Investment Funds Update: Europe - Issue 4, 2017

May 02, 2017

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


AMF - Results from the Public Consultation on the Provision of Future Performance Simulations to Investors - Publication of a Draft Recommendation on the Performance Simulations Offered to Investors 

The Autorité des Marchés Financiers (the “AMF”, the French financial markets authority) published on 4 April 2017 its feedback on the public consultation launched in November 2016 on the provision of future performance simulations to retail investors in the context of marketing investment solutions before receiving investment advice or services. Pursuant to this consultation, the AMF observed the emergence of wholly digital services providing savings solutions. Professional offerings those services use standardised online questionnaires in which clients are required to fill in information (such as their initial investment amount, the amount of their monthly investment, their risk profile and the investment value they would like to obtain to a given horizon) to compensate with the impossibility of establishing personal contact with clients. Such questionnaires generate, via algorithms, projections for the client’s investment value under various scenarios. The AMF further noted that these future performance simulation tools may be based on unrealistic hypotheses and may therefore provide misleading and potentially over-optimistic information. 

As a result, the AMF has decided to amend its General Regulations (“GRAMF”) and published a draft Reccomandation, which (i) recommends best practices for the design of future performance simulations and (ii) provides a standardised message warning investors about future performances simulations. 

Read the AMF Outcome of the public consultation on the provision of future performance simulations to investors (in English only) 

Read the AMF news release (in English only) 

Read the AMF draft recommendation (in French only) 

Publication of an Ordinance Creating the New French Pension Fund 

Pursuant to the Sapin Law 2 dated 9 December 2016, an ordinance was adopted on 6 April 2017 to create a new investment vehicle presented as the “French pension plan”, the “fonds de retraite professionelle supplémentaire” (“FRPS”). The legal regime, which still needs to be clarified by decree, mainly provides that: 

  • the FRPS must obtain the agreement of the Autorité de Contrôle Prudentiel et de Résolution (the « ACPR », the French authority for credit institutions and insurance companies); 
  • the FRPS could receive contracts concluded to provide retirement benefits in the context of an occupational activity and paid to supplement benefits provided by the mandatory regimes; 
  • the corporate form to be used by the FRPS is either a limited company (société anonyme) or a mutual insurance company (société d’assurance mutuelle); 
  • the FRPS are not subject to Solvency II; and 
  • the FRPS must comply with some financial, governance, transparency and prudential rules that require in particular to maintain a necessary solvency margin. 

Read the Ordinance (in French only) 

AFG - Publication of a Public Position on RTS PRIIPs 

The Association Française de la Gestion Financière (the “AFG”, the French professional association of asset managers) published on 18 April, jointly with the French Federation of the Insurance (“FFA”), a public position on the implementation of article 14.2 of the new Delegated Regulation supplementing PRIIPs (The Packaged Retail and Insurance-based Investment Products) Regulation, setting out the RTS (“regulatory technical standards”). 

To ensure the operational implementation of PRIIPs, the AFG and the FFA have decided to clarify their common position on the aforesaid article 14.2. By way of derogation of article 14.1 related to the specific information on each underlying investment option (including Multiple Investment Options (MOPs)), PRIIP manufacturers are authorised to use the UCITS KIID (key investor information document) for the funds until 31 December 2019, including if MOPs are exclusively invested in unit-linked products or MOPs are hybrid products (such as unit-linked life insurance contracts). 

As a result, the AFG and the FFA recommend the stakeholders to provide the UCITS KIID and to include the additional information related to the use of MOPs until the end of the transitional period on 31 December 2019, in accordance with article 14.2 of the PRIIPs regulatory technical standards Regulation.



BaFin Publishes Guidance on Transparency Standards for German Funds 

On 4 April 2017, BaFin has published new transparency standards for funds after a BaFin investigation found that some active funds “closely” track their indices. 

Last year, the BaFin had investigated into 290 UCITS-compliant active equity funds with a minimum of €10m in assets that are at least 51 per cent invested in equities (so-called closet trackers) and identified some products that “closely” follow their benchmarks while being marketed as active products. 

BaFin’s proposals for the new transparency rules, which were first announced in late December, were under consultation until the end of January. The BaFin has now published a final version of its transparency standards for German fund manager’s fund documents. 

The rules will not only apply to active funds that are at least 51 per cent invested in equities but will also apply to products that have a “noticeable investment focus on equities”. The new rules will apply from January 2018 onwards and the funds in question will be required to disclose explicitly to investors whether they are actively managed or merely track an index. German fund managers will also have to describe the fund's investment strategy and explain if and to what extent the fund selects stocks as part of an active management process. 

If a fund manager has set guidelines for how much the fund can deviate from the performance of its benchmark in order to control risk, then this information has to be included in sales documents for investors. Fund prospectuses will have to include a chart of the fund's long-term performance in relation to its benchmark. This information will be required to cover a 10-year period, except for newer funds. 

