Asset Management & Investment Funds: EU & International Developments

UCITS V Regulation

On 26 July 2016, the European Commission Implementing Regulation (EU) 2016/1212 laying down implementing technical standards (ITS) for the standard procedures and forms for competent authorities to use when reporting on penalties and measures to ESMA (in accordance with Article 99e of of the UCITS Directive)  was published in the Official Journal of the EU. The ITS enter into force on 15 August 2016. ESMA published the final draft ITS and submitted them to the EU Commission in September 2015.

AIFMD passport

ESMA published its advice in relation to the application of the AIFMD passport to non-EU AIFMs and AIFs in twelve countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland and the United States. This Advice, required under the AIFMD, will now be considered by the European Commission, Parliament and Council.

Currently, non-EU AIFMs and AIFs must comply with each EU country's national private placement regime when they market funds in that country. ESMA's Advice relates to the possible extension of the AIFMD passport, which is presently only available to EU entities, to non-EU AIFMs and AIFs so that they could market and manage funds throughout the EU. For each country, ESMA assessed whether there were significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk which would impede the application of the AIFMD passport.

According to ESMA's advice:

  • there are no significant obstacles impeding the application of the AIFMD passport to Canada, Guernsey, Japan, Jersey and Switzerland;
  • if ESMA considers the assessment only in relation to AIFs, there are no significant obstacles impeding the application of the AIFMD passport to AIFs in Hong Kong and Singapore. However, ESMA notes that both Hong Kong and Singapore operate regimes that facilitate the access of UCITS from only certain EU Member States to retail investors in their territories;
  • there are no significant obstacles regarding market disruption and obstacles to competition impeding the application of the AIFMD passport to Australia, provided the Australian Securities and Investment Committee (ASIC) extends to all EU Member States the 'class order relief', currently available only to some EU Member States, from some requirements of the Australian regulatory framework;
  • there were no significant obstacles regarding investor protection and the monitoring of systemic risk which would impede the application of the AIFMD passport to the United States (US). With respect to the competition and market disruption criteria, ESMA considers there is no significant obstacle for funds marketed by managers to professional investors which do not involve any public offering. However, ESMA considers that in the case of funds marketed by managers to professional investors which do involve a public offering, a potential extension of the AIFMD passport to the US risks an un-level playing field between EU and non-EU AIFMs. The market access conditions which would apply to these US funds in the EU under an AIFMD passport would be different from, and potentially less onerous than, the market access conditions applicable to EU funds in the US and marketed by managers involving a public offering. ESMA suggests, therefore, that the EU institutions consider options to mitigate this risk;
  • for Bermuda and the Cayman Islands, ESMA cannot give definitive Advice with respect to the criteria on investor protection and effectiveness of enforcement since both countries are in the process of implementing new regulatory regimes and the assessment will need to take into account the final rules in place.
  • for the Isle of Man ESMA finds that the absence of an AIFMD-like regime makes it difficult to assess whether the investor protection criterion is met.

ESMA published its first set of Advice on the application of the passport to six non-EU countries (Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the US) in July 2015. The European Commission subsequently requested ESMA to assess a further six countries and to provide more details on the capacity of non-EU supervisory authorities and their track record in ensuring effective enforcement, including those non-EU countries which ESMA looked at in its first set of advice. The EU Commission also requested ESMA to provide data on the expected inflows of funds by type and size into the EU from the different non-EU countries.

ESMA work on Asset Segregation and Custody Services under AIFMD and the UCITS Directive

ESMA issued a Call for Evidence on Asset Segregation and Custody Services

This follows a previous ESMA consultation on ‘Guidelines on Asset Segregation under the AIFMD’, and industry engagement with ESMA and the European Commission on the issue of asset segregation. UCITS are now also in scope as a result of UCITS V. ESMA is currently looking at the following areas:

  • mapping of asset segregation models;
  • understanding how investor protection in the event of insolvency would be ensured under the various models;
  • understanding the issues linked to complexity and operational costs that arise from the current legislative framework;
  • understanding the issues linked to collateral management/prime brokerage;
  • understanding the issues linked to the T2S system;
  • understanding the impact of segregation requirements on third countries;
  • gathering views on the optimal asset segregation regime for achieving a strong level of investor protection without imposing unnecessary requirements; and
  • gathering views on any uncertainties that could remain on how the depositary delegation rules should apply to CSDs.
  • Responses to the Call for Evidence are due by 23 September 2016.

