SCANNING APRIL 2019

European Regulatory Watch Newsletter


Summary

EUROPE

From above
AIFMD - ESMA updates its Q&As on the calculation of leverage

  • Background

    The Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers applies since 22 July 2013 (the "AIFMD", available here). It establishes a comprehensive framework for the authorisation, supervision and oversight of AIFMs in Europe.

    The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the AIFMD (the full list is available here), including the Commission delegated regulation (EU) No 231/2013 supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (the "Regulation 231/2013", available here).

    On 4 October 2018, the ESMA issued the latest version of its questions and answers' document concerning the application of the AIFMD, by adding a new Q&A 5 (on page 29) clarifying the application of the AIFMD notification requirements with regard to AIFMs managing umbrella AIFs on a cross-border basis (ESMA34-32-352 – the "Q&A Document", available here).

     

     

    What's new?

    On 29 March 2019, the ESMA updated the Q&A Document (ESMA34-32-352 – the "Updated Q&A Document"), by adding new Q&As 6 and 7 (on pages 35 and 36) in the Section VII entitled "Calculation of leverage".

    In particular, the ESMA provides the following clarification on the below areas:

    • Treatment of short-term interest rate futures
      • The calculation of leverage exposure of an AIF resulting from a short-term interest rate future should not be adjusted for the duration of the future, under the gross and the commitment methods; and
      • However, this does not preclude AIFMs managing AIFs that, in accordance with their core investment policy, primarily invest in interest rate derivatives from applying duration netting rules under the commitment method (pursuant to Article 8(9) of the Regulation 231/2013).
    • Frequency of the calculation of leverage
      • An AIFM should calculate the leverage of each AIF that it manages as often as is required to ensure that the AIF is capable of remaining in compliance with leverage limits at all times. Consequently, leverage should be calculated at least as often as the NAV is calculated, or more frequently if required; and
      • Circumstances which may lead to increased frequency of leverage calculation include: (i) material market movements, (ii) changes to portfolio composition and (iii) any other factors the AIFM believes require calculation more frequently than NAV in order for the AIF to remain in compliance with leverage limits at all times.

    For further information, the Updated Q&A Document is available here.

    What's next?

    The ESMA will periodically review its Q&A Document and update it where required.

  • AIFs/UCITS - ESMA publishes Responses to its Consultation on Liquidity Stress Test Guidelines for fund managers and depositaries

  • Background

    On 30 April 2018, the recommendation of the European Systemic Risk Board on liquidity and leverage risks in investment funds was published in the OJEU (ESRB/2017/6 – the "ESRB Recommendation", available here). In particular, the ESRB Recommendation C provides that "'in order to promote supervisory convergence, the ESMA is recommended to develop guidance on the practice to be followed by managers for the stress testing of liquidity risk for individual Alternative Investment Funds ("AIFs") and Undertakings for Collective Investments in Transferable Securities ("UCITS")". The ESMA guidance should include (i) the design of liquidity stress testing ("LST") scenarios, (ii) the LST policy, (iii) considerations for the asset and liability sides of investment fund balance sheets, and (iv) the timing and frequency for individual funds to conduct LST.

    Against this background, the ESMA shall submit the guidance concerning the ESRB Recommendation C to the ESRB and the Council of the EU by 30 June 2019. Such ESMA guidance should be based on the stress testing requirements set out in the Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers (the "AIFMD", available here).

    On 5 February 2019, following-up on the ESRB Recommendation C, the ESMA issued its consultation paper entitled "Guidelines on LST in UCITS and AIFs" (ESMA34-39-784 – the "Consultation Paper"). The purpose of the Consultation Paper is twofold, namely:

    • Providing managers and depositaries with a set of minimum standards when executing/overseeing LST in AIFs and UCITS across the EU; and
    • Promoting supervisory convergence in the way the national competent authorities ("NCAs") should supervise LST across the EU.

    More specifically, the ESMA sets out 14 principle-based criteria that managers would follow when executing LST on their funds (e.g. ETFs, MMFs and leveraged closed ended funds should be in scope of the "Draft Guidelines"), regrouped under the following 4 areas:

    • Draft Guidelines for LST (1 to 9); and
    • Draft Guidelines specific to stress testing fund assets to determine the effect on fund liquidity (10);
    • Draft Guidelines specific to stress testing fund liabilities to determine the effect on fund liquidity (11 to 12); and
    • Draft Guidelines on combined asset and liability LST (13 to 14).

    In the Draft Guidelines 15, the ESMA provides the following guidance applicable to depositaries, i.e. depositaries should verify a fund has documented procedures for its LST programme. This could include reviewing the UCITS RMP and/or AIF RMP to confirm that the manager carries out LST on the fund. For further information, the Consultation Paper containing the 15 Draft Guidelines is available here.

    What's new?

    On 8 April 2019, the ESMA published all the 28 responses received to its Consultation Paper (the "Responses").

    For further information, the Responses are available here.

    What's next?

    The ESMA will consider the Responses received in early Q2 2019 and expects to publish a final report by the summer of 2019.

  • AML/Financial Supervision - Parliament Plenary votes at 1st reading on a Proposal for Regulation strengthening EU financial supervisors

  • Background

    On 1 January 2011, European Supervisory Authorities (the "ESAs") became operational in fields of insurance, banking and capital markets. The ESAs were established by:

    • Regulation (EU) No 1094/2010 on establishing the European Insurance and Occupational Pensions Authority (the "EIOPA Regulation", available here);
    • Regulation (EU) No 1093/2010 on establishing the European Banking Authority (the "EBA Regulation", available here); and
    • Regulation (EU) No 1095/2010 on establishing the European Securities and Markets Authority (the "ESMA Regulation", available here).

    Altogether, the aforementioned regulations are referred to as the "ESAs Regulations".

    On 11 March 2014, the European Parliament (the "Parliament") issued a resolution on the review of the European system of financial supervision ("ESFS") with detailed recommendations to the Commission for revision of the ESAs Regulations (available here).

    On 8 August 2014, the Commission published a report on operation of the ESAs (available here). From 21 March to 16 May 2017, the Commission carried out a public consultation on the operations of the supervisory authorities, their powers, governance, supervisory architecture and funding (available here).

    On 20 September 2017, the Commission published a proposal for a regulation setting out revisions of the ESAs Regulations and various related sector acts (COM(2017) 536 final – the "Proposed Regulation", available here). More specifically, besides the ESAs Regulations, it proposed to amend:

    • The regulation (EU) No 345/2013 on European venture capital funds (the "EuVECA Regulation", available here);
    • The regulation (EU) No 346/2013 on European social entrepreneurship funds (the "EuSEF Regulation", available here);
    • The regulation (EU) No 600/2014 on markets in financial instruments (the "MiFIR Regulation", available here);
    • The regulation (EU) 2015/760 on European long-term investment funds (the "ELTIF Regulation", available here);
    • The regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (the "BMR Regulation", available here); and
    • The regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the "Prospectus Regulation", available here).

    The Proposed Regulation intends to adjust and upgrade the ESAs regulatory framework to ensure that they can assume an enhanced responsibility for financial market supervision and that they are adequately equipped in terms of (i) powers at EU level, (ii) appropriate governance (including for decision making) and (iii) sufficient and sustainable funding which would be commensurate with current and future tasks.

    In May 2018, the Commission set up a working group bringing together the ESAs, the European Central Bank (the "ECB") and the Chair of the anti-money laundering ("AML") Committee of the ESAs to reflect on possible actions to improve the current cooperation between AML and prudential supervisors.

    On 12 September 2018, the Commission published an amended proposal for a regulation setting out revisions of the ESAs Regulations and various related sector acts (COM(2018) 646 final – the "Amended Proposed Regulation", available here). More specifically, it proposed to amend, in addition to all the aforementioned regulations, the directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the "AMLD IV", available here).

    The Amended Proposed Regulation (i) concentrates AML powers in relation to the financial sector within the European Banking Authority ("EBA"), and (ii) strengthens its mandate to ensure that risks of money laundering and terrorist financing ("ML/TF") are effectively and consistently supervised by all relevant authorities and that the relevant authorities cooperate and share information. In this context, the Amended Proposed Regulation and a dedicated communication (COM(2018) 645 final – the "Communication", available here) clarify the EBA's mandate in the context of AML in order to make it more explicit and comprehensive, accompanied by a clear set of tasks, corresponding powers and adequate resources.

    The Commission has put the Amended Proposed Regulation forward for adoption by the Parliament and the Council of the EU (the "Council"). On 21 March 2019, the Commission welcomed the political agreement reached by the Council and the Parliament on the Amended Proposed Regulation, including on AML aspects (the "Agreement", available here). On 1 April 2019, the Commission published a factsheet entitled "Capital Markets Union: Creating a stronger and more integrated European financial supervisory architecture, including on anti-money laundering" (the "Factsheet", available here).

    What's new?

    On 16 April 2019, based on the Agreement, the Parliament Plenary voted at first reading on the following legislative resolution: Parliament legislative resolution of 16 April 2019 on the Amended Proposed Regulation (P8_TA-PROV(2019)0374 – the "Adopted Regulation"). In addition, the Parliament issued a dedicated press release on the Adopted Regulation (20190410IPR37570).

    For further information, the provisional text of the Adopted Regulation is available here.

    The Parliament PR is available here.

    What's next?

    The Council will vote on the Adopted Regulation shortly.

    The final text of the Adopted Regulation shall enter into force on the 20th day following that of its publication in the OJEU. Articles 1 (on amendments to the EBA Regulation), 2 (on amendments to the EIOPA Regulation), 3 (on amendments to the ESMA Regulation) and 9b (on amendments to the AMLD IV) shall apply from 1 January 2020. Articles 6 (on amendments to MiFIR) and 8 (on amendments to the BMR) shall apply from 1 January 2022.

  • BMR - WIBOR added to the list of critical benchmarks used in financial markets

  • Background

    The Regulation (EU) 2016/1011 of the European Parliament and of the Council on indices used as benchmark in financial instruments and financial contracts entered into force on 30 June 2016 and applies since 1 January 2018 (the "BMR", available here). The BMR is relevant for any investment fund that uses any benchmark to assess its performance, to define asset allocation of its portfolio, or to compute its performance fees.

    In accordance with Article 20(1) of the BMR, a benchmark is considered as being a critical benchmark where it is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds, having a total value of at least EUR 500 billion on the basis of all the range of maturities or tenors of the benchmark, where applicable.

