Investment Funds Update: Europe - Issue 5, 2015

June 10, 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.


Guidelines on the Use of Stress Tests by French Management Companies

The Association Française de la Gestion financière (the AFG), the French association of management companies, published on 7 May 2015 guidelines on the implementation of regulatory stress tests for UCITS funds using the Value at Risk (VaR) and AIFs. Pursuant to these guidelines, several principles are to be applied by French managers when conducting stress tests, including, among others, the application of the proportionality principle to stress tests or the requirement to disclose the results of such stress tests.

Read the full guidelines (French) 

Autorité des Marchés Financiers’ Annual Report

The Autorité des Marchés Financiers (the AMF, the French Financial Markets Authority) published on 5 May 2015 its 2014 annual report. In addition to the presentation of the AMF activity in 2014, the annual report highlights the requirements for marketing documents to be clear, exact and non-misleading, in order to protect the investors and the general public. The annual report also provides several statistics (i.e., number of management companies and funds existing in France, total AuM, passports requests…).

Read the 2014 annual report (French)

AMF Report on ne bis in idem Principle Under Financial Law

Until recently (see Dechert update, Issue 3, 2015), France had a double-trial system for market abuse, under which someone could be sanction on both a criminal and administrative level. Pursuant to the dismissal of this system by the French Conseil Constitutionnel, the AMF published on 19 May 2015 a report on the “ne bis in idem” principle within the framework of market abuse regulations. In this Report, the AMF makes several proposals in order to reform the existing system. Among others, the AMF proposes that (i) only the most serious cases of market abuse should be subject to criminal proceedings, (ii) the amounts of the criminal and administrative fines should be harmonized or (iii) a procedure of plea bargaining should be introduced in the French market abuse regulations. Those proposals are the first that were published in view of the market abuse reform which will be revised before 1 September 2016.

Read the full report (French)



BaFin Issues New Guidance on Debt Funds

The German Financial Supervisory Authority, BaFin, made a significant change to its administrative practice on 12 May 2015 regarding loan originating and loan restructuring activities of German investment funds. This change is highly welcomed by the fund industry and investment managers since German funds were previously prohibited from originating loans notwithstanding the existence of national initiatives in various other EU member states that have created legal frameworks for loan origination funds in the recent years. Moreover, investment managers struggled with the fact that they were even restricted to restructure or extend loans acquired in the secondary market for German funds, even if such restructuring activities would have been in the best interest of investors. The former administrative practice caused many managers to abstain from purchasing loans in relation to their investment management mandates for German funds.

Read previous Dechert updates on this topic:

  • New Guidance from BaFin on Debt FundsBaFin - Änderung der Verwaltungspraxis zur Vergabe, Restrukturierung und Prolongation von Darlehen für Rechnung von Investmentvermögen (German)

Read the full BaFin guidance (German)

German Bourse Agrees JV for Access to Chinese Shares and ETFs

On 27 May 2015, Deutsche Börse has published that it agreed with the Shanghai Stock Exchange and the Chinese Financial Futures Exchange to launch a joint venture that will facilitate European investors’ access to Chinese shares and exchange traded funds.

The joint venture, the Frankfurt-based China Europe International Exchange, will enable international investors later this year to trade in a range of renminbi-denominated products.

Read the press release "Shanghai Stock Exchange, China Financial Futures Exchange und Deutsche Börse gründen Joint Venture" (27 May 2015)

German Investment Fund Statistics

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



Corporate Governance for Investment Firms

The Central Bank has issued a consultation paper regarding the appropriate corporate governance requirements to be applicable to investment firms. The relevant paper, CP 94, is now available.

New Companies Act Becomes Effective

The Companies Act 2014 became effective on June 1, 2015. This new legislation will have significant implications for corporate entities, including service providers, working in the funds industry.

Read "Companies Act 2014"

Central Bank Annual Report Published

The regulator of the financial services sector in Ireland, the Central Bank of Ireland, has published its annual report for 2014 and performance statement for 2014-2015. 

ISE Update for Listed Funds

The Irish stock exchange, the world’s most popular stock exchange for listings of investment funds, has announced a new submission process relating to the NAVs of listed funds. This will become effective in September of this year.

Read "New NAV submission process being introduced in September 2015"

Latest Irish Fund Statistics

The latest statistics relating to Irish funds are now available.



FATCA Reporting Deadline Postponed to 31 July 2015

The Luxembourg draft law on FATCA, which will ratify the execution of the Intergovernmental Agreement (IGA) signed between Luxembourg and the USA on 28 March 2014, was submitted to Parliament on 27 March 2015. The Luxembourg Tax Authorities have confirmed that for the first reporting year 2014, the reporting deadline has been postponed to 31 July 2015 instead of 30 June 2015. Extensions do not need to be specifically applied for and reporting financial institutions must inform any individual on behalf of whom they will report. It should be noted that the extension has not yet been announced on website of the Luxembourg Tax Administration.

