Investment Funds Update: Europe- Issue 10, 2016

December 19, 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.


SAPIN II Law- Asset Management Rules Development 

The SAPIN II law, adopted by the French Parliament on 8 November 2016, was published on 10 December 2016 after the Décision 2016-740 DC dated 8 December 2016 of the Conseil Constitutionnel (the French constitutional Court). This law includes several provisions which relate to asset management regulations, including, among others: 

  • measures related to the MiFID II implementation; 
  • a ban on advertisement to retail clients of certain CFDs Forex-related products and binary options; 
  • clarification of the legal regime of the Société de Libre Partenariat; 
  • clarification on the rules applicable to the origination of loans by French funds (see below the Decree n° 2016-1587); 
  • clarification of the French ELTIF regime. 

Read the SAPIN II Law (in French). 

Loan Origination by French Funds 

Pursuant to the entry into force of the ELTIF Regulations, certain categories of French funds obtained the right to directly originate loans. However, the publication of a decree was required for this regime to be effective. The Décret n° 2016-1587 published on 26 November 2016 provides the legal regime applicable to loan origination by French Funds. Among others, and within the framework of the AMF Instruction n° 2016-02, the Décret details: 

  • that only French fonds professionnel de capital investissement and fonds professionnel spécialisé can originate loans; •
  • the type of loans that can be granted by French funds and their man characteristics; or 
  • the possible beneficiaries of such loans. 

Read the Décret n° 2016-1587. 

AMF Public Consultation - Terms for Implementing Gates in UCITS and AIFs 

The Autorité des Marchés Financiers (the French financial markets authority, the “AMF”) published on 1 December 2016 a public consultation on the terms for implementing gates in UCITS and AIFs, following the entry into force of the SAPIN II law (see above), pursuant to which certain open-ended funds will be authorized to implement gates (until now, only the following funds could implement gates or restrictions on redemptions funds of alternative funds, professional investment funds and real estate collective investment undertakings (OPCIs)). The AMF wishes to determine the situations and conditions under which a fund may provide for redemptions to be provisionally gated when warranted by exceptional circumstances and if this is in the best interest of investors or the public 

Read the AMF Public Consultation (in English). 

Read the AMF Public Consultation (in French). 

AMF Instructions Update - French "minibons" 

Pursuant to the implementation under French law of the “minibon” (a category of note which can be issued by certain type of French entities) which can be marketed by, among others, French crowdfunding advisors (conseillers en investissements participatifs), the AMF has amended on 15 November 2016 the instructions related to such advisors in order to include the legal regime for the offer of such “minibon”. 

Read the AMF communication (in French). 

Read the AMF Instruction n° 2014-11 (in French). 

Read the AMF Instruction n° 2014-12 (in French). 

Decree - Thresholds of Investment Funds for the AMF Approval 

The Décret n° 2016-1532 dated 15 November 2016 provides the minimum thresholds required for the AMF approval for certain funds. Pursuant to this Décret, the AMF should not approve any fonds d’investissement de proximité or fonds commun de placement dans l’innovation (retail private equity funds) managed by a management company in the event where (i) each of the retail funds managed within the last three years by that management company has not reached a minimum commitment of € 5 million and (ii) the total commitments of all private equity funds (both professional and retail) managed by such management company is lower than € 50 million. 

Read the Décret (in French).



BaFin Publishes Circular on Solvency II 

Bafin published a revised draft circular on 7 December 2016 addressing Solvency II entities regulated by the BaFin which will enter into force on 1 January 2018. The draft circular is designed to replace the circular concerning the duty to establish and maintain a schedule of coveredassets and to keep certain covered assets in safe custody. The new circular will implement and provide interpretation on some of the provisions in the Insurance Supervision Act (Versicherungsaufsichtsgesetz- VAG) which have become effective on 1 January 2016. 

The deadline for the consultation period of the revised guidance will end on 4 January 2017. 

Read the draft circular (in German). 

BaFin Plans to Limit CFD Trading 

BaFin has published a press release and a draft General Administrative Act on 8 December 2016 regarding the limitation of the marketing, distribution and sale of financial contracts for difference (CFDs) according to which the marketing, distribution and sale of CFD’s to retail clients shall be prohibited. Since CFD’s typically create additional payments obligations, BaFin has investor protection concerns in relation to these CFD’s. BaFin is of the opinion that the investor’s risk of loss cannot be limited effectively through the margin call process or through stop-loss orders since price fluctuations of an underlying can be so significant within a short period of time that the CFD provider will not have sufficient time to ask the investor for an additional payment in addition to the margin they have deposited. If the position is then forcibly closed, this can result in significant losses for the investors. Stop-Loss orders are in BaFin’s view also not an efficient way to protect investors from significant losses since the next available price at which such an order is normally executed may differ significantly from the price originally strived for. The difference to be paid by the investor can then amount to multiples of the margin they have put down. 

