Investment Funds Update Europe - Issue 1, 2018

January 25, 2018

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



Entry into force of MiFID II 

The Directive 2014/65/EU on Markets in Financial Instruments (MiFID II) entered into force in France on 3 January 2018. Within the framework, the French legal framework has been updated over the last year to implement MiFID II under French law. As part of this process, the Autorité des Marchés Financiers (the AMF, the French financial markets regulator) has published several guides aimed at professionals. On 17 January, the AMF updated its MiFID II guide on the funding of research. The update contains two changes: 

  • Clarification as to how research produced within the framework of a financial instrument issuance can be seen as constituting a non-monetary benefit. 
  • Modifications related to the Q&A published by the European Commission on 26 October 2017. 

Visit the AMF Website to read more. 

Creation of the Organisme de Financement Specialisé 

The Ordinance n° 2017-1432 dated 4 October 2017 entered into force on 4 January 2018. This ordinance introduced a new legal framework for loan origination by French funds, among other by introducing a new French vehicle entitled the “organisme de financement spécialisé”, which is authorized to originate loans directly in France, as the fonds professionnel spécialisé and the fonds professionnel de capital investissement. 

The ordinance also introduces several new exemptions to the French banking monopoly (including by authorizing foreign funds to acquire unmatured receivables in France from a duly authorized fronting entity or by making the Dailly mechanism available to professional funds). 

The legal regime for the OFS should be finalized in the coming weeks with the publication of an upcoming decree. 

Update of AMF publications 

The AMF published an update to its Position-Recommendation n° 2011-24 (which covers drafting of marketing material for funds). Pursuant to this change, the AMF recommends that, when providing to investors information on its ESG principles on its website as required by French regulations, a French management company provides such information on a comprehensive single document, which should be drafted in French if such management company targets French retail investors. 

As a reminder, French management companies are required to publish information related to their ESG Principles, which shall provide information on (i) the management company (among other, how such entity takes into account the ESH principles, how it will inform on the application of such principles, whether it has adhered to a specific code of ethics…) and (ii) its investment policy (mainly how such principles will be taken into account in the investment activity of the entity). 

Visit the AMF Website to read more.



BaFin publishes new circular for investments of German Insurers 

As of 12 December 2017 and after a long consultation period, BaFin has published its new Circular 11/2017 (Hinweise zur Anlage des Sicherungsvermögens von Erstversicherungsunternehmen, auf welche die Vorschriften für kleine Versicherungsunternehmen (§§ 212 bis 217 VAG) Anwendung finden, sowie von inländischen Pensionskassen und Pensionsfonds (Kapitalanlagerundschreiben)), which was enacted to provide further interpretation of the German Investment Ordinance of 2016 (Anlageverordnung – „AnlV“). 

The new Circular supersedes the prior version of the Investment Circular of 15 April 2011 (“Circular 04/2011”) and the draft circular published for consultation (“Circular 16/2016”). 

Read the draft circular. 

BaFin publishes updated FAQ on outsourcing of regulated services 

BaFin has updated its Frequently Asked Questions in November 2017 about outsourcing according to Section 36 of the German Capital Investment Code (Kapitalanlagegesetzbuch - “KAGB”). In this FAQ, BaFin answers frequently asked questions about outsourcing under the KAGB and also reflects ESMA’s Q&A on the application of the AIFMD“, section VIII: Delegation, Q&A no. 1 (ESMA34-32-352). 

Read the updated FAQ (German). 

BaFin publishes new circular on marketing of EU Feeder AIFs into Germany 

BaFin published a Circular in January 2018 on the general notification requirements for the marketing of German and EU Feeder AIFs, investing in third country Master-AIF to (semi)professional investors under Section 329 of the German Capital Investment Code (Kapitalanlagegesetzbuch - “KAGB”). 

Read the new Circular (German). 

Latest German Investment Fund Statistics 

The German Investment Fund Association BVI has issued its latest investment statistics report dated 11 January 2018, giving 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.



New edition of UCITS and AIFMD Q&As published by the Central Bank 

The Central Bank recently published the 28th edition of AIFMD Q&A on the 2 January 2018. A number of new questions have been answered regarding the PRIIPS Regulation and in relation to the Benchmark Regulation. 

The Central Bank also published the 22nd edition of the UCITS Q&A on 2 January 2018. The new edition features new questions relating to prospectus disclosure in the context of the Benchmark Regulation and a question regarding the PRIIPS Regulation. 

Fourth edition of the Central Bank Investment Firms Q&A published 

The Central Bank published the fourth edition of its Investment Firms Q&A on 2 January 2018. 

This new document contains amendments to existing questions and a host of new questions. Most importantly, the document attempts to answer queries which may arise in relation to the Central Bank Investment Firms Regulations and the recently enacted MiFID II and MiFIR. 

Central Bank issues updated EMIR FAQs 

The Central Bank has updated its FAQs in relation to EMIR. Questions three and four are no longer relevant and are deleted. Question two is updated to refer to MIFID II. 

EMIR is the European Market Infrastructure Regulation (EMIR) which is a body of European legislation for the regulation of over-the-counter derivatives. It came into force on 16 August 2012. 

Read the updated EMIR FAQs. 

Central Bank publishes new outsourcing guidance for fund administrators 

The Central Bank recently published new guidance to assist fund administrators in completing the Annual Outsourcing Return require under Regulation 25 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017) S.I. No. 604 of 2017. 

Read the Central Bank guidance in full. 

Amendments to Central Bank fund filing process 

As of the 22 January 2018 the Central Bank has with immediate effect altered its fund filing process. The draft UCITS’ Risk Management Processes (“RMP”) are no longer to be reviewed by the Central Bank as part of the authorisation/application process. The Central Bank has also advised firms that Section 13 UCITS Risk Management Process Application Form will be made available in the coming days. 

