Investment Funds Update: Europe - Issue 8, 2015

September 09, 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.


Adoption of the Macron Law - Creation of the SLP

The bill on the Growth and Activity and Equality of Economic Opportunities, known as the Macron law, was finally promulgated in France on 6 August 2015. The Macron law sets out number of amendments with respect to French financial law. Among others, it created the société de libre partenariat (the SLP), which is a form of French partnership which will allow France to compete with English limited partnerships and the Luxembourg’s recent limited partnership (the société en commandite simple/spéciale, the SCS/SCSp). The Paris office will host a presentation on 5 November 2015 which will aim at presenting (i) the SLP, (ii) its legal and regulatory constraints, (iii) its tax regime and (iv) a comparison with the Luxembourg SCS/SCSp.

Read the Loi Macron (in French).

Adoption of the Macron Law - Real Estate Funds

The Macron law also provides for certain improvements to the regime applicable to the organisme de placement collectif immobilier (the OPCI, a French real estate AIF). Pursuant to the Macro law, OPCIs can now invest in movable assets (biens meubles, biens d’équipement ou biens meubles affectés à un immeuble) which are necessary for the OPCI to rent the properties it acquired, which will allow the OPCIs to invest in new categories of assets (for instance, student and senior residences).

Read the Loi Macron (in French). 

French Tax Administration Publishes Details of Bilateral Intergovernmental Agreement relating to FATCA Regulations

The French tax administration published on 5 August 2015 details on the implementation of the bilateral Intergovernmental Agreement signed by France and the United States with respect to the FATCA regulations. The comments provides additional details, among others, on which French entities are deemed to constitute Non-Reporting French Financial Institutions and the application of FATCA on French collective investment schemes (organismes de placement collectif).

Read the French Tax Administration’s comments.

Update of the AMF Doctrine: Ancillary Liquid Assets

Pursuant to the AMF modifications to its doctrine with respect to the AIFM Directive, the AMF has amended its Position-Recommendation n° 2011-25 with respect to the level of liquidity a French fund can hold on an ancillary basis. Article 5.3 of this Position-Recommendation now provides that, for French UCITS and most of the French regulated AIFs, the ancillary level of liquidity that can be held by a fund is limited to 10% of its net assets. Furthermore, the article provides that, in certain circumstances justified by exceptional market conditions, this level can be raised to 20% of the fund’s assets.

Read the updated AMF Position-Recommendation n° 2011-25. 



BaFin Publishes Form for the Notification of the Intention to Manage EU AIF’s

The BaFin published a form on 5 August 2015 for the notification procedure for a German AIFM to manage EU AIFs established in another Member State either directly or by establishing a branch in other Member States of the European Union or in signatories to the Agreement on the European Economic Area pursuant to section 53 of the KAGB (Art. 33 AIFMD).

The form is available here. 

BaFin Publishes Circular on Requirements for External Evaluators

BaFin published a circular on 29 July 2015 on the requirements for external evaluators for real property and property companies. The BaFin circular also provides details on the notification of the external evaluators pursuant to section 216 (5) of the German Investment Code (Kapitalanlagegesetzbuch – KAGB).

The circular is available here (in German). 

Latest Fund Statistics for Germany

In July 2015, the German Investment Fund Association BVI has issued its latest investment statistics report dated 30 June 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.



AIFMD Q&A - 15th Edition Published

The Central Bank published a 15th edition of the AIFMD Q&A on 12th August 2015. The new question relates to Feeder AIF structures.

ICAV Q&A - Revised Edition Released

The Central Bank published a revised edition of the ICAV Q&A on 12th August 2015.

Further information on the ICAV is available from the Dechert update "Ticking all the Right Boxes! Irish Collective Asset Management Vehicles Act 2015 Signed Into Law".

FATCA Update and Clarification

Irish Funds have received clarification from Irish Revenue with respect to the requirement for non-resident sponsoring entities to register with the Irish Revenue before being able to file a FATCA return.

Further information can be found in the Irish Funds' news release "Revenue Extension to FATCA Filing Deadline". 

Latest Fund Statistics for Ireland

The latest fund statistics for Ireland, published by the Central Bank of Ireland, show that there are now in excess of 6,000 Irish funds.



