Investment Funds Europe - Issue 8, 2018

October 03, 2018

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



AFG issues template of PRIIPs KID for French Société Civile de Placement Immobilier

The Association Française de la Gestion Financière ("AFG") published for the benefit of its members a template of the PRIIPs Key Information Document for the Société Civile de Placement Immobilier (a French real estate fund dedicated to retail investors). This template has been prepared by the AFG and ASPIM (French association for real estate managers) after a number of discussions with the AMF.

Read: The template

AFG publishes Q&A on the best execution/best selection reporting for third-party portfolio management under MiFID II

French management companies providing third-party portfolio management services under MiFID II are required to produce reporting on their best execution and best selection policies. 

Within this framework, The Association Française de la Gestion Financière ("AFG") published a Q&A to provide information on the operational implementation of this reporting. 

Read: The Q&A



Half-year figures for Germany: Investment funds raise €51 billion by August 

The German Investment Fund Association BVI issued its half-year figures report on 9 August 2018. The first half of 2018 saw investment funds in Germany record net inflows of €50.7 billion. These inflows were for the most part generated by open-ended special funds, with €39.4 billion. Open-ended retail funds brought in €10.5 billion. Closed-ended funds collected €0.8 billion net. Institutional investors withdrew €10.8 billion from discretionary mandates. As at the end of June 2018, the German fund Industry managed assets In excess of €3 billion. 

Balanced funds are topping the open-ended retail funds sales chart for the sixth consecutive year, raising €12.2 billion net during the first half of 2018. As in the previous year, the focus was on products that invest equally in equities and bonds, accounting for €8.8 billion. 

Since the beginning of the year, net assets managed by closed-ended funds grew from €6 billion to €7 billion, of which €5 billion is managed by closed-ended special funds and €2 billion by closed-ended retail funds. At €0.7 billion, special funds dominated new business during the first half of the year. By comparison, closed-ended funds collected €2.9 billion during the entire calendar year 2017, with special funds contributing €2.6 billion. The statistics take into consideration closed-ended funds incepted in accordance with the provisions of the German Capital Investment Code ("KAGB") as well as comparable funds incepted abroad. 

One third of special fund inflows from pension funds 

According to the German Investment Fund Association (BVI), in the first half of 2018 pension organizations entrusted to open special funds €12.1 billion. This is almost one third of the total special fund turnover of €39.4 billion. Insurance companies invested €7.9 billion in special funds. Banks contributed €7.0 billion. The largest investor group of special funds is insurance companies, which have invested €556 billion in special funds. Based on the total special fund assets of €1,617 billion, this corresponds to a market share of 34%. Pension funds account for 28% of the total, followed by banks and industrial and service companies with 11% each. 

Investment limited partnership ("Investment KG") is the most common form of organization of German closed-end funds 

The German Investment Fund Association (BVI) states in its statistical summary of August 2018 that 138 out of 238 of the closed-end mutual and special funds that can be individually recorded via the BVI or BaFin database are organized in the form of a closed investment limited partnership. This corresponds to a share of 60%. It rises to 90% if only funds launched after the entry into force of the German Capital Investment Code ("KAGB") is taken into account. The remaining 10% are mainly attributable to the categories stock corporation ("AG"), limited company ("GmbH"), limited partnership whose general partner must be a limited liability company ("GmbH & Co. KG”) and investment stock corporation (”Investment-AG”).



General data protection regulation – Irish funds working group updates 

In July 2018, the Irish Funds General Data Protection Regulation ("GDPR") (Regulation (EU) 2016/679) working group (the "Working Group") issued an industry bulletin containing a data protection accountability checklist. The Working Group noted that GDPR’s new accountability principle requires data controllers to not only comply with the fundamental processing requirements of lawfulness, fairness and transparency but also to demonstrate such compliance. 

In August 2018, the Working Group published its sixth GDPR bulletin. The bulletin considers how personal data breaches should be handled, as and when they arise and whether notification to the data protection authority is required. 

A copy of the data protection accountability checklist and the personal data breaches and notification to data protection authorities bulletin is available on request from your Dechert contact. 