    On 12 August 2016, the European Commission (the "Commission") implementing regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets was published in the OJEU (the "Regulation 2016/1368", available here). It entered into force on 13 August 2016. The Annex to the Regulation 2016/1368 specifies that the benchmark Euro Interbank Offered Rate ("EURIBOR"), administered by the European Money Markets Institute ("EMMI"), located in Brussels, shall be considered as being a critical benchmark.

    The Annex to the Regulation 2016/1368 was subsequently amended by 3 Commission implementing regulations in order to add the following critical benchmarks:

    • Euro Overnight Index Average ("EONIA"), administered by the EMMI, located in Brussels (via the "Regulation 2017/1147", available here);
    • London Interbank Offered Rate ("LIBOR"), administered by the ICE Benchmark Administration ("IBA"), located in London (via the "Regulation 2017/2446", available here); and
    • Stockholm Interbank Offered Rate ("STIBOR"), administered by the Swedish Bankers' Association ("Svenska Bankföreningen"), located in Stockholm (via the "Regulation 2018/1557", available here).

    What's new?

    On 25 March 2019, the Commission implementing regulation (EU) 2019/482 amending the Regulation 2016/1368 was published in the OJEU (the "Regulation 2019/482").

    The Annex to the Regulation 2019/482 shall replace the Annex to the Regulation 2016/1368, by adding the following benchmark to the list of critical benchmarks pursuant to Article 20(1) of the BMR:

    • Warsaw Interbank Offered Rate ("WIBOR"), administered by the GPW Benchmarks S.A., located in Warsaw.

    The Regulation 2019/482 is available here.

    What's next?

    The Regulation 2019/482 shall enter into force on 26 March 2019 (i.e. the day following that of its publication in the OJEU).

  • Brexit - ESMA updates Q&As on the Transparency and Prospectus Directives

  • Background

    Directive 2004/109/EC of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market applies since 20 January 2007 (the "Transparency Directive" or the "TD", available here). The European Commission (the "Commission") has adopted delegated and implementing acts to specify how to comply with the obligations laid down the TD (the "Delegated and Implementing Acts for TD", available here).

    The Directive 2003/71/EC of the Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading applies since 1 July 2005 (the "Prospectus Directive" or the "PD", available here). The Commission has adopted delegated and implementing acts to specify how to comply with the obligations laid down the PD (the "Delegated and Implementing Acts for PD", available here). They include, notably, the Commission regulation (EC) No 809/2004 implementing the PD as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements (the "Implementing Regulation 809/2004", available here).

    The general public, market participants and competent authorities (the "CAs") can submit to the European Securities and Markets Authority (the "ESMA") questions in relation to frameworks of the TD and the PD.

    On 31 January 2019, in light of the UK's potential withdrawal from the EU on 29 March 2019 with no withdrawal agreement in place, the ESMA updated its questions and answers' documents on the TD (ESMA31-67-127 – Q&A Document on TD", available here) and on prospectuses (ESMA31-62-780 – the "Q&A Document on Prospectuses", available here).

    As regards the Q&A Document on TD, the ESMA added a new Q&A 26 (on pages 19-20) concerning the obligations of issuers of securities ? which have the UK as their TD home Member State ("MS") and are admitted to trading on one or more regulated markets in the EU27/European Economic Area ("EEA")/European Free Trade Association ("EFTA") ? when disclosing their choice of new home MS following a "no-deal" Brexit possible on 29 March 2019. The ESMA clarified that the choice of the home MS for such issuer will consist of the EU27 MS and the 3 EEA/EFTA States Iceland, Liechtenstein and Norway.

    As regards the Q&A Document on Prospectuses, the ESMA:

    • Added a new Q&A 103 (pages 85-86) clarifying that, when issuers of equity securities and non-equity securities below EUR 1'000 who have the UK as their PD home MS choose a new home MS, they should choose between the EU27 MS and the 3 EEA/EFTA States in which they have activities after the UK's withdrawal (i.e. either offers/admissions made after the withdrawal or admissions made before the withdrawal which continue after the withdrawal); and
    • Added a new Q&A 104 (pages 86-88) clarifying mostly that prospectuses and supplements approved by the UK Financial Conduct Authority (the "FCA") before 29 March 2019 cannot be used in the EU27 MS and the 3 EEA EFTA States after a no-deal Brexit, as the UK will be a 3rd-country. The ESMA also specified 4 ways on how issuers with prospectuses approved by the UK FCA before the UK's withdrawal should proceed following such withdrawal.

    The ESMA stressed that, if a withdrawal agreement is in place at the time of the UK's withdrawal, the Q&A 26 of the Q&A Document on TD and the Q&A 103 and the Q&A 104 of the transparency will not be applicable.

    On 22 March 2019, in the Official Journal of the EU ("OJEU") was published the European Council Decision (EU) 2019/476 taken in agreement with the UK, which postponed the UK's potential withdrawal from the EU on 29 March 2019 with no withdrawal agreement in place till 12 April 2019 (the "Decision 2019/476", available here). The Decision 2019/476 entered into force on 22 March 2019.

     

     

    What's new?

    On 8 April 2019, the ESMA published updates to the Q&A Document on TD and Q&A Document on Prospectuses (ESMA31-67-127 — the "Updated Q&A Document on TD" and ESMA31-62-780 — the "Updated Q&A Document of Prospectuses").

    In the Updated Q&A Document on TD, the ESMA has modified Q&A 26 (on pages 19-20) by removing references to 29 March 2019 as the date of eventuality when the UK withdraws from the EU with no withdrawal agreement in place.

    In the Updated Q&A Document on Prospectuses the ESMA has modified Q&A 103 and Q&A 104 (on pages 85-88) by removing references to 29 March 2019 as the date of eventuality when the UK withdraws from the EU with no withdrawal agreement in place and the references to 30 March 2019 as a day following the UK's withdrawal.

    The Updated Q&A Document on TD is available here.

    The Updated Q&A Document on Prospectuses is available here.

    What's next?

    The ESMA will continue to review and update its Q&A Document on TD and Q&A Document on Prospectuses where required.

    As from 21 July 2019, the Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the "Prospectus Regulation", available here) will repeal the PD, in accordance with Article 46 of the Prospectus Regulation.

    On 11 April 2019, in the OJEU was published the European Council Decision (EU) 2019/584 taken in agreement with the UK, which further to Decision 2019/476 postponed the UK's potential withdrawal from the EU with no withdrawal agreement in place to 31 October 2019 (the "Decision 2019/584", available here). The Decision 2019/584 entered into force on 11 April 2019.

  • Brexit/CSDR - Commission Implementing Decision 2019/545 on UK CSDs

  • Background

    On 20 December 2018, the Commission implementing decision (EU) 2018/2030 determining, for a period of time that the regulatory framework applicable to central securities depositories ("CSDs") of the United Kingdom of Great Britain and Northern Ireland is equivalent in accordance with the Regulation (EU) N° 909/2014 of the European Parliament and of the Council ("CSDR", available here) was published in the OJEU (the "Decision 2018/2030", available here).

    The Decision 2018/2030 provided that the equivalence regime for CSDs would not be applicable in any of the following cases:

    • A withdrawal agreement concluded with the United Kingdom of Great Britain and Northern Ireland in accordance with Article 50(2) of the Treaty on European Union ("TEU", available here) has entered into force by 20 December 2018; or
    • A decision has been taken to extend the two-year period referred to in Article 50(3) of the TEU.

    On 22 March 2019, the European Council agreed to extend the Brexit period (the "Decision 2019/476", available here). Consequently, the condition for the application of the Decision 2018/2030, i.e. that the Brexit period ending on 29 March 2019 has not been extended, will not be fulfilled.

    What's new?

    On 4 April 2019, taking into account the Decision 2019/476, the Commission implementing decision (EU) 2019/545 amending the Decision 2018/2030 was published in the OJEU (the "Decision 2019/545").

    In particular, Article 1 of the Decision 2019/545 amends Article 2(3) of the Decision 2018/2030 as follows: 'However, this Decision [2018/2030] shall not apply if a withdrawal agreement concluded with the United Kingdom of Great Britain and Northern Ireland in accordance with Article 50(2) of the TEU has entered into force by the date referred to in the second paragraph of this Article [2]'.

    For further information, the Decision 2019/545 is available here.

    What's next?

    The Decision 2019/545 entered into force on 5 April 2019.

  • Brexit/EMIR - Commission Delegated Regulations 2019/564 and 2019/565 exempting OTC derivatives contracts from EMIR margin and clearing obligations for 12 months published in the OJEU

  • Background

    The regulation (EU) No 648/2012 of the European Parliament and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories entered into force on 16 August 2012 ("EMIR", available here).

    The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in EMIR ("EMIR Delegated Acts", available here). The EMIR Delegated Acts include the following delegated regulations:

    • For risk-mitigation techniques for OTC derivative contracts not cleared by a CCP: (EU) 2016/2251 (the "Delegated Regulation 2016/2251", available here).
    • On the clearing obligation (altogether referred as the "3 Delegated Regulations"):
      • (EU) 2015/2205 (the "Delegated Regulation 2015/2205", available here);
      • (EU) 2016/592 (the "Delegated Regulation 2016/592", available here); and
      • (EU) 2016/1178 (the "Delegated Regulation 2016/1178", available here).

    The 3 Delegated Regulations specify the dates from which the clearing obligation is to take effect for contracts pertaining to certain classes of OTC derivatives. In addition, the 3 Delegated Regulations provide for different dates depending on the category of counterparty to those contracts.

    What's new?

    On 10 April 2019, the Commission delegated regulation (EU) 2019/564 amending Delegated Regulation 2016/2251 as regards the date until which counterparties may continue to apply their risk-management procedures for certain OTC derivative contracts not cleared by a CCP was published in the OJEU (the "Delegated Regulation 2019/564").

    On 10 April 2019, the Commission delegated regulation (EU) 2019/565 amending the 3 Delegated Regulations as regards the date at which the clearing obligation takes effect for certain types of contracts was published in the OJEU (the "Delegated Regulation 2019/565").

    More specifically, the Delegated Regulations 2019/564 and 2019/565 prepare for a withdrawal of the UK from the EU without an agreement (i.e. a "no-deal Brexit") by exempting OTC derivatives contracts, that are being novated from a UK counterparty to an EU27 counterparty, respectively from EMIR margin obligations and clearing obligations for a period of 12 months.

    For further information, the Delegated Regulations 2019/564 and 2019/565 are respectively available here and here.

    What's next?

    The Delegated Regulations 2019/564 and 2019/565 entered into force on 11 April 2019.