Draft Law Transposing the European Directive on the Automatic Exchange of Information submitted to Parliament

The draft Luxembourg law to transpose Council Directive 2014/107/EU (of 9 December 2014, which amends Directive 2011/16/EU in relation to the mandatory automatic exchange of information in the field of taxation and which approved the Multilateral Competent Authority Agreement signed on 29 October 2014) was submitted to Parliament on 14 August 2015. 

The Directive extends the automatic exchange of information to (i) interest, dividend and other income; (ii) gross proceeds from the sale or redemption of financial assets; and (iii) account balances.

Version 9 of AIFM FAQ Published by the CSSF

The Luxembourg regulator (the CSSF) published version 9 of its FAQ document concerning the Law of 12 July 2013 on alternative investment fund managers (AIFM) and the Commission Delegated Regulation (EU) n° 231/2013, updating or adding to sections relating to:

  • Status of a credit institution or an investment firm under the Law of 1993.
  • Professional depositaries of assets other than financial instruments.
  • Reporting by non-EU AIFM to the CSSF.
  • Reporting in case of a non-EU master AIF.
  • Initial capital and own funds requirements applicable to AIFMs.
  • Definition of marketing and reverse solicitation.

Read the FAQ document in full. 

Grand-ducal AML Regulation of 5 August 2015

A Grand-ducal Regulation was published in the Memorial A-156 on 10 August 2015. It modifies the Grand-ducal Regulation of 1 February 2010 providing details on certain provisions of the AML law and completes provisions relating to simplified due diligence obligations towards clients as regards online payment services or electronic currency.

The CSSF published a consolidated text of Grand-ducal Regulation of 1 February 2010 further to this modification.

Read the consolidated text of the Regulation in full.

Publication of the Draft Law Transposing UCITS 5

The draft law to transpose Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 and amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities as regards depositary functions, remuneration policies and sanctions (UCITS 5) was submitted to Parliament on 5 August 2015. Member States must transpose UCITS 5 by 18 March 2016 at the latest. The Law and the Directive will be further supplemented by a Commission Delegated Act on depositaries which is expected by the end of 2015 or early 2016.

In this context the depositary regime of funds established pursuant to part 2 of the Law of 17 December 2010 will be aligned.

FATCA Law Enters into Force and Tax Authorities Publish Guidance

The Luxembourg law on FATCA was published in the Memorial (official gazette) No 149 on 29 July 2015 and entered into force three days later. The law ratifies the execution of the Intergovernmental Agreement (IGA) signed between Luxembourg and the USA on 28 March 2014 and its related appendices and the Memorandum of Understanding (MoU).

The Luxembourg Tax Authorities published two Circulars ECHA 2 and ECHA 3 providing additional guidance on the implementation of the law and on the structure of reporting files.



FCA Scraps New RDR Rules for Nominees to Pass on Fund Information and Voting Rights on FCA Authorised Funds to Beneficial Owners

The FCA board agreed on 30 July 2015, to revoke certain new rules and guidance in its Conduct of Business sourcebook (COBS 14.4) that had been scheduled to come into force at the end of 2015. The rules had been adopted in August 2011 as part of the FCA’s Retail Distribution Review (RDR) and would require certain nominee companies (called “intermediate unitholders” in the rules) to notify the underlying beneficial owners of units in FCA authorised funds when the fund manager issues certain fund information and voting rights. The proposals were intended to give consumers who invest in funds on an intermediated basis the same rights as those who invest in funds directly.

The revocation followed a public consultation (CP 15/20) that had commenced on 22 June 2015.

Read the FCA's Handbook Notice.

Read Retail Distribution Review (Platforms) (Amendment No. 3) Instrument 2015.

FCA Published Minutes of MiFID II Implementation Roundtable

The FCA published on 10 August 2015, the minutes of its MiFID II implementation roundtable which was held on 17 July 2015.

