Investment Funds Update Europe - Issue 3, 2018

March 29, 2018

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



AMF Public Consultation on ICOs 

The AMF launched a public consultation on Initial Coin Offerings (ICOs) on 26 October 2017 in order to assess how these fundraisings could be regulated. Out of the three regulatory options proposed by the AMF, most of the respondents indicated that they would support the setting-up of a specific legislation for ICOs, which requires the publication of a document providing essential information to the investors. 

The AMF Board will continue working on such a regulatory specific regime together with other French authorities. 

Read the news release. 

AMF Position on Corporate Finance Advisers 

Pursuant to the AMF public consultation held last year, the AMF has published a Position n° 2018-03 clarifying the regime applicable to corporate financer advisers (i.e. persons providing consultancy services advice, mainly in relation to M&A advice). The AMF Position provides that such services constitute related services as defined in article L. 321-2(3) of the French monetary and financial code and therefore do not require a prior agreement. The Position further provides examples in order to determine precisely which services are provided by such advisers. 

Read the AMF summary (in French). 

AMF Analysis on the Legal Qualification of Cryptocurrency Derivatives 

The AMF published on 22 February 2018 an analysis as to the legal qualification of cryptocurrency derivatives. 

In this analysis, the AMF considers that any offer of cryptocurrency derivative may qualify as a derivative pursuant to MiFID 2, and would therefore need to comply with several obligations including prior authorization of the AMF, conduct of business rules and EMIR trade reporting.

Read the news release.



BaFin Publishes Interpretative Notice Regarding the Qualification of Tokens and Cryptocurrencies Offered 

Through Initial Coin Offerings to Investors BaFin published its new interpretative notice on 20 February regarding the regulatory qualification of tokens and cryptocurrencies offered through initial coin offerings to investors as financial instruments.

In its interpretative notice, BaFin highlights the importance of the correct classification of tokens and cryptocurrencies to qualify on a case by case basis either as: 

(i) a “financial instrument” under MiFID II and the German Securities Act (Wertpapierhandelsgesetz) 

(ii) a “security” pursuant to the German Securities Prospectus Act (Wertpapierprospektgesetz) 

(iii) a “capital investment” under the German Capital Investments Act (Vermögensanlagengesetz) 

(iv) even a unit of an investment fund under the German Capital Investment Code (Kapitalanlagegesetzbuch). 

As a consequence, the relevant qualification leads to different obligations and requirements (e.g. licensing requirements) for the issuer under one of the aforementioned German Acts. 

Read the interpretative note (in German). 

BaFin Issues Sample Templates for Fee and Costs Clauses for Open-Ended Funds

BaFin has issued new sample templates for fee and costs clauses for open-ended mutual funds as well as for real-estate funds for further consultation. The consultation will end on the 27th of April 2018. The new sample templates shall replace the sample templates dated 4th September 2012. 

Read the updated templates by BaFin for consultation (in German). 

Latest Investment Fund Statistics for Germany 

The German Investment Fund Association, BVI, has issued its latest investment statistics report dated 12 March 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. 



Central Bank Updates AIF Rulesbook for Loan Origination QIAIFs 

The Central Bank released on 14 March an updated AIF Rulebook with amendments in relation to Loan Originating Qualifying Investor Alternative Investment Funds (“L-QIAIFs”) to permit loan origination to be part of investment fund strategies investing in a mix of debt instruments. This development will allow L-QIAIFs to have “broader credit focused strategies” and will make the structuring of L-QIAIFs more straightforward. In many cases, this change will allow multi-credit strategies to use originated debt as a portion of their strategy. 

Read the new version of the AIF Rulebook. 

Central Bank Publishes 29th Edition of the AIFMD Q&A 

The Central Bank released on 14 March the 29th edition of the AIFMD Q&A. In respect of the amendments to the updated AIF Rulebook the updated AIFMD Q&A provides that an L-QIAIF cannot invest in derivatives other than for hedging purposes. The Central Bank also confirmed that an L-QIAIFs may invest in equity issued by group companies of entities that it has lent to provided that the investments are related to the L-QIAIF’s lending activities. 

