Greenwashing in the EU Financial Sector |
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Slovak Republic |
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(Europe)
Firm
Cechova & Partners
Contributors
Katarína Cechova |
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| Does your jurisdiction have an explicit legal framework to identify, address and sanction greenwashing in the financial sector? If yes, is it enacted in a specialized law or addressed by other regulations (advertising law, consumer protection law,... | Slovakia does not have any specific legal framework dedicated to identifying, addressing and sanctioning greenwashing in the financial sector. However, there are Slovak laws regulating specific areas of the financial sector which provide conduct of business or advertising rules under which greenwashing might fall. These include e.g. the following:
The breach of the above prohibitions of information duties and duties of professional care can lead to private enforcement actions and to administrative sanctions imposed by the National Bank of Slovakia (NBS), which is the competent supervisory authority for the financial sector. The Slovak law on Accounting stipulates that certain accounting units, which may include financial institutions, are obliged to issue an annual report, which includes information on the impact of the activity of the accounting unit on the environment. The conformity of the annual report with the accounting statement covering the same period (including sustainability-related aspects) shall be verified by an auditor. However, it is disputable whether the misleading information on the impact of such activity on the environment could lead to the imposition of administrative penalties on the accounting unit. Other provisions of Slovak law generally applicable to business-to-consumer relationships and to business-to-business relationships in any sector may cover greenwashing in the financial sector as well. The Slovak Law on Advertising prohibits the advertisement of products damaging the environment without explicitly informing about this characteristic; this rule should apply across all sectors, but it is practically questionable whether it can really apply to operators of the financial sector. The Slovak Consumer Protection Law prohibits the use of deceptive and misleading business practices, i.e. business practices that lead the consumer to make decisions about commercial transactions based on untrue or misleading information, while such information may encompass also sustainability claims (this is a transposition of the EU Unfair Commercial Practices Directive). The use of such practices towards consumers by subjects operating in the financial sector (banks, investment companies, insurance and others) may lead to administrative sanctions imposed by the NBS and to private-enforcement actions. |
| Is the relevant legal framework based on the EU or on the national legislation? | The requirements applying to collective assets management companies arose from European legislation (in particular from UCITS Directive (Directive 2009/65/EC on the Coordination of Laws, Regulations and Administrative Provisions Relating to Undertakings for Collective Investment in Transferable Securities) and AIFMD (Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers). Requirements on investment firms are based on MiFID (Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on Markets in Financial Instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast)). Requirements arising from consumer protection legislation are derived from Unfair Commercial Practices Directive (Directive 2005/29/EC). The prohibition of false advertising in business-to-business relationships was derived mostly from Directive 84/450/EEC. |
| Is greenwashing, which may occur in the financial sector, addressed specifically and/or any differently from greenwashing in other sectors? | Greenwashing in the financial sector is not addressed specifically, but its prohibition follows from more general rules that are either targeted at certain segments of the financial market or apply to B2B or B2C relations in general (see our responses above). |
| Does the current legal framework provide a definition of greenwashing? If yes, how it is defined, is the definition regulatory-binding? | Slovak law does not provide any definition of greenwashing. |
| What are the main challenges legal experts see in addressing greenwashing in the EU financial/banking sector and what are the main challenges in implementing the existing regulatory framework to address greenwashing within the EU financial/banking... | The main issue is a lack of legal certainty on how the existing general legal framework will be applied to practices that generally could be seen as greenwashing. One of the main challenges is the absence of relevant case law and methodological guidance. Although there is a general legal framework in place, it could be problematic to identify in certain cases what is greenwashing and what is not. All-in-all, this creates legal uncertainty on how the existing rules will be applied to greenwashing practices and there will be cases where neither the authorities nor other market players are certain what is prohibited and what is not. |
| Are there any relevant links to national legislation and/or guidance? | Act on Collective Investment (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2011/203/#
Securities Act (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2001/566/20221122;
Act on Insurance (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2015/39/20220101;
Act on Consumer Protection (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2007/250/ Commercial Code (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/1991/513/20220717) |
Greenwashing in the EU Financial Sector
Slovakia does not have any specific legal framework dedicated to identifying, addressing and sanctioning greenwashing in the financial sector.
