EU funds and fund managers – Scope of application

The SFDR applies to a wide range of EU-authorised firms, known as “financial market participants”. In the private equity context, it applies to managers authorised under the AIFMD as well as portfolio managers and investment advisors authorised under MiFID. The Commission has clarified the application of the SFDR to certain other types of firms in its Q&A published in August 2021.

Sub-threshold AIFMs and EuVECA managers

Does the SFDR apply to sub-threshold AIFMs and EuVECA and EuSEF managers?

The Commission confirmed its view that “financial market participant” also comprises AIFMs subject to the registration obligation in the AIFMD¹, known as sub-threshold AIFMs, with disclosure and reporting information “to be included in pre-contractual and periodic documentation made available to end investors under national law”.

Likewise, the Commission confirmed that managers of qualifying venture capital funds and qualifying social entrepreneurship funds (as types of sub-threshold AIFM) will have to include the disclosure and reporting information in accordance with the relevant obligations in the regulations governing those types of managers.

Sub-threshold AIFMs should confirm that law or regulatory guidance in their local jurisdiction does not present any different position on the application of the SFDR, as compared to the Commission’s view.

1. Article 3(3)(a) of AIFMD

Non-EU AIFs and AIFMs

Does the SFDR apply to non-EU AIFMs?

In the Q&A published by the European Commission, the Commission stated its view that “Where an AIFM from a third country enters the market of a given Member State by means of a National Private Placement Regime, that AIFM must ensure compliance with Regulation 2019/2088, including the financial product related provisions.” Since the application of the SFDR, fund sponsors have considered that the product-related disclosure and reporting obligations of the SFDR apply to those funds that the sponsor markets in the EU under the AIFMD, because AIFMD requires non-EU AIFMs to comply with the disclosure and reporting obligations under the AIFMD for each fund marketed in the EU, and the SFDR requires AIFMs to provide additional sustainability-related fund disclosure and reporting.

In the absence of any express provisions in the SFDR, the scope of application of the firm-level disclosure obligations under the SFDR to non-EU managers remains unclear, with the Commission’s statement (and subsequent comments) appearing to confirm that, in their view, those obligations apply to any non-EU AIFM marketing a fund in any EU Member State. The Commission’s wide interpretation clearly presents a significant challenge in terms of scope of application for any private fund sponsor that is marketing one or more funds in the EU, whilst conducting other investment strategies that may be brought into scope of the SFDR firm-level disclosure obligations. It is also possible that these obligations might give rise to conflicts with non-EU domestic rules restricting publicly available information in relation to a private fund that is not open to public investment.

Legacy funds

Does the SFDR apply to legacy funds?

In its Q&A published in May 2022, the European Commission stated that SFDR applies to financial products made available to investors before 10 March 2021 that continue to be made available to investors after that date. In relation to products made available to investors before 10 March 2021, but not after that date, the Q&A states it is necessary to consider whether the product falls within the scope of Article 8 or 9 of the SFDR and comply with any corresponding periodic and website disclosure obligations. The Commission’s statements appear to be equally relevant to non-EU managers that market their funds in the EU as EU-regulated managers.

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Invest Europe Guide on the EU SFDR and Taxonomy

Member guides

30 May 2023

This new Invest Europe members-only Guide aims to clear up some of the grey areas around the day-to-day application of the EU Sustainable Finance Disclosure Regulation (SFDR), as well as its interplay with the EU Taxonomy. It has been developed by industry experts, for practitioners, outlining current best practices and answering common questions.