Deloitte ManCo Webinar Week Financial and ESG reporting ......2020/12/09 · • Swing Pricing gets...

Deloitte ManCo Webinar WeekFinancial and ESG reporting trends9 December 2020

Public© 2020, Deloitte Audit, SARL 2

Agenda

Financial statements and reporting trends | Sascha Voigt, Director, Deloitte Luxembourg

CSSF circular 02/77 | Anne Ricci, Director, Deloitte Luxembourg

ESG reporting and subscription tax | Dario Zambotti, Director, Deloitte Luxembourg

Wednesday 09 December

Moderator: Nicolas Hennebert, Partner, Deloitte Luxembourg

Public© 2020, Deloitte Audit, SARL 3Public© 2020, Deloitte Audit, SARL 33

PANELISTS

Nicolas Hennebert Audit PartnerDeloitte Luxembourg

MODERATOR

Sascha Voigt

Audit DirectorDeloitte Luxembourg

Anne Ricci


Dario Zambotti


Confidential© 2020, Deloitte Audit, SARL 4Public 4

2019 Market StudyBeyond just insights

Sascha Voigt


2019 Market StudyBeyond just insightsSascha Voigt | Audit Director | 9 December 2020


Introduction

Market Study exploring financial reporting practices by the 100 largest (by AUM) regulated Funds in Luxembourg based on their 2019 Annual Reports.The Market Study broadly aims to determine what are established:

Accounting and financial reporting practices in Fund Annual Reports?

Corporate governance practices applied and related disclosure of these in Fund Annual Reports?

1

2


13% FCP

87% SICAV

2

Population Statistics

96% UCITS

11% listed Funds

All use

LuxGAAP

Average pages of annual report:

40580% in English

14% in German

4% in French

new Funds in the top 100 in comparison to 2018 study

Average days until audit report sign-off:

100 days

AuM 3.4 trillion USD

1

Only one self managed fund

4

4% UCIs

3

5

6

7

139

10

8

Public© 2020, Deloitte Audit, SARLARL 8

Accounting Disclosure Trends

Public© 2020, Deloitte Audit, SARL 9Public 9

Financial year-end distribution of 100 largest FundsAccounting Disclosure Trends

• Distribution in line with 2018 study results

• Nearly 50% of 100 largest Funds have December year-ends

• March, June and September also among the preferred year-end months

• Peak of financial statement preparation effort and related audit activities are hence concentrated in the first months of the year

0

10

20

30

40

50

60

-

200

400

600

800

1.000

1.200

1.400

1.600

31-Jan 28-Feb 31-Mar 30-Apr 31-May 30-Jun 31-Jul 31-Aug 30-Sep 31-Oct 30-Nov 31-Dec

Billi

ons

Number of Funds Sum of Average of Combined Assets at Umbrella Level USD

Split of 100 largest Funds by month in which respective year-end falls in 2019 including AuM (in USD)


Swing PricingAccounting Disclosure Trends

• Adoption increased by 7% in comparison to the prior year (52%)

• Adoption rate expected to increase with more and more jurisdictions (Germany in February 2020 and Spain in May 2020) allowing the implementation of this anti dilution mechanism

• Swing Pricing gets increased attention from the CSSF: FAQ from July 2019 and March 2020

• Swing pricing was used as a critical liquidity management tool to minimise the negative effects of the COVID-19 crisis

• Alfi Swing Pricing working group reconvened in Q4 2020

Does the Fund apply Swing Pricing?

59%

41% Yes

No


Total Expense Ratio disclosuresAccounting Disclosure Trends

• 58% disclose Total Expense Ratios in the Annual Report

• 23% of these Funds have the TERs audited

• Swiss Promoters lead the field given the local requirement for this disclosure for certain funds distributing in Switzerland

Disclosure of Total Expense Ratio

35%

23%42%

Public© 2020, Deloitte Audit, SARLARL 12

Corporate Governance Disclosure Trends


Code adoptionCorporate Governance Disclosure Trends

• 65% did not adopt a Corporate Governance Code or this is simply not disclosed in the Annual Report

• Adopters originate primarily from Anglo-Saxon countries where corporate governance practices are more entrenched and formalized

• ALFI Code of Conduct recommends annual confirmation in the Annual Report of adherence to the principles

• Corporate Governance Code related disclosures expected to increase in light of the increased focus on ESG and Sustainability

Has the Fund disclosed whether they have adopted a Corporate Governance Code?

33%

2%

65%


Directors` ReportCorporate Governance Disclosure Trends

• Presentation of separate Director`s Report increased in comparison to the prior year (56%)

• In line with current trend and expected to increase in light of the increased focus on ESG and Sustainability

• This is a key communication channel through which Boards can demonstrate and showcase to investors that they have applied good corporate governance practices during the year under review

• ALFI provides a template of a Board report for Funds to follow

Is a separate Directors` Report presented?

