Investment Funds Update: Europe - Issue 2, 2017

February 27, 2017

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



AMF - Update of the MiFID II guide for asset management companies 

The Autorité des Marchés Financiers (the “AMF”, the French financial markets authority) updated its MiFID II Guide for Asset Management Companies on 6 February 2017, which was published first on 20 April 2016. Its purpose is to assist French management companies in implementing MiFID II measures and key topics, such as: product governance, provision of independent financial advice, client information, suitability and appropriateness of the products or services provided to clients, best execution or post-sale reporting. 

The guide now incorporates new provisions of recently published Level 2 MiFID Commission Delegated, such as: 

  • the funding of research as inducements; 
  • record-keeping and retention of records; and 
  • a reminder of the next steps at the European and levels with respect to publications and implementation of MIFID measures. 

Read the AMF Guide in French only 

AMF - Results from the public consultation on the funding of research 

The AMF published its feedback on 9 February 2017 from the public consultation launched in September 2016 on the new provisions on payment for research services used by investment firms providing independent investment advice or portfolio management introduced by MiFID II and its delegated acts that will now fall under the regulated category of inducements. 

Further to the comments received, the AMF addresses and provides clarification on the following points: 

  • extending the new requirements on the provisions of research to investment firms under MiFID II applying to management companies providing individual management and investment advisory services to management companies in connection with their collective management services; 
  • services covered under the qualification of research and especially the criteria determining whether a service or analysis may be considered as research that can be funded by clients via a research budget, the research budget itself and the allocation by portfolio of the cost of the research received; 
  • client information about the research budget; and 
  • the functioning of the research payment accounts and commissions sharing agreements. 

Read the AMF feedback in English 

AMF Study - ETFs and associated risks 

Further to the growth of the exchange-traded funds (“ETFs”) market globally and in Europe observed by the French regulator, the AMF published on 14 February 2017 a study entitled “ETFs: characteristics, overview and risk analysis - The case of the French market”. 

The AMF analyses the ETFs’ growth consequences on market liquidity and stability and their impact on their underlying assets and markets themselves. 

The study provides clarifications and further details on the following topics: 

  • the definition and characteristics of ETFs; 
  • the French ETFs market; 
  • the risks associated with ETFs; and 
  • the impact of French ETFs on the underlying markets. 

Read the AMF news in English 

Read the AMF study in English



BaFin publishes circular on regulatory requirements to the business organization of insurance companies (MaGo

BaFin published a circular on regulatory requirements on 25 January 2017 for the business organization of insurance companies (Rundschreiben 2/2017 (VA) - “MaGo”). The 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 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 replaces the repealed circular regarding regulatory requirements for the risk management (MaRisk VA) and will apply to German insurance companies governed by Solvency II. 

The MaGo is available in German 

BaFin consults draft interpretative note on German AIFMs (externe Kapitalverwaltungsgesellschaften) and externally managed German AIFs 

BaFin published a draft interpretative note on German external AIFMs in the meaning of Section 17 para on 3 February 2017. (2) of the German Investment Code and externally managed German AIFs. The draft interpretative note covers the scope of functions and competences of the AIFM in contrast to the AIF it manages. It discusses the different areas of competence for the AIFM and the AIF (especially with regard to the areas of portfolio management, risk management, administrative activities and marketing). The draft circular furthermore illustrates in whose name the AIFM acts (in its own name or in the name of the AIF) when it enters into agreements with third parties within the scope of its competence and it also deals with the delegation of the AIFM’s activities to the AIF. 

The deadline for the consultation period of the circular will end on 3 March 2017. 

The draft note is available in German 

BaFin publishes draft remuneration ordinance for credit institutions 

BaFin published an updated draft remuneration ordinance on 19 January 2017 for credit institutions which will probably become effective as of 1 March 2017. The ordinance is based on the EBA Guidelines on a sound remuneration policy which have been in force since 1 January 2017. The rationale of the ordinance is to outline the different types of remunerations and to further differentiate the requirements of the various forms of variable remuneration. Further key topics include the specification of risk adjustment, along with clawback clauses, which will enable the recovery of variable compensation components already paid and remuneration strategies for groups of companies, including their risk takers. 

The draft ordinance is available in German 

Investment statistics as of 31 December 2016 

The German Investment Fund Association BVI in February 2017 has issued its latest investment statistics report dated October 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. 

The BVI furthermore states that Corporate Bonds cover the highest percentage of asset classes in Spezialfonds (about 27% of total assets). 



Central Bank Publishes Feedback Statement on CP105

The Central Bank published its Feedback Statement on CP105 on 19 January 2017. CP105 sets out proposed amendments to the Central Bank UCITS Regulations in light of UCITS V. This considers responses received from stakeholders and summarises the Central Bank’s comments and decisions. The Central Bank will proceed to amend the Central Bank UCITS Regulations to give effect to the changes described in the feedback Statement.

