The Front Page, Asset Management & Investment Funds: EU & International Developments
AIFMD: Delegated Regulation on information to be provided by NCAs to ESMA
On 27 March 2015, the Commission Delegated Regulation on information to be provided by national competent authorities (NCAs) to the European Securities and Markets Authority (ESMA) under the AIFMD was published in the Official Journal of the EU (OJ). The Delegated Regulation applies to member states from 16 April 2015.
On 20 April 2015, the Council of the EU announced that it adopted the Regulation on European Long-Term Investment Funds (the ELTIF Regulation). ELTIFs are vehicles designed to boost non-bank investment in the real economy across the EU. ELTIFs will facilitate investors investing into companies and projects that need long-term capital. Long-term capital finances tangible assets (such as energy, transport, communication infrastructures, industrial and service facilities, housing and climate change technologies), as well as intangible assets (such as education and research and development). The ELTIF Regulation lays down uniform rules on the authorisation, investment policies, and operating conditions of EU AIFs that are marketed as ELTIFs.
ELTIFs will have to apply for authorisation, have a regulated structure and comply with uniform rules to ensure that they offer long-term and stable returns. The ELTIF Regulation provides that ELTIFs are not to be invested in speculative assets, and that any retail investors putting money into them are properly informed and protected. ELTIF investors will have to make a long-term commitment as they will not be able to withdraw their money easily. Only EU alternative investment funds (AIFs) that are managed by alternative investment fund managers (AIFMs), authorised in accordance with AIFMD, will be eligible to market themselves as ELTIFs. ELTIFs will target both professional and retail investors in the EU. The ELTIF Regulation lays down rules to protect investors, in particular retail investors, including limits on investment. The ELTIF Regulation will enter into force 20 days after it is published in the OJ and is expected to apply six months after it has entered into force.
On 24 March 2015, the European Parliament's Committee on Economic and Monetary Affairs (ECON) issued a press release confirming that it adopted its draft report on the proposed regulation on securities financing transactions (SFT Regulation). The report sets out the draft SFT Regulation with suggested amendments and an explanatory statement. ECON has:
- Added a provision that not only investment funds, but also listed companies and banks, should disclose their use of SFTs and re-use of collateral in their annual financial reports.
- Extended the conditions that must be fulfilled when financial instruments received as collateral are being re-used. The providing party should be informed about the risks and consequences involved in granting a right to use collateral and transferring title to it in the event of the default of the receiving party.
The European Parliament is due to consider the SFT Regulation on 7 to 10 September 2015.
The ECON issued a press release confirming that it adopted its draft report on the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts (Benchmark Regulation). The text will be put to a vote of Parliament on 18 to 21 May 2015 before tripartite negotiations with the Council of the EU and the European Commission.
Fourth Anti-Money Laundering Directive and Wire Transfer Regulation
The Council of the EU announced that it adopted the draft Fourth Anti-Money Laundering Directive and the draft Wire Transfer Regulation at first reading on 20 April 2015. This enables the European Parliament to adopt the package (this is expected shortly).
The main elements of the proposals are:
- Extension of the directive's scope: introducing requirements for a greater number of traders. This is achieved by reducing from €15 000 to €10 000 the cash payment threshold for the inclusion of traders in goods, and also including providers of gambling services.
- Application of a risk-based approach: using evidence-based decision making, to better target risks and the provision of guidance by the European supervisory authorities.
- Tighter rules on customer due diligence: obliged entities such as banks are required to take enhanced measures where the risks are greater, and can take simplified measures where risks are demonstrated to be smaller.
- Supranational risk assessment: the Commission will coordinate the assessment of money laundering and the risk of terrorist financing that affect the internal market and relate to cross-border activities.
- Beneficial ownership: specific provisions are included concerning the beneficial ownership of companies. Information on beneficial ownership will be stored in a central register, accessible to competent authorities, financial intelligence units and, as part of customer due diligence, obliged entities such as banks. The provisions also enable persons who can demonstrate a legitimate interest to access at least the following information: name, month and year of birth, nationality, country of residence, and nature and approximate extent of the beneficial interest held. Member states that so wish may use a public register.
- Traceability of fund transfers: the ability to track fund transfers can be very useful in the prevention, detection and investigation of money laundering and terrorist financing. While existing legislation already requires payment service providers to accompany transfers of funds with information on the payer, the new rules will also require information on the payee to be included. Under the new rules, the European Banking Authority, the European Insurance and Occupational Pensions Authority, and ESMA will be asked to issue guidelines addressed to competent authorities and payment service providers on measures to be taken when they receive transfers of funds with missing or incomplete information on the payer or the payee.
- Sanctions: the text provides for a maximum financial fine of at least twice the amount of the benefit derived from the breach or at least €1 million. For breaches involving credit or financial institutions, it provides for:
- a maximum financial sanction of at least €5 million or 10% of the total annual turnover in the case of a legal person; or
- a maximum financial sanction of at least €5 million in the case of a natural person.
Member states will have two years to transpose the Fourth Anti-Money Laundering Directive into national law. The Wire Transfer Regulation will be directly applicable.
Date published: 30 April 2015