Investment Funds Update: Europe - Issue 7, 2016

September 09, 2016

Legal and regulatory updates for the funds industry from the key asset management centres and primary European fund domiciles.


AMF Doctrine – Authorisation of “Pre-Marketing” Activities

The AMF updated its Position n° 2014-04, which is a guide to the marketing regime of UCITS and AIFs in France. These changes have been implemented following the lobbying of the task force (entitled French Route & Opportunities Garden) recently created which aims at improving French financial market competitiveness.

This update introduced the notion of “pre-marketing” of funds in France. Pursuant to this new regime, among others, it is now possible to conduct certain marketing activities of a fund prior to its authorisation. The revised Position also provides clarifications with respect to certain activities which do not constitute marketing.

Read AMF Instruction n° 2014-04 dated 4 July 2016 (in French). 

Read the legal update from Dechert’s financial services practice in Paris dated July 2016: "French AMF Permits Certain "Pre-Marketing" Activities".

AMF Doctrine – Details on Professional Obligations Towards Retail Clients

The Autorité des Marchés Financiers (the French Financial Markets Authority, the “AMF”) updated on 30 June 2016 its Position n° 2007-21 on the obligations of investment services providers managing portfolios for retails clients. The revised Position includes two clarifications:

  • “Careful” profile for management mandates: no more than 30% of the retail client’s portfolio shall be invested in risky assets like equities, speculative bonds (high yield) or in all types of assets deemed to be risky. The remaining 70% shall be invested in securities with a lower risk profile.  
  • Management report: management reports shall, for the considered period, provide relevant information on the management of the portfolio.

AMF Publication – UCITS V Directive: Guide for Asset Management Companies

The AMF updated its guide for asset management companies regarding UCITS 5 Directive on 3 August 2016. This guide has been drafted by taking into account the provisions of the Ordinance n° 2016-312 of 17 March 2016 implementing the UCITS V Directive under French law. This update aims at detailing the differences between the UCITS V Directive and the AIFM Directive on certain key aspects, including, among others:

  • Remuneration provisions. 
  • Transparency obligations with respect to investors.

Read the Guide dated 3 August 2016 (in French). 

Update of the AMF and ACPR Guide on crowdfunding

The guide on Crowdfunding initially published by the AMF and the Autorité de Contrôle Prudentiel et de Résolution (the French banking authority) on 30 September 2014 has been updated on 26 August 2016. This update provides certain clarifications as to the crowdfunding regime applicable in France.



BaFin Plans to Prohibit Retail Distribution of Credit-Linked Notes

BaFin announced on its website that the regulator intends to prohibit the marketing, distribution and sale of credit-linked notes (“Bonitätsanleihen”) to retail clients for reasons of investor protection on 28 July 2016. BaFin’s Chief Executive Director, Elisabeth Roegele, said that "Structured products linked to credit risks can be a useful investment alternative for institutional investors, but we do not believe they belong in the hands of retail clients." and that BaFin is "aware that we will pose challenges to the certificates industry with this step, but precisely because the certificates market here in Germany is of great significance and its reputation and credibility are of central importance, we have to intervene with individual products". Due to investor protection concerns, particularly regarding the complexity of the product and the risk of conflict of interest – which according to BaFin is inherent in the product structure – BaFin has examined to which extent credit-linked notes are sold to retail investors and if these investors are provided with an adequate explanation of how these products operate. According to BaFin, retail clients generally are not provided with sufficient explanations. With the prohibition, BaFin is making use of its product intervention power, introduced by the German Retail Investor Protection Act in July 2015 and published a draft of its proposed General Administrative Act. Written comments on the draft were accepted by BaFin until 2 September 2016.

BaFin Establishes Reporting Platform for Whistleblowers

BaFin has established a reporting platform for whistleblowers (persons with a special knowledge of a company’s internal affairs) to report any violations of supervisory law or misconduct of individuals or entire companies in the financial sector. BaFin established a specific procedure to protect the identity of whistleblowers as well as persons affected by the reports made. The identity of the whistleblowers is not, in principle, passed on to third parties by BaFin and whistleblowers also have the opportunity of contacting BaFin anonymously. The legal basis for the platform for whistleblowers is section 4d of the German Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG) introduced by the First Financial Markets Amendment Act.

