either an environmental or social objective.

When a JPF is marketed on the basis of investing in a Sustainable Investment as part of its investment objective, it must disclose (via website, or pre-contractual document, private placement memorandum, offer document, or documents in which the terms of investing in the JPF are contained such as a subscription agreement) all material information in relation to the sustainable investment strategy and objectives; including but not limited to:

• alignment with any specific taxonomy, or where there is no alignment to a specific taxonomy a statement to that effect;
• the proportion of investments that are sustainable;
• the basis on which due diligence, benchmarking, and performance measurement and reporting, are likely to be conducted; and
• any limitations to methodologies and data.

With reference to part L, the effective date is 15 July 2021. For funds which existed prior to 15 July 2021 a transitional period with an effective date of 17 January 2022 applies.

Link to new JPF Guide

Link to tracked change JPF Guide

[Inserted in Glossary]

Sustainable Investment: An investment or investments which contribute to either an environmental or social objective.

[Inserted 2.30]

Sustainable Investment

2.30 When a registered person provides investment advice to its Client in relation to a fund that is marketed on the basis of investing in a Sustainable Investment as part of its investment objective, the registered person must inform, and make available to the Client, the appropriate disclosure information in relation to the sustainable investment strategy and objectives of the fund.  If no such disclosure information is available the Client must be informed of that fact.

Effective Date: There will be a 6 month transition period with an effective date of 17 January 2022.

Link to new IB Code

Link to tracked change IB Code