According to the BaFin, financial investment intermediaries, as defined in Section 34f (1) of the German Trade Regulation Act, are not financial services institutions and are therefore not subject to Regulation 2019/2088. Pursuant to Article 2 (5) of Regulation 2019/2088, investment firms are covered by the Regulation if they meet the definition in Article 4 (1) No. 1 of MiFID II. For these, however, the exemption under Article 17 (1) of Regulation 2019/2088 applies.
Moreover, BaFin interprets the term “promote” in Article 8 of Regulation 2019/2088 to encompass not only regular marketing activities for financial products but also the fulfilment of legally prescribed disclosure obligations. With that in mind, it is not sufficient if information is provided solely on how sustainability risks, within the meaning of Article 2 No. 22 of Regulation 2019/2088, are taken into account in investment decisions. “Promotion”, which can be based on an active or passive investment strategy, must be targeted and communicated to the outside world. However, the term does not encompass a mere investment in, for example, environmentally sustainable economic activities.
Beyond that, BaFin states that there is no obligation to check every investment underlying a financial product for “taxonomy conformity” or to collect corresponding data. For a financial product that falls under Article 8 of the Disclosure Regulation and promotes environmental features, the disclosure requirements under Articles 5 and 6 of the Taxonomy Regulation must always be fulfilled, and so the taxonomy ratio must also be disclosed. This obligation also exists irrespective of whether the product has an obligation to make a minimum proportion of sustainable investments within the meaning of Article 2 No. 17 of Regulation 2019/2088. In the view of BaFin, the disclosed taxonomy ratio will regularly have a value of zero.
Where a financial market participant fails to collect data (which, according to BaFin, means that the market participant did not collect data at all) on the environmental objective or objectives set out in Article 9 of Regulation (EU) 2020/852 and on how and to what extent the investments underlying the financial product are in economic activities that qualify as environmentally sustainable under Article 3 of that Regulation, pre-contractual and periodic product-related disclosures must indicate zero.
Furthermore, all existing contracts that meet the requirements of Article 8 or 9 of Regulation 2019/2088 must comply with Articles 10 and 11 of Regulation 2019/2088. The circumstances at the point that the financial product is distributed are decisive in making this assessment.
BaFin further states that even in the case of existing contracts under which sale was discontinued before 10 March 2021, it is necessary to check whether information on the sustainability impact was provided to the customer at the point of sale, for example on the homepage, in contractual terms and conditions, in pre-contractual information or in day-to-day advertising materials. For this analysis, financial market participants would have to make the archived documents available, read them and determine whether any ESG-related disclosures made at that time now meet the factual requirements of Article 8 or 9 of Regulation 2019/2088.
Financial market participants may base their analysis on flat-rate assumptions for existing contracts that have not been sold since 10 March 2021, provided they are not aware of any findings to the contrary. As part of any assessment in its supervisory role, BaFin will take appropriate account on a case-by-case basis of efforts at implementation and the associated time required.
In BaFin’s view, there are no pre-contractual disclosure obligations under Regulation 2019/2088 for financial products that are no longer distributed, irrespective of other legal provisions. In the case of financial products that are no longer distributed – regardless of when their distribution was discontinued – a situation where updated pre-contractual sustainability disclosures reach the potential end investor no longer arises.
BaFin expects financial market participants to make all reasonable efforts to comply without delay with the new requirements of Delegated Regulation (EU) 2023/363 of the European Commission.
BaFin considers it reasonable, at least for those financial products that contain a minimum proportion of environmentally sustainable investments (within the meaning of Article 2 No. 1 of the Taxonomy Regulation) of greater than zero in the regular updates, to also provide, on an informal basis, information as to whether – and if so, what proportion of – environmentally sustainable investments were made in the areas of nuclear energy and fossil fuels. This applies unless an exclusion for investments in these areas has been specified in the investment strategy described in the templates. This information shall be included at an appropriate place in the regular reports, preferably in the templates pursuant to Article 50 No. 1 or Article 58 Sentence 1 of the RTS.
In reviewing compliance with the requirements of Articles 8 and 9 of the Disclosure Regulation with regard to pre-contractual information in implementation of the requirements of the Delegated Regulation (EU) 2023/363, BaFin will in practice take into account the implementation of the requirements of Delegated Regulation (EU) 2023/363 as of 1 September 2023.
Client Alert 2023-072