End of the Exemption Set Out in Article 30(6) of the Transparency Law

The law of 11 January 2008 on transparency requirements for issuers of securities, supplemented by the Grand-ducal regulation of 11 January 2008 on transparency requirements for issuers of securities, applies to issuers for which Luxembourg is the home Member State in accordance with this law. Such issuers are required to provide ongoing and periodic information, including periodic financial reports, information to be provided in relation to major holdings and inside information. The exemption set out under article 30(6) of the law ended on 1st January 2015. Consequently, issuers who have benefited from this exemption need to publish half-yearly financial reports as from the financial year commencing on or after 1 January 2015.

Read the CSSF's press release "End of the Exemption Set Out in Article 30(6) of the Transparency Law" (22 May 2015)

Documents to be Submitted to the CSSF After the Close of the Financial Year

With late spring being a time when many companies hold their Annual (or “Ordinary”) General Meeting, the CSSF published circular 15/614 relating to the documents which have to be addressed to the CSSF after the closure of the financial year. The CSSF differentiates between (i) documents to be submitted prior to the Ordinary General Meeting, (ii) documents to be submitted at the latest three months after the closing date, and (iii) documents to be submitted at the latest one month after the Ordinary General Meeting.

Read CSSF Circular 15/614

Luxembourg Infrastructure Investment Vehicles - New Brochure

The Association of the Luxembourg Fund Industry (ALFI) has issued new technical guidelines regarding “Luxembourg Infrastructure Investment Vehicles”, released at the ALFI Infrastructure Funds seminar held recently in Luxembourg. The brochure provides general information on legal and taxation aspects of regulated and unregulated infrastructure investment vehicles domiciled in the Grand Duchy of Luxembourg. While it does not offer comprehensive guidance on structuring infrastructure investments through Luxembourg, the brochure illustrates some of the relevant considerations that need to be taken into account when contemplating Infrastructure investments.

Updated FAQ on the Immobilization of Bearer Shares Issued by Investment Funds Established in Luxembourg

The Luxembourg regulator, the Commission de Surveillance du Secteur Financier (CSSF) published version 2 of the Frequently Asked Questions in relation to the Law of 28 July 2014 on the immobilization of bearer shares and units issued by investment funds established in Luxembourg. Through this updated version of the FAQ, the CSSF intends to provide further clarifications on the application of said law in regard to investment funds.

Read the full FAQ of 5 May 2015 



EU Capital Markets Union: FCA Responds to European Commission Green Paper

The FCA published its response to the European Commission's green paper on 27 May 2015 on building a capital markets union (CMU).

The FCA welcomed the Commission's initiative and set out the following overarching perspectives that it believes to be critical in enabling the development of CMU to be as effective as possible:

  • Greater supply of investor finance will require appropriate investor protection. The FCA believes measures to promote market access and investor protection should go hand in hand.
  • Focus on effective implementation of existing and already planned legislation. There is already a substantial body of legislation promoting a single capital market in Europe, and so the main building blocks are already in place.
  • More consistent supervision within the current framework could bring significant benefits. The functioning of integrated capital markets requires consistent application and supervision of the single rulebook across member states.
  • Legislate only where necessary and embed the better regulation agenda. The EU better regulation approach should underpin the completion of the existing legislative programme and new initiatives.
  • Embrace the opportunities of new technology and potential gains from effective competition. Actions to facilitate digitalisation to respond to investor preferences and give investors greater control over their investments should be encouraged. However, digitalisation also provides challenges, particularly around security, data protection, investor protection and maintaining fair competition, which need to be addressed.
  • European markets need to be embedded in a globally competitive landscape. The FCA believes that steps to attract capital should not be limited to the EU. Action should be taken to ensure that the EU is an internationally competitive and attractive place to invest. The Commission should therefore ensure that EU legislation as far as possible is aligned with wider global standards.

The FCA also set out priorities for action that it believes should be important elements of the CMU action plan. These relate to enhancing the supply of investor finance and demand for capital. 

Read the FCA's Response to the European Commission Green Paper: Building a Capital Markets Union

AIFMD: FCA Introduces New Forms to Notify Material Change Under the AIFMD National Private Placement Regimes

The FCA introduced new forms on 21 April 2015 to notify material changes to information previously submitted to the FCA by alternative investment fund managers (AIFMs) in their marketing notifications under the UK’s national private placement regimes (NPPR) for Non-EEA AIFs managed by full EEA AIFMs implementing (AIFMD Article 36), for AIFs managed by Non-EEA AIFMs (AIFMD Article 42) and by “small” non-EEA AIFMs.

