Investment Funds Update: Europe - Issue 3, 2015

April 01, 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.



France Dismisses Double-Trial System for Market Abuse

In France’s current legislation, a breach of the laws and regulations applicable to market abuse (i.e. insider trading) can be sanctioned on a criminal level and on administrative level (by the French Market Authority, the Autorité des Marchés Financiers). In a ruling similar to the Grande Stevens of March 2014 by the European Court of Human Rights, the French Conseil Constitutionnel upheld on 18 March 2015 that the double-prosecution applicable in France for market abuse was unconstitutional. Such double-trials can no longer be continued and France will have to revise its market abuse legislation before 1 September 2016.

AMF Annual Compliance Presentation

The AMF held its annual training meeting for French compliance officers on 17 March 2015. The material included a detailed presentation of (i) the last year’s regulatory and legislative updates, (ii) the importance of risk management for French management companies focused in private equity and real estate and (iii) the impact of MiFID II on market intermediaries.

Read the full AMF materials (in French)

French Private Equity 2014 Market

The Association Française des Investisseurs pour la Croissance (AFIC, the French Private Equity association) published with Grant Thornton a detailed analysis of the 2014 French Private Equity market showing a 35% growth compared to 2013. Despite of this important increase, the French market remains nonetheless below its pre-crisis level. Earlier this month, the AFIC had published another study with the AFG (Association Française de Gestion, association representing French management companies) also showing an increase in fundraising for retail investors private equity funds. Both studies are available on the AFIC website.  

AFG and Amafi's Response to ESMA on MiFID II/MiFIR

The AFG, (Association Française de Gestion), the association representing French management companies, replied to ESMA’s consultation paper on MiFID II and MIFIR on 2 March 2015. The answer pointed out the main concerns of French management companies including (i) the burden of heavy reporting requirements and (ii) the definition of liquid markets for bonds. The Amafi (Association of Financial Market Professionals) also replied to the ESMA consultation paper, the main criticism being on the transparency requirements for non-equity instruments. Both reports can be found on AFG and Amafi’s website.

Read AFG's response to ESMA's consultation paper



New Investment Ordinance Enters Into Force

The revised Investment Ordinance (“Anlageverordnung” – “AnlV”) entered into force on 7 March 2015 after being adopted by the German Federal Cabinet on 25 February 2015. The Investment Ordinance is of particular importance for insurance companies, pension funds and professional pension funds (“VAG Investors”) as they are subject to the investment restrictions set out in the Investment Ordinance. It is also of relevance for fund sponsors setting up fund structures with potential VAG Investors. It is expected that the German Financial Supervisory Authority, BaFin, will update its circular 4/2011 on the provisions of the Investment Ordinance in due course. 

Read the Dechert OnPointGermany's Amended Investment Ordinance

Germany Clears the Way for Solvency II

The Federal Council of Germany (“Bundesrat”) passed the revised Insurance Supervision Act (“Versicherungsaufsichtsgesetz” – “VAG”) on 6 March 2015 which will implement the EU Solvency II Directive in Germany. The new legislation will enter into force on 1 January 2016 and enforce a market-consistent risk-model for insurers. Among others, the legislation contains provisions governing the valuation of assets and liabilities and lays down capital requirements for own funds of insurers. It also provides for new governance requirements and reporting regimes.

Read the full legislation (in German)

BaFin Postpones (Annex IV) Reporting Date for AIFs and AIFMs

The German Financial Supervisory Authority, BaFin, issued an update on 4 February 2015 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”), see issue 2 of the Investment Funds Update Europe. On 5 March 2015, the BaFin postponed the first reporting date due to technical issues with the ESMA system. The first reporting date is now expected to be in May 2015.

Read the updated Guidance Notice (in German) 

German Investment Fund Statistics

In March 2015, the German Investment Fund Association BVI issued its latest investment statistics report as of 31 January 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.



ICAV Legislation Passed

The legislation providing for the new Irish corporate fund structure, the ICAV, was signed into law on 5 March 2015 by the President of Ireland. The relevant legislation, the Irish Collective Asset-management Vehicles Act 2015, came into operation on 12th March 2015.

Central Bank Issues ICAV Documentation

The Central Bank announced that it would commence to accept ICAV applications from March 16th 2015 and has issued related forms and a Q&A.

AIF Rulebook Updated

The Central Bank has issued a new edition of the AIF Rulebook dated March 2015 and replacing that dated September 2014. Key changes reflected in the updated edition include provisions reflecting the enactment of legislation providing for the ICAV, although other miscellaneous changes have also been included. 

Irish Government Announces Updated Financial Services Strategy

The Irish Government has issued “IFS2020: A Strategy for Ireland’s International Financial Services sector 2015-2020”. This outlines the plans of the Irish Government to further boost the international financial services industry in Ireland, which it notes already involves over 13,000 people in the funds sector alone in Ireland, in the coming years.

Latest Irish Fund Launches

The Central Bank has announced that 48 new funds launched in Ireland during February 2015.