ESMA Q&A on the application of AIFMD

On 19 July 2016, ESMA published an updated version of its Q&A paper on the application of the AIFMD. The Q&As have been amended to include a new Q&A relating to the impact of EMIR (the Regulation on OTC derivative transactions, central counterparties (CCPs) and trade repositories (Regulation 648/2012)) on the AIFMD framework, regarding the valuation of centrally cleared OTC derivatives.

ESMA Q&A on application of UCITS Directive

On 19 July 2016, ESMA published an updated version of its Q&A paper on the application of the UCITS Directive. The Q&As have been amended to include a new Q&A relating to the impact of EMIR on the UCITS framework, regarding the valuation of centrally cleared OTC derivatives.

Benchmarks Regulation

The Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) 596/2014 

(Benchmarks Regulation) was published in the Official Journal of the EU. The Benchmarks Regulation entered into force on 30 June 2016. It applies from 1 January 2018, with the exception of certain provisions (specified in Article 59), that apply from 30 June 2016. Article 56 amends articles 19, 35 and 38 of the Market Abuse Regulation (Regulation 596/2014) (MAR) and applies from 3 July 2016.

  • The Benchmark Regulation introduces a new EU regime regulating producers of, contributors to, and users of, benchmarks
  • The Benchmark Regulation aims to contribute to the accuracy and integrity of benchmarks used in financial instruments and financial contracts by:
    • ensuring that benchmark administrators are subject to prior authorisation and on-going supervision depending on the type of benchmark (e.g. commodity or interest-rate benchmarks);
    • improving their governance (e.g. management of conflicts of interest) and requiring greater transparency of how a benchmark is produced;
    • ensuring the appropriate supervision of critical benchmarks, such as Euribor/Libor, the failure of which might create risks for many market participants and even for the functioning and integrity of markets of financial stability.
  • Supervised entities (including UCITS, UCITS ManCos, AIFs and AIFMs) will not be permitted to use unregulated benchmarks.
  • Non-EU benchmarks can only be used in the EU if the benchmark is qualified under the third country regime.
  • Existing UCITS and AIFs will need to ensure that the benchmarks they use are working to comply with the Benchmark Regulation or find an alternative. For UCITS prospectuses approved prior to 1 January 2018, the underlying documentation will need to be updated at the next update and in any event no later than 12 months thereafter.
  • Supervised entities that issue financial instruments that reference a benchmark must produce "robust written plans" that set out the actions they would take should the benchmark materially change or cease to be produced. On request, these plans must be provided to the relevant competent authority.
  • The regulation implements and is in line with the principles for oil price reporting agencies and financial benchmarks agreed at international level by the International Organization of Securities Commissions (IOSCO) in 2012 and 2013.

Anti- Money Laundering/ Countering the Financing of Terror

As part of its Action Plan for strengthening the fight against terrorist financing of February 2016 and is also part of a broader drive to boost tax transparency and tackle tax abuse, the EU Commission issued its proposed:

  • Amendment of the Fourth Anti-Money Laundering Directive
  • Q&A
  • Factsheet
  • Points of particular interest include;
  • Beneficial ownership threshold moving from 25% plus one share to 10% whenever the legal entity is a passive Non-Financial Entity (as defined in Directive 2011/16/EU),
  • Measures for Enhanced Due diligence specifically set out and harmonised,
  • Public access to beneficial ownership information on companies and trusts that engage in economic activities for profit and access on a legitimate interest basis for family or charitable trusts,
  • Interconnection of national registers which will allow the public to access the beneficial ownership information on companies across the EU.

