Investment Funds Update: Europe - Issue 1, 2015

February 03, 2015

Key legal and regulatory updates for the funds industry from the primary European asset management centres and fund domiciles.



Automated Trading - Article 315-67 of AMF General Regulation in Force

On 1 January 2015 article 315-67 of the General Regulation of the AMF, which was enacted on 10 September 2014, entered into force. Under the terms of this investment services providers (including investment managers) using automated trading must declare the use of such system, as well as the regulated markets or multilateral trading systems where the orders are transmitted. 

Click here to read the article 315-67 of the General Regulation of the AMF (in French).

Market Operators Approval Procedure - New AMF Requirements

The AMF introduces new technical data requirements in the authorization procedure for the management of new regulated markets or multilateral trading facilities (MTF). In particular, the market operators and financial services providers are invited to submit specific information to the AMF such as the procedures and mechanisms set up in order to ensure the capacity of the trading system to resist markets extreme volatility or serious tension, and the ability to a continuous operating in case of an unexpected fail of the trading system.

The Arrêté of 15 January 2015 can be found here (in French). 

Financial Investment Advisors - AMF Declarations Clarified

On 26 January 2015, the AMF clarified both content and modalities of the reporting obligations by financial investment advisors associations, submitted on an annual basis. The updated instruction distinguishes two autonomous declarations : on the one hand, a first declaration is made from the associations of financial investment advisors, which includes a copy of the income statement of the last accounting period and the activities report of the priori civil year; on the other hand, the members submit to their associations own specific information, which is submitted by the association to the AMF.

The updated AMF instruction n°2013-07 can be found here (in French). 



BaFin Guidance on Extending the Terms of Closed-Ended Funds

On 4 November 2014, the German Financial Supervisory Authority, BaFin, issued a guidance notice with regard to the requirements that have to be met to extend the term of a German retail closed-ended fund. According to Bafin, the fund rules have to, inter alia, provide for a fixed term of the fund and the possibility to extend this term, also reasons for a possible extension need to be disclosed in the fund rules. The overall term of a closed-ended fund may not exceed 30 years. The guidance notice is available here (in German).

BaFin Guidance on Closed-Ended Blind Pool Funds

In November 2014, the German Financial Supervisory Authority, BaFin, issued a guidance notice with regard to the minimum investment criteria of German retail closed-ended funds, with a view to avoid so-called blind pool funds. Accordingly as of the end of the investment period of such a fund, at least 60% of its assets need to comply with specific and detailed investment criteria to be set out in the fund rules. The guidance notice is available here (in German). 

New Law Decreases Dependence on Credit Agencies

According to a change of the German Investment Code (Kapitalanlagegesetzbuch – KAGB), which entered into force on 21 December 2014, a German Investment Management Company’s risk management process has to ensure that the valuation of a fund’s assets is not solely and automatically based on external credit ratings.

The new legislation is available here (in German).

German Investment Fund Statistics

On 15 January 2015, the German Investment Fund Association BVI issued its latest investment statistics report, 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.



ICAV Update - Bill Passed by Lower House of Parliament

On 28 January 2015, the lower house of the Irish Parliament, the Dail, approved the draft legislation, including various amendments recommended during the Report Stage, to provide for a new form of Irish corporate fund vehicle, the ICAV. This legislation will now go to the Seanad, or upper house, for consideration prior to being signed into law by the President, which is expected by the end of February. 

Further details relating to the progress of this legislation are available here.

Additional information relating to the ICAV is available in this Dechert publication:

Central Bank Publishes Fourth UCITS Q&A

The Central Bank of Ireland (the “Central Bank”) published the fourth edition of its UCITS Q&A on 17 December 2014, updating Question ID 1007, concerning UCITS Money Market Funds, and adding a new question ID 1012, concerning active UCITS ETFs and the requirement to provide details of the holdings within such portfolio on a daily basis. The updated Q&A can be found by clicking here.

