Investment Funds Update: Europe - Issue 2, 2015

March 05, 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.



Société de Libre Partenariat - A New French Investment Structure

The Macron Law, which is still under discussion by the French parliament, created a new investment vehicle called the “société de libre partenariat”. This type of vehicle aims at competing with the anglo-saxon partnership of the Luxembourg “société en commandite spéciale”. The Dechert team in Paris will be producing a Dechert OnPoint on this issue in the near future.

ACPR and AMF Communication Regarding Marketing Practices in France

The Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers published a press release detailing these two regulatory authorities’ views on marketing documents. The ACPR and AMF confirmed that any information dedicated to the public must be “clear, accurate and not misleading”. The ACPR published several new instructions to detail the applicable best practices.

Read "L’Autorité des marchés financiers (AMF) et l’Autorité de contrôle prudentiel et de résolution (ACPR) se coordonnent afin d’harmoniser leurs attentes en matière de communication publicitaire"

Update of AMF Instruction Regarding Programme of Activities for French Management Companies and Self-Managed Funds

The Autorité des Marchés Financiers has updated its Instruction n° 2012-19 relating to the drafting of the programme of activities for a French management company or a self-managed funds. The purpose of this update is mainly to harmonize this Instruction with the implementation under French law of the AIFM Directive.



Germany Proposes Draft Law to Amend Stock Corporation Act

The German Federal Government has proposed a draft law to amend the Stock Corporation Act (Aktiengesetz - AktG) on 7 January 2015. Amongst other things, the proposal includes the following:

  • Non listed German stock corporations may only issue bearer shares (Inhaberaktien) if effective share certificates are excluded, allow the issuing and the share certificate (Sammelurkunde) is deposited with a regulated central securities depository.
  • Stock corporations may issue convertible bonds converting debt capital into equity. 
  • In order to meet regulatory capital requirements more easily, stock corporations may issue preference shares (Vorzugsaktien) without a right for subsequent payment regarding unpaid dividends.

Read the proposed legislation in German (PDF)

German Investment Fund Statistics

In February 2015, the German Investment Fund Association BVI has issued its latest investment statistics report as of 31 December 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.

BaFin Guidance Notice on (Annex IV) Reporting for AIFs and AIFMs 

On 4 February 2015, the German Financial Supervisory Authority, BaFin, has issued an update to its Guidance Notice on reporting obligations for both AIF management companies and individual AIFs pursuant to section 35 (1), (2) and (4) of the German Investment Code (Kapitalanlagegesetzbuch – KAGB) which relate to Annex IV of the Level II Relegated Act of the AIFM. The Guidance Notice explains the reporting regime for AIF management companies, specifying in particular the format, the reporting channel and the start of the submission of reports. The first reporting date is 31 March 2015 (at the latest). 

Read the Guidance Notice in German

Germany Proposes Draft Retail Investors Protection Act

The proposed Retail Investors Protection Act, which is expected to be passed in the first quarter of 2015, is designed to improve investor protection and the transparency of offerings on the unregulated market. The new legislation will, inter alia, expand the prospectus requirement and introduce additional information and notification requirements for offerors and introduce a special regime for crowdfunding capital raising structures.

Federal Ministry of Finance Guidance on Tax for Closed-Ended AIFs

The Federal Ministry of Finance has issued guidance on 12 February 2015 that broadens the favorable tax regime for investment partnerships applicable to closed-ended AIFs. The guidance is particularly relevant for German and foreign investors investing in closed-ended AIFs and for fund sponsors setting up fund structures with a potential German investor base.

Additional information relating to this subject is available in the Dechert publication "Favorable German tax regime for partnership-type AIFs expanded".



Latest Irish Fund Statistics: 30% Growth in AUM of QIAIFs

The latest statistics relating to the Irish funds industry for the 2014 year end show growth across the board. Most notably the level of assets held in Qualifying Investor Alternative Investor Funds (“QIAIFs”) grew by over 30% from €237 billion to €317 billion between 2013 and the end of 2014. The level of assets in Irish UCITS grew by over 20% in the same period to €1,274 Trillion or almost double the level of assets held in such structures immediately prior to the financial crisis.

Download a copy of the complete statistics 

ICAV Update - Bill Passed by Irish Parliament

The upper house of the Irish Parliament, the Dail, approved draft legislation on 19 February 2015 to provide for a new form of Irish corporate fund vehicle, the ICAV. This legislation will now go to the President to be signed into law. This is expected to occur within two weeks.

Further details relating to the progress of this legislation are available in the Irish Collective Asset-management Vehicles Bill 2014.

Additional information relating to the ICAV is available in the Dechert publication "Irish Minister for Finance Announces New Irish Corporate Fund Vehicle".

Central Bank Report on Anti-Money Laundering

The Central Bank of Ireland published a report of its observations in relation to Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Financial Sanctions (FS) compliance by banks in Ireland on 17th February 2015. Head of Anti-Money Laundering, Domhnall Cullinan noted: "While the banking sector in Ireland is the specific focus of the report, many of the issues raised are relevant to the broader financial services sector in Ireland." The Central Bank states that it expects all financial institutions to carefully consider the issues raised in the report.

