Investment Funds Update: Europe - Issue 5, 2017

June 23, 2017

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



AMF Priorities in the EMIR Review

The Autorité des Marchés Financiers (the “AMF”, the French financial markets authority) published two position papers on 2 May 2017 relating to the EMIR review:

  • “EMIR review: What are the priorities for the AMF?”
  • “Third countries: What form of equivalence for post-market infrastructures?”

The AMF makes the following suggestions and comments in relation to the EMIR review:

  1. The AMF supports the objective of strengthening the proportionality of the obligations specified by EMIR and recommends the rationalization of the obligation to report derivative contracts to trade repositories and the exemption of small financial counterparties that occasionally use derivatives from the clearing obligation.
  2. The AMF takes the view that the EMIR review needs to be the occasion to rethink Europe’s relationships with third countries and calls for (i) the reform of the equivalence of third-country regimes, which is further analyzed in the dedicated study and (ii) the need for infrastructures of critical importance carrying out activities denominated in euros to be located in the European Union.
  3. The AMF insists on paying attention to client clearing

The AMF further observes that the implementation of EMIR central clearing obligation of OTC derivative contracts give rise to inconsistencies with the rules specified by the UCITS and AIFM directives. The AMF makes proposal to amend the UCITS Directive accordingly.

Read the AMF News Release and Reports (in French) 

Read the AMF News Release and Reports (in English)  

AMF and ACPR Update of Crowdfunding Guide

The AMF and ACPR (the French Authority For Credit Institutions And Insurance Companies, Autorité de Contrôle Prudentiel et de Résolution) amended the Crowdfunding Guide on 9 May 2017. This Q&A document specifies the regulatory framework applicable to crowdfunding professionals. The update incorporates in particular:

  1. The provisions related to crowdfunding platforms in the form of securities and “minibons”, (a new type of bonds) subscription; and
  2. The professional public liability insurance obligation of crowdfunding advisers and intermediaries.

Read the AMF news release and Crowdfunding Guide (in French)

AMF and ACPR Update of Crowdfunding Guide

The AMF and ACPR (the French Authority For Credit Institutions And Insurance Companies, Autorité de Contrôle Prudentiel et de Résolution) amended the Crowdfunding Guide on 9 May 2017. This Q&A document specifies the regulatory framework applicable to crowdfunding professionals. The update incorporates in particular:

  1. The provisions related to crowdfunding platforms in the form of securities and “minibons”, (a new type of bonds) subscription; and
  2. The professional public liability insurance obligation of crowdfunding advisers and intermediaries.

Read the AMF news release and Crowdfunding Guide (in French)

Launch of a Public Consultation on Amendments to the GRAMF Ahead of the Commission Delegated Directive of 7 April 2016 Supplementing MiFID II - AMF

Pursuant to the Delegated Directive of 7 April 2016 supplementing MiFID II that sets out provisions on the safeguarding of financial instruments and funds, product governance and inducements, the AMF launched a public consultation on 10 May 2017 on proposed changes to the Book III – Service Providers of the General Regulations of the AMF (“GRAMF”).

As a result, the AMF submits proposed amendments of the GRAMF to public consultation, including:

  • The update of existing measures and the creation of new provisions relating to the safeguarding of financial instruments belonging to clients;
  • The creation of a chapter dedicated to product governance obligations; and
  • The replacing existing provisions of Article 314-76 of the GRAMF with new provisions on inducements.

The AMF also specifies and provides guidance on the following measures applicable to asset management companies:

  • Safeguarding of financial instruments and funds belonging to clients;
  • Product governance obligations; and
  • Inducements.

Consultation responses must be sent before 10 June 2017.