Central Bank review of UCITS performance fees – new guidance 

The Central Bank of Ireland (the "Central Bank") published the outcome of an inspection into UCITS performance fees on 4 September, 2018. The purpose of the review is to establish whether the procedures used to calculate and pay performance fees in UCITS ensure that investors’ interests are protected at all times. The review also examined the methodologies used to calculate performance fees to ensure they are in line with the Central Bank’s UCITS Performance Fees Guidance (the "Guidance"). 

All fund management companies whose UCITS charge performance fees are required to confirm to the Central Bank that they have carried out a review of the existing methodologies in order to satisfy themselves that performance fees charged comply with the Guidance. The Central Bank will also commence supervisory engagement with the individual UCITS that were the subject of the review. 

Read: The thematic review of UCITS performance fees 

Update on central register of beneficial owners 

Article 30 of the 4th EU Anti-Money Laundering Directive ("4AMLD") requires all EU Member States to put into national law provisions around beneficial ownership information for corporate and legal entities. As of 15 November 2016 corporate and legal entities must hold adequate, accurate and current information on their beneficial owner(s) in their own beneficial ownership register. 

The Department of Finance in Ireland has recently advised that the drafting of legislation to establish a central register of beneficial ownership is at an advanced stage and is expected to be concluded soon. It is intended that these transposing measures will be in place before year end. 

Read: The companies registration office 2018 guidance on beneficial ownership 

Central Bank of Ireland welcomes publication of Brexit Opinions 

In a statement issued on 31 July 2018, the Central Bank of Ireland (the "Central Bank") has welcomed the publication by the European Supervisory Authorities ("ESAs") of Opinions on the impact of the UK withdrawing from the EU. 

Derville Rowland, Director General Financial Conduct at the Central Bank, said: “The ESAs’ Opinions are a timely reminder to financial institutions and in particular to banks, insurers, brokers and investment firms, to ensure they have put appropriate plans in place for Brexit. We expect that firms consider the implications of Brexit and ensure they have robust contingency measures to minimise the impact on their customers, investors and markets.’’ 

The Central Bank is active at ESA level and in EU Brexit forums across the full range of issues within its mandate. In relation to consumer protection, the Central Bank is seeking to ensure consistent and predictable consumer protections, and will continue to work with financial institutions and at EU level to drive firms toward preparedness so that consumers are protected regardless of the outcome of the UK / EU negotiations. The ESAs’ Opinions reflect the views expressed consistently by the Central Bank in relation to the steps that financial institutions need to take to prepare for the UK’s withdrawal from the EU. 

Read: The Central Bank of Ireland statement welcoming the European supervisory authorities' publication of Brexit opinions 

Central Bank deadlines for pre-Christmas/year-end applications 

The Central Bank of Ireland (the "Central Bank") has issued correspondence that outlines the timeframes for receipt of fund / sub-fund applications (including self-managed / internally managed investment company / ICAV applications) and post-authorisation amendments that have pre-Christmas or pre-year end authorisation/approval/noting deadlines. 

In relation to all QIAIF filings to be submitted during the Christmas period, the Central Bank has noted that the Authorisations team in the Regulatory Transactions Division ("RTD") are requesting a list of proposed QIAIFs (including an estimated number of associated IQs) on a weekly basis from mid-November. 

A copy of the correspondence is available on request from your Dechert contact.



Parliament adopts general data protection law 

Parliament has adopted the law of 1 August 2018 on the organisation of the National Commission for Data Protection and implementation of Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of individuals with regard to the processing of personal data and on the free movement of such data which, inter alia, repeals the law of 2 August 2002 on the protection of persons with regard to the processing of personal data. 

Read: The regulation (French) 

CSSF issues Circular 18/698 and reshapes organisational rules of UCITS Management companies and AIFMs, enforces local substance requirements 

The CSSF published a circular on the authorization and supervision of investment fund managers and AML requirements on 23 August 2018, which consolidates the requirements for Luxembourg UCITS management companies, self-managed UCITS, authorised alternative investment fund managers, and authorised internally managed AIFs. 

Read: The circular (French) 

Read: Dechert OnPoint 

CSSF issues Circular 18/697 on non-UCITS depositaries 

The CSSF published a circular on organisational arrangements applicable to fund depositaries that are not serving as depositaries for UCITS. 