The new transparency standards are available (in German only) 

BaFin: Delay of Revised Remuneration Ordinance for Credit Institutions 

On 28 March 2017 BaFin announced that the revised remuneration ordinance for credit institutions (Institutsvergütungsverordnung) will probably become effective in the second quarter of 2017. BaFin strives to keep the delay as brief as possible and will preferably publish an interpretative guidance to the ordinance at the same time. 

The draft updated remuneration ordinance for credit instituions is available (in German only) 

BaFin Publishes Guidance for Insurers Regarding Sovereign Risk 

On 7 April 2017, BaFin has published an interpretative note on how insurers under the Solvency II regime should assess the credit risks of sovereign bonds or loans to sovereign issuers in their internal risk management guidelines. According to BaFin, for the purpose of identifying sovereign risks, the legal, political, economic and financial situation of the debtor, relevant economic indicators as well as their past and/or forecasted developments, the deficit and debt ratios of a country, the competitiveness of the country, the labor market situation and inflation are to be considered. An analysis of the stability of the government and of the legal and financial system, as well as the rights and obligations associated with membership in international organizations can also be used. The interpretative guidance does not apply to fund management companies, even if they manage funds for insurance companies.

The interpretative guidance is available (in German only) 

BaFin Publishes Additional Guidelines Regarding Administrative Fines 

On 22 February 2017, the BaFin published additional guidelines for its administrative fines which supplement the guidelines published in November 2013. The document includes guidelines for administrative fines to be imposed in accordance with the Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”) for violations of ad hoc notification obligations, violations of notification obligations regarding significant holdings of voting rights and breaches of financial reporting rules. 

The guidelines are available (in German only) 

Investment Statistics as of 28 February 2017

In April 2017, the German Investment Fund Association BVI has issued its latest investment statistics report dated February 2017, 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. 



Central Bank Reviews Outsourcing Arrangements of Fund Administrators

The Central Bank completed a review on outsourcing carried out by Irish regulated Fund Administrators. The review focused on:

  • The extent to which larger Irish Fund Administrators have outsourced fund administration activities to global service providers; and
  • The governance and oversight arrangements in place within the Irish Fund Administrators regarding outsourced fund administration activities.

The Central Bank has issued a letter to all Irish regulated Fund Administrators highlighting observations and recommendations to assist Fund Administrators who outsource fund administration activities.

The letter is available on the Central Bank's website

Central Bank ORION System launched

From 27 March 2017, the following applications and submissions will have to be made via ORION, the Central Bank’s online application system:

  • UCITS and RIAIF sub-fund approval submissions and standalone fund submissions;
  • AIFM authorisation and registration submissions;
  • AIF management company authorisation submissions;
  • UCITS management company authorisation submissions;
  • SMIC authorisation submissions; and
  • IVM3 applications (i.e., investment manager approval applications for investment managers that cannot avail of the fast-track process).

Central Bank Change of Location

On 13 March 2017, the Central Bank Funds Authorisation and Funds Supervision teams moved location to the Central Bank’s new offices on New Wapping Street, North Wall Quay, Dublin 1. Correspondence to Funds Authorisation, Post Authorisation and Investment Management Clearance should be directed to this address.

Central Bank Speech on MiFID II

Michael Hodson, Director of Asset Management Supervision, gave a speech on 20 April 2017 on the challenges in preparing for MiFID II. In particular, he noted that firms should be in the process of designing the policies and procedures that will be required to comply with MiFID II as at 3 January 2018.

The speech can be found on the Central Bank's website

Latest Fund Statistics

The Central Bank of Ireland has issued the latest statistics available regarding Irish funds.

The latest statistics are available



CSSF Circular CSSF-CPDI Dated 19 April 2017

The CSSF published its Circular addressed, inter alia, to investment firms as well as AIFMs and UCITS management companies who manage portfolios on a discretionary basis regarding the volume of covered claims (instruments and money) in relation to the investment business of which the addressees are debtors. The Circular imposes an annual reporting obligation. The report for this year may be submitted until 15 May 2017.

The Circular is available in English on the CSSF website

Bill 7024 (Lessening of Professional Secrecy Obligations)

ALFI and the ABBL published a press release confirming that they support the government’s bill 7024 which would amend article 41 of the law of 5 April 1993 on the financial sector (as amended), to abandon or lessen professional secrecy when delegating within the same group or to third parties. One motivation is the facilitation of innovations that have been introduced with the development of digital technologies.

The bill itself is available on the website of the chamber of parliament

CSSF Newsletter N° 195 April 2017

The CSSF published its newsletter of April 2017.

The newsletter is available in English on the CSSF website

CSSF Press Release 17/15 Dated 4 April 2017

The CSSF published its press release regarding the global situation of undertakings for collective investment as at the end of January.

The press release is available (in French only) on the CSSF website

ALFI and the LSE Publish the Second Edition of the Investment Law Compendium

ALFI and the Luxembourg Stock Exchange published the second edition of their investment law compendium.



