Asset Management & Investment Funds: EU & International Developments: Sept 2019

ESMA – Risk Outlook

 The European Securities and Markets Authority (ESMA) published the following papers:

The report on trends, risks and vulnerabilities identifies a deteriorating outlook for the asset management industry and continued very high market risk. The analysis suggests that recent trade tensions have triggered renewed volatility, and concerns over a no-deal Brexit remain key risk drivers for the second half of 2019.  

The report concludes that investors are facing very high market risk, as they navigate an environment of potentially inflated asset valuations, subdued economic growth prospects, and flattening yield curves. Changed monetary policy expectations may boost their risk appetite and reignite search-for-yield strategies, leaving investors vulnerable to volatility episodes and abrupt shifts in market sentiment. Credit risk and liquidity risk remain high, with isolated events highlighting pockets of risk in the asset management industry. While the level of credit risk is stable, the deteriorating quality of outstanding corporate debt, the growth in leveraged loans and collateralised loan obligations should warrant the attention of public authorities. As a result, ESMA’s risk outlook for the asset management sector has deteriorated.

China's foreign exchange regulator announced the abolition of restrictions on the investment quotas of QFII and RQFII schemes

Mainland China's foreign exchange regulator, the State Administration of Foreign Exchange (SAFE) announced the abolition of investment quotas for foreign institutional investors schemes (namely Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes).

The press release is here: SAFE Dispatch, Abolish Restrictions on Investment Quota of Qualified Foreign Investors (QFII/ RQFII) and Further Expand the Opening up of Financial Markets.

The press release notes that:

  • the purpose of this move is to expand the opening up of China's financial markets
  • since the launch of QFII in 2002 and RQFII in 2011, more than 400 institutional investors from 31 countries and regions around the world have invested in China's financial markets through these channels
  • in the future, foreign institutional investors with corresponding qualifications will only need to go through a registration procedure in order to remit funds independently so as to make securities investments.

AML/ CTF

European Banking Authority speech on AML and CTF powers

The chair of the European Banking Authority speech (EBA) delivered a speech on the EBA's anti-money laundering (AML) and counter-terrorist financing (CTF) powers and the EBA's limited capacity to enforce standards and guidelines and promote convergence. In particular, the AML Directives' minimum harmonisation and directive-based approach permits national differences, and limits how much convergence EBA guidelines and standards can achieve. The speech suggests that a move from a directive to a regulation based framework would help address such divergences and that a more concrete set of supervisory powers, as well as more prescriptive common guidelines for sanctions of AML/CFT activities and more resources would also help.

European Parliament calls for better co-ordination and swifter implementation of AML laws

The European Parliament announced that MEPs adopted a resolution that AML rules need co-ordinated and speedy implementation. It calls on the European Commission in any future revision of the AML legislation to consider whether a regulation would be a more appropriate means of implementation than a directive. The press release notes that the beneficial ownership registers for corporate and other legal entities should be ready by 10 January 2020 (and for trusts by 10 March 2020). It confirms that MEPs support the establishment of a new methodology to identify high-risk third-countries that have strategic deficiencies in AML and calls on the Commission to apply a transparent process, with clear and concrete benchmarks for these countries and to ensure public scrutiny.

For more information in relation to this topic please contact a member of the Asset Management & Investment Funds team.

Date published: 26 September 2019