Read: The circular (French) 

CSSF issues new versions of their FAQs (MMF, AIFM and non-AIF SIF and SICARs) 

The CSSF published: 

  1. a new version of its FAQ on specialised investment funds under the law of 13 February 2007 (SIFs) and investment companies in risk capital under the law of 15 June 2004 (SICARs) that do not qualify as alternative investment funds on 14 August 2018; 
  2. a new version of their FAQ on the Luxembourg Law of 12 July 2013 on alternative investment fund managers as well as the Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage transparency and supervision on 14 August 2018; and 
  3. the FAQ on the Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds for the first time on 28 August 2018. 

Read: The AIFM FAQ 

Read: The Non-AIFM and SICAR FAQ 

Read: The MMF FAQ 

CSSF releases its annual report 2017 

The CSSF published its annual report 2017 on 29 August 2018. 

Read: The report 

ALFI issues recommendations for the future development of the fund sector 

ALFI issued recommendations on 17 September 2018. 



Commons Treasury Committee report on crypto-assets 

The House of Commons Treasury Committee published its report on crypto-assets. The report relates to the digital currencies inquiry the Committee launched earlier this year. 

The Committee considered crypto-assets and initial coin offerings to be extremely risky and investors should be prepared to lose all their money. Crypto-asset markets are particularly vulnerable to manipulation and the current absence of regulation in this area is problematic. Self-regulation within the crypto-asset industry is insufficient. The Committee suggests that extending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to cover this sector would be the quickest way of providing the FCA with the necessary powers to carry out its duties of protecting consumers and maintaining market integrity. It also noted that the adoption of the EU’s Fifth Anti-Money Laundering ("AML") Directive will require crypto-asset exchanges to comply with anti-money laundering and counter-terrorist financing rules. The Committee urged the UK Government to treat the transposition of the Directive as a priority and, in the event of a Brexit without a transition period, it would expect the Government to seek to replicate the provisions of the Directive into UK law as quickly as possible. 

Despite the above risks, the Committee stated that, if the UK develops an appropriate and proportionate regulatory environment in this area and if future innovations prove themselves to be beneficial to society and industry, the UK could be well-placed to become a global centre for this activity. The crypto-asset market will need to adhere to high standards and not become associated with criminality. The Committee encouraged UK regulators to continue engaging with international bodies to ensure best practice is learned and applied. 

Read: The report 

FCA consults on new Global Financial Innovation Network 

The FCA has announced the formation of a Global Financial Innovation Network ("GFIN") to create a ‘global sandbox’ to assist innovative firms to interact with regulators and help them navigate between countries in the development of new ideas. The network will also create a new framework for co-operation between financial services regulator on innovation-related topics. None of the 12 GFIN members is from an EU country (save, for the moment, the UK). 

The FCA is now consulting on a mission statement and related issues for the new GFIN. The consultation closes 14 October 2018. 

Read: The GFIN consultation 

FCA and CII create re-evaluation rest for regulated retail investment advisers 

The FCA has collaborated with the Chartered Insurance Institute ("CII") to create a re-assessment test of the level 4 Diploma in Financial Planning. The CII will make the ‘Regulated Retail Investment Adviser Re-Evaluation’ available from 1 October 2018 and the assessment aims to raise the standards and competence of Financial Advisers. The FCA said it may use the test as a supervisory tool if it thinks it is appropriate to ask firms to re-test specific advisers. 



AIFMD – further memoranda of understanding ("MoUs") signed

On 11 September, ESMA updated its table of MoUs signed by the EU authorities. Croatia and Slovenia have still to sign an MoU.

Read: The table

MIFID II – new product governance guidelines

On 31 August, EMA issued new Guidelines on MIFID II product governance compliance by member states confirming that some states (e.g., Spain), intend to comply by Q4 2018.

Other – binary options still banned, new technology recognised and report on relationships between the EU and third countries highlights "equivalence" regime

ESMA renewed the prohibition on 24 August, on binary options for a further three months.

Read: The associated press release

Steven Maijoor, Chair, ESMA, gave a speech on 19 September emphasising that ESMA is still sympathetic to new technologies within and beyond capital markets.

Read: The speech

Read: The associated press release

The European Parliament issued a report on 29 August on relationships between the EU and third countries concerning financial services regulation and supervision, emphasising the need for further scrutiny of and possible reform to the "equivalence" provisions in various EU directives.

Read: The report

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