    The Delegated Regulations 2019/564 and 2019/565 shall apply from the date following that on which the EU Treaties cease to apply to and in the UK pursuant to Article 50(3) of the TEU (available here).

    However, the Delegated Regulations 2019/564 and 2019/565 shall not apply in any of the following cases:

    • A Withdrawal Agreement concluded with the UK in accordance with Article 50(2) of the TEU has entered into force by that date; or
    • A decision has been taken to extend the 2 year period referred to in Article 50(3) of the TEU beyond 31 December 2019.
  • Brexit/EMIR - Commission Implementing Decision 2019/544 on UK CCPs

  • Background

    On 29 March 2017, the UK triggered the process for its withdrawal from the EU, i.e. "Brexit", by invoking Article 50 TEU (available here). Article 50(3) TEU provides that the EU Treaties will cease to apply with respect to that EU Member State ("MS") from the date of entry into force of the withdrawal agreement or, failing that, 2 years after the notification as referred to in Article 50(2) TEU, unless the European Council in agreement with the MS concerned unanimously decide to extend this period (the "Brexit Period").

    As announced in the European Commission Communication of 13 November 2018 ‘Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019: a Contingency Action Plan’ (available here), the United Kingdom’s withdrawal from the European Union without an agreement ("No-Deal Brexit") may pose risks to the financial stability of the EU and its MS. To prevent such risks, it is justified and in the interests of the EU and its MS to ensure, for a limited period of time, that central counterparties ("CCPs") that have already been authorised in the United Kingdom ("UK CCPs") may continue to provide clearing services in the EU after 29 March 2019.

    Consequently, on 19 December 2018, the European Commission issued its implementing decision (EU) 2018/2031 (the "Decision 2018/2031", available here) to recognise UK CCPs already established and authorised in the UK to be equivalent to the requirements laid down in the EU Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories ("EMIR", available here), in the case of a No-Deal Brexit on 29 March 2019.

    On 22 March 2019, the European Council agreed to extend the Brexit Period (the "Decision 2019/476", available here). Consequently, the condition for the application of the Decision 2018/2031, i.e. that the Brexit Period ending on 29 March 2019 has not been extended, will not be fulfilled.

    What's new?

    On 4 April 2019, taking into account the Decision 2019/476, the Commission implementing decision (EU) 2019/544 amending the Decision 2018/2031 was published in the OJEU (the "Decision 2019/544").

    In particular, Article 1 of the Decision 2019/544 amends Article 2(3) the Decision 2018/2031 as follows: 'However, this Decision [2018/2031] shall not apply if a withdrawal agreement concluded with the United Kingdom of Great Britain and Northern Ireland in accordance with Article 50(2) TEU has entered into force by the date referred to in the second paragraph of this Article [2]'.

    The Decision 2019/544 is available here.

    What's next?

    The Decision 2019/544 entered into force on 5 April 2019.

  • CMU/PRIIPs Regulation - Parliament Plenary votes on a Directive and a Regulation facilitating the cross-border distribution of collective investment funds

  • Background

    At EU level, the rules covering the cross-border distribution of collective investment funds ("CIFs") mostly derive from the following regulations:

    • Directive 2009/65/EC on undertakings for collective investment in transferable securities, as amended ("UCITS Directive", available here);
    • Directive 2011/61/EU on alternative investment fund managers, as amended ("AIFMD", available here);
    • Regulation 345/2013 on European venture capital funds, as amended ("EuVECA Regulation", available here);
    • Regulation 346/2013 on European social entrepreneurship funds, as amended ("EuSEF Regulation", available here);
    • Regulation 2015/760 on European long-term investment funds, as amended ("ELTIF", available here); and
    • Regulation 2017/1131 on money market funds, as amended ("MMF Regulation", available here).

    On 12 March 2018, based on the "CMU Communication" (COM(2018) 114 final – available here), the European Commission (the "Commission") published the following directive and regulation proposals in relation to cross-border distribution of CIFs (collectively referred to as the "Proposals"):

    • Proposal for a directive of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") amending the UCITS Directive and AIFMD with regard to cross-border distribution of CIFs (COM(2018) 92 final – the "Directive Proposal", available here); and
    • Proposal for a regulation of the Parliament and of the Council on facilitating cross-border distribution of CIFs and amending the EuVECA Regulation and the EuSEF Regulation (COM(2018) 110 final – the "Regulation Proposal", available here).

    On 5 February 2019, the Council and the Parliament reached a political agreement on the Proposals (the "Agreement", available here). As a reminder, the main changes introduced by the Agreement are as follows:

    • Making it easier for managers of EU AIFs, EuVECA and/or EuSEF to take more informed commercial decisions before entering a new market (i.e. "pre-marketing");
    • Ensuring that investors have access to a uniform and high level customer service across the EU, without imposing on asset managers the cost of maintaining a physical presence in all host markets;
    • Aligning procedures and conditions for managers of CIFs to exit national markets when they decide to terminate the offering or placement of their funds (i.e. "de-notification procedure"); and
    • Introducing increased transparency and the creation of a single online access point for information on national rules related to marketing requirements and applicable fees.

    Under Article 32(1) of the PRIIPs Regulation (available here), "management companies as defined in Article 2(1)(b) of the UCITS Directive, investment companies as referred to in Article 27 thereof and persons advising on, or selling, units of UCITS as referred to in Article 1(2) thereof shall be exempt from the obligations under the PRIIPs Regulation until 31 December 2019".

    What's new?

    On 16 April 2019, based on the Agreement, the Parliament Plenary voted at first reading on the following legislative resolutions:

    • Parliament legislative resolution of 16 April 2019 on the Directive Proposal (P8_TA-PROV(2019)0367 – the "Adopted Directive"); and
    • Parliament legislative resolution of 16 April 2019 on the Regulation Proposal (P8_TA-PROV(2019)0368 – the "Adopted Regulation").

    Noteworthy are the new Article 17 of the Adopted Directive, which amends the current application dates mentioned in Articles 32(1) and 33 of the PRIIPs Regulation (e.g. the transitional exemption under Article 32(1) of the PRIIPs Regulation should be prolonged by 24 months until 31 December 2021).

    As a reminder, the Adopted Regulation is addressed to (i) AIF managers, (ii) UCITS management companies, including self-managed UCITS, (iii) EuVECA managers and (iv) EuSEF managers.

    For further information, the provisional text of the Adopted Directive is available here and the provisional text of the Adopted Regulation is available here.

    On 17 April 2019, the EFAMA welcomed the Parliament's vote on the legislative files regarding the cross-border distribution of CIFs (available here).

    On 18 April 2019, the ALFI issued a press release on the Adopted Directive and the Adopted Regulation (available here).

    What's next?

    The Council shall vote on the Adopted Directive and the Adopted Regulation at first reading in the coming weeks.

    Assuming that the final texts of the Adopted Directive and of the Adopted Regulation should be published in the OJEU (after technical and official linguistic review) by end of Q3 2019, the main next steps would be as follows:

    • Concerning the Adopted Directive:
      • Entry into force date would be end of Q3 2019/early Q4 2019;
      • Transposition deadline would be in Q4 2021.
      • The Commission would present a review report on the Adopted Directive (assessing whether any amendments to the UCITS Directive are needed) by Q4 2023;
      • The Commission would conduct an evaluation of the application of the Adopted Directive by Q4 2024; and
      • The Commission would present a report on the application of the Adopted Directive by Q4 2025.
    • Concerning the Adopted Regulation:
      • Entry into force date would be end of Q3 2019/early Q4 2019;
      • Main application date would be end of Q3 2019/early Q4 2019;
      • Application date for Articles 4(1) to (5) on marketing communication, 5(1) and (2) on the publication of national marketing provisions, 15 on EuVECA provisions, and 16 on EuSEF provisions, would be Q4 2021;
      • The Commission would submit a report to the Parliament and to the Council on reverse solicitation and demand on the own initiative of an investor by Q4 2021; and
      • The Commission would conduct an evaluation of the application of the Adopted Regulation by Q4 2024.
  • ELTIF - ESMA consults on Draft RTS under Article 25 of the ELTIF Regulation (costs disclosure)

  • Background

    The Regulation (EU) No 2015/760 of the European Parliament and of the Council on European long-term investment funds entered into force on 9 June 2015 and applies since 9 December 2015 (the "ELTIF Regulation", available here). ELTIFs are designed to increase the amount of non-bank finance available for companies investing in the real economy of the EU. They are also intended to allow investors to put money into companies and infrastructure projects for the long term.

    Articles 9(3), 18(7), 21(3), 25(3) and 26(2) of the ELTIF Regulation provide that the ESMA shall develop draft regulatory technical standards ("RTS") on various subjects that are critical for the functioning of the ELTIF Regulation, namely:

    • The criteria for establishing the circumstances in which the use of financial derivative instruments solely serves hedging purposes;
    • The circumstances in which the life of an ELTIF is considered sufficient in length;
    • The criteria to be used for certain elements of the itemised schedule for the orderly disposal of the ELTIF assets;
    • The costs disclosure; and
    • The facilities available to retail investors.

    On 8 June 2016, the ESMA published its final report on the draft RTS under Articles 9(3), 18(7), 21(3) and 26(2) of the ELTIF Regulation (ESMA/2016/935 – the "Final Report, available here). In the Final Report, the ESMA decided to postpone the delivery of the ELTIF RTS on costs disclosure to take into account more fully the work on costs disclosure under the PRIIPs Regulation (the "Quick-Fix RTS", available here).

    With regards to costs disclosure under Article 25 of the ELTIF Regulation, the different costs, which are borne directly or indirectly by the ELTIF investors, shall be grouped in the prospectus under the following headings:

    • Costs of setting up the ELTIF;
    • Costs related to the acquisition of assets;
    • Management and performance related fees;
    • Distribution costs; and
    • Other costs, including administrative, regulatory, depositary, custodial, professional service and audit costs.

    Noteworthy is that the prospectus shall also disclose an overall ratio of the costs to the capital of the ELTIF. Against this background, the ESMA shall develop draft RTS to specify the common definitions, calculation methodologies and presentation formats of the said costs and the said overall ratio.

    What's new?

    On 28 March 2019, following-up on the Final Report, the ESMA launched its consultation on "Draft RTS" under Article 25 of the ELTIF Regulation (ESMA34-46-89 – the "Consultation Paper").

    The Consultation Paper is particularly addressed to (i) ELTIF managers and their trade associations, (ii) alternative investment funds managers ("AIFMs") and their trade associations, as well as (iii) institutional and retail investors investing into ELTIFs and their trade associations.