Recent developments in the Luxembourg Financial Sector

In the Financial Services Quarterly Report for the first quarter of 2015, Dechert's partners in Luxembourg explore some of the recent developments in relation to the immobilization of bearer shares, reporting obligations, tax treatment of Luxembourg limited partnerships and tax residency certificates for undertakings for collective investment.

Read Dechert's Financial Services Quarterly Report

Bearer Shares and Units: Reminder to Holders and Issuers

The CSSF issued press release 15/16 on 27 March 2015. The press release follows up on press release 15/09 of 26 January 2015, in which the CSSF reminded issuers of Luxembourgish bearer shares and units of their obligation to appoint a depositary prior to 18 February 2015. The CSSF draws attention to the next steps to be taken by the holders and issuers of shares and units referred to in the law and emphasizes that persons who do not hold shares or units physically, and who have placed them in an account, do not have to undertake any further steps. In such case it is the establishment where the account has been opened that should ensure compliance with the law.

Read the press release of 27 March 2015 (in French)

Change of Deadline for Compliance with CSSF Circular 14/587

CSSF circular 14/587 relates to provisions applicable to credit institutions acting as depositaries to undertakings for collective investment in transferable securities (UCITS) subject to Part I of the law of the 17 December 2010 on UCITS. The purpose of the circular is to clarify the depositary regime provided for in the law of 2010 defining the organizational provisions as regards the role, obligations and rights relating to the function of UCITS depositary. CSSF circular 15/608 foresees that the addressees of circular 14/587 must comply with its provisions by 18 March 2016 (instead of 31 December 2015) at the latest. From 18 March 2016, chapter E of CSSF circular IML 91/75 is therefore no longer applicable to UCITS.

Read CSSF Circular 15/608 (in French)

Tax: Automatic Exchange of Information and AML Developments

By means of circular 15/609 dated 27 March 2015, the CSSF reminded the governing bodies and conducting persons of regulated entities that they should continue to put in place procedures and infrastructure in order to enable exchange of tax information and provides updates on recent and expected developments in automatic exchange of tax information and anti-money laundering in tax matters. 

Read CSSF Circular 15/609 (in French)

Luxembourg Fund Sector Continues to Grow

The CSSF press release 15/15 dated 26 March 2015 provides an overview of regulated UCIs at the end of February 2015 and confirms total assets under management of more than EUR 3.403 billion, showing growth of 3,87% over the last month and 27,03% over the last twelve months.

Read the press release of 26 March 2015 (in French)



AIFMD: FCA Consults on Rule Changes

The FCA published a quarterly consultation paper (CP15/8), which includes proposed changes to its Handbook to:

  • add new guidance on the AIFM valuation function, including guidance that:
    • calculation and disclosure of NAV does not form part of the valuation function, and
    • the person undertaking the valuation function may obtain assistance from other persons in coming to its final valuation and, in certain circumstances, may accept the advice from individuals undertaking portfolio management for an AIF on the value of individual assets; and
  • make non-EEA AIFMs with AIFs qualified for marketing in the UK under AIFMD Art. 42 and small registered UK AIFMs, which fail to submit their AIFMD Annex IV reports to the FCA on time subject to the same administrative fee of £250 that applies to full-scope UK AIFs and small authorised UK AIFMs.

The deadline for responses to CP15/8 is 5 May 2015. 

Read FCA Quarterly Consultation - March 2015

MiFID II - FCA Updates Implementation Timetable

The FCA has updated the timetable setting out their plans for making the necessary changes to UK legislation and the FCA and PRA Handbooks.

The current timetable is as follows:

  • March 2015: Publication of FCA Discussion Paper (DP) on issues where they have discretion in implementation.
  • July 2015: Publication of delegated acts by the European Commission (EC).
  • December 2015: Publication of FCA Consultation Paper (CP) re the technical implementation of MiFID into the handbook.June 2016: Deadline for final implementation of MiFID by FCA.
  • 3 January 2017: MiFID II and MiFIR come into force.

Investment Companies: Updated Corporate Governance Code

The Association of Investment Companies (AIC) has published updated versions of its Code of Corporate Governance (AIC Code) and its Corporate Governance Guide for Investment Companies (AIC Guide).

The majority of changes to the AIC Code have been made to reflect recent changes to the UK Corporate Governance Code of the Financial Reporting Council (FRC), which applies to accounting periods beginning on or after 1 October 2014. All companies with a Premium Listing of equity shares in the UK are required to comply with the UK Corporate Governance Code.

The AIC’s updates ensure that the FRC can continue to endorse the AIC Code as an alternative means for AIC members to meet their obligations in relation to the UK Code and the Listing Rules.