HM Treasury Finalises Private Fund Changes to Limited Partnerships Act 1907 

As previously reported, HM Treasury published on 16 January 2017, a draft Legislative Reform (Private Fund Limited Partnerships) Order 2016 proposing to amend the Limited Partnerships Act 1907 to introduce a new Private Fund Limited Partnership (“PFLP”) structure which will be available to private investment funds structured as limited partnerships, such as private equity and venture capital funds. It is designed to reduce the administrative and financial burdens which impact these funds under the current limited partnership structure. 

On 31 March 2017, HM Treasury published the final legislative reform order to introduce the new PFLP. 

The new order came into force on 6 April 2017. 

The new legislation is available 

FCA Publishes Form and Procedures for Qualification Under MiFID II Structured Deposit Transitional Arrangements 

When it comes into effect on 3 January 2018, MiFID II (2014/65/EU)) will introduce new regulation of services in relation to structured deposits. 

On 3 April 2017, to enable firms to rely on certain MiFID II transitional arrangements, the FCA published a form for firms to notify the FCA that they want to carry on certain regulated activities in relation to structured deposits after 3 January 2018. The notification form was made available on a new FCA webpage on structured deposits under MiFID II. 

The transitional arrangements will permit firms that are authorised before 3 January 2018 to carry on one or more of the following regulated activities in relation to structured deposits: 

  • Dealing in investments as agent. 
  • Arranging deals in investments. 
  • Making arrangements with a view to transactions in investments. 
  • Managing investments. 
  • Advising on investments. 

These firms will not be required to submit a variation of permissions application to the appropriate regulator (the FCA or the PRA), provided that they submit a notification to the appropriate regulator before 3 January 2018. 

The FCA states that it will aim to process notifications within 10 working days of receipt. Any firm that does not submit an application by 2 January 2018 will not be able to sell or advise on structured deposits after that date. It encourages firms to submit notifications early to ensure that the new investment type is reflected on the Financial Services Register from 3 January 2018, as it expects a large number of notifications. 

FCA-authorised firms that do not currently have permissions to carry out these activities that wish to carry out any of them in relation to structured deposits should not use the notification form. These firms will need to submit a variation of permission application instead. 

The news release is available 

High Court Restrains Publication of Hedge Fund's Confidential Hedge Fund Information by News Media 

The High Court has granted an interim non-disclosure order restraining the use of confidential documents provided by a hedge fund manager to potential investors or the use of information derived from the documents. The court granted the order against a news agency, a financial journalist working for the agency and an unknown person alleged to have leaked the documents or the information. 

The application engaged section 12 of the Human Rights Act 1998 because it sought to restrain the defendants' freedom of expression protected by Article 10 of the European Convention on Human Rights. The court held that the claimant was more likely than not to show at trial that it was entitled to restrain publication in accordance with section 12. 

The decision gives an illustration of the factors the court will take into account when considering the defence of the public interest in an application for an interim injunction to restrain an alleged breach of confidence by a media outlet in a financial services context. 

Brevan Howard Asset Management LLP and others v Reuters Ltd and others [2017] EWHC 644 (QB), 28 March 2017



EMIR - ESMA Updates its List of Third Country CCPs and Issues Updated Q&A

On 30 March, ESMA updated its list of third-country central counterparties recognised to offer services and activities in the EU. CCPs in Dubai, India, Japan and the USA have been added.

The associated press release is available

On 3 April, ESMA updated its EMIR Q&A and validation rules. The Q&As include an updated question regarding the obligation to report outstanding trades following the entry into force of EMIR (“backloading”).

The validation rules update the content requirements for information following the publication of the revised technical standards on reporting under Article 9 of EMIR.

The associated press release is available

AIFMD and UCITS - ESMA Publishes Updated Q&A

On 6 April, EMSA publishes updated AIFMD and UCITS Q&As.

Both Q&A’s include one new question and answer each on:

  • AIFMD: cross-border marketing of EU AIFs by EU AIFMs under Article 32 of the AIFMD, clarifying that the AIF marketing passport may only be used for marketing to professional investors as defined in the AIFMD; and
  • UCITS: cross-border activities by UCITS management companies, clarifying that a UCITS management company can notify cross-border activities without having to identify a specific UCITS

The ESMA Q&A on the UCITS directive is available

The associated press release is available

MiFID II - ESMA Publishes Q&A on Data Reporting, Investor Protection and Market Structures

On 3 April, ESMA published updated Q&As on MiFIR data reporting regarding senior bonds, inflation Indexed bonds, the transaction reporting obligation and national client identifiers for natural persons

The associated press release is available

On 4 April, ESMA published updated Q&As on MiFID II and MiFIR investor protection topics.

The following topics are addressed:

  • Best execution;
  • Suitability;
  • Post sale reporting;
  • Inducements (research);
  • Information on charges and costs; and
  • Underwriting and placement of a financial instrument.

The associated press release is available

On 5 April, ESMA published updated Q&As on market structure issues under MiFID II.

ESMA’s Q&As provide clarity on the type of arrangements that qualify as an Organised Trading Facility and the key characteristics of a Systematic Internaliser. Further Q&A were published on commodity derivatives and transparency issues.

The ESMA Q&A on market structures issues is available

The ESMA Q&A on transparency issues is available

The associated press release is available

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