Items of interest include:

  • A summary of the industry's key implementation issues: these relate to policy concerns, technical challenges, uncertainty over key processes and interpretation of the legislation and particularly concern the scale and nature of changes to be required and the related planning difficulties. The FCA reiterated that firms need to plan effectively for implementation but acknowledged that they could not achieve the impossible and there will be difficulties in transitioning from MiFID to MiFID II. European regulators appreciate that guidance will be needed on top of legislation.
  • Answers to specific wholesale questions raised. Among the topics covered were authorisation (there could be a case for extending the transitional provisions to commodity derivatives firms), market-wide data (ESMA is considering what could assist firms), over-reporting of transaction reports (the FCA is considering this issue), the taping regime (does not apply to face-to-face conversations; the rules are similar to existing FCA rules), the position limit reporting regime (the FCA is to speak to exchanges), legal entity indentifiers (the FCA might provide information on its website) and the availability of information on instruments trading on trading venues across the EU (firms will have access to the same information as competent authorities).
  • Feedback on certain retail issues raised. The issues related to:
    • product governance: ESMA has signalled scope for future work. The FCA noted that consistency with PRIIPs also needs to be taken into account;
    • trail commission: there are no plans to change the current rules or to alter pre-RDR trail off-platform; and
    • costs and charges disclosure: the regulator highlighted ESMA’s technical advice that firms can generally be assured that a client has accessed the valuation if they have a record that the client has logged on online and accessed the relevant section.
  • Level 3 work of the European Securities and Markets Authority (ESMA). The FCA reported that at this stage ESMA's level 3 work was not sufficiently advanced enough for the FCA to have anything to report on. The FCA did however note the concern that industry should be consulted, unlike in the case of the EMIR Q&A process.

The FCA intends to hold its next MiFID II conference on 19 October 2015. The conference will focus on the implementation of markets and wholesale issues, with communication on retail issues occurring via other means.

Read the FCA's Regulation Roundup for August 2015.



EMIR – ESMA Recommendations to EMIR Framework, Final Rules on Central Clearing for Interest Rate Derivatives and Consultation on CCP Client Accounts

EMIR framework: On 13 August, ESMA published a number of recommended changes to the EMIR framework.

Three of the reports are required under Article 85 of EMIR, and cover non-financial counterparties (NFCs), pro-cyclicality and the segregation and portability for CCPs. The fourth report responds to the European Commission’s ( the “Commission”) review including recommendations on amending EMIR in relation to the clearing obligation, the recognition of third country CCPs and the supervision and enforcement procedures for trade repositories.

Central clearing: On 24 August, the Commission published the final text of a regulation supplementing the regulatory technical standards (“RTS”) applicable to the clearing obligation under EMIR.

The regulation lays down the classes of the OTC derivative contracts that are subject to the clearing obligation, and the four different categories of counterparties for which different phase-in periods for clearing apply.

As set out in Annex 1 to the regulation, the following types of OTC derivative are subject to clearing:

  • Fixed-to-float interest rate swaps
  • Float-to-float swaps or “basis” swaps
  • Forward rate agreements
  • Overnight index swaps

Counterparties fall into four categories:

Category 1 - counterparties who are clearing members for at least one of the classes of OTC derivatives set out in Annex I, of at least one of the CCPs authorised or recognised before that date to clear at least one of those classes.

Category 2 - counterparties not belonging to Category 1 which belong to a group whose aggregate month-end average of outstanding gross notional amount of non-centrally cleared derivatives is above EUR 8 billion and which are any of the following (within the meaning of EMIR):

(i) financial counterparties;

(ii) alternative investment funds as defined in the AIFMD that are non-financial counterparties;

Category 3 - counterparties not belonging to Category 1 or Category 2 which are any of the following:

(i) financial counterparties;

(ii) alternative investment funds as defined in the AIFMD that are non-financial counterparties;

Category 4 - non-financial counterparties that do not belong to Category 1, Category 2 or Category 3.

CCP Client Accounts: ESMA published a discussion paper on 25 August 2015, reviewing EMIR standards applicable to central clearing counterparty (“CCP”) client accounts, specifically the liquidation period for various types of financial instruments.

MiFID - Pre-trade Transparency Waivers

ESMA clarified its position on four types of pre-trade transparency waivers, as permitted under MiFID on 26 August.

ESMA has endorsed the position taken by its predecessor, CESR, and has published a number of examples of permitted practice.

Central Securities Depositories Regulation

ESMA published its technical advice to the Commission on the implementation of the CSD regulation on 5 August 2015. 

Key recommendations made were made on the level of penalties for settlement fails, and the substantial importance of a CSD for the functioning of the securities markets.



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