The European Securities and Markets Authority (ESMA) also issued an investor warning on CFDs in July 2016. 

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

BaFin Consults Draft "MaComp" Covering Rules of Conduct, Organization and Transparency for Investment Services Enterprises 

BaFin has published a draft of the revised “MaComp” circular on 16 November 2016 for further consultation. The MaComp (Governing Rules of Conduct, Organization and Transparency pursuant to Sections 31 et seq. of the Securities Trading Act (Wertpapierhandelsgesetz – WpHG) for Investment Services Enterprises) comprise all requirements concerning the conduct of business rules set out in sections 31 et seq. of the WpHG. The MaComp has been revised to reflect the entering into force of the Market Abuse Regulation (EU) no. 595/2014 which governs certain aspects with regard to the analysis of financial instruments. Accordingly, these aspects previously governed in BT 5 of the MaComp will be repealed. Other changes include clarifications regarding the responsibility of investment services enterprises who make available to clients information from third-party sources. The deadline for the consultation period of the revised version will end on 14 December 2016. 

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 in November 2016 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. 



Revised Irish Loan Fund Plan Announced 

The Central Bank has published a notice of intention to amend the requirements for loan origination Qualifying AIFs as set out in the AIF Rulebook. The outlined change are to come into effect from 3 January 2017 when the Central Bank will publish a revised AIF Rulebook. 

Finalising the Investment Firms Rulebook 

The Central Bank has published its Feedback Statement in relation to Consultation on Central Bank Investment Firms Regulations 2015 (“Consultation Paper CP 97”). The Statement outlines the various representations made in response to CP97 and the Central Bank’s intended policy approach. The Central Bank intends to publish the Investment Firm Regulations and related Guidance in early 2017. 

AIFMD Q&As Address Pension Scheme Arrangements 

The Central Bank has issued an updated AIFMD Q&A to address the potential for RIAIFs and QIAIFs to qualify as a “pension scheme arrangement”. The updated Q&A is available in full.

CP 106: Review of Minimum Competency Code 2011 

The Central Bank has published a Consultation Paper on the Review of the Minimum Competency Code 2011 (CP106). The proposed changes to the minimum competency standards reflect knowledge and competence requirements outlined in ESMA’s Guidelines for the assessment of knowledge and competence. 

Latest Irish Fund Statistics 

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.



CSSF Newsletter – November 2016 

The CSSF published its newsletter (number 190), which provides updates in relation to recent national regulation and statistics. 

Read the November newsletter in full. 

ALFI Negotiation with Australia Securities and Investments Commission Successful 

ALFI has negotiated a license relief in Australia for Chapter 15 Management Companies and Self-Managed UCITS SICAVs which allows them to provide financial services to institutional clients in Australia without a license. 

CSSF Circular 16/644 dated 11 October 2016 

The CSSF has shared the FATF statements issued during the October plenary concerning non-compliant jurisdictions and advised on appropriate steps in relation to transactions involving affected countries. 

Read circular 16/644. 

CSSF Press Release 16/38 of 27 October 2016 

The CSSF has confirmed that at the end of September the Luxembourg fund industry had EUR 3.621 billion assets under management which is a further increase to previous figures: 

Read the press release in full (in French).



Brexit - House of Commons Library Publishes Briefing Paper on the "Great Repeal Bill" 

The House of Commons Library published a briefing paper on 21 November 2016 on Legislating for Brexit, including in particular on the “Great Repeal Bill” to repeal the European Communities Act 1972. 

The briefing paper considers issues likely to be raised by the Bill, including:

  • the extent to which directly applicable EU legislation, such as EU Regulations, will be transposed into UK law; 
  • the scope and mechanics of any delegated powers enabling ministers to give effect to the outcome of withdrawal negotiations; 
  • the extent to which transposing all directly applicable EU law would require consent from the devolved administrations, provided the Sewel Convention (under which the UK Parliament would not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament) is respected. 

The Bill is to include delegated powers to enable the government to adapt any EU-related legislation as appropriate. The House of Commons Library has estimated that 13% of UK primary and secondary legislation enacted between 1993 and 2004 was EU related, and the review of this may constitute one of the largest legislative projects ever undertaken in the UK. 

Read a summary of the briefing. 

Separately on 22 November 2016, the Department for Exiting the European Union published a list of answers to frequently asked questions about the UK's departure from the EU. 

The list answers questions relating to last June’s referendum on exiting the EU, including a government assurance that a second referendum will not take place, and questions on the process by which Article 50 of the Treaty on European Union will be activated, with reference to the Supreme Court case (heard between 5 and 8 December 2016) which will decide whether a parliamentary vote will be required to trigger Article 50. The Supreme Court decision is expected in the New Year. 