Read The AIC Code of Corporate Governance - February 2015

Read Corporate Governance Guide for Investment Companies - February 2015

Tax: HMRC Publishes Filing Dates for New AIFM Mechanism for Partnership Deferred Remuneration Arrangements

The Finance Act 2014 introduced a provision intended to help partnerships (including LLPs) that are AIFM businesses (including those acting as a delegate of an AIFM) to comply with deferred remuneration arrangements - whether these are imposed under the AIFMD, under other regulatory regimes or adopted voluntarily – by enabling such arrangements to be operated net of tax and national insurance contributions. Where a partnership has elected to apply the AIFM mechanism, a partner may allocate to the partnership itself for tax purposes all or part of his or her share of the partnership’s taxable profits which is subject to a deferral requirement or which has to be received and retained in the form of fund equities (restricted profits). The consequence of the allocation is that payment of income tax (charged at the additional rate) on the restricted profits allocated to the partnership becomes the responsibility of the partnership rather than the partner; and the restricted profits are treated as part of the partner’s taxable income, with a corresponding tax credit, in the tax year when they vest in accordance with the deferred remuneration arrangements. Adoption of the AIFM mechanism thus enables such deferred remuneration arrangements to be operated net of tax and national insurance contributions.

Partnerships carrying on an AIFM business in the UK must make any election to adopt the AIFM mechanism in a prescribed form within six months after the end of the first accounting period for which it is to apply. Where a partner chooses to allocate restricted profits to the partnership, this allocation must be included by the partnership in its own tax return and annual statement in the prescribed form, which, as these are available only in paper format, must be filed by 31 October (rather than 31 January) following the end of the tax year. HMRC has published forms and guidance.

Download a copy of the legislation and guidance on the new AIFMD mechanism



AIFMD: Revised Q&A

ESMA published revised Q&A’s on 26 March 2015 on AIFMD scope issues. The Q&A includes updated or new questions and answers on reporting, notification and holding of additional own funds.

Read Q&A: Application of the AIFMD

Maijoor Further Endorses Capital Markets Union

ESMA continues to promote the idea of a CMU, with Steven Maijoor, ESMA chair, outlining his vision of the necessary components for a fully integrated capital markets union (CMU). His speech of 12 March 2015 focused on how to increase capital availability and support economic growth in the EU over a five-year period.

Read the full speech

EMIR: New MoU and Revised Opinion on Interest Rate Swaps

New MoU: ESMA published a memorandum of understanding (MoU) on 9 March 2015 that it has entered into with the Monetary Authority of Singapore (MAS) under EMIR, setting out the co-operation arrangements between the two authorities regarding central counterparties (CCPs) that are established in Singapore and have applied to ESMA for recognition under Article 25 of EMIR.

Read the full MoU

Revised opinion: ESMA published a revised opinion on 6 March 2015 on draft regulatory technical standards (RTS) on the clearing obligation for interest rate swaps (IRS) under EMIR. Besides incorporating practical issues raised by the European Commission's January 2015 corrigendum notification, the revised opinion does not introduce material changes compared to the original opinion and the draft IRS RTS have not been modified.

Read the full revised opinion

MiFID II: ESMA Consults on Complex Debt Instruments and Deposits

ESMA launched a consultation on draft guidelines on complex debt instruments and structured deposits on 24 March 2015. These guidelines offer further clarification on which types of financial instruments and structured deposits can be provided without the firm assessing a client’s knowledge and experience (i.e. to carry out an appropriateness test). This CP also covers the concept of embedded derivatives for debt instruments. The consultation will be open until 15 June 2015. ESMA expects to publish final guidelines in Q4 2015.

Read the full consultation

Draft Report Published on Proposed Money Market Funds Regulation

On 26 February 2015, the European Parliament published a press release announcing that its Economic and Monetary Affairs Committee (ECON) has voted on a draft report on the proposed Regulation on Money Market Funds (MMF Regulation). The press release highlights the proposed amendments made by ECON:

  • Limiting constant net asset value (CNAV) MMFs to two types. These are retail CNAV MMFs, available for subscription only for charities, non-profit organisations, public authorities and public foundations, and public debt CNAV MMFs which are required to invest 99.5% of their assets in public debt instruments.Introducing low volatility net asset value (LVNAV) MMFs.
  • Requiring MMFs to diversify their asset portfolios and have in place sound stress-testing processes.
  • Preventing MMFs from receiving external support from third parties including from their sponsors.
  • Requiring MMFs to report certain information to their investors on a weekly basis.
  • Requiring public debt and retail CNAVs and LVNAVs to apply "liquidity fees" and "redemption gates" in circumstances to help stem sudden outflows.
  • ECON also voted to remove the requirement for CNAV MMFs to hold a cash capital buffer equal to 3% of their assets.

Read the press release "Making money market funds more resilient to financial crises" (25 February 2015)

Shadow Banking: EBA Consults on Exposures to Shadow Banking

The European Banking Authority (EBA) published a consultation paper on 19 March 2015 on guidelines on limits on exposures to entities that carry out banking activities outside a regulated framework under the Capital Requirements Regulation. The guidelines set out requirements for institutions to set limits to their individual exposures to shadow banking entities and to the shadow banking sector in its entirety.

Read the full consultation paper


ESMA published revised Q&A’s on the KIID on 26 March 2015. The Q&A includes a new question on the treatment of past performance information in case of fund mergers.

Read the full Q&A


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