Investment Funds Update: Europe- Issue 9, 2016

November 23, 2016

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.



AMF Form – Obligation to Fulfill a Form of Compliance with UCITS 5 for Portfolio Management Companies 

The Autorité des Marchés Financiers (the French financial markets regulator, the “AMF”) published 20 October 2016 a form which will be used to facilitate the compliance with the provisions of the UCITS V Directive on remuneration. As a result, in addition to the update of the program of activities of French management companies authorized under the UCITS Directive, such management companies shall complete the form published by the AMF.

The AMF General Regulations (Règlement Général de l’Autorité des Marchés Financiers) have also been updated pursuant to an Arrêté dated 20 October 2016 in order to implement new obligations relating to the UCITS V Directive. 

Read the AMF communication in full (in French) 

Read the remuneration form published by the AMF (in French) 

Read the Arrêté (in French) 

Update of the AMF General Regulations – Professional Certification of Financial Investment Advisers 

An Arrêté published on 24 October 2016 amended the AMF General Regulations by introducing, among others, regulatory provisions relating to the verification of the minimum knowledge of financial investment advisers (conseillers en investissements financiers). On 10 November 2016, the AMF published an Instruction and a Position relating to the minimum knowledge verification procedures for such advisers. The new regulations will enter into force on 1 January 2016. 

Read the Arrêté dated 12 October 2016 (in French) 

Read AMF Instruction n° 2016-10 (in French) 

Read AMF Position n° 2016-11 (in French) 

Read the Arrêté dated 12 October 2016 (in French) 

Read the Ordinance N° 2016-520 dated 28 April 2016 (in French) 

AFG – Guidelines for ESG Principles under the Energy Transition Law 

The Association Française de la Gestion Financière (the French professional association of French management companies, “AFG”) published on 24 October 2016 guidelines relating to article 173 of the Energy Transition Law for the Green Growth dated 17 August 2015. The guidelines provide general information as to the reporting obligations for French management companies under this law. 

Further information is available on the AFG website. 

AMF Guidelines – EU Regulation on Market Abuse 

The AMF published several regulations related (amonst other areas) to the application in France of the Market Abuse Regulation. These regulations are related to several topics, including: 

  • Position-Recommandation n° 2016-05, a guide relating to the periodic information for listed companies. 
  • Instruction n° 2016-06, which consist of regulations relating to the transactions of managers of listed companies. 
  • Instruction n° 2016-07, which provides the notification procedures to the AMF of any delay in the publication of an inside information, as required under EU Regulations. 
  • Position-Recommandation n° 2016-08, a guide relating to the permanent information and the management of inside information for listed companies. 

Read the Position-Recommandation n° 2016-05 (in French) 

Read the Instruction n° 2016-06 (in French) 

Read the Position-Recommandation n° 2016-08 (in French) 

Decree Related to the Crowdlending Regime 

The Decree n° 2016-1453 published on 30 October 2016 has amended the crowdlending regime in French. The main updates are as follows: 

  • Increase of the borrowing limits (i.e., € 2,000 for remunerated loans and € 5,000 for interest-free loans) for lenders. 
  • Increase of the maximum loans proposed by crowdlending platforms (i.e., up to € 2.5 million). 
  • New financial instruments can be proposed (i.e., preferred shares and convertible bonds). 
  • Regulatory regime for newly established minibons. 

Read the Decree (in French) 

AMF Doctrine – Management Fees 

The AMF, within the framework of the FROG Working Group (French Routes and Opportunities Garden, whose role is to develop the French asset management industry), updated on 8 November 2016 its doctrine with respect to the presentation of management fees and costs for UCITS funds and certain AIFs. As a result, several Instructions have been updated (see below). The main changes are as follows: 

  • Obligation to distinguish distinction between the management fees and the external administrative costs of the fund. 
  • Clear list of each category of fees and costs (see new article 1.3.9 of Position-Recommandation). 
  • Simplified procedure of information of the unitholders when the change of external fees is below 0.10%. 

The revised regulations apply as from 8 November 2016 for new prospectuses and an obligation to update old prospectus before 8 November 2017. 

Read the AMF communication, including links to all revised regulations in track changes (in French).