Revised AIF Rulebook Published

The Central Bank published the latest version of the AIF Rulebook on 3 January 2017 to reflect updated guidance concerning loan originating Qualifying Investor AIFs.

Loan originating Qualifying Investor AIFs were previously prohibited from engaging in activities other than lending and directly related operations. The Central Bank has concluded that it is appropriate to allow other investments linked to the loan origination strategy including investing in debt and equity securities of entities or groups to which the loan originating Qualifying Investor AIF lends or which are held for treasury, cash management or hedging purposes.

Central Bank Confirms Compliance with Market Abuse Guidelines

The Central Bank has confirmed to ESMA that it complies with the following ESMA Market Abuse Guidelines:

  • MAR Guidelines on legitimate interests of issuers to delay the disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public; and
  • MAR Guidelines on persons receiving market soundings.

Updates on Central Bank Regulatory Developments

In addresses to the Irish Funds Breakfast Briefing on 13 January 2017, members of the Central Bank gave updates on current regulatory themes and priorities.

Gerry Cross, the Director of Policy and Risk gave an update on two key developments, CP86 and Brexit. Gerry’s address can be found here.

Grainne McEvoy, acting Director of Securities & Markets Supervision, highlighted the Central bank’s priorities for 2017, focussing on depositary inspections, risk assessments and the move to automatic authorisation. Grainne’s address can be found here.

Latest Investment Fund Statistics

The Central Bank of Ireland has issued the latest statistics available regarding Irish funds. This includes fund data which can be found here and details relating to new fund launches which can be found here.



Audit Regulators in Australia and in Luxembourg Enter Into Cooperative Agreement

The Australian Securities and Investments Commission and Luxembourg’s Commission de Surveillance du Secteur Financier (“CSSF”) have signed a Memorandum of Understanding that sets the stage for cooperation with regard to the oversight of statutory auditors.

The press release is available in English on the CSSF website

CSSF Press Release 17/05 Regarding the Global Situation of Undertakings for Collective Investment at the End of November 2016

CSSF press release 17/05 of 26 January 2017 outlines the global situation of undertakings for collective investment as at the end of November 2016.

The press release is available in English on the CSSF website

ALFI Launches Working Group in Singapore to Strengthen Cooperations Between the Singapore and Luxembourg fund Industries

The Association of the Luxembourg Fund Industry (ALFI) extended its presence in South East Asia by launching a new working group, which will promote increased collaboration and closer relationships between the fund management industries in Luxembourg and Singapore.

ALFI Responds to the European Banking Authority on "Designing a New Prudential Regime for Investment Firms"

In its response to the European Banking Authority (EBA) consulation, ALFI highlights the key items for a new prudential regime for investment firms.



UK Supreme Court Rules UK Parliament Must Approve Brexit Notice to EU 

Under Article 50 of the EU Treaty, the process for the UK to leave the EU is commenced by service of a notice on the European Council, which starts a two year process for negotiating the terms of exit. Any extension of the two year period would require the unanimous approval of the UK and each of the remaining 27 EU member states (acting through the European Council). The terms of exit (if any) would need to be approved by the European Parliament and a qualified majority of the remaining 27 EU member states (acting through the European Council). If no terms of exit and no extension are agreed, the UK will exit the EU at the end of the two year period in any event. 

The position of the UK government had been that the decision to serve the Article 50 notice is a matter of “royal prerogative” exercisable by government ministers acting alone and which did not therefore require the approval of Parliament. 

This view was challenged in the courts and, on 24 January, the UK Supreme Court ruled by a majority of eight to three that the prime minister cannot use royal prerogative to trigger the Article 50 process. The President of the Supreme Court, Lord Neuberger, held that it would be inconsistent for such a far-reaching change to constitutional arrangements to leave the EU to be brought about by ministerial decision or action alone. Ministers would need primary legislation in Parliament to trigger Article 50. 

Authority for the prime minister to trigger the Article 50 process has therefore been sought in the European Union (Notification of Withdrawal) Bill 2016-17. The bill had its third reading in the House of Commons on 8 February and thereafter moved to the House of Lords where it has gone through two readings. The House of Lords is due to vote on the bill on 1 March, after which it should move to the report and third reading stages on 7 March. From there, any amendments will be considered by both houses before it receives Royal Assent and becomes law. 

The government has repeated its intention to commence the Article 50 process before the end of March.

