Investment Funds Update: Europe- Issue 9, 2015

October 07, 2015

Dechert's investment funds update discusses the key legal and regulatory updates for the funds industry from the primary European asset management centres and fund domiciles.



French SICAV – Reduction of the Minimum Number of Shareholders for Unlisted SICAV

The Ordinance n° 2015-1127 was published on 10 September 2015. The purpose of this Ordinance was to reduce the required minimum number of shareholders in French sociétés anonymes from seven to two. Such amendment is only applicable for unlisted sociétés anonymes. A SICAV (société d’investissement à capital variable) can be formed as a société anonyme and therefore, this amendment will be applicable for certain unlisted French funds and will mainly simplify their creation.

Publication by the AFG of Summary Asset Allocations for French FIVG and UCITS

Pursuant to the AMF modifications to its doctrine (Position-Recommendation n° 2011-25) with respect to the level of liquidity a French fund can hold on an ancillary basis (see last monthly update), the Association Française de la Gestion Financière (AFG) has published synthetic summaries of the possible allocation of assets for French fonds d’investissements à vocation générale (FIVG) and French UCITS (OPCVM). These documents can be consulted on the AFG website.



Implementation of the European Transparency Directive 2013/50/EU in Germany

All market participants investing in German stocks and other equity shares with voting rights traded on an exchange will be subject to new reporting duties as of November 27th 2015 in regard of their voting rights pursuant the German implementation of the European Transparency-Directive. Investors, e.g. Investment companies and funds, which do not comply with those obligations can face high legal fines up to 10 million Euros or five percent of their annual net income. However, there is also some facilitation in respect of constructive knowledge if voting powers change.

AIFMD Reporting and Troubleshooting

In regard of AIFMD reporting, BaFin and ESMA have informed that they will solve the following error codes “CAF-202” and “CAF-008” shortly. For this reason BaFin is postponing the reporting deadline for all affected reports to September 21st until October 2nd 2015. Furthermore BaFin is expected to publish a guideline how to handle error codes “CAM-023” and “CAF-092”.

Update German UCITS V Implementation Act

The German legislator published the proposed bill for the implementation act of UCITS V-Directive on the 23rd of September. Key changes for market participants include:

  • The German legislator published the proposed bill for the implementation act of UCITS V-Directive on the 23rd of September. Key changes for market participants include:
Compared with the first ministerial draft bill, which only allowed to invest no more than 50 percent of the fund’s NAV, the Implementation Act now enables such funds to hold 100 percent in loans. Such funds however must not conduct direct lending investments, i.e., can only invest in secondary loans.
  • German and EU AIFMD regulated closed-end-funds will be allowed to grant loans.
Closed-end funds subject to AIFMD regulation will be allowed to invest 100 % of their assets in loans, both on a direct lending and secondary basis. This is however limited to non-consumer loans and leverage must not exceed 30%.
  • The Act will come into effect on March 17th 2016. Mutual-AIFs, however, will be granted a grace period until March 18th 2017 to amend their investment guidelines, prospectuses and other investor information according to the new Act.

Investment Statistics as of 31 July 2015

The German Investment Fund Association BVI has issued its latest investment statistics report dated 31st July 2015, giving an overview of the net assets and net sales within the German investment fund and asset management markets. The statistics are broken down by asset class and provider. They provide information on net assets and net inflows of investment funds and assets outside investment funds.


UCITS Rulebook

The Central Bank of Ireland announced the issuance of the new UCITS Rulebook on Monday October 5th. It, and the guidance relating to it, are effective 1 November.

Central Bank Correspondence on Cyber Security

The Central Bank of Ireland has issued a letter to directors of Irish authorised funds emphasising the need for robust operational procedures to prevent against cyber fraud. The issue was also highlighted in a recent speech by Director of Markets Supervision, Gareth Murphy, on September 8th at a seminar on Regulatory Perspectives on Financial Technologies.

Client Asset Regulations Now Effective

The Client Asset Regulations (S.I. No. 104 of 2015) became effective on 1 October 2015.

Latest Fund Statistics for Ireland

The latest fund statistics for Ireland, published by the Central Bank of Ireland, show continued growth and in excess of 6,000 Irish authorised funds.