German Investment Fund Association Extends Rules of Conduct

The general meeting of the German Investment Fund Association BVI (Deutscher Fondsverband) agreed to revised rules of conduct for the fund industry which will be implemented as of January 1, 2017 with a transitional period of nine months. Crucial modifications to the rules of conduct which were first introduced in 2003, are the introduction of the general principle “comply or explain”, the inclusion of guidelines regarding responsible investing and the removal of legal obligations which are now laid down in the German Investment Code (Kapitalanlagegesetzbuch – “KAGB”) such as mandatory measures when dealing with a conflict of interest or the disclosure of ongoing expenses. The BVI’s rules of conduct are voluntary industry standards taking into account the trustee relationship between investment funds and their investors.

Read the revised rules of conduct (in German)  

BaFin Consults Draft Circular on Regulatory Requirements to the Business Organization of Insurance Companies

Until 18 November 2016, BaFin is consulting on a draft circular on regulatory requirements for the business organization of insurance companies (“MaGo”). The draft circular summarizes various minimum requirements which follow from an interpretation of the reformed Insurance Supervision Act (Versicherungsaufsichtsgesetz – “VAG”) and the Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EG. The draft circular covers governance aspects and aims at consolidating universal aspects of the business organization of insurance companies without replicating the requirements of the VAG, the Delegated Regulation or EIOPA’s guidelines. The draft circular particularly explains main terms such as “proportionality” (Proportionalität) or “administrative, management or supervisory body” (Verwaltungs-, Management- oder Aufsichtsorgan) and takes into account first experiences from the supervisory practice with Solvency II. The circular will replace the repealed circular regarding regulatory requirements for the risk management (MaRisk VA) and will apply to German insurance companies governed by Solvency II.

Read the draft circular (in German)  

BaFin Consults Draft “InvMaRisk” Covering Loan Originating Funds

BaFin published to certain industry organizations a draft of the revised “InvMaRisk” for further consultation on 8 November 2016. The deadline for the consultation phase of the revised version of the so-called “Minimum Requirements on Risk Management for Investment Companies (Mindestanforderungen an das Risikomanagement für Kapitalverwaltungsgesellschaften - „KAMaRisk“) will end on 23 November 2016.

In respect to Loan Originating Funds, KAMaRisk will implement as a technical compliance standard the statutory compliance requirements for loan funds as introduced by the UCITS-V-Transformation Act (OGAW-V-Umsetzungsgesetz) and stipulate (i) special compliance requirements on the origination of loans as well as (ii) minimum requirements on the risk management of German investment companies (“KVG”) managing AIFs which are granting loans for the account of their AIFs (Direct Lending) or which invest into (secondary) loans.

Read a specialist article published by BaFin on the subject (in German) 

Latest Investment Fund Statistics for Germany 

The German Investment Fund Association BVI issued its latest investment statistics report in October, providing 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.



Central Bank launches ORION II platform to authorise all QIAIFs applications 

All QIAIFs applications (including ICAVs) will be processed via the CBI’s ORION platform allowing consistency with other legal structures and representing a further move away from paper based applications. 

Details of the system have been released by Central Bank Read and are detailed in its release “Enhancements to ORION II QIAIF System”. 

Central Bank Updates Its Transparency Rules 

The Central Bank of Ireland has updated their Transparency Rules setting out procedural and administrative rules and guidance in respect of the Transparency (Directive 2004/109/EC) Regulations 2007 as amended. The Rules no longer provide exemptions from the requirement to notify issuers of significant share-holdings arising through stock-lending or stock-borrowing agreements. 

New Anti-Money Laundering Regulation Requires Accurate Information on Beneficial Ownership of Corporate Entities 

The Regulation requires corporate and other legal entities incorporated in Ireland to hold adequate, accurate and current information on their beneficial ownership, including the details of beneficial interests held. It reflects aspects of the EU’s Fourth anti-money laundering directive. 

Latest Fund Statistics for Ireland 

The Central Bank of Ireland has issued the latest statistics available regarding Irish funds. This includes fund data as well as details relating to new fund launches. 

Irish Funds Hit by Brazil’s Tax Haven “Blacklist” 

The Brazilian government have placed Ireland on their tax haven blacklist, potentially hitting Dublin-domiciled funds heavily invested in Brazilian companies with capital gains between 15% and 22.5%.



CSSF Newsletter – October 2016 

The CSSF published its October 2016 newsletter (number 189), which provides updates in relation to recent national regulation and statistics. 

Read the October newsletter in full. 