Read the AMF News Release (in French) 

Read the AMF News Release (in English)

Read the AMF Public Consultation (in French)

Changes to the Intermediation in Miscellaneous Assets System: Amendment to the General Regulation of the AMF (“GRAMF”) and Publication of a New Instruction

Pursuant to Sapin 2 Law, changes to the intermediation in miscellaneous assets system were introduced, including among others:

  • The prior control by the AMF on all proposal investments (whereas the control was a posteriori until now);
  • The authorisation of the AMF to determine in its GRAMF the “minimum guarantees required for an investment intended for the general public” for all investment transactions in miscellaneous assets; and
  • The possibility for the AMF to sanction miscellaneous property intermediaries for any breach of the GRAMF.

As a result, pursuant to the Arrêté of 27 April 2017, the GRAMF was updated to address the new provisions. Therefore, the AMF incorporated on 17 May 2017 in a new Instruction n°2017-06 the new provisions related to the registration procedure and preparation of an information document that must be filed with the AMF by the miscellaneous assets intermediaries. This Instruction details:

  • The resources required from intermediaries in miscellaneous assets that fall under Article L. 550-1, I and II of the French Monetary and Financial Code;
  • The procedures for registering the information documents to be filed with the AMF;
  • The content of the information documents;
  • The conditions of allocation of a registration number on the information document for investors; and
  • The information to provide investors and the AMF after the transaction

Read the AMF News Release (in French)

Read the AMF News Release (in English) 

Read the Arrêté of 27 April 2017 (in French) 

Read the AMF new Instruction n° 2017-06 (in French) 

AMF New Recommendation n°2017-07 on the Performance Simulations Offered to Investors

Following the results from the public consultation on the provision of future performance simulations to investors and the Arrêté of 27 April 2017, the AMF published a new Recommandation n°2017-07 published on 22 May 2017.

As a reminder, the policy document primarily:

  • Contains a reminder of the scope of the applicable regulations to professionals (including investment service providers, crowdfunding investment advisers and now financial investment advisers) offering performance simulations;
  • Recommends professionals to incorporate a standardised message warning investors about future performances simulations; and
  • Provides a list of the best practices to be adopted when designing future performance simulations.

Read the new AMF Recommendation n°2017-07 (in French) 

AFG Publication - Liquidity Risk Management Tools in Open-Ended Funds

The Association Française de la Gestion Financière (the French Asset Management Association, the “AFG”) published on 12 May 2017 a report on the tools of liquidity risk management used for open-ended funds to ensure the liquidity announced to the investor in accordance with the fundamental principles of the equal treatment of investors and the market integrity.

The AFG lists and details the current mechanisms used by French Funds which are:

  • Swing pricing, and adjustable subscription and redemption fees paid to the fund;
  • Notice period;
  • Redemption gate mechanisms;
  • In-kind redemption;
  • Side pocket mechanisms; and
  • Suspending subscription or redemptions.

The AFG insists on the appropriate use of these protection tools in case of a deterioration in market liquidity and to manage the liquidity mismatch between cash and portfolio assets in the collective management.

Read the AFG report (in French)



BaFin Restricts CFD Trading to Retail Clients 

BaFin issued a General Administrative Act pursuant to section 4b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) on 8 May 2017. The General Administrative Act restricts the marketing, distribution and sale of financial contracts for difference (CFDs) to retail clients. Since CFD’s typically create additional payments obligations, BaFin has investor protection concerns in relation to these CFD’s. BaFin is of the opinion that the investor’s risk of loss cannot be limited effectively through the margin call process or through stop-loss orders since price fluctuations of an underlying can be so significant within a short period of time that the CFD provider will not have sufficient time to ask the investor for an additional payment in addition to the margin they have deposited. If the position is then forcibly closed, this can result in significant losses for the investors. Stop-Loss orders are in BaFin’s view also not an efficient way to protect investors from significant losses since the next available price at which such an order is normally executed may differ significantly from the price originally strived for. The difference to be paid by the investor can then amount to multiples of the margin they have put down.

According to the General Administrative Act, providers of CFDs with an additional payment obligation have three months from the date of publication of the General Administrative Act to adjust their business models. BaFin states that some providers already offer CFDs without an additional payments obligation or have, because of the planned General Administrative Act, announced that they will in the future offer such products.