Yes

No

67%

33%


Directors` fees disclosuresCorporate Governance Disclosure Trends

• 32% disclose fees paid to Directors in the Annual Report. This is primarily the fees paid to Independent Directors as the Executive Directors are compensated as part of their employment by the manager

• This is separate to the remuneration disclosure of identified staff

• As Directors are appointed by the Shareholders at the AGM it is considered good corporate governance to give transparency to the fees paid to Directors

• Average Directors` fees: USD 177k

• Average fee per Director: USD 53k

Directors fees disclosure

32%

68%


Benchmark your Funds against the Top 100Top 100 Luxembourg Funds’ Market Study

• Swing Pricing: Y/N

• TER disclosed: Y/N

• Director’s fees disclosed: Y/N

• Delegate remuneration: Y/N

• Directors report: Y/N

• ALFI code adopted: Y/N

• Sub-committees: Y/N

• Size of Board: #

• Independent Directors : Y/N

• Female Directors: Y/N

Many thanks for your attention.The full 2019 Market Study is available upon request.


CSSF FAQ on CSSF Circular 02/77Impact for Management Companies

Anne Ricci



Agenda

Introduction Overview – The FAQ in a nutshell

Impact for the management companies

The team


IntroductionCSSF FAQ on Circular CSSF 02/77

1.3381.551 1.738 1.791 1.852 1.735

2014 2015 2016 2017 2018 2019

Number of notifications

226343 329

251 245 238

2014 2015 2016 2017 2018 2019

Number of NAV calculation errors

1.112 1.2081.409 1.540 1.607 1.497

2014 2015 2016 2017 2018 2019

Number of Compliance Breaches

Source : CSSF activity reports 2014 to 2019


Overview - The FAQ in a nutshellCSSF FAQ on Circular CSSF 02/77

Selection of the correction methods in case of active investment breaches

Interpretation of queries relating to the general application of the Circular- Article 43(1) of 2010 Law- Cash management

Application and reporting for different vehicles (including SIFs)

Tolerance Thresholds


Impact for the management companiesCSSF FAQ on Circular CSSF 02/77

Central repository of responses to common queries relating to the Circular

Strengthen the control environment

Organizational requirements and formalized documentation

Focus of CSSF


Sustainable financeDario Zambotti



Agenda

01 02 03

The European Framework

EU Regulatory wave

Luxembourg


From the EU Green Deal to the Action Plan - Striving to be the first climate-neutral continentSustainable Finance: the European framework

The European Green Deal provides a roadmap with actions to boost the efficient use of resources by moving to a clean, circular economy and stop climate change, revert biodiversity loss and cut pollution. It outlines investments needed and financing tools available, and explains how to ensure a fair and inclusive transition.

The Action Plan on sustainable finance adopted by the European Commission in March 2018 has 3 main objectives and define 10 actions:

1. Reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth;

2. Manage financial risks stemming from climate change, environmental degradation and social issues; and

3. Foster transparency and long-termism in financial and economic activity.

https://ec.europa.eu/info/files/annex-roadmap-and-key-actions_en

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018DC0097&from=EN


The main pillarsSustainable Finance: EU regulatory wave

Low carbon benchmarks Regulation (CBR)A regulatory framework which lays down minimum requirements for EU Climate Transition Benchmarks

and EU Paris-aligned Benchmarks at Union level. These labels can only be applied by compliant

administrators who will have disclosure obligations (such as on the methodology applied).

Disclosure Regulation (SDR)Financial market participants and financial advisers

are required to disclose specific information regarding their approaches to the integration of

sustainability risks and the consideration of adverse sustainability impacts.

Taxonomy Regulation (TR)The Taxonomy Regulation provides for a general framework for the development of an EU-wide

classification system for environmentally sustainable economic activities. It creates a framework that sets

out the criteria to be considered for a product or activity to be considered environmentally

sustainable.

2020

30 April 2020: Low carbon benchmarks regulation: ESG benchmark statement disclosure

2021

2022

2023

31 December 2022: Taxonomy Regulation for second set of financial products disclosure requirements (other environmentally sustainable activities: water, circular economy, pollution and biodiversity)

31 December 2021: Taxonomy Regulation for first set of financial products disclosure requirements (environmentally sustainable activities contributing to climate change mitigation or adaptation)

10 March 2021: Disclosure regulation for most provisions

1 January 2022: Disclosure regulation for annual report disclosures

31 December 2022: Disclosure regulation for adverse sustainability impacts on product level


Financial market participants

• Credit institutions providing portfolio management

• Alternative investment fund managers (AIFM)• Management company of UCITS• Investment firms providing portfolio

management• Managers of qualifying venture capital funds• Managers of qualifying social

entrepreneurship funds

• Insurance undertakings

• Institutions for occupational retirement provision (IORP)

• Manufacturers of pension products• Pan-European personal pension product

(PEPP) providers

Financial advisers

• Credit institutions providing investment advice

• AIFM providing investment advice• UCITS management companies providing

investment advice

• Insurance intermediaries providing insurance advice with regard to IBIPs

• Insurance undertakings providing insurance advice with regard to IBIPs

• N/A

Financial products

• Portfolio management (as per MiFID II)