Read the twenty-ninth edition of the AIFMD Q&A. 

Central Bank Concludes Review of ESMA Brexit Opinions 

The Central Bank has concluded a comprehensive review of the issues raised by ESMA in three opinions published on 13 July 2017 related to the relocation of entities, activities and functions from the United Kingdom. The Central Bank identified process enhancements, related to the authorisation of investment fund managers authorised under the UCITS Directive and AIFMD and investment firms authorised under MiFID to ensure that relevant facts underpinning outcomes are formally documented during the Bank’s authorisation processes. Updates to the Central Bank’s application forms and internal procedures will be made. 

Read the communication. 

Brexit Update from Central Bank 

The Central Bank has updated the Brexit section of its website advising firms to accelerate their Brexit preparations in order to prevent a late surge of requests amid concerns about a potential “hard Brexit”. The Central Bank has indicated that “firms are responsible for ensuring that all authorisations required post-March 2019 are in place in a timely manner”. The Central Bank reminds firms that “any […] transition period remains subject to the political negotiations and agreement” and that “until there is legal certainty that a transition period will apply, the Central Bank expects firms to continue to plan for all possible contingencies, including the possibility of a hard Brexit.” 

Read the Brexit FAQ. 

Central Bank to Update Annual Fund Profile Return 

The Central Bank has been writing to funds to announce an update to the IF Annual Sub-Fund Profile return, which is applicable to all sub-funds authorised by the Central Bank. The first Fund Profile return is to be prepared for the period up to report date 30 June 2018. Subsequent Fund Profile returns are to be prepared as of the annual calendar year-end. 

In 2018 the Fund Profile return will also be required to be submitted for report date 31 December 2018. 

Latest Investment Fund Statistics for Ireland 

As at 28 February 2018 there are 558 UCITS funds authorised by the Central Bank and 4259 including sub-funds. In respect of AIFs, there are 331 designated investment companies, (1156 including sub-funds), 235 ICAVs (533 including sub-funds) and 139 Unit Trusts (782 including sub-funds) authorised at the same date. 

The total number of authorised and registered AIFMs with the Central Bank is 162, there are 649 AIFMs providing services in Ireland on a cross-border basis, and 88 authorised UCITS management companies on 1 March 2018. 

View the Central Bank registers.



ALFI Notes the Commission’s Plans to Amend the UCITS and AIFM Directives

ALFI issued a press release pointing out that they believe that a wider scope for the clarification of marketing and pre-marketing would have been preferable and that the level of harmonization which would be achieved could have been greater.

ALFI Notes the New French-Luxembourg Double Tax Treaty

ALFI issued a press release pointing out that the new French-Luxembourg double tax treaty has been made available as a non-official version and that certain aspects raise questions.

CSSF Warns the Public on Initial Coin Offerings and Tokens

The CSSF issued a warning pointing out that raising capital via initial coin offerings is not subject to regulation and that investors do not benefit from any protection.

Read the warning in full (in French). 

CSSF Issues Press Release on Global Situation of UCIs

The CSSF published a press release regarding the global situation of Luxembourg undertakings for collective investment at the end of January 2018.

Read the press release in full (in French).



FCA Publishes a Closet Tracking Fund Webpage 

The FCA published a new webpage on 14 March 2018, outlining its recent work on closet tracking funds. The FCA considers that closet tracking funds look like, and charge similar fees to, actively managed funds that strive to beat a benchmark; however, they are managed in a way that is similar to passively managed funds which track a benchmark and usually charge a much lower fee. 

Following the FCA’s asset management market study it investigated 84 funds at the end of last year that were sold as market-beating. As a result of this investigation, the FCA is working with 42 of them to improve their management disclosures. It has ordered 64 of those 84 funds to improve disclosures as to how investors’ money was being managed and a number agreed to compensate investors as a result. 