Read the News Release (in English)  

Read the General Administrative Act regarding CFDs (in English) 

BaFin Consults Two WpHG Ordinances

BaFin published revised draft versions of the WpHG Employee Notice Ordinance (WpHGMaAnzV) and the Financial Services Audit Ordinance (WpDPV) on 29 May 2017. 

The amendments to the WpHG Employee Notice Ordinance relate to the expertise and experience that employees of German investment services providers who provide investment advice must have in respect of financial instruments and structured deposits. The expertise requirements for sales employees who provide customer information on these products or on financial services and investment services are also specified in the WpHGMaAnzV

The amended WpDPV further specifies the audit program as well as the requirements for the auditor and sets out guidelines for the preparation of the audit report and the questionnaire. It also contains rules for the submission of documents to BaFin as well as the retention periods. The obligations to be audited derive from the Markets in Financial Instruments Regulation (MiFIR), the Implementing Regulation on the Financial Markets Directive (MiFID II), the MiFIR Implementing Regulation and other delegated regulations.

Comments can be submitted to BaFin until 19 June 2017.

Read the revised drafts (in German) 

German Investment Fund Association Publishes Updated Template Fund Rules for Retail Securities Funds 

The German Investment Fund Association (Deutscher Fondsverband – BVI) has published updated template fund rules (Anlagebedingungen) for retail securities funds (Wertpapier-Publikumsfonds) which were coordinated with the German regulator BaFin. The updated templates include updates deriving from the updated Investment Tax Act which will enter into force in 2018 and take into account the latest guidance from the German Federal Ministry of Finance.

Read the updated template fund rules (in German) 

Latest Investment Fund Statistics for Germany 

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



Discussion Paper on ETFs Published by the Central Bank

The Central Bank has published this Discussion Paper about Exchange traded Funds (ETFs). It notes that Ireland is the largest European centre for Exchanged Traded Funds (ETFs), which are the fastest growing type of investment fund globally.

The aim of the Discussion Paper is to garner information from Stakeholders and other interested parties on any aspect of ETFs (whether covered in the Discussion Paper itself, or not). Stakeholders are requested to provide responses to the questions posed in the Discussion Paper along with any general observations on this topic.

Stakeholders should aim to respond by 11 August 2017.

Read the Discussion Paper

Central Bank Issues Client Assets Industry Letter

The Central Bank issued an industry letter on 20 April 2017 to all investment firms that are permitted to hold client assets. The purpose of the industry letter is to provide feedback on the Central Bank’s findings following its themed review during Q4 2016 – Q1 2017 on client asset risk management requirements, and to highlight good practices identified during the themed review.

Read the industry letter

Central Bank Publishes New AIFMD Q&A

The Central Bank of Ireland has published a new 25th edition of the AIFMD Q&A. The new edition incorporates a new question, ID 1123, relating to the designated email address for fund management companies.

Read the latest AIFMD Q&A

Central Bank Publishes New UCITS Q&A

The Central Bank of Ireland has published a new 17th edition of the UCITS Q&A. The new edition incorporates a new question, ID 1076, relating to the designated email address for fund management companies.

Read the latest UCITS Q&A

Latest Fund Statistics for Ireland

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

Access the latest statistics



CSSF Circular 17/654 Dated 17 May 2017

The CSSF published its Circular addressed to credit institutions and certain PSFs regarding the sub-delegation for IT cloud services. The CSSF has also, inter alia, amended its Circular 06/240 on administrative and accounting organization in light of Circular 17/654.

CSSF Press Release on EMIR Obligations

The CSSF published its press release as a reminder on the reporting obligation of non-financial counterparties to derivative contracts and to set out the emphasis of their supervisory activity for 2017 in this respect. They also list best practices including the nomination of a responsible person whose name has to be provided to the CSSF by 10 June 2017.