• UCITS• Portfolio management (as per MiFID II)• Alternative investment fund (AIF)

• Insurance-based investment product (IBIP)

• Pension product• Pension scheme• PEPP

Banking

Investment management

Insurance

Pensions

Disclosure & Taxonomy Regulation: a broad scopeSustainable Finance: EU regulatory wave


31 December 2022: Disclosure regulation for adverse sustainability impacts at product level

1 January 2022: Disclosure regulation for annual report disclosures

10 March 2021: Disclosure regulation for most provisions

Requirements to disclose information:• At Financial Market Participants / Financial Advisors level

• On the website• On pre-contractual disclosures• On the periodic report (annual accounts for AIFM and ManCo)

• At Financial Products level• On the website• On pre-contractual disclosures• On the periodic report (annual accounts for AIF and UCITS)

Integration of sustainability risks in the investment decision-making process (web-site)

Principal adverse impact of investment decisions on sustainability factors are considered? (web-site)

Include in the remuneration policies information on how those policies are consistent with the integration of sustainability risks. (web-site)

Include in the pre-contractual disclosures:a. How the sustainability risks are integrated in the investment decision; if sustainability risks are

deemed not relevant, disclose a clear and concise explanation of the reasons why.b. The likely impacts of sustainability risks on the returns the financial products

• How will you identify and measure sustainability risks and adverse sustainability impacts?• Will you adjust your current product range and/or adjust the investment policy of existing

products?• To which extent will the entity level disclosures be aligned on group level?

• Have you considered how to gather information on companies which are not in scope of the Regulation?

• What is your view on the set deadlines (i.e. misalignment between deadlines for financial market participants and for corporates)?

Disclosure Regulation: a broad scopeSustainable Finance: EU regulatory wave

Applicable from 10 March 2021


Taxonomy RegulationSustainable Finance: EU regulatory wave

Taxonomy

Substantial contribution to at least one environmental objective: 1. Climate change mitigation 2. Climate change adaptation 3. Sustainable use and protection of water and marine resources 4. Transition to a circular economy 5. Pollution prevention and control 6. Protection and restoration of biodiversity and ecosystems

Compliance with minimum social and governance safeguards

Compliance with technical screening criteria that have been established by the Commission

“No significant harm” is caused to any of the other environmental objectives (DNSH)

How an activity qualify as environmentally sustainable?Four conditions for an activity to qualify

• How will you gather the necessary data on your investments?• Will you use specific tooling to calculate the Taxonomy alignment of your managed

portfolios?

What is the Taxonomy?A list of economic activities that are considered environmentally sustainable for investment purposes.

Why a Taxonomy?To provide clarity and transparency on environmental sustainability to investors, financial institutions, companies and issuers thereby enabling informed decision-making in order to foster investments in environmentally sustainable activities.

What is it not?It is not a mandatory list to invest in, nor a standard, nor an exclusion list. It does not harmonize the existing market practices and strategies with regards to sustainable finance.

Applicable to • Financial market participants offering financial products in the

EU, including pension providers• Large public-interest companies with more than 500 employees

including banks, insurance companies and listed companies who already require to provide a non-financial statement

• EU and member states when setting public measures, standards or labels for green financial products or green (corporate) bonds


Luxembourg is positioning as leader in sustainable finance Leader for green bonds; LFF annual event on sustainable finance; Luxembourg sustainable finance roadmap; numerous initiatives

Local action - Fiscal Law 2021 Proposed amendment to UCI Law in relation to subscription tax: increasing the sustainable assets in portfolio decrease the subscription tax applied

Deloitte is discussing the Fiscal Law application within different working groupsDifferent questions have been raised by the market and we are actively involved in the discussions

Deloitte can help in different ways along the Fund value chainFrom trainings and workshops on the EU action plan and Regulations to support on the strategy design and implementation

Get ready, comply, lead the futureThe Green Deal is an ambitious plan to transform the EU’s economy for a sustainable future, it not only a compliance matter

Local action on Disclosure regulation – CSSF fast track for prospectus updateThe CSSF declared that a fast track will be implemented and that Fund boards will also have to self-certify that their funds are meeting the requirements of SFDR alongside any fast-track applications.It also underlined that asset managers should “limit their changes to the prospectus in particular”.

Luxembourg leading positionSustainable Finance: local zoom

https://www.luxembourgforfinance.com/en/financial-centre/sustainable-finance/

https://www2.deloitte.com/lu/en/pages/sustainable-development/solutions/sustainability-proof.html

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This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

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Public© 2020, Deloitte Audit, SARL

Nicolas Hennebert Audit Partner+352 45145 [email protected]

Sascha VoigtAudit Director+352 45145 [email protected]

Anne RicciAudit Director+352 45145 [email protected]

Dario ZambottiAudit Director+352 45145 [email protected]

http://www.deloitte.com/about

http://www.deloitte.com/

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