CSSF Circular 16/644 dated 11 October 2016 

The CSSF released circular 16/644 on the provisions applicable to credit institutions acting as UCITS depositary subject to part I of the Law of 17 December 2010 relating to undertakings for collective investment and to all UCITS, where appropriate, represented by their management company. 

This circular specifies the applicable organizational requirements (e.g. distinction between delegation of safe-keeping of assets and other delegation and outsourcing, clarification on accounts with third-party custodians) 

ALFI Responds to the Public Consultation on Cross-Border Distribution by the Commission 

As requested from stakeholders in the context of the CMU public consultation ALFI responded and points out the main barriers to the cross-border distribution of funds (UCITS, AIF, ELTIF, EuVECA and EuSEF) across the EU. 

The replies concern overall liberalization of existing rules (e.g. gold-plating, common notification body) and extensions to such rules (e.g. definition of semi-professional investor, extension of national private placement regimes, third-country passports). 

ALFI Response to IOSCO Consultation Report on Good Practices for the Termination of Investment Funds 

ALFI responded to the IOSCO Consultation Report on Good Practices for the Termination of Investment Funds which includes also a section on mergers. 

The reply includes disclosure practices and the treatment of “non-contactable investors” while distinguishing the liquidation of whole structures or sub-funds and noting Luxembourg specific points such as the treatment of FCPs versus corporate entities or partnerships. 

ALFI Response to EU Commission Consultation Regarding the EU Macro-Prudential Framework 

ALFI responded to EU Commission consultation regarding the EU macro-prudential framework. 

ALFI replied that the expansion of the macro-prudential framework beyond banking would be inappropriate considering the highly regulated framework for funds and asset managers. 

CSSF Regulation N° 16-07 relating to out-of-court complaint resolution 

The CSSF released regulation N° 16-07 relating to out-of-court complaint resolution. 

The regulation defines rules applicable to requests for out-of-court resolutions of complaints filed with the CSSF, inter alia consumer disputes concerning UCITS and part II funds. 

Read regulation N° 16-07 in full.



FCA Publishes Final Rules Removing Certain Ineffective Disclosure Requirements 

The FCA published a policy statement on 11 October 2016, removing certain ineffective disclosure requirements from the FCA Handbook (PS16/23). The policy statement provides the results of the FCA’s October 2015 consultation (CP15/32). 

The FCA explained that respondents were generally supportive of the proposals in CP15/32 and therefore broadly speaking will proceed with the rule changes as consulted on. The text of the final Handbook changes is set out in the Disclosure Documents (Amendment no 2) Instrument 2016 (FCA 2016/59). 

In summary, the rule changes reflect the FCA's decision to remove: 

  • The requirement for alternative fund managers (AFMs) of UCITS schemes and non-UCITS retail schemes (NURS) to produce a short report, with effect from 22 November 2016. 
  • The templates for the initial disclosure document (IDD), the combined initial disclosure document (CIDD), and the services and costs disclosure document (SCDD) from the relevant conduct of business rules. These rule changes take effect from 1 February 2017. The FCA reminded firms that the Insurance Distribution Directive ((EU) 2016/97) will introduce new disclosure requirements, including a new standardised form called the insurance product information document, for non-life insurance products. The FCA has decided not to introduce to its Handbook a checklist of the required disclosures, due to concerns that this might reintroduce a tick box approach to providing information to consumers. The FCA also reminded firms of the continuing obligation to meet the information needs of the customer including in relation to issues such as scope and cost of a service. 
  • The requirement for firms operating with-profit business to produce a consumer-friendly principles and practices of financial management (CFPPFM), with effect from 22 November 2016. The FCA explained that firms will still have to consider the information needs of consumers, but they will have greater freedom to decide how to engage with them. 

These rule changes form part of the FCA's wider smarter communications strategy on which the FCA published a discussion paper (DP15/5) in June 2015. Alongside PS16/23, the FCA has also published a feedback paper setting out its response to DP15/5. 

Read the FCA's policy statement in full. 

Disclosure Documents (Amendment No 2) Instrument 2016, FCA 2016/59 

FCA Opens Website for New Market Data Processor System for MiFID II Reporting 

The FCA has opened a website for its new Market Data Processor (MDP) system, which it intends to use to manage the large volumes and ranges of data that firms and other entities with an obligation to report any of the market data types need to submit to under MiFiD II. 

