This is a first in the United States. The US market regulator SEC announced on Monday that it had fined investment firm BNY Mellon $1.5 million. The latter had provided inaccurate or incomplete information on the environmental, social or governance (ESG) aspects taken into account when managing certain funds. This Wednesday, the SEC will unveil new rules for how financial intermediaries can label products that are presented as sustainable or green. These principles should apply to foreign banks and managers serving US clients.
In practice, BNY Mellon was sanctioned for claiming up until September 2021 that all investments made by its funds were subject to ESG analysis. However, the market surveillance authority found that this was not the case. “The SEC is sending a signal in the face of the ESG craze and warning financial intermediaries that they will ensure that the reality of the products presented as sustainable corresponds to their claims or that the ESG management criteria are well adhered to,” analyzes Yannick Caballero Cuevas , a doctoral student at the center for banking and finance law from the University of Geneva. According to financial services firm Morningstar, sustainable finance represented around 2.7 trillion in assets worldwide at the end of the first quarter of 2022, compared to around 1,000 billion in 2019.
Based on applicable law
In practice, “BNY Mellon was sanctioned under the US Investment Advisers Act of 1940,” continues the Geneva-based specialist, who adheres very closely to international regulations when it comes to sustainability. The American approach consists of developing a more or less flexible approach from the existing legal framework, which also offers the possibility to act quickly.”
According to the expert, this philosophy comes very close to the Swiss strategy, which relies on legal principles to prevent investors from being misled by the communication about sustainable financial products. In November 2021, the Swiss Financial Market Supervisory Authority (Finma) published a communication on preventing and combating greenwashing.
Conversely, the European Union tends to create new regulations to shape emerging issues, be it sustainable management with the taxonomy project or digital assets with the MiCA regulation passed on March 14th.
Specify the information to be provided
Rules to be released by the SEC on Wednesday should specify the type of information that must be provided by funds that include “ESG,” “sustainable,” or “low-carbon” in their name, specified Tuesday FinancialTimes, citing sources familiar with the matter. These funds should also communicate about how ESG considerations feed into the management process, or their votes at the general meetings of the companies in which they are invested, according to the English business newspaper.
In March 2021, the United States created a task force specifically responsible for analyzing information released by green investment funds. How tough will the new regime the SEC wants? Difficult to say without seeing the new rules, Yannick Caballero Cuevas concludes, but “the SEC will analyze what is being done in the market, likely by increasing resources to oversee advisors and issuers of ESG financial products. These requirements should apply to foreign financial intermediaries when serving US clients.”
In Switzerland, Finma does not issue any fines, but can demand that illegal activities be rectified and confiscate unjustified profits or, in the case of serious facts, even issue a professional ban or withdraw the license.
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