Details of other developments relating to UCITS are available in these Dechert publications:

Minimum Capital Requirement – Guidance for AIFMs and UCITS ManCo's 

The Central Bank of Ireland (the “Central Bank”) has issued an updated Guidance Note for AIFMs and UCITS Management Companies in respect of the Minimum Capital Requirement Report, which must be signed by a director or a senior manager and submitted to the Central Bank along with the half yearly and annual audited accounts at specified reporting intervals. The updated guidance note can be found by clicking here.

Details of other developments relating to the AIFMD are available in these Dechert publications:

Details of other developments relating to UCITS are available in these Dechert publications:

Central Bank Publishes Twelfth AIFMD Q&A

The Central Bank of Ireland published a twelfth edition of the AIFMD Q&A on 23 January 2015. The new questions addressed relate to delegation (ID1085), transitional arrangements (ID1086-ID1087) and disclosure (ID1088). The revised AIFMD Q&A is available here.

Details of other developments relating to the AIFMD are available in these Dechert publications:

CP90: Supervision of Non-Financial Counterparties under EMIR

The Central Bank of Ireland (the “Central Bank”) issued a Consultation Paper on 4 December 2014 on the supervision of Non-Financial Counterparties under EMIR. The Consultation Paper can be viewed here. The consultation closed on 30 January 2015.



CSSF Reminder Regarding Nomination of Depositaries of Bearer Shares

The Luxembourg regulator for the financial services industry (CSSF) has issued a press release and a FAQ in relation to the immobilization of bearer shares and units. Relevant entities are reminded that they have until 18 February 2015 to designate a depositary in this context. The FAQ can be found here and the press release here (in French).

AIFMD Reporting for AIFMs and Non-EU AIFMs Marketing in Luxembourg

The CSSF has issued a press release reminding Luxembourg domiciled AIFMs and non-EU AIFMs which market AIFs in Luxembourg to assess their reporting obligations under AIFMD and to commence Annex IV reporting. The press release can be found here.

Additional information on this topic is available in this Dechert publication: 

Luxembourg Tax Authorities Confirm Tax Treatment of Limited Partnerships 

The Luxembourg tax authorities have issued a circular confirming the tax treatment of Luxembourg limited partnerships in the form of SCS and SCSp and how this is impacted by the (regulatory) status of the partnership, its activities and the ownership interests of the general partner. The circular can be found here

Further information on the topic is available in this Dechert publication:

CSSF Publishes Eighth AIFMD FAQs

The CSSF has published an update to the AIFMD FAQs. New topics include marketing of non-EU funds to professional investors in Luxembourg. The FAQs can be found here.

Podcast Series: Trends in the European Alternative Funds Industry

The Association for the Luxembourg Fund Industry has published a series of podcasts in which industry experts comment on challenges, opportunities and trends in the alternative investment fund industry (including in relation to the impact of AIFMD). The podcasts can be accessed here.



AIFMD – FCA Publishes Information to Assist Alternative Investment Fund Managers with Annex IV Reporting

New FCA Q&As on GABRIEL for Annex IV reporting: On 20 January 2015, the FCA published a new Q&As document to provide additional technical help to firms using GABRIEL to submit AIFMD Annex IV reports. See here.

GABRIEL access difficulties: Reporting via the FCA’s online regulatory reporting system GABRIEL (Gathering Better Regulatory Information ELectronically) is required both for (i) FCA-authorised AIFMs and (ii) non-EEA AIFMs with AIFs qualified for marketing under AIFMD Article 42 or as sub-threshold AIFMs under Article 3(3). FCA-authorised AIFMs should already have access to GABRIEL for the submission of other FCA reporting, but non-EEA AIFMs will need to register for access. A number of non-EEA AIFMs are experiencing delays in receiving access codes from the FCA. Also, the GABRIEL system has been suffering from technical problems preventing those UK AIFMs and Non-EEA AIFMs that do have access codes from making timely filings. On 29 January 2015, the FCA posted the following statement on its website:

