Asset Management Regulatory Roundup - October 2017, Issue 7

October 04, 2017

A compact summary of the most recent regulatory developments relevant to the UK asset management industry. This issue includes details on ESMA's updated Q&As on the Benchmark Regulation and European Commission delegated regulations; proposals for extending ESA powers; indirect clearing arrangements under EMIR and MiFIR; the Criminal Finances Act; MiFID II challenges acknowledged; MiFIR post-trade reporting requirements; and amended rules for Venture Capital and Social Entrepreneurship funds.


BENCHMARKS REGULATION:  ESMA updates Q&As and the European Commission adopts delegated regulations

The Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Benchmarks Regulation) applies to firms that provide, contribute to or use a wide range of interest rate, currency, securities, commodity and other indices and reference prices. It can be particularly difficult to implement these rules where non-EU benchmarks are used.

Most aspects of the Benchmarks Regulation will apply from 1 January 2018, but some provisions regarding critical benchmarks are already effective.

The European Securities and Markets Authority (ESMA) has published updated Q&As on the Benchmarks Regulation which include definitions of ‘family of benchmarks’ and ‘use of a benchmark’.

View the updated Q&As »

The European Commission (Commission) has adopted three delegated regulations supplementing the Benchmark Regulation relating to public availability and administering the arrangements for determining a benchmark; the assessment of the notional amount of derivatives and the net asset value of investment funds; and the events which would result in significant and adverse impacts on market integrity, financial stability, and the real economy.

View the delegated regulation on public availability and administering arrangements for determining a benchmark »

View the delegated regulation on the assessment of the notional amount of derivatives and the net asset value of investment funds »

View the delegated regulation on events which would result in significant and adverse impacts on market integrity, financial stability, and the real economy »

EUROPEAN COMMISSION:  Proposals for ESA powers

The Commission has found that the powers of the European Supervisory Authorities (ESAs) (which include ESMA) are insufficient to meet the challenges of developing the Capital Markets Union (CMU). It has therefore published a proposal for a regulation to amend and strengthen those powers.

Among other things, the proposal envisages granting ESMA a greater role in supervising critical benchmarks; directly supervising EuVECA and EuSEF funds (defined below) and European long term investment funds (ELTIFs) with rules harmonized at the EU level and the ability to restrict or prohibit the marketing, sale or distribution of units or shares in UCITS or alternative investment funds.

Read the Commission's proposal »

Read Dechert's OnPoint »

EMIR and MiFIR:  European Commission delegated regulations on indirect clearing arrangements

The Commission has adopted two delegated regulations relating to regulatory technical standards (RTS) on indirect clearing arrangements for OTC derivatives and exchange-traded derivatives under the European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Regulation (MiFIR).

Providing neither the Council of the EU nor the European Parliament objects, the delegated regulations will apply from 3 January 2018.

Read the EMIR RTSs »

Read the MiFIR RTSs »

FINANCIAL CRIME:  UK Criminal Finances Act 2017

The Criminal Finances Act 2017 represents a significant development in the approach to the investigation and prosecution of financial crime in the UK.

From 30 September 2017, businesses will be required to take a more active role in the detection and prevention of potential financial crime, and by this date must have reasonable procedures in place to prevent associated persons from committing tax evasion facilitation offences. Businesses should act now to examine and update their compliance policies and procedures to ensure they are compliant with the Act by 30 September and beyond.

This Dechert “Dirty Money” report explores the key compliance takeaways for UK businesses. In Part One: “A Fistful of Tax Dollars” we explore the new offences of failure to prevent the facilitation of tax evasion; in Part Two: “For a Few Days More” we comment on reform of the suspicious activity reporting regime; and in Part Three “The Good, The Bad and The Wealthy” we summarise the implications of new unexplained wealth orders (UWOs).

Read the Dechert "Dirty Money" report »

MiFID II:  FCA and ESMA acknowledge challenges

The FCA has published a speech by Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists in which she said that the regulator has no intention of taking enforcement action against firms for not meeting all the Markets in Financial Instruments Directive (MiFID II) requirements straight away provided there is evidence they have taken sufficient steps to meet the new obligations by the start date and there are plans in place to complete the process. The regulator acknowledges that research continues to pose a challenge and there is also a question mark over firms registered as broker dealers in the US and elsewhere who can’t accept payment for research without applying to become an investment advisor. With regard to this latter point it is in close contact with EU and US colleagues to find a solution.

Read the speech » 

Meanwhile Steven Maijoor, the ESMA chair, told the Reuters Financial Regulation Summit that while there might be some glitches following the 3 January 2018 implementation date, ESMA was not planning for chaos. He stated that it would be for national regulators to deal with violations in implementation. 

Mr Maijoor said that ESMA has been assessing the impact of a possible ‘hard’ Brexit on the EU’s securities market stability more generally and particularly at the issue of UK credit rating agencies and trade repositories who want to have the ability to continue with their services in the EU post-Brexit (EU27). He said that those that already have a legal base in EU27 would not necessarily have to apply for a new licence but would have to spell out which systems and people they would move from the UK.

Read the Reuters article » 

MiFIR: post-trade reporting requirements

The Association for Financial Markets in Europe (AFME) has published a report to assist with understanding the post-trade transparency obligations under MiFIR.  It covers the data to be reported as well as when and where the data is to be reported. The report also provides an explanation of relevant terms. The document also covers practical implementation options for qualifying investment firms to consider in their plans to become MiFID II compliant.

Read the report »

VENTURE CAPITAL and SOCIAL ENTREPRENEURSHIP FUNDS:  European Parliament adopts new rules

As part of the CMU, the European Commission has been reviewing the European social entrepreneurship funds (EuSEF) and European Venture Capital Funds (EuVECA) regulations in order to improve the uptake of these funds. EuSEFs are alternative investment schemes with the aim to have a positive social impact and address social objectives rather than only maximizing profit. EuVECA funds focus on start-ups and early stage companies and are an important source of long-term financing to young and innovative companies.

Essentially, EuSEFs and EUVECAs must be EU domiciled and managed by an EU-based alternative investment fund manager (AIFM) and invest 70% in qualifying portfolio undertakings. These may be EU based or established in third countries, subject to certain criteria. The investment should only be in equity or quasi-equity instruments of the portfolio company (i.e. no debt instruments) and the fund should not use borrowings or any form of leverage. These funds can then be marketed under an EU wide passport to professional and, importantly, also to certain non-professional investors, such as high net worth individuals.

The EuVECA Regulation and the EuSEF Regulation have recently been amended in order to:

  • Allow AIFMs authorised under AIFMD (for example UK full scope AIFMs with assets under management above EUR 500M) to use the “EuVECA” and “EuSEF” designations respectively when marketing those funds in the EU (previously the regimes were only available to sub-threshold AIFMs).
  • Expand the range of qualifying investments permitted under the EuVECA Regulation to allow investment in small mid-caps and small and medium-sized enterprises listed on SME growth markets.
  • Prohibit competent authorities of host member states from imposing fees and other charges relating to cross-border marketing of EuVECA and EuSEF funds. 

The revised rules will enter into force 20 days after being published in the Official Journal of the European Union.

Read the adopted text »

World Compass is a web-based service offering investment firms 24/7 access to detailed information on marketing funds and separate accounts in around 100 jurisdictions and beneficial ownership reporting requirements.

World Passport is a service offering investment firms a global registration, passport, marketing and compliance solution for UCITS and AIFs. 



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