BGH Rules that Investment Funds are Allowed to Charge Necessary Expenses to the Fund’s Assets

The Federal Court of Justice (Bundesgerichtshof – BGH) ruled, as of 19 May 2016, that German fund management companies (Kapitalverwaltungsgesellschaften) may set out in their fund rules for open-ended investment funds that necessary expenses such as printing costs for the annual reports or costs in connection with the publication of subscription and redemption prices are charged to the fund’s assets. According to the BGH, these expenses are linked to the management of the fund since the management company is legally obliged to publish certain information on the fund. Therefore, pursuant to the BGH, these costs are chargeable to the fund’s assets.

Read the ruling in German. 

Investment Statistics as of 30 June 2016

The German Investment Fund Association BVI has issued its latest investment statistics report dated June 2016, 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.



Central Bank Personnel Update

The Central Bank of Ireland (the “CBI”) announced that Gareth Murphy, Director of Markets Supervision, has resigned his position on 22 August 2016. He will remain with the CBI until November. Mr. Murphy was closely involved in the CP86 reform programme on which the public consultation closed earlier this month.

Central Bank Warnings on Unlicensed Firms

The CBI has issued several warnings in the past month in respect of unauthorised investment firms. The CBI sought to remind consumers that all dealings with an unauthorised investment businesses will not be covered by the investor compensation scheme and that it was a criminal offence for an unauthorised firm to provide financial services. A list of unathourised firms is available on the CBI website, along with accompanying press releases.

Latest Fund Statistics for Ireland

The latest Irish Funds Statistics are available on the CBI website. 

CP86 Consultation Period Closes 

The CP86 consultation period ended on 25 August. Dechert made a submission to the central bank which will also shortly be available on the CBI website.



CSSF Newsletter – August 2016

The CSSF published its August 2016 newsletter (number 187), which provides updates in relation to recent national regulation and statistics.

EBA Guidelines on Communication Between Supervisors and Auditors

The CSSF draws attention to the publication by the European Banking Authority of its final guidelines on the communication between competent authorities supervising credit institutions and statutory auditors of those institutions.

Audit Regulators in USA and Luxembourg Extend Cooperation Agreement

The CSSF draws attention to the extension of the statement of protocol, initially concluded on September 17, 2015, with regard to the oversight of audit firms subject to the regulatory jurisdictions of both regulators between the USA’s supervisory authority of audit firms, the Public Company Accounting Board (“PCAOB”) and the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg.

Luxembourg Undertakings for Collective Investment at the End of June 2016

In its press release 16/33, the CSSF summarizes the global situation of Undertakings for Collective Investment and Specialised Investment Funds as at the end of June 2016 by providing (i) an overview thereof and (ii) an indication of the number of net assets of (a) Undertakings for Collective Investment in accordance with Part I and II of the Law of 17 December 2010 relating to Undertakings for Collective Investments, and (b) Specialised Investment Funds in accordance with the law of 13 February 2007 on Specialised Investment Funds.

Circular CSSF 16/643: Systemic Risk Board's Opinion and Recommendation

In its press release 16/34, the CSSF informs of the publication of Circular 16/643 of the same date. This circular requires all banks active in the domestic housing sector and utilizing the approach based on internal ratings to communicate to the CSSF at the latest by 30 September 2016, whether they are in compliance with the limits set by the Systemic Risk Board and, if not, to indicate any measures implemented to comply.

ALFI’s Response to the ESMA's Position Paper on the Distributed Ledger Technology Applied to Securities Markets

ALFI responded to ESMA's position paper on "The Distributed Ledger Technology applied to Securities Markets" uploaded to the ESMA website on 30 August 2016. 



FCA Chief Executive Comments on FCA Mission and Brexit

The FCA has published a speech by Andrew Bailey, FCA Chief Executive, at the FCA's 2016 annual public meeting on 19 July 2016.