    In order to ensure consistency between the different EU regulatory frameworks in relation to costs disclosure, the ESMA is of the view that the Draft RTS should refer to some extent to the work on costs disclosure under the UCITS Directive.

    In particular, the summary of 8 questions is to be found under the Annex I to the Consultation Paper (on pages 12-13) and the Draft RTS is to be found under the Annex V to the Consultation Paper (from page 24 to 31).

    For further information, the Consultation Paper is available here.

    What's next?

    Comments on the Consultation Paper shall be submitted to the ESMA by 29 June 2019.

  • EMIR 2.2 - Parliament Plenary votes at first reading on amending Regulation concerning the authorisation of CCPs and recognition of 3rd-country CCPs

  • Background

    The regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") entered into force on 16 August 2012 ("EMIR", available here). EMIR aims to counter the risks associated with OTC derivatives, by:

    • Increasing transparency in the OTC derivatives markets;
    • Mitigating credit risk; and
    • Reducing operational risk.

    On 13 June 2017, the European Commission (the "Commission") published further amendments to EMIR (IP/17/1568 ? the "PR 1", available here) focusing on EU and third-country CCP supervision, strengthening ESMA’s supervisory powers and granting an important role to the central banks, especially the European Central Bank ("ECB").

    Amongst others, the EMIR proposed changes were mainly focusing on the following topics:

    • Expanding the role of the ESMA including supervisory tools and on-site inspections;
    • Introducing requirements for non-EU CCPs that are categorized as ‘systemic’ to relocate and establish themselves in the EU in order to access the EU’s Single Market; and
    • Introducing a classification of third country CCPs by the ESMA distinguishing between:
      • Non-systemically important third-country CCPs (Tier 1) who present low risk to the European financial system. They are allowed to operate in the EU, assuming that they continue to be subject to the existing arrangements for EMIR equivalence and recognition as a third country;
      • Systemically important third-country CCPs (Tier 2) who are considered as systemically important for the financial stability of the Union, and/or Member States and therefore who would be subject to a stricter supervision by the ESMA.

    On 13 March 2019, both the Council and the Commission issued a press release (respectively 193/19 ? the "PR 2", available here and IP/19/1657 ? the "PR 3", available here) informing that the Presidency of the Council (the "Presidency") and the Parliament reached a political agreement (the "Agreement") on strengthening the supervision of EU and 3rd-country CCPs in order to take into account the growing size, complexity and cross-border dimension of clearing in the EU.

    What's new?

    On 18 April 2019, based on the Agreement, the Parliament Plenary voted at first reading on the following legislative resolution: Parliament legislative resolution of 18 April 2019 on the proposal for a regulation of the Parliament and of the Council amending the ESMA Regulation and amending EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of 3rd-country CCPs (P8_TA-PROV(2019)0438 – the "Adopted Regulation").

    For further information, the provisional text of the Adopted Regulation is available here.

    What's next?

    The Council shall vote at first reading on the Adopted Regulation shortly.

    The final text of the Adopted Regulation shall enter into force on the 20th day following that of its publication in the OJEU (which should occur in Q4 2019).

  • EMIR Refit - Parliament Plenary votes at 1st reading on amending Regulation in relation to the clearing obligation

  • Background

    The regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") entered into force on 16 August 2012 ("EMIR", available here). EMIR aims to counter the risks associated with OTC derivatives, by:

    • Increasing transparency in the OTC derivatives markets;
    • Mitigating credit risk; and
    • Reducing operational risk.

    On 4 May 2017, the European Commission (the "Commission") proposed a first set of amendments to EMIR (the "Amendments", available here). The Amendments aim to introduce simpler and more proportionate rules on OTC derivatives that would reduce costs and burdens for market participants, without compromising financial stability.

    Against this background, 2 major changes are being made to the current system, namely:

    • The creation of a new categorisation of counterparties will allow financial counterparties whose OTC derivative positions do not exceed any of the clearing thresholds ("Small Financial Counterparties" or "SFCs") to be exempt from the clearing obligation;
    • Non-financial counterparties whose positions exceed at least one of the clearing thresholds (Non-Financial Counterparties+" or "NFC+") will be subject to the clearing obligation only for the derivatives belonging to the asset class for which the clearing threshold has been exceeded.

    On 5 February 2019, the Parliament and the Council reached a political agreement on the Amendments (the "Political Agreement", available here).

    What's new?

    On 18 April 2019, based on the Political Agreement, the Parliament Plenary voted at first reading on the following legislative resolution: Parliament legislative resolution of 18 April 2019 on the proposal for a regulation of the Parliament and of the Council amending EMIR as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a CCP, the registration and supervision of TRs and the requirements for TRs (P8_TA-PROV(2019)0437 – the "Adopted Regulation").

    For further information, the provisional text of the Adopted Regulation is available here.

    What's next?

    The Council shall vote at first reading on the Adopted Regulation shortly.

    As stressed by the ESMA (available here), the final text of the Adopted Regulation is expected to be published in the OJEU as early as May 2019 and thus could enter into force by end of May 2019 (i.e. 20 days after its publication in the OJEU). EMIR Refit does not foresee any phase-in period for the implementation of these new rules. Therefore, as soon as the final text enters into force, FC and NFC must be able to perform the necessary position calculations and notify the National Competent Authority ("NCA") and the ESMA if their positions exceed one of the clearing thresholds or if they do not perform this calculation.

  • EMIR/SFTR - ESMA Guidance on registering trade repositories

  • Background

    Under the Regulation EU No 648/2012 ("EMIR" available here) and the Regulation No 2015/2365 ("SFTR" available here), the ESMA has been empowered with direct responsibilities regarding the registration and supervision of trade repositories ("TRs"). According to Article 55(1) of EMIR and to Article 5(5) of SFTR, companies need to be registered with the ESMA to perform TR activities.

    What's new?

    On 11 April 2019, the ESMA published a guidance note on registering TRs (ESMA80-196-2575 – the "Guidance"). The purpose of the Guidance is to provide information on the ESMA’s registration process for TRs to companies (the "Applicants") that intend to apply to become a TR under EMIR and/or SFTR. In the case a TR is already registered under EMIR and intends to register under SFTR too, an application for an extension of registration needs to be performed. The information provided by the ESMA apply to both EMIR and SFTR.

    The Guidance sets out amongst others the following points:

    • The actions to be taken before the application for registration (including the communication means with the ESMA, the indication of the intended timelines, the format and submission of the application);
    • The acknowledgement process regarding the receipt of the application;
    • The assessment of the application completeness (including the requests for additional information and notification of completeness);
    • The assessment of the TR compliance;
    • The decision process regarding the TR registration; and
    • The registration fees.

    For further information, the Guidance is available here.

    What's next?

    The ESMA has established a dedicated mailbox (i.e. TR-Registration@esma.europa.eu) to establish a quick and efficient way of communication with potential Applicants.

    Once the TR registration is approved, the decision on the registration will be notified to the Applicant as well as the relevant National Competent Authority ("NCA") and communicated to the European Commission.

    The ESMA will update the list of registered TRs on its website (available here).

  • MAR - ESMA updates its Q&As

  • Background

    The Regulation (EU) No 596/2014 of the European Parliament and of the Council of the EU on market abuse applies since 3 July 2016 (the "MAR", available here). The concept of market abuse typically consists of insider dealing, unlawful disclosure of inside information, and market manipulation.

    Chapter 3 of the MAR addresses disclosure requirements, its Article 17 concerns public disclosure of inside information and its Article 19 concerns manager's transactions.

    The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the MAR (the "MAR Delegated Acts", available here).

    Any person can submit questions to the European Securities and Markets Authority (the "ESMA") on implementation of the MAR and the MAR Delegated Acts.

    On 12 November 2018, the ESMA published version 13 of its questions and answers document (ESMA70-145-111 — the "Q&A Document", available here) which included a new Q&A 7.10 (on pages 25-26) clarifying the scope of the trading restrictions for persons discharging managerial responsibilities ("PDMRs) under Article 19(11) of the MAR.

    What's new?

    On 29 March 2019, the ESMA published version 14 of its Q&A Document (ESMA70-145-111 — the "Updated Q&A Document") by adding new Q&As as follows:

    • Q&A 5.6 (on pages 16-17) on obligation to disclose inside information under Article 17 of the MAR by collective investment undertakings ("CIUs") without legal personality voluntarily admitted to trading or traded on a trading venue;
    • Q&A 5.7 (on pages 17-18) on potential specific cases of inside information that may arise with respect to CIUs without legal personality voluntarily admitted to trading or traded on a trading venue under Article 17 of the MAR;
    • Q&A 11.2 (on page 36) on meaning of ‘parent’ and ‘related undertaking’ in Article 17(2) of the MAR; and
    • Q&A 11.3 (on pages 36-38) on disclosure of inside information concerning emission allowances, referring to installations of other undertakings of the group of the emission allowances market participants ("EAMPs").

    The Updated Q&A Document is available here.

    What's next?

    The ESMA will continue to develop the Q&A Document on the MAR and update it where required.

  • MiFID II - ESMA publishes MiFID II supervisory briefing on appropriateness and execution-only

  • Background

    The Directive 2004/39/EC of the European Parliament (the "Parliament") and of the Council of the EU (the Council") on markets in financial instruments was applicable from 31 January 2007 till 2 January 2018 (the "MiFID", available here). The MiFID was repealed by the Directive 2014/65/EU of the Parliament and of the Council on markets in financial instruments, which applies since 3 January 2018 (the "MiFID II", available here).

    The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in MiFID II (the "MiFID II Delegated and Implementing Acts", available here). They include the Commission Delegated Regulation (EU) 2017/565 supplementing MiFID II as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of MiFID II (the "Delegated Regulation 2017/565", available here).

    Article 25(3) of MiFID II and Articles 55 and 56 of the Delegated Regulation 2017/565 set out the MiFID II appropriateness requirements. Article 25(4) of MiFID II and Article 57 of the Delegated Regulation 2017/565 cover the 'execution-only' element of the appropriateness regime. The aim of the requirements is to increase investor protection in respect of 'non-advised' services.

    On 19 December 2012, the European Securities and Markets Authority (the "ESMA") published its supervisory briefing on appropriateness and execution-only (ESMA/2012/851 — the "2012 Briefing", available here). It was designed for supervisors as an introduction to the MiFID appropriateness rules, and as a starting point when deciding on areas of supervisory focus. It summarised the key elements of the rules and explained the associated objectives and outcomes.