Via this website, the Market Interface Specification is currently available for MiFID II transaction reports, instrument reference data, transparency reports and double volume cap reports. A revised version to include commodity position reports and an on-boarding application form are expected to be made available later in the fourth quarter 2016. 

The FCA states that it will support industry testing with a dedicated Industry Test Environment (ITE) during 1 July 2017 to 31 December 2017. During this period all submitting entities seeking to demonstrate conformance and compliance with the FCA’s technical specification from 3 January 2018 will be on-boarded on to the MDP. The successful on-boarding will form part of the FCA’s Authorisation and Supervisory process for submitting entities. The ITE will continue to be available beyond the MiFID II implementation date of 3 January 2018 to support new entrants wishing to connect to the FCA’s MDP system and other change projects. 

Further details can be found on the FCA’s MDP website. 

FCA Letter on Post-Brexit Financial Services Regulatory Landscape and Role of Passporting 

The House of Commons Treasury Committee published a letter (dated 28 October 2016) on 8 November 2016 from Andrew Bailey, FCA Chief Executive, to Andrew Tyrie, Treasury Committee Chair, in which the former provides further details on the questions raised at a committee hearing with the FCA on 20 July 2016. 

The letter covers a number of issues, including: 

  • An assessment of the regulatory landscape for financial services if, post-Brexit, the UK were to be considered a "third country" by the remaining EU member states, with access rules essentially governed by World Trade Organisation protocols. 
  • The role of passporting. 
  • The main elements of what an optimal future framework would look like. 
  • The potential advantages of removing passporting requirements. 
  • An assessment of the practicalities of improving global standards of regulation. 

Read the letter in full.



AIFMD – ESMA amends guidelines on remuneration practices under the AIFMD 

ESMA amended its guidelines on remuneration under the AIFMD on 14 October 2016. 

The amendment relates to the application of the remuneration rules in a group context. 

Read the final guidelines in full. 

Read the associated press release in full. 

EMIR – European Commission adopts revised rules for reporting to trade repositories under EMIR 

The European Commission adopted revised rules for reporting to trade repositories under EMIR on 26 October 2016. The revised rules in this regulation amend the implementing technical standards on the minimum details of the data to be reported to trade repositories. 

Read the new rules in full. 

Read the annex in full. 

Read the associated press release in full. 

The rules will come into force 9 months after the entry into force of this regulation. 

MiFID II – ESMA issues Q&A on transparency topics for systematic internalisers and consults on transparency rules for package orders 

ESMA issued new Q&As on 4 November 2016 on certain transparency topics applicable to systematic internalisers under MIFID II. 

The Q&As clarify when ESMA will publish the first set of data needed to implement the Systematic Internaliser regime and the date by when firms must comply with the SI regime for the first time. 

Read the associated press release. 

ESMA issued a consultation paper on 10 November 2016 containing draft regulatory technical standards on package orders for which there is a liquid market. 

Package transactions are interlinked financial transactions comprising various instruments which firms execute jointly in order to reduce transaction costs and for risk management purposes. ESMA’s draft regulatory technical standards establish a methodology for determining those package orders for which there is a liquid market in the European Union as a whole, and which consequently may not be waived from pre-trade transparency requirements.

Read the consultation paper in full. 

Read the associated press release. 

UCITS – ESMA issues final guidelines on remuneration practices under the UCITS Directive, and issues updated Q&A 

ESMA published its final guidelines on remuneration under the UCITS Directive on 14 October 2016. 

The guidelines aim to clarify the requirements for management companies when establishing and applying a remuneration policy for key staff. 

Read the final guidelines in full. 

Read the associated press release. 

ESMA updated its Q&As on 12 October 2016 on the application of the UCITS Directive. 

The Q&A includes four new questions and answers on: regulated markets in Member States under the UCITS Directive, translation requirements in relation to the remuneration disclosure, reinvestment of cash collateral, and the commencement of periodical reporting. 

Read the associated press release. 

PRIIPS implementation delayed by one year, with European Commission inviting European Supervisory Authorities to amend PRIIPs rules and develop guidance 

On 9 November, as widely anticipated, the European Commission extended the application date of the PRIIPs Regulation by one year. This follows the rejection by the European Parliament of the associated Regulatory Technical Standards (RTS). 

The PRIIPs regulation will now come into force on 1 January 2018. 

Read the associated press release in full. 

Read the proposed amendments to the RTS in full.

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