Second edition of CBI's Investment Firms Regulations 2017 published 

The Central Bank published Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 (S.I. 604 of 2017) on 2 January 2018. The Central Bank's intention was to consolidate all requirements applicable to MiFID firms and IIA firms into a single document. 

These new regulations make a number of amendments to the Central Bank's Rules in order to give full effect to MiFID II. The new edition also takes account of certain matters which arose as a result of the first edition published in 2017. 

Read the second edition of the Central Bank Investment Firms Regulations 2017.



CSSF issues press release on approach to permissible investments by Luxembourg UCITS in non-UCITS ETFs 

The CSSF clarified their position on deciding to take a more restrictive approach to permissible investments by Luxembourg UCITS in non-UCITS ETFs. 

Read press release 18/02 (in English). 

CSSF issues press release on application of MiFID II and MiFIR 

The CSSF published a press release informing on the application of MiFID II and MiFIR as of 3 January 2018 and pointing out the consequences of the non-transposition of MiFID II into Luxembourg law. 

Read press release 17/47 (in English). 

Grand Ducal Regulation on the fees to be levied by the CSSF 

The fees levied by the CSSF have been amended. 

CSSF publishes January 2018 newsletter 

The CSSF published its January 2018 newsletter. 

Read newsletter No 204 (in French). 

CSSF issues press release on global situation of UCIs 

The CSSF published a press release regarding the global situation of undertakings for collective investment at the end of November 2017. 

Read press release 18/01 (in French).



FCA issues statements on distributed ledger technology 

The FCA published a feedback statement in December 2017 regarding its April 2017 discussion paper on distributed ledger technology (DLT), or blockchain. 

DLT has been used, in the digital currency Bitcoin for example, to facilitate peer-to-peer payments without a central third party. 

Its use has been expanded to the sharing of data amongst multiple network participants, whether or not involving digital currencies, and in the issuance, trading and clearing of financial instruments. It can also be used to keep and share records and to facilitate regulatory reporting and transaction monitoring.

In its feedback statement, the FCA said it was encouraged by the positive feedback received and will continue to monitor DLT-related market developments and keep its rules and guidance under review in light of developments. Following its consumer warning on initial coin offerings (ICOs) issued in September 2017, the FCA will conduct a deeper examination of the market to determine whether there is a need for further regulatory action. The FCA said that its regulatory philosophy is to be ‘technology-neutral’. 

No changes to the FCA Handbook are currently proposed with regard to DLT. 

Read the feedback statement. 

Read the September 2017 consumer warning on initial coin offerings. 

FCA updates certain forms and guidance for MiFID II 

On the implementation of MiFID II on 3 January 2018, the FCA substantially updated a number of its forms for regulatory transactions and initial authorisations. 

These include new forms for changes in control of MiFID firms, which add a number of new questions. 

See the FCA’s change in control webpages. 

The FCA has also published general guidance on the authorisation process, forms and prudential categorisations for first time applicants and existing investment firms seeking to vary their scope of permissions. 

See the FCA’s MiFID II general guidance. 

FCA issues 'Dear CEO' letter in relation to retail investment in contracts for differences 

The FCA issued a ‘Dear CEO’ letter in January 2018 to firms that provide or distribute contracts for difference (CFD) products to retail customers on an advisory or discretionary basis to ensure they understand their obligations. This letter follows the conclusion of a project to assess whether CFD providers and distributors deliver the CFD product to the intended target market, pay due regard to the interests of customers and treat them fairly. 

The FCA expects CFD providers and distributors to consider the issues raised and take action to ensure compliance if any areas of concern are identified. 

Read the FCA's letter in full. 

The FCA’s letter ties in with ESMA’s 18 January 2018 Call for Evidence on temporary product intervention measures applicable to CFDs and binary options sold to retail clients. 

Read ESMA’s Call for Evidence.



MiFID II – ESMA issues updated Q&As on transparency and market structures and investor protection and intermediaries topics 

ESMA updated its Q&As on 18 December 2017 on MiFID II Q&As on transparency and market structures. 

This update includes new answers regarding: 

  • The scope of the tick size regime. 
  • Application of MiFID II after 3 January 2018, including issues of ‘late transposition’. 
  • Equity transparency. 
  • Non-equity transparency. 
  • Pre-trade transparency waivers. 

Read the updated Q&As for transparency issues. 

Read the updated Q&As for marketing structures issues. 

Read the associated press release. 

ESMA updated its Q&As on 18 December 2017 on MiFID II and MiFIR investor protection and intermediaries topics. 

The new Q&As cover the topics of inducements, suitability, and provision of investment services and activities by third country firms. 

Read the updated Q&As. 

Read the associated press release. 

The European Commission published the state of play of MiFID II transposition on 12 January 2018. As of this date, the following member states had not transposed MIFID II 

  • Bulgaria 
  • Croatia 
  • Greece 
  • Latvia 
  • Romania 
  • Slovenia 

Read the full list. 

EMIR – ESMA updates its public register for the clearing obligation under EMIR 

ESMA updated it's public register of derivatives on 19 January 2018 subject to the clearing obligation, removing certain commodity derivatives. 

Read the updated register. 

ESMA consults on potential CFD and binary options measures to protect retail investors 

ESMA issued a call on 18 January 2018 for evidence for the use of potential product intervention measures on contracts for differences and binary options to retail clients. 

The call for evidence and response form for potential product intervention measures on CDFs and BOs to retail clients and potential product intervention measures contracts are available. 

Read the potential product intervention measures on CDFs and BOs to retail clients. 

Read the potential product intervention measures contracts. 

Read the associated press release.

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