View the FCA webpage. 

HM Treasury Issues Fintech Sector Strategy Paper 

HM Treasury published a policy paper on 22 March 2018 setting out action the UK government has taken to make the UK the best place for Fintech business and its plans to preserve and extend the UK’s international edge, including action to remove barriers to entry and growth. 

Among the plans, was an announcement of the establishment of a Cryptoassets Task Force comprising HM Treasury, the Bank of England and the FCA to explore the risks of cryptoassets and the potential benefits of the underlying distributed ledger technology. The task force is to report back in the summer. 

Read the policy paper. 

FCA Consults on its Approaches to Supervision and Enforcement 

The FCA published two consultation papers on 21 March 2018 on its approaches to supervision and enforcement. 

In the Approach to Supervision paper, the FCA says that it aims to be more forward-looking and pre-emptive in its supervision of firms since it considers that firms’ strategies and cultures are at the root of most major failings. The paper outlines the FCA’s supervision priorities, including: 

  • For the wholesale markets the FCA’s focus will be on user protection, in particular conflicts of interest, and market integrity. 
  • For the retail markets as they relate to asset management, the FCA’s priorities will include product suitability, complaints about products and provision of misleading or insufficient information on a products costs or risks. 
  • For both, the FCA will aim to ensure that forms and market are stable and resilient, including from cyber-attack or technological failure, are not used as conduits for financial crime, main control over personal data, and do not fail in a disorderly way. 

In the Approach to Enforcement paper outlines how the FCA conducts investigations and its powers. The FCA says that its overriding principle with regard to enforcement is substantive justice – to ensure it carries out investigations in a consistent and open-minded way. 

The FCA is seeking views on a number of questions in its approaches to supervision and enforcement to find out if it is being clear in its approaches and what else it could be doing. Feedback can be given until 21 June 2018 and the FCA will publish final documents later this year. 

Link to the FCA papers.



AIFMD - Updated MoUs 

ESMA updated its table of EEA regulators on 15 March with who has signed MoUs with non-EEA regulators, for the purposes of cross-border marketing of AIFs. Slovenia and Croatia are still to sign up with any non-EU regulators, making marketing of non-EU funds under the AIFMD problematic in these countries. 

View the table of AIFMD MoUs signed by the EU authorities. 

EMIR - Date for Exemption from Clearing Obligation for Pension Funds 

ESMA updated its webpage the Clearing obligation and Risk mitigation techniques under EMIR on 28 February. 

The updated webpage confirmed the date of exemption for central clearing for pension funds terminates on 15 August 2018. 

View the updated webpage. 

Proposed Revisions to AIFMD and UCITS 

The European Commission issued a propose Regulation on 12 March 2018 and a Directive amending the AIFMD and the UCITS Directive. 

  1. The proposed Regulation improves transparency by aligning national marketing requirements and regulatory fees. It introduces more consistency in the way these regulatory fees are determined. It also harmonises the process and requirements for the verification of marketing material by national competent authorities. The Regulation enables ESMA to better monitor investment funds. 
  2. The proposed Directive harmonises the conditions under which investment funds may exit a national market. It creates the possibility for asset managers to stop marketing an investment fund in defined cases in one or several host Member States. It also allows European asset managers to test the appetite of potential professional investors for new investment strategies through pre-marketing activities 

Read the proposed Regulation. 

Read the proposed Directive. 

Read the European Commission’s FAQs on this topic. 

ESMA Chair Delivers Keynote Speech 

Steven Maijoor, Chair of ESMA gave ESMA’s latest positions on the CMU, Brexit and its European Securities Agency review on 21 March. In summary, ESMA “is not looking to question, undermine or put in doubt the delegation model”, and hopes to mitigate the risks of ESA’s taking divergent positions post-Brexit. 

Read Steven Maijoor's keynote address.



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