“29 January 2015 – Important message regarding AIFMD Annex IV transparency reporting and GABRIEL

We are aware that some AIFMs have not yet received the information they need to be able to submit transparency reports using GABRIEL. We confirm that where an AIFM did not receive a Product Reference Number (PRN) for the AIF it manages before 1 January 2015 we will not take any enforcement action against that firm for a failure to report for that AIF by the due date for its most recent reporting period. However, this is provided that the AIFM submits its report to us for that AIF as soon as possible after receiving its PRN for that AIF, and in any event within a month of that date (plus an additional 15 days for an AIF that is a fund of funds).

We are also experiencing ongoing systems issues with GABRIEL, which we are working to resolve. As a result we are aware that firms may not be able to access GABRIEL, or to complete their sessions once within the system, at this time. Similarly, we will not take any enforcement action against firms affected by these issues for a failure to report for that AIF by the due date for its most recent reporting period. However, this is provided that the AIFM submits its reports to us for that AIF as soon as possible after the issues with the system have been resolved.”

MiFID – FCA Confirms Copy Trading in the Retail Market Can Amount to Portfolio Management

The FCA supports ESMA’s view that copy trading or ‘mirror trading’, which allows clients to choose to mimic the trades of other users of a contract for difference (CFD) platform, can amount to the MiFID service of portfolio management. See the statement published on the FCA’s website on 12 January 2015. 

MiFID II - FCA Outlines Timetable for HM Treasury and FCA Consultations on MiFID II Implementation Measures

MiFID II is scheduled to come into effect on 3 January 2017. On 22 December 2014, the FCA updated its website, from which the following can be gleaned:

  • HM Treasury consultation: HM Treasury expects to consult on the legislative changes required to implement MiFID II in the first quarter of 2015. The topics covered will include changes to the boundaries of UK regulation through amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, an authorisation regime for data reporting service providers, changes to the FCA's supervisory powers (including for position limits), implementing the third country branching provisions in MiFID and changes to the requirements to be met by recognised investment exchanges.
  • FCA consultations:
    • Towards the end of the first quarter of 2015, the FCA expects to issue a discussion paper seeking views on various issues relating to conduct of business. This will include asking firms how the FCA should approach dealing with the fact that the conduct of business rules for investment business currently cover insurance-based investment business as well as business relating to MiFID financial instruments.
    • Towards the end of 2015, the FCA plans to issue its formal consultation on the necessary FCA Handbook changes to implement MiFID II.
    • Also during 2015, the FCA intends to provide more detail on various practical issues involved in implementing MiFID II, including on transaction reporting, commodities position reporting and provision of information to ESMA for various purposes, with a view to assisting firms to better understand MiFID II and the various prescribed notifications, authorisations and variations of permission that will be required.


ESMA Opinion on Draft RTS on Clearing Obligation for Swaps

On 29 January 2015, ESMA published an Opinion on the Draft RTS on the Clearing Obligation on Interest Rate Swaps. This is in response to the European Commission’s notification of its intention to endorse, with amendments, the draft RTS submitted by EMSA on 1 October 2014.

ESMA supports the Commission’s intention to extend the initial approach with the objective of postponing the start date of the frontloading obligation, as this should provide counterparties with sufficient time to determine whether their contracts are subject to the frontloading obligation. The opinion goes on to raise some concerns on the proposed process to exempt non-EU intragroup transactions from the clearing obligation. ESMA stands ready to provide technical advice on this particular issue, if requested, in order to find an alternative solution, both in the interest of an efficient implementation and to avoid any delays in the roll-out of the clearing obligation. The Opinion can be found here

AIFMD - ESMA Publishes Updates to Q&As on the AIFMD

On 9 January 2015, ESMA published an updated version (ESMA/2015/11) of its Q&A paper on the application of the AIFMD. The Q&A were last updated in November 2014.