Read "Report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Banking Sector" (PDF)

Central Bank Publishes Enforcement Priorities for 2015

The Central Bank of Ireland published its statement of enforcement priorities for 2015 on 9 February 2015. The Central Bank entered into 11 enforcement settlements with regulated financial service providers in 2014 resulting in the imposition of overall fines in excess of €5 million. Resources have been specifically allocated for 2015 for enforcement actions against firms with a low impact PRISM rating on the Bank’s risk assessment framework.

Central Bank Outline of Regulatory Plans and Legislative Developments

The Central Bank of Ireland’s Director of Markets Supervision, Gareth Murphy, gave a speech at the 4th Annual Dechert-Carne Funds Congress. This highlighted new practical developments regarding the Central Bank’s processes, current hot topics in investment management and legislative developments at the European level.



Cross-Border Regulation – ALFI Response to IOSCO’s Consultation

On 23 February 2015, ALFI responded to the consultation on cross-border regulation, published by the International Organization of Securities Commissions (IOSCO) in November 2014.

The consultation report describes cross-border regulatory tools, more specifically (i) passporting (ii) national treatment and (iii) unilateral and mutual recognition. The report also outlines challenges from a regulator’s and stakeholders’ perspective, and lists suggestions on IOSCO’s role regarding cross-border issues.

Read "Response to IOSCO consultation on cross-border regulation" (PDF)

KIDs for PRIIPs – ALFI Response to ESA Discussion Paper 

The Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation was enacted on 9 December 2014 and came into force on 29 December 2014, with the aim of improving the transparency of pre-contractual information to retail investors seeking to invest in PRIIPs.

On 17 February 2015, ALFI responded to the discussion paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs), which was published in November 2014 by the European Supervisory Authorities (ESAs).

Review of Technical Standards on Reporting under Article 9 of EMIR – ALFI Response to ESMA Consultation Paper

ALFI responded to the ESMA consultation paper on the review of the technical standards on reporting under Article 9 of European Market Infrastructure Regulations (EMIR) on 10 February 2015.

Asset Segregation Under AIFMD – ALFI Response to ESMA Consultation

A depositary has an obligation to comply with the asset segregation and delegation rules set out in AIFMD and AIFM-Commission Delegated Regulation. AIFMs, depositaries and national competent authorities have experienced some issues on the interpretation and proper application of these rules. On 3 February 2015, ALFI published its response to the ESMA Consultation Paper - Guidelines on asset segregation under the AIFMD.

2014 - A Good Year for Luxembourg – ALFI Press Release

ALFI issued a press release on 3 February 2015 stating that 2014 was a historical year for the Luxembourg fund centre. For the first time in its history, assets under management exceeded the EUR 3,000bn threshold in September. After 12 months of uninterrupted growth, this figure stood at EUR 3,095bn (USD 3,758bn) at the end of December 2014. More than half of the growth (52%) was driven by net sales. “The fund industry plays a key role in economic growth and, after a period of focusing on regulation, 2015 should be a year where asset management companies can not only implement the regulation that has been introduced, but also grow their businesses and focus exclusively on serving investor needs.”



FCA Study on Competition in Investment and Corporate Banking Services

The FCA has announced plans to launch its first wholesale market study into investment and corporate banking to assess whether competition in the sector is working properly. The study will focus on the impact of transparency and bundling on competition for investment and corporate banking services. Terms of reference will be published in Spring 2015. Later in 2015, the FCA will consider undertaking a market study into asset management and related services.

Read "FCA to investigate competition in investment and corporate banking services following review of wholesale markets"

Dealing Commission Consultation

The FCA has published a feedback statement on the use of dealing commission (FS15/1). The FCA says it strongly supports ESMA’s final advice position to the European Commission, which treats research received by portfolio managers from brokers as an “inducement” that portfolio managers would not be permitted to receive under MiFID II, subject to a new “safe harbour” under which a portfolio manager could either pay for the research out of its own resources or using a “research payment account” paid for by clients, subject to conditions. Final rules will need to be drafted and adopted by the European Commission as part of MiFID II, which is scheduled to come into force on 3 January 2017. In its feedback statement, the FCA said that it prefers to implement any further changes to its dealing commission rules in line with final MiFID II position. The FCA also expects to publish a consultation on its implementation of MiFID II later this year.

Read "Feedback statement on DP14/3 – Discussion on the use of dealing commission regime"

FCA Publishes Market Abuse Review Findings

The FCA has published a paper containing its findings on the thematic review of how asset management firms control the risk of committing market abuse. The regulator found that in all but a few firms, further work is required to ensure practices and procedures to control the risk of market abuse operate effectively and cover all material risks. In particular, firms need to pay more attention to the possibility of receiving inside information through all aspects of the investment process and take steps to manage this risk. Firms generally also need to improve the effectiveness of post-trade surveillance. Only a minority of firms were found to have appropriate controls for these matters. The FCA will be writing to firms in its thematic sample to provide individual feedback and it advises that senior management of asset management firms need to satisfy themselves that there are in place appropriate practices to manage the risk of market abuse.

