Asset Management Regulatory Roundup - November 2017, Issue 9

November 10, 2017

A compact summary of the most recent regulatory developments relevant to the UK asset management industry. This issue includes details on SEC’s no action letters and Commission’s FAQs on “hard dollar” research payments under MiFID II, ESAs’ recurring reports on cost and performance of PRIIPs; competition in the asset management industry: the FCA sets out its stall; and FCA’s report on its regulatory sandbox.


ESA's recurring reports on cost and performance of PRIIPs 

As part of the Capital Markets Union (CMU), the European Securities and Markets Authority (ESMA) and the other European Supervisory Authorities (ESAs) have been mandated by the Commission to issue recurrent reports on the cost and performance of the main categories of packaged retail investment and insurance-based products (PRIIPs, including UCITS and alternative investment funds (AIFs)). This report is intended to enhance price competition and transparency of the various PRIIPs. This development is welcomed in a recent speech by ESMA’s chair, Mr Maijoor which also covers the modified European Market Infrastructure Regulation (EMIR 2.2) and the ESAs’ increased supervisory powers in connection with third country firms. 

Read the Commission’s mandate » 

Read Mr Maijoor’s speech » 

Competition in the asset management industry: The FCA sets out its stall 

In a speech to the Securities Industry and Financial Markets Association in Washington DC Christopher Woolard, the FCA’s Executive Director of Strategy and Competition, stressed that the regulator wants to see better competition in the asset management industry. This will be achieved by strengthening the duty on fund managers to act in the best interests of their clients and increasing accountability through the Senior Managers and Certification Regime (SM&CR). It is also proposing that funds provide investors with greater clarity on what they are buying, and that management company boards of UK mutual funds have a minimum of two, or at least 25%, independent directors. 

Read the speech » 

FCA report on its regulatory sandbox 

Two years ago the Financial Conduct Authority (FCA) published a plan to develop a “regulatory sandbox” and it has now published a report on lessons learned from this exercise which highlights the new uses participants make of technology, including online platforms, distributed ledger technology and biometrics. It also highlights changes made to firms’ business models as a result of participating in the sandbox and also the problems firms with certain business models have had meeting the initial regulatory requirements to become authorised. 

Read the report » 

MiFID II: technical standards on authorisation of investment firms 

The legislation below relating to technical standards required under MiFID II has been published in the Official Journal of the EU (OJ): 

  • Commission Delegated Regulation (EU) 2017/1943, regulatory technical standards (RTS) containing a harmonised list of information to be provided to the competent authorities by investment firms as part of their authorisation process. They set out the authorisation requirements applicable to the management of investment firms, and the requirements applicable to shareholders and members with qualifying holdings, as well as the identification of obstacles that may prevent effective exercise of the supervisory functions of the competent authority. 
  • Commission Implementing Regulation (EU) 2017/1945, implementing technical standards (ITS) relating to notifications by and to applicant and authorised investment firms. These ITS set out standard forms, templates and procedures for the notification or provision of information concerning applications for the authorisation of investment firms. 

The Regulations will apply from 3 January 2018. 

Read the RTS » 

Read the ITS » 


MiFID II: Commission FAQs and SEC no action letters on “hard dollar” research payments 

The Commission has published frequently asked questions (FAQs) that clarify EU investment firms' obligations when they seek out brokerage and research services from broker-dealers in non-EU countries. 

The guidance has been published following concerns raised with the FCA by UK market participants that, post-3 January 2018, they would be unable to continue to access US research (or research in other-non-EU jurisdictions) in compliance with the MiFID II requirements. 

In response, the Securities and Exchange Commission (SEC) has issued no-action letters broadly confirming: 

  1. "Broker-dealers, on a temporary basis, may receive research payments from money managers in hard dollars or from advisory clients' research payment accounts; 
  2. Money managers may continue to aggregate orders for mutual funds and other clients; 
  3. Money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage." 

Read the SEC press-release and no-action letters » 

MiFID II: updates to the FAQs on transitional transparency calculations 

ESMA has published an updated version of its FAQs on transitional transparency calculations (TTC) for non-equity instruments under MiFID II and MiFIR. 


MiFID II and MAR Financial Instrument Reference Database 

ESMA has announced the launch of its Financial Instruments Reference Data System database, the purpose of which is to enable it to identify instruments subject to reference data reporting requirements subject to the Market Abuse Regulation (MAR), MiFID II and MiFIR. 

Access the database » 

SFTs: European Commission report on risk mitigation 

As required under the Regulation on reporting and transparency of securities financing transactions (SFTR), the Commission has published a report on progress of its efforts to mitigate the risks associated with SFTs. 

The report covers the Financial Stability Board’s (FSB) recommendations aimed at mitigating SFT risk and provides a brief assessment of European SFT markets. The conclusion is that the FSB recommendations on SFTs have been largely addressed in the EU through the adoption of SFTR and specific provisions in financial services legislation and guidelines. Therefore, there is no need for further regulatory action at this stage. Nevertheless, the Commission will continue to monitor developments in SFT markets and the international regulatory space. It will also reassess the value of qualitative standards and haircut floors on the basis of a report to be prepared by ESMA once comprehensive SFT data is available. 

Read the report »

Commission Work Programme: 2018 financial services plans 

The Commission has published its work programme for 2018. 

In Annex 1, under the task of completing the capital markets union, the Commission has listed an initiative to reduce barriers to cross-border distribution of alternative investment funds (AIFs) and UCITS. 

Read the work programme » 

Read Annex 1 » 

Fund distribution resources

Dechert maintains two services designed to assist managers with global fund distribution and registration. 

World Compass - A global web-based service offering investment firms 24/7 access to detailed information on fund marketing, separate accounts and beneficial ownership reporting 

World Passport - An outsourced solution for fund registration globally for both UCITS and AIFs

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