    One of the most important requirements for investor protection in MiFID framework is the assessment of suitability. It applies to the provision of any type of investment advice and portfolio management. Investment firms providing investment advice or portfolio management must provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients. The MiFID II confirmed the importance of the suitability assessment for the protection of investors under MiFID and further strengthened and detailed the obligations.

    On 28 May 2018, the ESMA published its guidelines on certain aspects of the MiFID II suitability requirements (ESMA35-43-869 — the "2018 Guidelines on Suitability", available here) which largely confirmed and broadened the ESMA guidelines on certain aspects of the MiFID suitability requirements issued on 21 August 2012 (ESMA/2012/387 – the "2012 Guidelines on Suitability", available here).

    What's new?

    On 4 April 2019, the ESMA published an updated version of the 2012 Briefing taking into account the 2018 Guidelines on Suitability with respect to aspects also relevant to the appropriateness rules (ESMA35-36-1640 — the "2019 Briefing").

    The 2019 Briefing applies in relation to Article 25(3) and 25(4) of MiFID II and Articles 55, 56 and 57 of the Delegated Regulation 2017/565. It is designed to help supervisors to make judgements and is structured around the following elements:

    • Determining situations where the appropriateness assessment is required;
    • Obtaining information from clients;
    • Assessment of appropriateness;
    • Warnings to clients;
    • Qualification of firm’s staff; and
    • Record-keeping.

    Each element refers to the relevant legislation as well as provides examples of the sort of questions that supervisors could ask themselves, or firms, when assessing firms' approaches to the application of the MiFID II rules and assessing whether the outcomes of the appropriateness rules are being met by the firms.

    The 2019 Briefing is available here.

    What's next?

    The content of 2019 Briefing is not subject to any 'comply or explain' mechanism for national competent authorities and is non-binding.

  • MiFID II/MiFIR - ESMA updates its Q&As on investor protection and intermediaries topics

  • Background

    The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council of the EU on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II" and "MiFIR", available here and here).

    The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities ("CAs") and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here). They include, among other, the Commission Delegated Regulation (EU) 2017/575 supplementing MiFID II with regard to regulatory technical standards concerning the data to be published by execution venues on the quality of execution of transactions ("RTS 27", available here).

    The general public, market participants and CAs can submit to the ESMA questions in relation to the MiFID II and MiFIR regime. Since 10 October 2016, the ESMA provides answers to questions on MiFID II and MiFIR investor protection and intermediaries topics by publishing updates to its dedicated questions and answers' document (ESMA35-43-349 — the "Q&A Document", available here).

    What's new?

    On 28 March 2019, the ESMA updated the Q&A Document (ESMA35-43-349 — the "Updated Q&A Document").

    The Updated Q&A Document includes modified Q&A in the following sections:

    • Section 2 on suitability and appropriateness
      • §Modified Q&A 3 (on page 33) on provision of the suitability report to clients in a "durable medium" as required by MiFID II (if the document can be made available to the client on the firm's website with the client receiving a notification regarding the availability of that document);
    • Section 9 on information on costs and charges
      • Modified Q&A 7 (on pages 77-78) on use (by investment firms) of products’ costs as presented in the packaged retail investment and insurance products ("PRIIPs") key information document ("KID").

    The Updated Q&A Document includes new Q&A in the following sections:

    • Section 1 on best execution
      • Q&A 20 (on pages 30-31) on the scope of the RTS 27 reporting requirements for market makers and other liquidity providers;
    • Section 2 on suitability and appropriateness
      • New Q&A 10 (on pages 39-40) on use of generic statements in the suitability report (use of a tick-the-box approach and/or generalising phrases when stating how the advice meets the retail client’s preferences, objectives and other characteristics);
    • Section 9 on information on costs and charges
      • Q&A 22 (on page 87) on level of individualisation of ex-ante information;
      • Q&A 23 (on pages 87-88) on conditions to be met to use costs grids/tables for ex-ante information;
      • Q&A 24 (on pages 88-89) on ex-ante information for the service of portfolio management;
      • Q&A 25 (on page 89) on terminology used by firms in costs and charges disclosure material;
      • Q&A 26 (on page 89-90) on taxes to be included in the ex-ante and ex-post costs and charges information;
    • Section 13 on provision of investment services and activities by 3rd country firms
      • Q&A 4 (on pages 106-107) on the reverse sollicitation exemption;
    • Section 15 on other issues
      • Q&A 3 (on page 112) on provision of information to clients through a "durable medium" (refers to clarification provided in Q&A 3 of Section 2 of the Updated Q&A Document, on pages 33-34);
    • Section 16 on product governance
      • Q&A 1 (on page 113) on specifying target market category of CoCo-Bond funds ("type of client to whom the product is targeted").

    The Updated Q&A Document is available here.

    What's next?

    The ESMA will continue to develop the Q&A Document and update it where required.

  • MiFID II/MiFIR - ESMA updates its Q&As on market structures topics

  • Background

    The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II" and "MiFIR", available here and here).

    The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities ("CAs") and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here). They include the Commission Delegated Regulations:

    • (EU) 2017/588 - supplementing MiFID II with regard to regulatory technical standards on the tick size regime for shares, depositary receipts and exchange-traded funds, applicable since 3 January 2018 (the "RTS 11", available here); and
    • (EU) 2019/443 - amending RTS 11 as regards the possibility to adjust the average daily number of transactions for a share where the trading venue with the highest turnover of that share is located outside the Union, in force since 9 April 2019 (the "Delegated Regulation 2019/443 amending RTS 11", available here).

    The general public, market participants and CAs can submit to the European Securities and Markets Authority (the "ESMA") questions on the practical application of MiFID II and MiFIR. Since 18 November 2016, the ESMA has published updates to its questions and answers' document on MiFID II and MiFIR market structures topics (ESMA70-872942901-38 – the "Q&A Document", available here).

    On 14 November 2018, the Q&A Document was lastly updated in order to add a new Q&A 29 to Section 3 (on page 30) on direct electronic access ("DEA") and algorithmic trading.

    What's new?

    On 2 April 2019, the ESMA published its updated Q&A Document, which had been reviewed with the objective of deleting or amending obsolete Q&A and adding new Q&A (ESMA70-872942901-38 – the "Updated Q&A Document") as listed below.

    The ESMA has added 2 Q&A to Section 5 on multilateral and bilateral systems, in particular concerning branches of 3rd country firms operating as SI in the EU:

    • Q&A 30 (on pages 56-57) on that if an EU branch of a 3rd-country firm can operate an SI; and
    • Q&A 31 (on pages 57-58) on that how the concept of "risk-facing activity" applies to an EU branch of a 3rd-country firm that operates as an SI in the EU.

    The ESMA has deleted 1 Q&A in Section 4 on the tick size regime (due to the recent publication in the OJEU of the Delegated Regulation 2019/443 amending RTS 11):

    • Q&A 3 (on page 32) clarifying how tick sizes should be determined for non-EU instruments.

    The ESMA has also deleted 4 Q&A addressing issues pertaining to either 3 January 2018, or the following 12 months, in 2 sections:

    • Section 3 on DEA and algorithmic trading
      • Q&A 6 (on page 18) on identification and authorisation of high frequency trading;
    • Section 6 on access to central counterparties and trading venues
      • Q&A 1 (on page 59) on timing of notification for transitional arrangements under Article 35(5) of MiFIR;
      • Q&A 3 (on pages 59-60) on timing and procedure of notification for temporary opt out under Article 36(5) MiFIR; and
      • Q&A 5 (on page 61) on timing of application for transitional arrangements under Article 54(2) of MiFIR.

    The Updated Q&A Document is available here.

    What's next?

    The ESMA will continue to develop the Q&A Document in the coming months and will review and update it where required.

  • MiFID II/MiFIR - ESMA updates Q&As on transparency topics

  • Background

    The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II", available here and "MiFIR", available here).

    The European Commission has adopted delegated and implementing acts to specify how competent authorities ("CAs") and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here).

    The general public, market participants and CAs can submit to the European Securities and Markets Authority (the "ESMA") questions in relation to MiFID II/MiFIR. Since 3 October 2016, the ESMA has published updates to its questions and answers' document on MiFID II/MiFIR transparency topics (ESMA70-872942901-35 — the "Q&A Document", available here).

    On 1 February 2019, the Q&A Document was lastly updated in order to add the new Q&A 4 to Section 8 (on page 67) on approved publication arrangement reports to CAs and the ESMA.

    What's new?

    On 2 April 2019, the ESMA published its updated Q&A Document (ESMA70-872942901-35 – the "Updated Q&A Document") adding new Q&A to the following sections:

    • Section 3 on equity transparency
      • Q&A 5 (on pages 30-31) on determination of the turnover to be used for the average value of transactions calculation;
    • Section 4 on non-equity transparency
      • Q&A 16 (on pages 39-40) on money market instruments; and
      • Q&A 17 (on pages 40-41) on reporting of prime brokerage transactions;
    • Section 7 on the systematic internaliser ("SI") regime
      • Q&A 12 (on page 64) on quoting obligation for SIs in non-equity financial instruments; and
      • Q&A 13 (on pages 64-65) on impact for SIs of an instrument changing liquidity status in between the SI determination dates.

    The Updated Q&A Document is available here.

    What's next?

    The ESMA will continue to develop the Q&A Document and update it where required.

  • MiFIR - ESMA agrees to renew restrictions on CFDs for further 3 months from 1 May 2019

  • Background

    The Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments applies since 3 January 2018 ("MiFIR", available here). Article 40 of MiFIR addresses temporary intervention powers of the European Securities and Markets Authority (the "ESMA") stating that under certain conditions the ESMA may "temporarily prohibit or restrict in the Union: (a) the marketing, distribution or sale of certain financial instruments or financial instruments with certain specified features; or (b) a type of financial activity or practice."

    On 1 June 2018, the ESMA decision (EU) 2018/796 to temporarily restrict contracts for differences ("CFDs") in the Union in accordance with Article 40 of MiFIR was published in the Official Journal of the EU (the "OJEU") and was applicable from 1 August 2018 for a period of 3 months (the "Decision 2018/796", available here). The product intervention measures included:

    ? Leverage limits on the opening of a position by a retail client from 30:1 to 2:1;

    ? A margin close out rule on a per account basis. This shall standardise the percentage of margin at which providers are required to close out one or more retail client’s open CFDs;

    ? Negative balance protection on a per account basis. This shall provide an overall guaranteed limit on retail client losses;

    ? A restriction on the incentives offered to trade CFDs; and

    ? A standardised risk warning, including the percentage of losses on a CFD provider of retail investor accounts.