Read the Press Release (in English)

ALFI Guidelines on the Oversight of Financial Intermediaries in Distribution of Funds

ALFI published new guidelines “Principles of the oversight of financial intermediaries on distribution of funds”, in line with its mission to help members capitalise on industry trends and to encourage professionalism, integrity and quality within the Luxembourg fund industry.

The Guidelines are available on the ALFI website (available for ALFI members only). 

CSSF Newsletter N° 196 May 2017

The CSSF published its newsletter of May 2017.

The newsletter is available on the CSSF website (in French) 

CSSF Press Release 17/19 Dated 19 May 2017

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

The Press Release is available on the CSSF website (in French). 



FCA Issues New Guidance on Cyber Resilience and Notification of Cyber Attacks

The FCA published a new page on its website providing informal guidance on cyber resilience on 18 May 2017. 

Following the recent global ransomware cyber attacks, the FCA says firms should be aware of the threat, able to defend themselves effectively, and respond proportionately to cyber events.

To achieve this, firms should:

  • Develop a "security culture", from the board down to every employee.
  • Be able to identify, prioritise and protect their information assets (ie, hardware, software and people).
  • Detect, respond to and recover from breaches.
  • Constantly evolve to meet new threats.

Under Principle 11 of the FCA's Principles for Businesses, firms are required to report material cyber incidents to the FCA (and the PRA if the firm is dual-regulated). The FCA indicates an incident may be considered material if:

  • it results in significant loss of data, or the availability or control of the firm’s IT systems;
  • it impacts a large number of victims; or
  • it results in unauthorised access to, or malicious software present on, the firm’s information and communication systems.

If the incident involves a data breach, the FCA says firms should also report to the Information Commissioner's Office (ICO).

The webpage contains a link to the National Cyber Security Centre website which provides guidance on how firms can protect their information and systems and how to respond to a cyber attack.

Visit the new FCA webpage

FCA Issues Instructions for Submitting MiFID II Commodity Derivative Position Reports

The FCA published a document entitled “Commodity Position Reports” on 3 May 2017 containing reporting instructions for trading venues and investment firms submitting position reports under MiFID II. This is further to the FCA’s final draft rules, published in PS 17/5, to be included in chapter 10 of its Market Conduct sourcebook (MAR 10) on commodity derivative position limits and controls, and position reporting.

The FCA has published the instructions on a webpage containing information on the introduction of position limits and the reporting regime for commodity derivatives.

The FCA’s market data processor (MDP) system supports entities' daily reporting obligations set out in Article 58(1)(b) and 58(2) of MiFID II. The Article 58(1)(a) obligation to make public a weekly report with the aggregate positions held by the different categories of persons for the various commodity derivatives traded on the trading venue (TV) (that is, "commitment of traders" reports) will not be facilitated by the MDP system. The FCA will set up a dedicated inbox for firms to communicate these reports to it.

MiFID II requires TVs to report a daily breakdown of the positions held by all persons on that venue in commodity derivatives and emission allowances (or their derivatives). It also requires investment firms that trade in commodity derivatives or emission allowances (or their derivatives) outside a trading venue to provide the national competent authority (NCA) for the trading venue where the contract is traded daily position reports for those instrument types and for their economically equivalent OTC positions. This enables an NCA to aggregate positions and determine if a position holder is in breach of a position limit.

The MiFID II position limits and reporting regime for commodity derivatives aims to prevent market abuse and support orderly pricing and settlement conditions by improving transparency and oversight of financial markets. It comes into force on 3 January 2018.

Read the FCA Commodity Position Report

Visit the FCA webpage on commodity derivatives

FCA Publishes Final Amended Disclosure Rules Conforming to the PRIIPs Regulation

The FCA published a policy statement (PS17/6) on 2 May 2017, with its final amended disclosure rules following the application of the EU Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014).