However, there are Slovak laws regulating specific areas of the financial sector which provide conduct of business or advertising rules under which greenwashing might fall. These include e.g. the following:
- Collective investment regulation - Slovak law (Act No. 203/2011 Coll. on Collective Investment, as amended) provides that a company active in that sector “must not use false, ambiguous or misleading information in its promotion, or conceal facts important for investors' decision-making, or provide incorrect data about the personnel, technical and organizational prerequisites of its activity”. False or misleading sustainability related-claims may be subject to this prohibition;
- Investment services regulation – Slovak law transposing MiFID (Act No. 566/2001 Coll. on Securities and Investment Services, as amended) sets forth that an investment firm is obliged to act in accordance with the principles of honest business relations, fairly, justly and with professional care in the interest of its clients. Therefore, most of the forms or practices falling within greenwashing might fall within this prohibition;
- Similarly, in the insurance industry, insurance companies shall “not use false or misleading information when promoting their activity, conceal important facts and offer benefits whose reliability they cannot guarantee”.
The breach of the above prohibitions of information duties and duties of professional care can lead to private enforcement actions and to administrative sanctions imposed by the National Bank of Slovakia (NBS), which is the competent supervisory authority for the financial sector.
The Slovak law on Accounting stipulates that certain accounting units, which may include financial institutions, are obliged to issue an annual report, which includes information on the impact of the activity of the accounting unit on the environment. The conformity of the annual report with the accounting statement covering the same period (including sustainability-related aspects) shall be verified by an auditor.
However, it is disputable whether the misleading information on the impact of such activity on the environment could lead to the imposition of administrative penalties on the accounting unit.
Other provisions of Slovak law generally applicable to business-to-consumer relationships and to business-to-business relationships in any sector may cover greenwashing in the financial sector as well. The Slovak Law on Advertising prohibits the advertisement of products damaging the environment without explicitly informing about this characteristic; this rule should apply across all sectors, but it is practically questionable whether it can really apply to operators of the financial sector.
The Slovak Consumer Protection Law prohibits the use of deceptive and misleading business practices, i.e. business practices that lead the consumer to make decisions about commercial transactions based on untrue or misleading information, while such information may encompass also sustainability claims (this is a transposition of the EU Unfair Commercial Practices Directive). The use of such practices towards consumers by subjects operating in the financial sector (banks, investment companies, insurance and others) may lead to administrative sanctions imposed by the NBS and to private-enforcement actions.
In business-to-business relationships, the general prohibition of false advertising applies to a part of the rules on unfair competition. The provision of misleading information on the environmental impact or other aspects of the products and services could fall within the realm of unfair competition rules. The unfair competition can lead to private-enforcement actions.
The requirements applying to collective assets management companies arose from European legislation (in particular from UCITS Directive (Directive 2009/65/EC on the Coordination of Laws, Regulations and Administrative Provisions Relating to Undertakings for Collective Investment in Transferable Securities) and AIFMD (Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers). Requirements on investment firms are based on MiFID (Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on Markets in Financial Instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast)). Requirements arising from consumer protection legislation are derived from Unfair Commercial Practices Directive (Directive 2005/29/EC). The prohibition of false advertising in business-to-business relationships was derived mostly from Directive 84/450/EEC.
Greenwashing in the financial sector is not addressed specifically, but its prohibition follows from more general rules that are either targeted at certain segments of the financial market or apply to B2B or B2C relations in general (see our responses above).
Slovak law does not provide any definition of greenwashing.
The main issue is a lack of legal certainty on how the existing general legal framework will be applied to practices that generally could be seen as greenwashing.
One of the main challenges is the absence of relevant case law and methodological guidance. Although there is a general legal framework in place, it could be problematic to identify in certain cases what is greenwashing and what is not. All-in-all, this creates legal uncertainty on how the existing rules will be applied to greenwashing practices and there will be cases where neither the authorities nor other market players are certain what is prohibited and what is not.
Act on Collective Investment (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2011/203/#
- Unofficial English translation: https://nbs.sk/en/dohlad-nad-financnym-trhom/legislativa/legislativa/detail-dokumentu/act-no-203-2011-coll-on-collective-investment/
Securities Act (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2001/566/20221122;
- Unofficial English translation: https://nbs.sk/en/dohlad-nad-financnym-trhom/legislativa/legislativa/detail-dokumentu/act-no-566-2001-coll-on-securities-and-investment-services-securities-act/
Act on Insurance (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2015/39/20220101;
- Unofficial English translation: https://nbs.sk/en/dohlad-nad-financnym-trhom/legislativa/legislativa/detail-dokumentu/act-no-39-2015-coll-on-insurance/
Act on Consumer Protection (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/2007/250/
Commercial Code (Slovak version): https://www.slov-lex.sk/pravne-predpisy/SK/ZZ/1991/513/20220717)