    On 31 October 2018, the ESMA decision (EU) 2018/1636 renewing and amending the temporary restriction in the Decision 2018/796 was published in the OJEU and applied from 1 November 2018 for a period of 3 months (the "1st Renewal Decision 2018/1636", available here). The ESMA had obtained information that, in certain cases, CFD providers experience technical difficulties in using the abbreviated risk warning due to the character limits imposed by 3rd party marketing providers for communications other than through a durable medium or a webpage. Therefore, in this renewal, the ESMA had introduced a reduced character risk warning.

    On 9 November 2018, the ESMA most recently updated its questions and answers document concerning the application of its temporary product intervention measures on the marketing, distribution or sale of CFDs and binary options ("BOs") to retail clients (ESMA35-36-1262 — the "ESMA Q&A Document", available here). It provided clarification on the application of the temporary product intervention measures in relation to the prominence of the risk warning and further explained what is considered "payments for the purpose of entering into a CFD".

    On 31 January 2019, the ESMA decision (EU) 2019/155 renewing the temporary restriction on the same terms as those set out in the 1st Renewal Decision 2018/1636 was published in the OJEU and applies since1 February 2019 for a period of 3 months (the "2nd Renewal Decision 2019/155", available here).

    What's new?

    On 27 March 2019, the ESMA published a press release informing that its Board of Supervisors has agreed to renew the restrictions on the marketing, distribution or sale of CFDs to retail clients on the same terms as those set out in the 2nd Renewal Decision 2019/155 for a further period of 3 months considering that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist (ESMA71-99-1130 — the "Press Release").

    The Press Release is available here.

    What's next?

    The ESMA intends to adopt the renewal measure in the official languages of the EU in the coming weeks, following which the ESMA will publish an official notice on its website. The measure will then be published in the OJEU and will start to apply from 1 May 2019 for a period of 3 months.

  • MiFIR - ESMA updates its Q&As on data reporting

  • Background

    The Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments applies since 3 January 2018 ("MiFIR", available here).

    The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in MiFIR (the "MiFIR Delegated and Implementing Acts", available here).

    The general public and market participants can submit to the European Securities and Markets Authority (the "ESMA") questions on compliance with the data reporting provisions of the MiFIR framework. Since 20 December 2016, the ESMA publishes updates to its dedicated questions and answers' document on MiFIR data reporting (ESMA70-1861941480-56 — the "Q&A Document", available here). In particular the Q&A included in this document relate to reporting obligations for trading venues operating on the basis of a specified list of instruments.

    On 26 September 2018, the ESMA lastly updated its Q&A Document by adding new Q&A to the following sections: Section 15 concerning FX swaps reporting, Section 16 concerning interest rate swaps reporting (2 Q&A) and Section 18 concerning the Financial Instruments Reference Data System's ("FIRDS") fields 8 to 11. The ESMA also amended 1 Q&A in the Section 11 of the Q&A Document on total issued nominal amount with respect to field 14 and field 17.

    What's new?

    On 9 April 2019, the ESMA updated its Q&A Document (ESMA70-1861941480-56 — the "Updated Q&A Document") as follows:

    • Adding 2 new Q&A to Section 2 on legal entity identifier ("LEI") of the issuer
      • Q&A 5 (on page 13) on LEI of the branch;
    • Adding 3 new Q&A to Section 5 on maturity date, expiry date and termination date
      • Q&A 2 (on page 17) on bonds traded after maturity;
      • Q&A 3 (on page 17) on non-trading dates; and
      • Q&A 4 (on pages 17-18) on termination date in FIRDS;
    • Amending 1 Q&A in Section 17 on complex trades
      • Q&A 1c (on pages 35-36) on complex trades and reporting of instrument reference data for instruments where the execution results in a complex trade.

    The Updated Q&A Document is available here.

    The Press Release on the Updated Q&A Document is available here.

    What's next?

    The amendments to the existing Q&A become effective from 9 April 2019.

    The ESMA will continue to develop and review the Q&A Document where required.

  • PRIIPs Regulation - ESAs update Q&As on the Key Information Document for PRIIPs

  • Background

    The regulation (EU) No 1286/2014 on key information documents ("KIDs") for packaged retail and insurance-based investment products ("PRIIPs") applies since 1 January 2018 (the "PRIIPs Regulation", available here).

    The PRIIPs Regulation and the Commission delegated regulation (EU) 2017/653 of 8 March 2017 supplementing the PRIIPs Regulation (the "Delegated Regulation 2017/653", available here) lay down uniform rules on the format and content of the KID to be drawn up by PRIIPs manufacturers, and on the provision of the KID to retail investors in order for them to better understand and compare the key features and risks of the PRIIPs.

    The European Supervisory Authorities (the "ESAs") have issued their joint questions & answers’ document relating to the implementation of the PRIIPs' KID since 4 July 2017 (JC 2017 21 – the "Q&A Document", available here). Further ESAs' guidance on the latest Q&A updates and on diagrams explaining the risk and reward calculations required to prepare the KID is available here.

    What's new?

    On 4 April 2019, the ESAs updated the Q&A Document (JC 2017 49 – the "Updated Q&A Document").

    In the Updated Q&A Document, the ESAs provide clarification on the following topics:

    • The aspects that PRIIPs manufacturer should consider when determining the recommended holding period ("RHP") of a PRIIP (new Q&A 5 in the section 'General topics'); and
    • The form and the name of the document that should specify "specific information on each underlying investment option", as referred to in Article 14(1) of the Delegated Regulation 2017/653 (new Q&A 3 in the section 'Multi-option products ("MOPs")').

    For further information, the Updated Q&A Document is available here.

    What's next?

    The ESAs will continue to assess whether further guidance is needed, in particular based on additional questions received at: PRIIPs@eiopa.europa.eu.

  • SFTR/EMIR - Package of 7 Commission Delegated Regulations and 3 Commission Implementing Regulations published in the OJEU

  • Background

    The Regulation (EU) 2015/2365 on transparency of securities financing transactions ("SFTs") and of reuse, and amending the Regulation (EU) No 648/2012 ("EMIR", available here), applies since 12 January 2016, subject to certain transitional provisions ("SFTR", available here). SFTR increases the transparency of SFTs as follows:

    • All SFTs, except those concluded with central banks, shall be reported to central databases known as trade repositories ("TRs");
    • Information on the use of SFTs by investment funds shall be disclosed to investors in the regular reports and pre-investment documents issued by the funds; and
    • Minimum transparency conditions shall be met when collateral is reused, such as disclosure of the risks and the obligation to acquire prior consent.

    On 13 and 14 December 2018, the European Commission published the following Package of final draft delegated and implementing regulations (altogether referred as the "Package").

    • Based on Article 12(3)(c) and (d) of SFTR, the Commission delegated regulation (EU) …/... supplementing SFTR with regard to regulatory technical standards ("RTS") on access to details of SFTs held in TRs (C(2018) 8330 final, available here);
    • Based on Article 5(7) of SFTR, the Commission delegated regulation (EU) …/... supplementing SFTR with regard to RTS specifying the details of the application for registration and extension of registration as a TR (C(2018) 8331 final, available here);
    • Based on Articles 5(7)(a) and 12(3)(a) and (b) of SFTR, the Commission delegated regulation (EU) …/... supplementing SFTR with regard to RTS on the collection, verification, aggregation, comparison and publication of data on SFTs by TRs (C(2018) 8332 final – the main part is available here and the annexes are available here);
    • Based on Article 11(1) of SFTR, the Commission delegated regulation (EU) …/... supplementing SFTR with regard to fees charged by the ESMA to TRs (C(2018) 8333 final – the main part is available here and the annex is available here);
    • Based on Article 4(9) of SFTR, the Commission delegated regulation (EU) …/... supplementing SFTR with regard to RTS specifying the details of SFTs to be reported to TRs (C(2018) 8334 final – the main part is available here and the annex is available here);
    • Based on Article 81(5) of EMIR, the Commission delegated regulation (EU) …/... amending Delegated Regulation (EU) No 151/2013 (available here) with regard to access to the data held in TRs (C(2018) 8335 final, available here);
    • Based on Article 56(3) of EMIR, the Commission delegated regulation (EU) …/... amending Delegated Regulation (EU) No 151/2013 as regards RTS specifying the details of the application for registration as a TR (C(2018) 8336 final, available here);
    • Based on Article 5(8) of SFTR, the Commission implementing regulation (EU) …/... laying down implementing technical standards ("ITS") with regard to the format of applications for registration and extension of registration of TRs in accordance with SFTR (C(2018) 7657 final – the main part is available here and the annex is available here);
    • Based on Article 4(10) of SFTR, the Commission implementing regulation (EU) …/... laying down ITS with regard to the format and frequency of reports on the details of SFTs to TRs in accordance with SFTR and amending Implementing Regulation (EU) No 1247/2012 (available here) with regard to the use of reporting codes in the reporting of derivative contracts (C(2018) 7658 final – the main part is available here and the annexes are available here); and
    • Based on Article 25(4) of SFTR, the Commission implementing regulation (EU) …/... laying down ITS with regard to the procedures and forms for exchange of information on sanctions, measures and investigations in accordance with SFTR (C(2018) 7659 final – the main part is available here and the annexes are available here).

    What's new?