Developments in the Luxembourg Financial Sector (UCITS V bill, AIFMD FAQ update, FATCA)

As reported in Issue 8 of Investment Funds Update in September, the Luxembourg government has brought to Parliament a bill of law transposing UCITS V into Luxembourg’s UCI Law and AIFM Law. The Luxembourg CSSF published a new version of its AIFMD Frequently Asked Questions, among other matters clarifying the definitions of “marketing” and “reverse solicitation” from a Luxembourg perspective, and the Luxembourg “FATCA Law” recently came into effect. These developments are further discussed in a recent article published by Dechert (Luxembourg) LLP.

ALFI releases FAQs on RQF II

Further to the announcement by the People’s Bank of China on 29 April 2015 of a RMB 50 billion Qualified Foreign Institutional Investor (“RQFII”) quota being granted to Luxembourg, the Association of the Luxembourg Fund Industry (ALFI) has announced the publication of Frequently Asked Questions on RQF II to provide general guidance to Luxembourg investment funds and their management companies wishing to apply for an RQFII licence and an RQFII quota.

The RQFII scheme was launched in Hong Kong in 2011 and has been expanded to other jurisdictions since 2013, allowing an increased volume of offshore RMB to be reinvested into the Mainland securities markets.

Read the press release 'FAQs on RQFII', 30 September 2015. 

Audit Regulators in the United States and in Luxembourg Enter into Cooperation Agreement

The USA’s supervisory authority of audit firms, the Public Company Accounting Board and the Commission de Surveillance du Secteur Financier in Luxembourg, have entered into a cooperative agreement with regard to the oversight of audit firms subject to the regulatory jurisdiction of both regulators.

Accessible Compendium of Investment Fund Laws and Regulations

The Luxembourg Stock Exchange in cooperation with the Association of the Luxembourg Fund Industry have published two compilations of texts related to investment fund laws and regulations in Luxembourg (one in relation to UCITS and one in relation to AIFs).



FCA MiFID II Roundtable Notes Delays in Consultation Timetable

The FCA published minutes of its MiFID II implementation roundtable meeting of 14 September 2015 on 25 September 2015. These included the following points of note:

  • It is unlikely that the delegated acts required by MiFID II and the Markets in Financial Instruments Regulation (MiFIR) will be adopted by the European Commission before the beginning of November 2015 at the earliest. 
  • The Financial Advice Market Review (FAMR) announced by HM Treasury in August 2015 is due to report in early 2016, and is likely to touch on issues that are relevant to aspects of MiFID II. 
  • However, firms cannot assume that these delays will lead to any postponement of the July 2016 transposition deadline or the January 2017 date of application.
  • Due to the lack of certainty regarding the EU legislative timetable, the FCA's planned December 2015 consultation on MiFID II Handbook changes may be delayed. The FCA is considering issuing one consultation paper in December 2015 on issues where there is certainty, and a second paper consulting on the remaining issues in early 2016.

FCA Consults on UCITS V Implementation and Related Handbook Changes

The FCA published its consultation paper CP15/27 on the Implementation of the UCITS V Directive and other changes to the Handbook affecting investment funds on 3 September 2015. The proposals include:

  • A Remuneration Code for UCITS management companies in a new Chapter 19E of the FCA’s Senior Management Systems and Controls Sourcebook (SYSC 19E), to be broadly similar to the AIFMD Remuneration Code in SYSC 19B. The deadline for comments is 9 November. 
  • FCA authorisation and supervision fees for European Long Term Investment Funds (ELTIFs), and a redress model to bring such funds and their managers within scope of the Financial Ombudsman Service and the Financial Services Compensation Scheme. The ELTIF Regulation applies from 9 December 2015. The deadline for comments on this part is 5 October 2015.
  • Other changes to ensure the rules and guidance for authorised investment funds are up-to-date, including:
    • A standard reporting template for UCITS management companies to reporting their use of derivatives;  
    • a revised definition of feeder funds and rules allowing authorised funds to invest in them; and 
    • new rules allowing authorised fund managers to cease temporarily accepting new subscriptions to protect existing investors.

