Asset Management & Investment Funds: EU & International Developments - December 2017

ESMA asset management sector priorities in 2018

On 5 December 2017, ESMA published a speech, given by Verena Ross, ESMA Executive Director, in which she comments on a number of ESMA's asset management sector priorities in 2018. Points of interest in the speech include the following:

  • In the context of Brexit, ESMA is aware that market participants are concerned about the co-operation arrangements that have to be in place between regulators for certain types of activity. By way of example, both the UCITS Directive and the AIFMD require co-operation arrangements to be in place in case portfolio or risk management is delegated to an entity in a third country. ESMA is very aware of this issue and of the potential impact on activities, and ultimately investors, if co-operation arrangements are not put in place in time. ESMA could add value by acting as the facilitator of the arrangements on behalf of the national regulators of the EU27.
  • Regarding guidelines on stress testing under the MMF Regulation, ESMA has decided not to specify reference parameters in its guidelines at this stage. However, it aims to make progress on this when it issues the next version of the guidelines. Under the MMF Regulation, ESMA is required to update the guidelines every year, taking into account the latest market developments. It has already started work with a view to issuing updated guidelines by the end of 2018, and plans to consult with stakeholders as part of the updating process.
  • As part of ESMA's work on the costs and charges of investment funds, it intends to carry out more detailed analysis of the performance of active and passive funds. There may be scope for further guidance on the relevant legal requirements, given some differences in practice that ESMA has seen with regard to benchmark disclosure. ESMA also plans to look into performance fees. It has become aware of different approaches across member states as to what constitutes a permissible performance fee, so will consider scope for supervisory convergence work in this area.
  • In relation to MiFID II, the LEI is mentioned. It is vital that investment firms and trading venues make the necessary efforts to obtain the LEI in good time. Based on previous experience with EMIR reporting, ESMA urges reporting entities not to delay addressing this issue. Advanced preparation will help to avoid backlogs and ensure that all market participants are ready for the new regime.

​​Ms Ross' speech builds on a speech, given by Steven Maijoor, ESMA Chair, on 16 November 2017.


The European Commission adopted a Delegated Regulation supplementing the Regulation on European Long-Term Investment Funds (ELTIF Regulation) with regard to regulatory technical standards (RTS). The RTS specify:

  • The circumstances in which the use of financial derivative instruments solely serves hedging purposes under Article 9(3) of the ELTIF Regulation.
  • The circumstances in which the life of an ELTIF is considered sufficient in length to cover the life-cycle of each of the individual assets of the ELTIF under Article 18(7) of the ELTIF Regulation.
  • The elements and risks related to each ELTIF underlying asset that an ELTIF manager must take into account in the assessment of the market for potential buyers.
  • The criteria to be considered for the valuation of the assets to be divested under Article 21(3) of the ELTIF Regulation so as to include an appropriate value in the schedule for the orderly disposal of the ELTIF assets.
  • The characteristics and functions of the facilities to be put in place by the manager of an ELTIF marketed to retail investors under Article 26(2) of the ELTIF Regulation.

The delivery of draft RTS on cost disclosures has been postponed to ensure they are consistent with the legal requirements for key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) under the PRIIPs Regulation (Regulation 1286/2014). The next step is for the Council of the EU and the European Parliament to consider the Delegated Regulation. If neither of them objects, it will enter into force twenty days after it is published in the Official Journal of the EU (OJ).