    On 22 March 2019, the Package was published in the OJEU, as follows:

    Relevant Article(s)

    Document Title

    OJEU Hyperlink

    Article 4(9) of SFTR

    Commission Delegated Regulation (EU) 2019/356 of 13 December 2018 supplementing SFTR with regard to RTS specifying the details of SFTs to be reported to TRs (C/2018/8334)

    Available here

    Article 12(3)(c) and (d) of SFTR

    Commission Delegated Regulation (EU) 2019/357 of 13 December 2018 supplementing SFTR with regard to RTS on access to details of SFTs held in TRs (C/2018/8330)

    Available here

    Articles 5(7)(a) and 12(3)(a) and (b) of SFTR

    Commission Delegated Regulation (EU) 2019/358 of 13 December 2018 supplementing SFTR with regard to RTS on the collection, verification, aggregation, comparison and publication of data on SFTs by TRs (C/2018/8332)

    Available here

    Article 5(7) of SFTR

    Commission Delegated Regulation (EU) 2019/359 of 13 December 2018 supplementing SFTR with regard to RTS specifying the details of the application for registration and extension of registration as a TR (C/2018/8331)

    Available here

    Article 11(2) of SFTR

    Commission Delegated Regulation (EU) 2019/360 of 13 December 2018 supplementing SFTR with regard to fees charged by the ESMA to TRs (C/2018/8333)

    Available here

    Article 81(5) of EMIR

    Commission Delegated Regulation (EU) 2019/361 of 13 December 2018 amending Delegated Regulation (EU) No 151/2013 with regard to access to the data held in TRs (C/2018/8335)

    Available here

    Article 56(3) of EMIR

    Commission Delegated Regulation (EU) 2019/362 of 13 December 2018 amending Delegated Regulation (EU) No 150/2013 as regards RTS specifying the details of the application for registration as a TR (C/2018/8336)

    Available here

    Article 4(10) of SFTR

    Article 9(6) of EMIR

    Commission Implementing Regulation (EU) 2019/363 of 13 December 2018 laying down ITS with regard to the format and frequency of reports on the details of SFTs to TRs in accordance with SFTR and amending Commission Implementing Regulation (EU) No 1247/2012 with regard to the use of reporting codes in the reporting of derivative contracts
    (C/2018/7658)

    Available here

    Article 5(8) of SFTR

    Commission Implementing Regulation (EU) 2019/364 of 13 December 2018 laying down ITS with regard to the format of applications for registration and extension of registration of TRs in accordance with SFTR (C/2018/7657)

    Available here

    Article 25(4) of SFTR

    Commission Implementing Regulation (EU) 2019/365 of 13 December 2018 laying down ITS with regard to the procedures and forms for exchange of information on sanctions, measures and investigations in accordance with SFTR (C/2018/7659)

    Available here

     

     

     

    What's next?

    All the above-mentioned Commission Delegated Regulations (i.e. 2019/356, 2019/357, 2019/358, 2019/359, 2019/360, 2019/361 and 2019/362) and Commission Implementing Regulations (i.e. 2019/363, 2019/364, and 2019/365) shall enter into force on 11 April 2019.

  • UCITS - ESMA issues 1st Report on the use of supervisory sanctions under the UCITS Directive (in 2016 and 2017)

  • Background

    Article 99e(1) of the UCITS Directive (available here) requires the ESMA to publish an annual report regarding aggregated information on all penalties and measures imposed in accordance with Article 99 of the UCITS Directive by national competent authorities ("NCAs") in a given year.

    Article 99e of the UCITS Directive is implemented by the Commission Implementing Regulation (EU) 2016/1212 laying down common procedures and forms for submitting the information required (available here), which entered into force on 15 August 2016.

    What's new?

    On 4 April 2019, the ESMA issued its first report on penalties and measures imposed under the UCITS Directive (ESMA34-45-651 ? the "Report"). More specifically, the Report contains an overview of the applicable legal framework and information on the penalties and measures imposed by NCAs in accordance with Article 99e of the UCITS Directive during 2016 and 2017 (see Annexes I – VI).

    For clarity purposes, any infringement of delegated or implementing acts issued under the UCITS Directive or national provisions does not fall within the remit of the Report, even where notified to the ESMA by a relevant NCA.

    The ESMA deems that the data on sanctions imposed during 2016 and 2017 does not allow to observe clear trends or tendencies in the imposition of sanctions nor to produce detailed statistics based on it.

    For further information, the Report is available here.

    What's next?

    The ESMA notes that separate reports will be issued for the subsequent reporting periods.

  • UCITS - ESMA updates its Q&As on past performance and benchmark disclosure in KIIDs for UCITS

  • Background

    The requirements for Key Investor Information Documents ("KIIDs") for UCITS are specified in the Commission regulation (EU) No 583/2010 of 1 July 2010 implementing the Directive 2009/65/EC of the European Parliament and of the Council (the "UCITS Directive", available here) concerning key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website (the "KIID Regulation", available here).

    On 21 November 2016, the ESMA consolidated into a single document all questions and answers ("Q&As") relating to the UCITS Directive (ESMA/2016/1586 – the "Consolidated Document", available here).

    On 23 July 2018, the ESMA lastly updated its Q&A document on the application of the UCITS Directive (ESMA34-43-392 – the "Q&A Document", available here).

    What's new?

    On 29 March 2019, the ESMA updated the Q&A Document (ESMA34-43-392 – the "Updated Q&A Document"), by modifying and adding new Q&As 4b and 4cbis (on pages 14-15; Q&A 4c was deleted) regarding past performance, and new Q&As 8a, 8b, 8c (from pages 17 to 22) regarding disclosure of the benchmark index in the objectives and investment policies, in the Section II entitled "KIID for UCITS".

    In particular, the ESMA provides the following clarification on the below areas:

    • Past performance
      • The requirements of Article 18(1) of the KIID Regulation apply to all UCITS, including total return/absolute return UCITS;
      • Such requirements also apply to cases where the comparator is not named a 'benchmark', but the objectives and investment policy make it clear that it is a comparator the UCITS aims to outperform;
      • Such requirements also apply to cases where the UCITS targets outperformance of the benchmark index over a period of time, for example 'X% per annum over four years'. In this case, annualised performance of the benchmark index should be shown alongside that of the UCITS, even if the target is to beat it over four years; and
      • UCITS management companies should ensure that disclosure of performance in the KIID is not misleading by way of being inconsistent, including by ensuring consistency (i) across offering documents and marketing material, including the prospectus, (ii) across distribution channels, and (iii) across investor types.
    • Benchmark disclosure
      • Article 7(1)(d) of the KIID Regulation requires that a UCITS either has an index tracking objective, or alternatively allows for discretionary choices, and in both cases this must be disclosed in the objectives and investment policy section of the KIID;
      • In the case of index-tracking UCITS, using the terms "passive" or "passively managed" in addition to "index-tracking" is recommended practice in order to assist investor understanding. A UCITS management company should consider providing additional wording to ensure the meaning of the term "passive" or "passively managed" is clear. An index-tracking (passive) UCITS must disclose the index it is tracking and show performance against that index in the past performance section of the KIID;
      • An actively managed UCITS is one where the manager has discretion over the composition of its portfolio, subject to the stated investment objectives and policy. Just as there is a requirement under the KIID Regulation to identify a UCITS that is index-tracking (passive), it should be equally clear to investors where the UCITS is actively managed. Explicitly using the terms "active" or "actively managed" is recommended practice in order to assist investor understanding, and a UCITS management company should consider providing additional wording to ensure the meaning of the term "active" or "actively managed" is clear;
      • Active UCITS which are managed in reference to an index must provide additional disclosure on the use of the benchmark index (Article 7(1)(d)) and show past performance against it (Article 18(1)). They must also indicate the degree of freedom from the benchmark (see Q&A 8c). Article 18(1) requires active UCITS managed in reference to a benchmark index to display past performance against that benchmark;
      • It should be clear which benchmark index (or indices) the UCITS is tracking or is being managed in reference to. Where more than one version of a benchmark index is published (e.g. a total return version, price return version, etc.), it should be clear which version is being used by the UCITS; and
      • To assist investor understanding, it is recommended practice that active UCITS which are not managed in reference to any benchmark should also make this clear to investors (see Q&A 8b).

    For ease of reading, the new graphic on page 19 applicable to Q&As 4b, 8a, 8b, and 8c is indicated below:

     

    What's next?

    UCITS management companies should make any changes to the KIID in order to incorporate the above additional guidance as soon as practicable, or by the next KIID update following 29 March 2019.

    In accordance with Article 79(1) of the UCITS Directive and to ensure fair, clear and not misleading communications, the information disclosed in the UCITS KIID should be consistent with the UCITS’ investment objective in the prospectus.

    The ESMA will periodically review its Q&A Document and update it where required.

  • Whistle-blowing - Parliament Plenary votes at 1st reading on Directive on the protection of whistle-blowers

  • Background

    In recent years, the EU legislators have acknowledged the need for whistle-blower protection as a part of the enforcement of EU law and have introduced some elements of protection and reporting channels in a few sector-specific EU acts (e.g. in the context of the prudential framework applicable to credit institutions and investment firms in accordance with the directive 2013/36/EU, the "CRD IV", available here). However, protection is limited and sectorial, and does not cover all the key areas where lack of efficient whistle-blower protection leads to under-reporting of breaches of EU law and weakens the effectiveness of its enforcement.

    On 23 April 2018, the Commission published its proposal for a directive on the protection of persons reporting on breaches of EU law, alongside a dedicated annex (COM(2018) 218 final ? respectively the "Proposed Directive", available here, and the "Annex", available here). The Proposed Directive lays down common minimum standards for the protection of persons reporting breaches only in areas where (i) there is a need to enhance enforcement, (ii) under-reporting by whistle-blowers is a key factor affecting enforcement, and (iii) breaches of EU law may cause serious harms to the public interest. Having regard to these criteria, the Commission considers necessary to reinforce the enforcement of rules in the 10 following areas:

    • Public procurement;
    • Financial services, prevention of money laundering and terrorist financing (as specified in Part I B. and Part II A. to the Annex) ;
    • Product safety;
    • Transport safety;
    • Environmental protection;
    • Nuclear safety;
    • Food and feed safety, animal health and welfare;
    • Public health;
    • Consumer protection; and
    • Protection of privacy and personal data and security of network and information systems (as specified in Part I G. to the Annex).

    On 12 March 2019 and 15 March 2019, both the Commission and the Council of the EU (the "Council") issued a press release (respectively IP/19/1604 ? the "PR 1", available here; and 199/19 ? the "PR 2", available here) informing that the Presidency of the Council (the "Presidency") and the European Parliament (the "Parliament") reached a political agreement (the "Agreement"), on 11 March 2019, on the Proposed Directive. The main elements of the Agreement are the following:

    • Clear reporting procedures and obligations for employers: the new rules will establish a system of safe channels for reporting both within an organisation and to public authorities;
    • Safe reporting channels: whistle-blowers are encouraged to report first internally, if the breach they want to reveal can be effectively addressed within their organisation and where they do not risk retaliation. They may also report directly to the competent authorities ("CAs") as they see fit, in light of the circumstances of the case. In addition, if no appropriate action is taken after reporting to the CAs or in case of imminent or manifest danger to the public interest or where reporting to the CAs would not work, e.g. because the CAs are in collusion with the perpetrator of the crime, whistle-blowers may make a public disclosure including to the media. This will protect whistle-blowers when they act as sources for investigative journalism; and
    • Prevention of retaliation and effective protection: the new rules will protect whistle-blowers against dismissal, demotion and other forms of retaliation. The new rules require national authorities to inform citizens about whistleblowing procedures and protection available. Whistle-blowers will also be protected in judicial proceedings.

