Private funds regulation; the SEC’s new reporting rules for shareholders; upcoming deadlines for ESG reporting by financial firms; checking in with AI.

Compliance deadlines for the SEC’s new private funds reporting requirements are already upon us. On 11 December 2023, the SEC’s Form PF amendments will require current reporting of certain events by large hedge fund advisors within 72 hours, as well as additional quarterly reporting by private equity fund advisors. Meanwhile the SEC’s 2024 Exam Priorities reveal that, as “private funds remain a significant portion of the SEC-registered investment adviser population”, the SEC will continue to focus on these advisers, including with respect to Form PF event reporting. For more details and compliance dates surrounding the SEC’s new rules for private funds as well as tailored shareholder reporting, consult our November edition.

Looking further ahead and across the Atlantic, we see that the EU has taken the next step in its development of “AIFMD II”, with the European Council having recently published the final compromise text. Slated to be considered by the European Parliament in February 2024, the amended AIFMD introduces new rules on loan origination by AIFMs and AIFs, and addresses other areas including liquidity risk management, regulatory reporting and depositaries. Eventual implementation by EU Member States into their national laws is expected in 2026.

Holders of long positions on U.S. exchanges, no matter where situated globally, should take note of the official publication of the SEC’s Final Rule on beneficial ownership reporting, because that release sets the first compliance date at 5 February 2024. As we explain in Traders Magazine, investment managers need to take steps across their compliance, operations and legal departments, to adjust to the shorter deadlines and required use of machine-readable 13D/G-specific XML for filings.

When it rains it pours, and so the SEC has seen fit to impose more threshold disclosure regimes upon market participants. Institutional investment managers will need to carefully examine the SEC’s recently adopted short sale position reporting Rule 13f-2, as our Aspasia Latsi details in her analysis of the new rule for Traders Magazine. The SEC has also proposed a rule for disclosure of security-based swap positions (Rule 10B-1, which was spun off from the SEC’s other swaps-related rulemaking efforts). While the SEC’s rules for short positions and swaps reporting will set out initial compliance dates somewhat further away than its rule for long holdings, investment firms wanting to stay in front of these changes have started planning their workflow adjustments.

As the United Nation’s Climate Change Conference marches onward in Dubai (COP28), amid controversies ranging from conflicts of interest to astro-turfing by “impossibly sultry” bots, its program reiterates the urgent call for climate action, including through private finance flows.

In the EU, where regulators seek to build reliability around such finance flows by mandating climate disclosures, investment firms are looking point-blank at the next set of new reporting requirements:

• On 1 January 2024, large financial firms subject to Taxonomy Regulation “Article 8” disclosures will need to start addressing their Taxonomy-aligned activities according to detailed regulatory technical standards.
• On 1 January 2024, the EU Taxonomy itself will introduce new industries and technical screening criteria that investment firms will want to integrate for their reporting, as detailed in an amended Climate Delegated Regulation and a new Environmental Delegated Regulation recently published by the European Commission.
• New reporting guidance issued by ESMA addresses the definition of sustainable investment, the “do no significant harm” principle, and the use of sustainability “estimates”.
• Extensive changes to SFDR reporting, which on December 4th were finalized by the ESAs in the form of a Final Report with a newly revised RTS (regulatory technical standards) including new disclosure forms, now await approval by the European Commission. Once the Commission approves, the new requirements go into effect 20 days after publication in the EU Official Journal. (In a press release, the ESAs added for clarification, “These draft RTS would be applied independently of the comprehensive assessment of SFDR announced by the European Commission in September 2023”.)

For a reader-friendly view of the current status and future plans for EU sustainable finance, see ESMA’s just-issued statement as well as guide.

Meanwhile in the UK, 31 May 2024 represents the first compliance date for its recently finalized Sustainability Disclosures Regulation (SDR), the broad framework that imposes product and entity level sustainability reporting, anti-greenwashing rules, consumer-facing disclosures, investment fund labels and more upon asset managers and others. (In the interim, note also the FCA’s newly launched consultation on anti-greenwashing guidance, closing on 26 Jan 2024.)

Lastly, an update on the American rules: the SEC has just published its Fall 2023 regulatory agenda, confirming that finalization of its proposals for ESG disclosures by issuers and by financial firms has been pushed back to April 2024.