Read "Asset management firms and the risk of market abuse"

FCA Updates Guidance on Transaction Reporting

The FCA has published a revised transaction reporting user pack (TRUP). The TRUP provides guidance to firms on understanding the MiFID transaction reporting obligations, implemented through SUP17 of the FCA Handbook. The TRUP has been updated and the proposed text was consulted on.

Clarification was provided on the following:

  • That transaction reports must accurately reflect the change in position for the firm and its client(s) resulting from the transactions.
  • That a firm “hitting” its own order on a trading venue should report the resultant transaction.
  • How the unit price should be reported for different instruments.
  • How to report the venue for a transaction.
  • What is expected for transaction reporting arrangements within firms.

The final text of Version 3.1 became effective immediately on publication.

Read "TRUP Version 3.1 finalised guidance"

Investment Association Paper on Disclosure of Costs and Charges

The Investment Association (formerly the Investment Management Association) has published a paper on the ‘Meaningful Disclosure of Costs and Charges’ which provides new proposals for discussion with regulators, government, the industry, and investors and their representatives. The Association is proposing a new methodology for a consistent calculation of the portfolio turnover rate (PTR); allowing for a consistent disclosure framework for charges and transaction costs; and sets out how all the explicit and implicit costs incurred when investing in a fund should be disclosed to the end investor.



EMIR: Non-Deliverable FX Forwards and Interest Rate Swap Clearing

Non-deliverable FX forwards

ESMA confirms that EMIR clearing requirements will not apply to non-deliverable FX forwards, though reserves its position to impose these standards at a future date.

Read ESMA's feedback statement "Consultation on the Clearing Obligation for Non-Deliverable Forwards" (PDF)

Interest rate swap clearing

ESMA has now issued its opinion on the modifications made by the European Commission (the “Commission”) to its draft regulatory technical standards submitted to the Commission on 1 October 2014.

ESMA endorses the Commission’s modifications regarding delaying the start date of the frontloading obligation, though proposes a broader application of the intra-group exemption from clearing meaning that, for a three year period, “financial counterparties” can apply for this exemption from clearing when they enter into transactions with non-EU counterparties who have not yet been subject to a “declaration of equivalence”.

Read ESMA's opinion document "Draft RTS on the Clearing Obligation on Interest Rate Swaps" (PDF)

MiFID II: New Consultation Paper

ESMA has published an Addendum Consultation Paper to implementing rules for MiFID II/MiFIR, covering the following non-equity asset classes: (1) foreign exchange derivatives; (2) credit derivatives; (3) other derivatives; and (4) contracts for difference (CFDs). The paper gives an analysis of the definition of a liquid market, and of calculations for pre-trade and post-trade transparency thresholds.

The last section of the paper sets out draft regulatory technical standards for transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives

Read "Addendum Consultation Paper: MiFID II/MiFIR" (PDF)

Benchmark Regulation: Council and Commission Agreement

The European Council has agreed to tighter controls on the manipulation of financial benchmarks, backing the Commission’s proposals for a regulation for benchmarks which are used in financial instruments (e.g. bonds, shares, futures or swaps) and financial contracts (e.g. mortgages or consumer contracts).

Full details are of the European Council and Commission’s position are available in the following press releases:

Read "Benchmarks for financial instruments: Council agrees stance on tighter controls"

Read "EU Council backs European Commission proposal to fight against the manipulation of financial benchmarks"

Capital Markets Union

The Commission has published a green paper on building a Capital Markets Union (CMU). The CMU project includes certain short-term priority actions, orientated towards:

  • Lowering barriers to accessing capital markets through a review of the current prospectus regime. 
  • Widening the investor base for SMEs by improving credit information on SMEs. 
  • Developing proposals to encourage 'high-quality' securitisation and free up banks’ balance sheets. 
  • Supporting take up of long-term investment funds. 
  • Supporting industry led work to develop European private placement markets.

Read the green paper (PDF)

Read the explanatory press release (PDF)

Two related consultations, reviewing the information required to be provided to investors under the Prospectus Directive, and for “high quality” securitisations have also been published:

Read "Consultation on the Review of the Prospectus Directive"

Read "Public Consultation on Securitisation"

ESMA Opinion and Advice on Investment-Based Crowdfunding

On 18 December 2014, the European Securities and Markets Authority, ESMA, has published an Opinion on Invesment-based crowdfunding addressed to the national competent authorities to provide clarity on how existing EU rules are likely to apply to crowdfunding platforms, depending on the business model used. It also provides guidance on how to regulate certain crowdfunding platforms on a national basis. Along with the Opinion, ESMA published an Advice asking EU institutions to consider policy options in order to reduce incentives among crowdfunding platforms to structure their business models to fall outside the scope of EU rules.


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