Mr Bailey stated that the FCA is currently working on developing a mission, the purpose of which will be to address the difficult questions that underpin financial conduct regulation, including establishing a clear understanding of the FCA's obligations to consumers and to firms. Mr Bailey stated that balancing the duty of care towards consumers, the duty of responsibility of consumers for their decisions, the role of firms and the role of the regulator would lie at the heart of the FCA's mission. It will also address the issue of whether the FCA should prioritise some consumers over others and how the FCA should decide among its tools when it decides it needs to take action.

The FCA intends to publish a proposal for the mission for "intensive public consultation" in early autumn 2016.

Mr Bailey also welcomed the statement made by Philip Hammond, Chancellor of the Exchequer, that the UK would seek access to the single market in negotiations with the EU concerning Brexit. Mr Bailey stated that the FCA would support the government's work to put in place new arrangements with the EU and to establish trade agreements with other countries.

Read Mr Bailey's speech in full. 

FCA Consults on PRIIPs Rules

The FCA published a consultation paper (CP16/18) on 18 July 2016 on changes to its disclosure rules to reflect the direct application of the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014) (PRIIPs Regulation).

The PRIIPs Regulation, which is currently scheduled to take effect on 31 December 2016, will require firms to prepare, publish and provide a KID for each PRIIP manufactured. As the provisions of the PRIIPs Regulation are directly applicable, the FCA will not transpose them into the FCA Handbook but will instead refer to them.

In the consultation the FCA:

  • Sets out its views on those products that it considers currently fall within the definition of a PRIIP and those that do not.
  • Considers the disclosure requirements in the FCA Handbook that apply to firms that manufacture, give advice on or sell products that will be PRIIPs. These rules are primarily set out in the Conduct of Business sourcebook (COBS) and the Collective Investment Schemes sourcebook (COLL). The FCA plans to amend or delete rules that would duplicate or conflict with the PRIIPs Regulation and to amend or maintain certain rules on how firms may provide additional information to supplement the KID.
  • Sets out its views on the interaction between the PRIIPs Regulation and the disclosure requirements in MiFID II.

The FCA's proposed draft Handbook text is set out in Appendix 1 to the consultation.

The deadline for responses to CP16/18 is 19 September 2016. The FCA intends to publish a policy statement making final rules in November 2016, with the rule changes coming into force on 31 December 2016.

Read the consultation here.

FCA Publishes Second MiFID II Consultation Paper

The FCA published its second consultation paper on the MiFID II Directive on 29 July 2016. This CP follows on from CP15/43, published in December 2015, which set out the background to the introduction of MiFID II and its key objectives and mainly covered issues relating to new rules governing the secondary trading of financial instruments.

This new CP covers a range of issues including position limits and reporting for commodity derivatives, systems and controls requirements for firms providing MiFID investment services, along with fees and client asset protections.

The consultation closes on 28 October 2016.

Read the consultation paper in full. 



EMIR – Exemption for Danish Pension Schemes and Endorsement of Margin Requirements for Uncleared Derivatives

ESMA issued its opinion exempting certain Danish pension scheme from central clearing under EMIR on 3 August 2016. 

Read the associated Press Release: 'ESMA Issues Opinion on Danish Pension Scheme to be Exempt From Central Clearing Under EMEA'

The European Commission issued an addendum to the margin requirements for uncleared derivatives, clarifying certain timing and valuation thresholds on 2 August 2016.

MiFID II – Endorsement of Regulatory Technical Standards for Transaction Reporting and Algorithmic Trading

The European Commission released an updated table on 2 August 2016, giving an overview of the implementation of the various regulatory technical standards (“RTS”) which underpin MIFID II and MIFIR.

The European Commission also published its endorsement of the proposed transaction reporting RTS on 17 August 2016. Annexes to the report are also available. 

In addition, the European Commission published its endorsement of the proposed RTS specifying the organisational requirements applicable to investment firms engaged in algorithmic trading on 22 August. Annexes to the report are also available. 

Other EU developments – RTS Status Chart

For those tasked with keeping track of EU regulatory developments, ESMA has helpfully released a chart showing the status of implementation of all the RTS associated with the various directives and regulations within its remit.


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