Anti-Money Laundering / Combating the Financing of Terror / Corruption

Political agreement reached on 5AMLD

  • European Commission press release states that the Council of the EU and the European Parliament have reached political agreement on the proposed 5AMLD
  • The Council of the EU published an accompanying factsheet (the link is in the press release) (dated 14 December 2017).
  • European Parliament press release

Key points are:

  • Corporate Beneficial Ownership (BO) Registers will be public
  • Trust Beneficial Ownership Registers will be accessible to competent authorities, FIUs, the professional sectors subject to AML rules (banks, lawyers and so on) and will be accessible to other persons who can demonstrate a legitimate interest. When a trust is a beneficial owner of a company, access to this information can be requested.
  • The national BO Registers will be interconnected directly. Member States will have to put in place verification mechanisms to help improve the accuracy of the information and the reliability of these registers.
  • Member States will have limited ability to allow the anonymous use of electronic money products
  • AML rules will be extended to virtual currency exchange service providers, tax related services, letting agents, art dealers, electronic wallet providers
  • European "politically exposed person" subject to same due diligence as those from outside of EU
  • Additional reporting roles for Commission (on Member States action following complaints for non- compliance with AML rules and on member states cooperation)
  • Protection for whistle-blowers
  • Member States will have to oblige entities to apply systematic enhanced controls on the financial transactions from and to high risk third countries (as identified in the EU Commission list). The list will include third-countries with low transparency on beneficial ownership information, no appropriate and dissuasive sanctions or which do not cooperate nor exchange information.
  • Member States will be required to set up centralised bank account registers or retrieval systems to identify holders of bank and payment accounts. The Commission will work on the technical aspects to ensure the interconnection of such registers or retrieval systems.
  • The FIUs will have access to more information through centralised bank and payment account registers or data retrieval systems. The FIUs from the different EU countries will also be able to cooperate more easily, as well as with other competent authorities.
  • The exchange of information and cooperation between financial supervisory authorities will be improved, respecting their confidentiality rules, including with the European Central Bank. 

5AMLD will need to be formally endorsed by the European Parliament and the Council of the EU. Member states will have 18 months to transpose the Directive into national legislation after its publication in the OJ. The Commission published its 5AMLD proposal in July 2016. It forms part of the Commission's action plan to strengthen the fight against terrorist financing and sets out series of measures to better counter the financing of terrorism and to ensure increased transparency of financial transactions.

RTS on group-wide management of ML/TF risk under 4AMLD

The ESAs published a final report on draft regulatory technical standards (RTS) designed to strengthen group-wide management of money laundering and terrorist financing risks, produced under Article 45(6) of 4AMLD. Article 8 of 4AMLD requires credit and financial institutions to put in place and maintain AML/CTF policies and procedures to assess and effectively manage ML/TF risks to which they are exposed. Where they are part of a group, the AML/ CTF policies and procedures have to be applied at group level. The Joint Committee recognises that this can be challenging where branches or majority-owned subsidiaries are located in a third country (outside the EEA, where law may not permit the application of some or all parts of a group's AML/ CTF policies and procedures. In these cases, credit and financial institutions must take effective steps to manage the resultant ML/TF risk.

The final draft RTS (section 3 of the report) set out the minimum actions that should be taken by credit and financial institutions in these circumstances, with a view to creating a level playing field across the EU financial services sector. The actions may include the following:

  • Obtaining consent from customers to overcome restrictions on the ability to share and process customer data.
  • Carrying out enhanced reviews to be satisfied that branches and majority-owned subsidiaries in those jurisdictions are able to adequately assess and manage ML/TF risk.
  • Restricting financial services and products offered by the branch of majority-owned subsidiary in the third country to those presenting a low ML/TF risk, and requiring approval from senior management at group level of all higher-risk business relationships.
  • Restricting the ability of other entities in the same group to rely on CDD measures carried out by a branch or majority-owned subsidiary in those jurisdictions.

The draft RTS require credit and financial institutions to determine the extent of these measures on a risk-sensitive basis. They must also be able to demonstrate to their NCAs that the steps taken are commensurate with the ML/TF risk. In exceptional cases where, after taking all possible steps, ML/TF risk cannot be mitigated effectively, credit and financial institutions will have to require their branch or majority-owned subsidiary to terminate the business relationship, or not to carry out the occasional transaction. Alternatively, they may decide to close down some or all of their operations in the third country.

The Joint Committee will now submit the final draft RTS to the European Commission for approval.

For more information please contact a member of the Asset Management and Investment Funds Team.

Date Published: 20 December 2017