Under the UK’s Alternative Investment Fund Managers Regulations 2013, AIFMs are required to give the FCA written notice of any material change to the information previously provided in a NPPR notification. In the case of a planned change, the AIFM is required to submit the notice at least one month before implementing the change, or in the case of an unplanned change, immediately after the change has occurred. The new forms are intended for use in connection with these requirements.

Please note that these NPPR notification requirements are entirely separate from the requirements for FCA authorised full-scope UK AIFMs to notify material changes to the conditions of their authorisation, including for new AIFs under management.

The new forms are available on the FCA’s website at:

  • Article 36 material change form.
  • Article 42 material change form.
  • Small Third Country material change form.

The FCA has also published a guidance note to assist firms in completing these forms.  

Investment Association Publishes New Statement of Principles for Investment Managers

The Investment Association (IA) published a three-page statement of principles for investment managers on 28 April 2015.

The statement is intended to set out common principles that "underpin the mindset and behaviour of investment managers". The core principle is that investment managers always put clients' interests first and ahead of their own. The remaining nine principles focus on issues such as client money and assets, helping clients achieve value for money, transparency of costs and charges, and disclosure and communication with clients. Principle 9 requires that firms maintain a corporate culture that sustains the principles, with senior management leading by example.

IA members that sign up to the principles should: (1) set out on their websites how they apply the principles and ensure they are properly embedded, (2) explain how they identify and manage key issues and conflicts of interest that could present challenges to their alignment and (3) confirm annually that they have effective processes in place to ensure they act consistently with the principles, and explain how they are addressing any issues that their monitoring of the principles identifies.

The IA will maintain a list of signatories on its website from 31 July 2015,with a link to members' descriptions of their approach from 1 January 2016, and a link to annual reports on the principles from 1 January 2017. The IA intends to review the principles in January 2017.

Read the press release "The Investment Association Publishes Statement of Principles for Investment Managers" (28 April 2015) 



AIFMD - Updated Q&A from ESMA

On 12 May, ESMA issued new Questions and Answers of the application of the AIFMD, including new questions and answers on reporting and calculation of leverage.

The revised Questions and Answers and press release are below – new content is highlighted in the document itself.

Read the press release "ESMA publishes updates to Q&As on the AIFMD application" (12 May 2015)

Read "Questions and Answers: Application of the AIFMD" (12 May 2015)

Capital Markets Union - Maijoor Comments, ESMA and EACB Respond to Consultation

Steven Maijoor, ESMA chair, gave a speech on 12 May 2015 setting out the priorities for the Capital Markets Union. Maijoor emphasised the need for increase participation by retail investors in the capital market, and the need for further integration of EU capital markets.

Read Mr. Maijoor's full speech. 

ESMA responded to the European Commission’s (the “Commission”) public consultation Green Paper on building a Capital Markets Union on 13 May 2015. ESMA was generally supportive of the Commission’s proposals, and stressed the need to develop alternatives to complement traditional bank financing.

Read ESMA's response to the Commission Green Paper on Building a Capital Markets Union.

The European Association of Co-Operative Banks (“EACB”) delivered its comments on the initiatives for a Capital Markets Union on 22 May 2015. Again the EACB was supportive, though highlighted a need for review of certain parts of the Prospectus Directive.

The EACB’s responses to the Commission’s three consultations of building a capital markets union, developing transparent and standardised securitisation practices and a review of the Prospectus.

EMIR - New Consultation Paper Setting Out Regulatory Technical Standards for Clearing of Remaining Interest Rate Swaps

ESMA issued its fourth consultation paper on 11 May 2015 regarding regulatory technical standards (“RTS”) for clearing of interest rate swaps.

This paper sets out draft regulatory technical standards establishing a clearing obligation on additional classes of OTC interest rate derivatives that were not included in the first RTS on the clearing obligation for interest rate swaps.

The addition consists of the following classes: fixed-to-float interest rate swaps denominated in CZK, DKK, HUF, NOK, SEK and PLN as well as forward rate agreements denominated in NOK, SEK and PLN.

A copy of the consultation paper is available below:

Read: Consultation Paper - Clearing Obligation under EMIR (no.4)

MiFID - ESMA Releases Final Guidelines Clarifying the Definition of Commodity Derivatives under MiFID

After over seven years in the waiting, on 6 May ESMA has released final guidelines clarifying the definition of commodity derivatives under MiFID. These will remain in force until MiFID II comes into force on 3 January 2017.

UCITS - ESMA Calls for Modification of UCITS Directive

On 22 May, ESMA called for modification of UCITS Directive, such that it should no longer distinguish between OTC financial derivative transactions and exchange-trade derivatives (ETDs). Instead, the distinction should be between cleared and non-cleared OTC financial derivative transactions.

For OTC financial derivative transactions that are not centrally cleared, ESMA is of the view that there is no need to modify the UCITS Directive and the current counterparty risk limits of Article 52 of the UCITS Directive should continue to apply.


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