Read the Q&As in full. 

FCA Confirms it will not Issue Proportionality Guidance for UCITS V Remuneration - Refers Firms to its AIFMD Remuneration Guidance 

On 18 November 2016, the FCA updated its webpage on the UCITS Remuneration Code (SYSC 19E) to announce that it does not intend to issue guidance for firms on how to apply the Code. 

However, the FCA points out that there are many points of correspondence between the remuneration requirements of the UCITS V Directive (2014/91/EU) and the AIFMD (2011/61/EU), and between the ESMA guidelines applicable to each Directive, which firms may want to review. 

The FCA states that UCITS management companies may find it useful to consider the principles in the FCA's existing AIFMD guidance to understand its expectations for their remuneration policies and practices. For information on the AIFMD Remuneration Code see chapter 19B of the FCA's Systems and Controls sourcebook (SYSC), which includes the FCA's guidance on the Code. 

FCA Issues Statement on the Delayed PRIIPs Regulation 

The FCA updated its webpage on 22 November 2016 on key information documents (KIDs) under the PRIIPS Regulation (the EU Regulation for packaged retail and insurance-based investment products (Regulation 1286/2014)) to confirm that it will publish its policy statement on changes to its disclosure rules in the first half of 2017. 

The FCA had consulted on its proposed changes to its disclosure rules to reflect the direct application of the PRIIPs Regulation in July 2016 (CP16/18). The FCA initially stated that it intended to publish its policy statement and final rules in November 2016, to tie in with the Regulation's original application date of 31 December 2016. However, implementation of the Regulation is now likely delayed until 1 January 2018, and the FCA therefore explained that the changes to its rules are expected to apply from that date instead. 

Read the FCA PRIIPs disclosure in full.



AIFMD – ESMA Updates Q&As and Re-Visits View of Application of Delegation Rules 

ESMA issued updated Q&As on 16 November on AIFMD including two new questions and answers on the cross-border marketing of AIFs, clarifying issues around material changes of existing notifications, and two new questions and answers on the delegation of functions by an AIFM to AIFs or third parties. 

Importantly, ESMA takes the view that where an AIFM does not itself perform the functions set out in Annex I of the AIFMD, it still retains responsibility to ensure compliance of the relevant function(s) with the AIFMD, though this obligation applies to all functions stated in point 1 and point 2 of Annex I of the AIFMD (e.g. marketing of AIFs, or provision of legal services to AIFs). 

This view is being challenged by various trade bodies, and we expect ESMA to revise or clarify this view. 

Read the associated press release in full. 

EMIR – ESMA Issues Final Report Calling to Delay the Clearing Obligation for Financial Counterparties with a Limited Volume of Activity 

ESMA issued its final report on the application on 14 November of the EMIR clearing obligation for financial counterparties with a limited volume of activity. ESMA has asked the European Commission to prolong, by two years, the phase-in for clearing for financial counterparties with a limited volume of derivatives activity – as classified in Category 3 under EMIR Delegated Regulations. 

Read the associated press release in full. 

Read the report in full. 

MiFID II – ESMA Publishes MiFID II Q&As on Transparency and Market Structure Topics and Issues New Delegated Regulations Addressing Ancillary Activities and Commodity Derivatives 

ESMA issued new Q&A on certain transparency and market structure topics on 18 November. The Q&A address data disaggregation, the mandatory tick size regime and processing of waivers from certain pre-trade transparency obligations. 

Read the associated press release. 

On 19 November, the European Commission issued three delegated regulations to MIFIR setting out: 

(i) the regulatory technical standards (“RTS”) for determining whether a derivative subject to clearing under EMIR also has sufficient “third-party buying and selling interest”, to determine if this derivative must be traded on a regulated market: 

Read regulation in full. 

(ii) RTS standards on access in respect of benchmarks: 

Read regulation in full. 

(iii) RTS concerning the information for registration of third-country firms and the format of information to be provided to the clients: 

Read regulation in full. 

On 1 December, issued two delegated regulations to MIFID II setting out: 

(i) the RTS for the criteria to establish when an activity is considered to be ancillary to the main business of a firm, when dealing on own account or providing investment services in commodity derivatives or emission allowance derivatives: 

Read regulation in full. 

(ii) the RTS for the application of position limits to commodity derivatives: 

Read regulation in full. 

UCITS – ESMA Updates Q&As 

ESMA issued updated Q&As on the application of the UCITS Directive on the 21 November. The new Q&As include two new questions and answers on how investment limits should be applied where a UCITS wants to invest in an umbrella fund. 

Read the associated press release in full. 

Read the Q&As in full.

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