FCA Extends Annex IV Reporting to Un-marketed Master Funds of Non-EEA Feeders Marketed in the UK under Article 42 National Private Placement 

Under the FCA’s current AIFMD National Private Placement Regime (NPPR) requirements, where a non-EEA feeder fund is registered for marketing in the UK but its corresponding non-EEA master fund is not, there is discrepancy on whether detailed information on the master fund needs to be included in Annex IV reporting depending upon whether the AIFM is a non-EEA AIFM (using the AIFMD Article 42 NPPR) or a full-scope UK AIFM (using the AIFMD Article 36 NPPR). A full-scope UK AIFM is required to report the additional master fund information, but a non-EEA AIFM is not. 

From 29 June 2017, the FCA is changing its rules to require non-EEA AIFMs also to include in their Annex IV filings the additional information on un-marketed non-EEA master funds that is currently required to be reported by full-scope UK AIFMs. 

This change only applies to a non-EEA AIFM if it is subject to quarterly Annex IV reporting and will therefore not apply to those which report on a half-yearly or annual basis (yearly reporting being the norm for many private equity funds). 

The changes will also permit full-scope UK AIFMs to report the additional information on un-marketed non-EEA master funds only if they are subject to quarterly Annex IV reporting. 

The FCA Handbook is available here 

FCA Publishes a Discussion Paper on Open-Ended Funds Investing in Illiquid Assets 

On 8 February 2017, the FCA published a discussion paper (DP17/1) considering some of the risks that arise when consumers use open-ended investment funds to gain exposure to illiquid assets (that is, assets that may be difficult for fund managers to buy, sell, or value quickly). Illiquid assets may include land and buildings, infrastructure, and financial assets such as unlisted securities. 

The paper includes discussions of: 

  • The impact of the UK’s Brexit referendum vote on funds invested in UK property; 
  • The range of liquidity management tools available to FCA authorised funds, including UCITS Schemes, Non-UCITS Retail Schemes (NURS) and Qualified Investor Schemes (QIS); and 
  • Possible approaches to improving liquidity management. 

FCA authorised NURS operating as Funds of Alternative Investment Funds (FAIF) and listed closed ended funds are expressly out of scope of the discussion paper. 

The FCA discussion paper is available here 

HM Treasury Publishes Draft MiFID II Changes to the FSMA Regulated Activities Order

On 9 February 2017, HM Treasury published a draft order amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO) to transpose parts of MiFID II. 

Amongst other things, the draft order: 

  • Introduces a new regulated activity of “operating of an organised trading facility” (OTF); 
  • Introduces “emission allowances” as a new type of regulated investment; 
  • Extends the regulated activities of “dealing in investments as agent”, “arranging deals in investments”, “managing investments” and “advising on investments” to cover such activities in relation to structured deposits; and 
  • Suspends the overseas persons exemption (in Article 72 of the RAO) for investment firms established in non-EU countries which ESMA has decided are equivalent for the purposes of the new third country regime in MiFID II. (Under this new third country regime, such investment firms in equivalent non-EU countries would be able to provide investment services to professional in the EU by registering with ESMA). 

The Order proposed to come into force on 1 April 2017 for the purposes of enabling applications to be made for initial authorisations and variations of permission and for approved persons. 

Alongside the draft Order has been published a draft explanatory memo, a transposition note and final impact assessment. 

The draft order is available here.



EMIR - Spanish Pension Schemes Exempt and Updated Q&A

On 25 January, ESMA issued its opinion confirming the exemption from the EMIR clearing obligation for certain Spanish pension schemes.

The opinion is available here

The associated press release is available here

On 2 February, ESMA issued updated Q&A on EMIR. The updated Q&A includes a new answer in relation to transition to the revised technical standards on reporting, which apply on 1 November 2017.

The updated Q&A is available here

The associated press release is available here

MiFID II - Updated Q&A on Transparency and Market Structure Topics and Data Reporting

On 31 January, ESMA issued updates Q&As on MiFID II transparency and market structure topics.

The updated Q&As address specific scope questions for systematic internalisers and operators of multilateral trading facilities.

The associated press release is available here

On 2 February, ESMA issued updated Q&A on MiFIR data reporting. The updated Q&A address queries around date and time of the request of admission and admission; financial instrument identification code and underlying instrument code; and classification of financial Instruments.

The updated Q&A is available here

The associated press release is available here

UCITS - ESMA Issues Opinion on UCITS Share Classes

On 30 January, ESMA issued an opinion advocating common principles for setting up share classes in UCITS.

The opinion is available here

The associated press release is available here

Other Regulatory Updates - New Q&A on Market Abuse Regulation

On 27 January, ESMA updated its Q&As on the Market Abuse Regulation.

The new Q&A include:

  • new Q&A relating to managers’ transactions; and
  • new Q&As relating to investment recommendation and information recommending or suggesting an investment strategy.


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