The new Q&A concern the content and method for information to be submitted to national competent authorities under the reporting obligations in Articles 3, 24 and 42, specifically: 

(i) subscription and redemption orders;

(ii) NAV changes;

(iii) monthly gross and net investment returns; and

(iv) aggregated information for AIFMs managing both funds and funds of funds.

The full Q&A are available here.

UCITS - ESMA Updates the Guidelines on ETFs and Other UCITS Issues

On 9 January 2015, ESMA published an updated version of its Q&A paper of its guidelines on exchange traded funds (ETFs) and other UCITS-related issues (ESMA/2015/12). The Q&A were last updated in March 2014.

New Q&A have been added dealing with the discretion a counterparty can have over a derivatives portfolio and the application of collateral management rules.

The full Q&A are available here

Benchmark Reguation - New Proposal

On 22 January 2015, the Presidency of the Council of the EU published a compromise proposal (5453/15) (dated 21 January 2015) relating to the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts (the “Benchmark Regulation”). No additional indices have been included as benchmarks.

The proposal is available here

EMIR - Central Counterparties List, Hong Kong Cooperation, Non-EEA CCPs

The Athens Exchange Clearing House and CME Clearing Europe Ltd have obtained ESMA approval to act as CCPs.

The full list of approved CCPs is available here.

ESMA and the Hong Kong Securities and Futures Commission (SFC) have concluded a Memorandum of Understanding (MoU) establishing cooperation arrangements between the signatory authorities regarding CCPs that are established in Hong Kong and have applied for recognition under EMIR. The MoU is effective as of 19 December 2014.

On 26 January 2015, ESMA published all list of central counterparties (CCPs) established in non-EEA countries which have applied for recognition under Article 25 of EMIR.

The full list is available here.

MiFID II - ESMA Pushes for Twice-Monthly Dark Trading Reports 

European trading venues and consolidated tape providers (CTPs) will have to send their regulators 'dark' trading data twice a month, rather than monthly, under ESMA proposals. National regulators need venues and (yet to be established) CTPs to send them the data so they can enforce the so-called 'double volume cap' on unlit equity trading that is enshrined in MiFID 2.

Money Market Funds - European Parliament to Consider MMF Regulation

The Parliament will consider the proposed MMF Regulation during its plenary session to be held from 27 to 30 April 2015.

The European Commission published its legislative proposal for the MMF Regulation in September 2013, with the European Council publishing a compromise proposal in December 2014.

A copy of the proposal for the MMF Regulation is available here.  

A copy of the compromise proposal for the MMF Regulation is available here.

Sovereign Debt - Delegated Regulation on Significant Net Short Positions 

On 23 January 2015, Delegated Regulation (EU) 2015/97 of 17 October 2014 correcting Delegated Regulation (EU) No 918/2012 as regards the notification of significant net short positions in sovereign debt (Delegated Regulation) was published.

Delegated Regulation (EU) 2015/97) clarifies that the notification thresholds in Delegated Regulation (EU) No 918/2012 for significant net short positions in shares also apply to significant net short positions in sovereign debt.

The Delegated Regulation will come into force on 12 February 2015 and is available here

EIOPA Consultation Paper on Solvency II Technical Standards (ITS)

The draft ITS for reporting under Solvency II in EIOPA’s consultation paper published on 3 December 2014 is of particular relevance to investment funds with insurance companies or pension funds as investors. It contains information on the planned reporting mechanism under Solvency II.

The consultation paper is available here.

EU Passes New Council Directive to Implement “EU-FATCA”

The Council Directive passed by the EU on 1 December 2014 implements the OECD’s Common Reporting Standard (CRS) in Europe. The Directive has to be implemented into national law by the end of 2015, introducing in Europe a mandatory exchange of information for tax purposes that is quite similar to U.S. FATCA.

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