PS17/6 sets out how the FCA's disclosure requirements will change to reflect the introduction of the PRIIPs key information document (KID). In summary, the changes are intended to reflect the direct application of the PRIIPs Regulation that will apply to firms that manufacture, give advice on or sell PRIIPs to consumers in the retail market. However, the FCA acknowledges the lack of guidance and clarification at EU level on the PRIIPs Regulation will lead to operational difficulties and legal uncertainty for some firms. It therefore seeks to provide some clarification in PS17/6 on the scope of the Regulation to help firms plan for the new disclosure framework. It does this by including some high-level comment on some of the issues raised by the consultation responses it received, including:

  • That firms may need to prepare and provide additional disclosure material to supplement the information in the KID, for example under the Solvency II Directive (2009/138/EC), and supported guidance proposed in relation to this.
  • That firms should be able to, but not be required to, provide post-contractual documents in relation to PRIIPs. If provided, this disclosure would be in addition to the standalone KIDs that will need to be provided pre-sale.

Annex 2 of PS17/6 includes lists of products that the FCA considers are PRIIPs or non-PRIIPs, which the FCA has amended slightly, following consultation. Those lists may be amended or clarified further following any clarification at EU level that may be provided during 2017.

Firms must comply with the PRIIPS Regulation and any revised disclosure rules in the FCA Handbook from 1 January 2018.

Read the Policy Statement

On 12 May 2017, the FCA updated its webpage: PRIIPs disclosure: Key Information Documents with revised lists of the products that it considers fall within and outside the definition of a PRIIP. The lists are almost identical to those included in Annex 2 of PS17/6.

Visit the FCA webpage



EMIR - New Third Country CCPs Recognised

ESMA updated its list of third-country central counterparties recognised to offer services and activities in the EU on 29 May 2017 – New Zealand Clearing Ltd may now clear.

View the updated list

Read the associated press release

MiFID II - ESMA Clarifies Meaning of "Traded on a Trading Venue" and Updates Q&A on Market Infrastructure Topics

ESMA issued an opinion on 22 May 2017 clarifying the meaning of “traded on a trading venue” (“TOTV”) in the context of MiFID II obligations applicable to OTC derivatives.

The ESMA opinion clarifies the concept of TOTV for OTC derivatives, and which transactions in derivatives concluded outside of trading venues are subject to MiFID II transaction reporting and transparency requirements.

The opinion specifies that only OTC-derivatives sharing the same reference data details as derivatives for which trading venues submitted reference data should be subject to MiFID II transparency and transaction reporting requirements.

Read the opinion

Read the associated press release

On 31 May, ESMA issued updated Q&As on the following MiFID II topics:

The updated Q&As include new answers regarding:

  • Algorithmic trading
  • The extension of a pre-existing MiFID I waiver to equity-like instruments
  • The systematic internaliser regime
  • Non-equity instruments and data reporting services providers
  • Commodity derivatives

Read the associated press release


ESMA Issues General Principles to Support Supervisory Convergence pre-Brexit and European Parliament Wakes Up to FinTech

ESMA issued an opinion on 31 May 2017 to support supervisory convergence in the context of increased requests from UK financial market participants seeking to relocate to the 27 remaining EU member states.

ESMA’s intervention comes after national regulators complained some EU member states could allow the creation of letterbox entities in order to attract UK-based asset managers.

The opinion sets out nine principles:

  1. No automatic recognition of existing authorisations.
  2. Authorisations granted by EU27 national competent authorities should be rigorous and efficient.
  3. National competent authorities should be able to verify the objective reasons for relocation.
  4. Special attention should be granted to avoid letter-box entities in the EU27.
  5. Outsourcing and delegation to third countries is only possible under strict conditions.
  6. National competent authorities should ensure that substance requirements are met.
  7. National competent authorities should ensure sound governance of EU entities.
  8. National competent authorities must be in a position to effectively supervise and enforce Union law.
  9. Effective coordination to ensure effective monitoring by ESMA

Read the opinion

Read the associated press release

On 17 May, the European Parliament passed a resolution of 17 May 2017 attempting to define an EU framework for FinTech and calling for greater regulatory co-operation and oversight.

Read the resolution



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