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Meeting SFDR Level 2 Head On

By now, you are (hopefully!) just dotting the “I.s” and crossing the “t’s” in your compliance efforts regarding SFDR Level 1 for that March 10th due date. Now, it’s time to tackle the challenge that is Level 2. The first edition that was published of Level 2 was severe and, luckily, has been altered to something a little less demanding and a little more do-able. But don’t relax too much; the SFDR Level 2 is not something to take lightly, and its January 2022 compliance date will be upon us before you know it!

So, what’s the best way to ensure your SDRD Level 2 compliance goes smoothly?

Even though this second draft of Level 2 asks for fewer data points and has slightly more relaxed language, it’s still a massive, cross-department undertaking. Where the Level 1 regulations were more principle-based, Level 2 is just the opposite; there is no getting away with vague interpretations in your resorts, even though the language can still seem frustratingly ambiguous.

For example, article 8 and Article 9 products need to be reported upon using predefined templates. To add to complications, you can’t look at these templates in isolation; you need to be thinking ahead already and consider the Green Taxonomy as another input in these.

Going from needing 50 points of data – like the first draft required – to only 14 seems like a significant relief, but it’s still a lot considering the overall scope of this change. Anyone making investments needs to be able to determine and report the impacts of these investments. What are the human rights impacts of this investment? What’s the environmental impact? How do I get this data? Do we even have it available? And how can we present it and organize it in a way that satisfies our clients and the authorities?

Even though the way the authorities want the information given to them is rigid, the language they’ve used to get us there still requires much interpretation. Level 2 is incredibly demanding on Data and IT with so much emphasis on hard numbers. With reporting needing to be done each quarter.

And this trend will continue.

Although this Level 2 is challenging, it’s only the first of many with the same themes. The Green Taxonomy, for starters, we know is in the pipeline and amendments to sectoral regulations like AIFMD, MiFID, UCITS, and SOLVENCY II. If you can ensure you have the framework in place that not only houses Level 2 compliance but will work for these regulations coming up, you’ll be able to see problems before they arise and work proactively.

At ACE, we’re helping our clients navigate these challenging Level 2 regulations. Working to help orchestrate the program intuitively that also sets our clients up nicely to meet the rules we know are not too far down the road.

If you have any questions about this or any other ACE services, get in touch!
Thanks for reading,