On 14 July 2016, the European Commission adopted a Delegated Regulation supplementing the Fourth Money Laundering Directive (4AMLD) by identifying high-risk third countries with strategic anti-money laundering (AML) and counter-terrorist financing (CTF) deficiencies. The annex to the Delegated Regulation, which lists the high-risk third countries, was published separately and is also available online. Article 9(2) of 4AMLD empowers the Commission to adopt delegated acts identifying third countries that have strategic deficiencies in their AML or CTF regimes that pose significant threats to the EU financial system (high-risk third countries). The Article also sets out a non-exhaustive list of criteria on which the Commission's assessments are to be based. The Commission did not consult on the list which it based on the FATF list. The Commission list may differ from the FATF list, for example, by including countries that are not listed by the FATF. The Delegated Regulation will be transmitted to the European Parliament and the Council of the EU, who each have a one-month scrutiny period (extendable to two months). If no objections are expressed, the Delegated Regulation will enter into force three days after publication in the Official Journal of the EU.

In its press release the Commission states that it intends to review the list at least three times each year (after each FATF meeting).

A FATF plenary meeting was held in Korea between 22-24 June 2016. The meeting considered a number of issues, including terrorist financing and information sharing.

The FATF published a paper in which the incoming FATF President, Juan Manuel Vega-Serrano, outlined the objectives of the Spanish Presidency of the FATF for the plenary year July 2016 to June 2017.

Data Protection- EU Privacy Shield
The European Commission adopted the Privacy Shield which is intended to provide a framework for EU-US data transfers. Read here for more detail.


The European Commission adopted a Delegated Regulation and related annexes supplementing the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (PRIIPs KID Regulation) with regard to regulatory technical standards (RTS) on the presentation, content, review and revision of KIDS and the conditions for fulfilling the requirement to provide such documents.

The RTS specify the exact contents of the KID, which must outline the product's aims, how risky it is, when investors can get their money back, how much it costs and its expected returns. The information must be set out in a standard way, regardless of the type of investment product.

The Parliament and the Council now have a period of scrutiny, and if they do not object the RTS will apply from 31 December 2016. The Joint Committee of the European Supervisory Authorities (the Joint Committee) submitted the draft RTS to the Commission in April 2016.

On 1 July 2016, the Joint Committee published a letter, sent to the European Parliament and the Council of the EU and copied to the Commission, on supervisory convergence work on the PRIIPs KID Regulation and referring to the RTS. The committee states that timing of implementation has been a key issue arising from consultations with stakeholders, and also with members of the ESAs' Boards. In the light of the technical challenges involved in preparing for implementation, the committee considers that even a six-month window will be challenging for some. As a result, it has now focused on developing supporting level 3 material to help with implementation and consistent supervision of the KID. The material will mainly take the form of Q&As, and will relate to the technical methodologies included in the draft RTS on risk, reward and cost disclosure requirements.

UCITS will not be obliged to move to producing a PRIIPs KID (which is based on the UCITS KIID) until 2019 at the earliest.

EuVECA Regulation and EuSEF Regulation amendments

On 14 July 2016, the European Commission published a legislative proposal for a Regulation amending the European Venture Capital Funds Regulation (EuVECA Regulation) and the European Social Entrepreneurship Funds Regulation (EuSEF Regulation). The proposed Regulation contains amendments to the EuVECA Regulation and the EuSEF Regulation that will, among other things:

  • Allow managers of collective investment undertakings authorised under Article 6 of the AIFMD that manage portfolios of qualifying venture capital and qualifying entrepreneurship funds to use the EuVECA and EuSEF designations respectively in relation to the marketing of those funds in the EU.
  • Expand the range of qualifying investments permitted under the EuVECA Regulation to allow investment in small mid-caps and small and medium-sized enterprises listed on SME growth markets.
  • Prohibit competent authorities of host member states from imposing fees and other charges relating to cross-border marketing of EuVECA and EuSEF funds.

This legislative proposal forms part of the Commission's initiative to establish a capital markets union (CMU).

ESMA Risk Dashboard

ESMA updated its Risk Dashboard following the outcome of the UK Brexit referendum. The overall assessment of risk levels in EU markets under ESMA’s remit remain unchanged for the time being, characterised by continued very high credit and market risks.

The risk outlook, however, has changed for the current and next quarters with the uncertainty reflected in increased market, liquidity and contagion risks going forward, as political and event risks have intensified, and the macroeconomic environment may deteriorate. Any crystallisation of these risks may also impact other segments in the ESMA remit.

Central Bank of Ireland

Data on the number of new platforms and new funds (including sub-funds) authorised by the Central Bank in June 2016 has not yet issued.

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

Date publised: 2 August 2016