The deadline for comments on these changes is 7 December 2015.

Hedge Fund Standards Board Issues Cyber-Security Memo

The Hedge Fund Standards Board (HFSB) published a memo on cyber-security for hedge fund managers on 17 September 2015. The memo includes:

  • An overview of existing high level cyber-risk management tools, guidance and certification standards that hedge fund managers can use to develop a tailored approach to cyber-security.
  • A framework to identify a firm's key digital assets, including client data, proprietary algorithms or strategies, trading book and ongoing ability to execute trades
  • A list of action items
  • An overview of projects that can be undertaken to improve a firm's resilience, including the development of an incident response plan
  • Information on financial services regulators' requirements, guidance and approaches in relation to cyber-security
  • A set of recommendations to help firms develop their own cyber-security strategy


AIFMD – Updated Q&As Clarify Position on Sub-Delegation of Custody by AIF Depositaries

ESMA updated its Q&As on 1 October regarding the application of the AIFMD, clarifying its position on AIFMD provisions on depositaries and CSDs.

The Q&A now clarifies that when an Alternative Investment Fund’s (AIF) depositary sub-delegates custody of the AIF’s assets to either an EU or third-country central securities depositary (CSD), that CSD must comply with the provisions on delegation under Article 21(11) of the AIFMD.

Read the press release 'ESMA clarifies AIFMD provisions on depositaries and CSDs', 1 October 2015. 

EMIR - New Guidance on Updating LEIs

ESMA updated its EMIR implementation Q&As on 1 October.  

The update reflects guidance on the procedure to be followed by counterparties and trade repositories in order to update a counterparty’s identifier in case where a counterparty obtains LEI or its LEI changes due to a merger or acquisition.

Read the press release 'ESMA publishes 14th update to its EMIR Implementation Q&As', 1 October 2015.

MiFID II – final report and draft regulatory and implementing standards published

ESMA issued its final report, draft regulatory and implementing technical standards on MiFID II and MiFIR to the European Commission on 28 September.

The European Commission now has three months to approve the Standards (28th December 2015). Once endorsed, both the European Parliament and the Council have a one month objection period.

Read the supporting 'Cost Benefit Analysis – Annex II', 28 September 2015.

ESMA has also issued very high level briefings on how the above impact trading venues, investment firms and commodity derivatives markets.

Capital Markets Union – Action Plan Launched

The European Commission formally launched its action plan for building a capital markets union on 30 September, setting out 20 key measures to achieve a single market for capital in Europe.

Read the press release 'Capital Markets Union: an Action Plan to boost business funding and investment financing', 30 September 2015. 

Read 'Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committe of the Regions: Action Plan on Building a Capital Markets Union', 30 September 2015.

Other EU developments – Market Abuse Regulation and Central Securities Depositories Regulation

ESMA issued its final report and draft technical standards on the Market Abuse Regulation to the European Commission on 28 September.

Read the press release 'ESMA readies MiFID II, MAR, and CSDR', 28 September 2015. 

ESMA also issued its final report and draft technical standards on the central securities depositories regulation to the European Commission on 28 September.

The European Commission now has three months to approve both sets of standards (28th December 2015). Once endorsed, both the European Parliament and the Council have a one month objection period.

Challenge of Reporting Under AIFMD – An update from Arkk Compliance 

With the move to online submission of regulatory returns, firms are increasingly required to manage both regulations and technology in order to achieve timely compliance. Nowhere is this challenge felt more than by firms required to report quarterly, half-yearly or annual Annex IV returns under AIFMD.

Not only are AIFMs required to consider both EU & national layers of regulation, they are also required to deliver their Annex IV data electronically to standards determined by each national competent authority. This can be challenging enough for a firm filing with just one authority, but for non-EEA managers required to file individually with each jurisdiction into which they market, AIFMD compliance has become a significant undertaking.

Since interpreting regulations and fixing XML are not commonly shared skillsets, a lot of firms engage people like Arkk Compliance to provide support during AIFMD filing periods. Typically we will assist firms in populating the Annex IV forms, review data for errors and unusual items, and ensure all returns are filed complete and on time. If you would like to know more about what we do please contact the AIFMD team at


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