    What's new?

    On 16 April 2019, based on the Agreement, the Parliament Plenary voted at first reading on its legislative resolution on the Proposed Directive (P8_TA-PROV(2019)0366 – the "Adopted Directive").

    For further information, the provisional text of the Adopted Directive (with its Annex) is available here.

    On 16 April 2019, the Parliament Plenary also issued a dedicated press release on the Adopted Directive (20190410IPR37529 ? the "Parliament PR").

    The Parliament PR is available here.

    What's next?

    The Council shall vote on the Adopted Directive at first reading in the coming weeks.

    The final text of the Adopted Directive shall enter into force on the 20th day following that of its publication in the OJEU, which should occur end of Q3 2019/early Q4 2019.

    According to Article 26(1) of the Adopted Directive, Member States ("MS") shall bring into force the laws, regulations and administrative provisions (the "Acts") necessary to comply with the final text 2 years after adoption. Article 26(2) of the Adopted Directive foresees that in derogation of paragraph (1), MS shall bring into force the Acts necessary to comply with the obligation to set up an internal channel set out in Article 8(3) of the Adopted Directive as regards legal entities with more than 50 and less than 250 employees 2 years after transposition.

    According to Article 27(1) of the Adopted Directive, MS shall provide the Commission with all relevant information regarding the implementation and application of the Adopted Directive. On the basis of the information provided, the Commission shall, 2 years after transposition, submit a report to the Parliament and the Council on the implementation and application of the Adopted Directive. According to Article 27(2) of the Adopted Directive, MS shall, on an annual basis, submit certain statistics on the reports referred to in Chapter III to the Commission, if they are available at a central level in the MS concerned. According to Article 27(3) of the Adopted Directive, the Commission shall 4 years after transposition submit a report to the Parliament and to the Council assessing the impact of national law transposing the Adopted Directive.

  • BELGIUM

    Belgian UCI Tax: impacts of the decision of the Court of Appeals of Brussels - The present information shall not be considered as a tax advice

  • Background

    An annual tax is due by the foreign undertakings for collective investment for the net amounts placed in Belgium, meaning the portion of their total net assets attributable to investors living in Belgium (the “Belgian UCI Tax”, laid down by article 161bis §2 of the Belgian Succession Code).

    The Brussels Court of Appeal, by its decision of November 29th, 2018, confirms the judgments of August 2nd, 2011 and November 23rd, 2011 of the Brussels Court of First Instance concerning the non-application of the Belgian UCI Tax payable by the funds established in Luxembourg. According to the Court, the Belgian UCI Tax infringes Article 22 of the Double Tax Treaty on Income and Capital Taxes concluded between Belgium and Luxembourg, as it constitutes a tax on capital, which can only be levied in the State in which the undertakings for collective investment are resident, namely Luxembourg. It follows that the Belgian tax is not due by the Luxembourg funds on the amounts placed in Belgium.

    Such judgments are currently submitted to appeals in front of the Supreme Court.

    What's new?

    Taking into account the decision of the Brussels Court of Appeal, the Luxembourg undertakings for collective investment may consider introducing protective proceedings:

    • for the refund of the Belgian UCI Tax;
    • but also for the partial refund of the withholding tax applied on Belgian sourced dividend or interest.

    Any refund application should be introduced within 5 years, from the 1st of January of the calendar year in which the request was made. It means that any tax paid as from the 1st of January 2015 (even if it relates to the year 2014 of the fund) is taken into account in the event the application is filed before the end of 2019.

    What's next?

    Should you require any further information or would you introduce any refund request, please contact your tax advisor.

  • FSMA Communication on sending electronically documents

  • Background

    On 20th March 2019, the Belgian Financial Services and Markets Authority (FSMA) published on its website a communication dated 20/03/2019 (FSMA_2019_08) on the procedure to be used by relevant entities such as Belgian funds (UCITS, AIFs…) and foreign AIFs when submitting various types of documents to the FSMA in electronic form.

    What's new?

    In order to send electronically annual and semi-annual reports, auditor’s report and effective managers’ report and declaration, as required by Belgian law, the relevant entities shall appoint a contact person in charge of the filing, and follow the relevant procedure depending on the type of documents.

    What's next?

    As from one month after the publication of this communication, all relevant entities must follow this procedure and submit their periodical reports, effective managers’ report and auditor’s report. Regarding other types of documents, they may choose to apply the former procedure (Communication FSMA_2016_11) or the new one until 30th June 2019, abrogation date of the former procedure.

  • Introduction of the new Belgian Code of Companies and Associations

  • Background

    On 4th April 2019, the new Belgian Code of Companies and Associations (the “new Belgian Code of Companies”) has been published in the Belgian Official gazette. This code, as legal framework of all Belgian companies, also applies to all Belgian funds.

    What's new?

    The new Belgian Code of Companies significantly simplifies and modernizes the current legislation, introducing many substantial reforms affecting Belgian funds.

    What's next?

    The new Belgian Code of Companies entered into force as of 1st May 2019 and applies to all Belgian funds incorporated as from this date. The pre-existing funds, which want to apply the new provisions, may adapt their articles of association accordingly. As from 1st January 2020, some provisions will become compulsory and any change in the articles of association of a fund will require a full update to comply with the new code. , The articles of association of all Belgian funds shall comply with the new regulation by 1st January 2024.

  • LUXEMBOURG

    Accounting Reporting - CSSF issues Communiqué on CNC's Q&As

  • Background

    On 31 December 2002, the law of 19 December 2002 on the trade and companies register and the accounting and annual accounts of companies was published in the Luxembourg Memorial A N°149 (the "RCS Law ", available here only in French). For ease of reading, the latest consolidated version of the RCS Law is available here (only in French).

    Article 73 of the RCS Law together with implementing measures established the Luxembourg Commission des Normes Comptables ("CNC"), whose main tasks are listed below:

    • Give any opinion to the Government at the latter's request or on its own initiative on accounting matters applicable to the companies covered by the RCS Law and relating in particular to accounting, the annual accounts and the consolidated accounts;
    • Contribute to the development of accounting doctrine, where appropriate, by providing general advice or recommendations;
    • Participate in debates on accounting matters in European and international bodies; and
    • Carry out any task entrusted to it by law.

    What's new?

    On 2 April 2019, the CSSF issued a communiqué on the recent publication of the following 3 questions and answers ("Q&As") by the CNC (the "Communiqué"):

    • Q&A CNC 19/016: "Accounting compensation for orders in progress and advance payments received on orders";
    • Q&A CNC 19/017: "Deadline for filing with the RCS consolidated financial statements prepared for legal purposes"; and
    • Q&A CNC 19/018: "Reserved Alternative Investment Funds ("RAIFs"): Plan Comptable Normalisé ("PCN") and formalism of financial data filing."

    The said Q&As CNC are available here (only in French).

    The Communiqué is available here (only in French).

    What's next?

    Given that the CSSF does not systematically publish communications of the CNC, the CSSF advises that stakeholders consult the website of the CNC on a regular basis available here (only in French).

  • Brexit/Bill 7401/Bill 7426 - 2 Laws of 8 April 2019 on measures to be taken in relation to the financial sector published in Memorial A

  • Background

    On 31 January 2019, the Luxembourg Minister of Finance submitted the bill 7401, which concerns measures to be taken in relation to the financial sector in the event the UK withdraws from the EU without an agreement, i.e. a "no-deal" Brexit, and amends (i) the LSF (available here), (ii) the Payment Law (available here), (iii) the UCI Law (available here), (iv) the AIFM Law (available here), (v) the Insurance Law (available here only in French) and (vi) the Resolution Law (available here), to the Luxembourg Parliament (the "Bill 7401", available here only in French). On 5 March 2019, the Luxembourg Conseil d'État (the "CE") issued its opinion on the Bill 7401 (53.255 ? the "CE Opinion 1", available here only in French). On 26 March 2019, taking into account the CE Opinion 1, the Luxembourg Parliament voted at first reading on the Bill 7401 (the "Vote", available here only in French). On 5 April 2019, the CE unanimously waived the second constitutional vote on the Bill 7401 (the "Waiver", available here only in French).

    On 20 March 2019, the Luxembourg Minister of Finance submitted the bill 7426 to the Luxembourg Parliament (the "Bill 7426", available here only in French), in order to ensure the proper functioning and stability of the (Luxembourg) financial markets and the protection of UCIs' and SIFs' investors. On 26 March 2019, the CE issued its opinion on the Bill 7426 (53.316 ? the "CE Opinion 2", available here only in French). On 28 March 2019, taking into account the CE Opinion 2, the Luxembourg Parliament voted at first reading on the Bill 7426 (the "Vote", available here only in French). On 5 April 2019, the CE unanimously waived the second constitutional vote on the Bill 7426 (the "Waiver", available here only in French).

    On 10 April 2019, the European Council released a press release highlighting that it adopted a draft decision in agreement with the UK to extend the period under Article 50(3) TEU (available here), for the UK to withdraw from the EU until 31 October 2019 (the "Draft Decision", available here).

    What's new?

    On 11 April 2019, based on the adopted Bill 7401, the Luxembourg law of 8 April 2019 on measures to be taken in relation to the financial sector in the event of the withdrawal of the UK of Great Britain and Northern Ireland from the EU and amending (i) the LSF, (ii) the Payment Law, (iii) the UCI Law, (iv) the AIFM Law, (v) the Insurance Law and (vi) the Resolution Law, was published in the Luxembourg Memorial A N°237 (the "1st Law").

    On 11 April 2019, based on the adopted Bill 7426, the Luxembourg law of 8 April 2019 on measures to be taken in relation to the financial sector in the event of the withdrawal of the UK of Great Britain and Northern Ireland from the EU and amending (i) the SIF Law and (ii) the UCI Law, was published in the Luxembourg Memorial A N°238 (the "2nd Law").

    For further information the 1st Law is available here (only in French) and the 2nd Law is available here (only in French).

    What's next?

    On 11 April 2019, based on the Draft Decision, the European Council Decision (EU) 2019/584 taken in agreement with the UK extending the period under Article 50(3) TEU until 31 October 2019 was published in the OJEU (the "Decision 2019/584", available here). The Decision 2019/584 shall enter into force on 11 April 2019. However, the Decision 2019/584 shall cease to apply on 31 May 2019 in the event that the UK has not held elections to the European Parliament in accordance with applicable Union law and has not ratified the Withdrawal Agreement (available here) by 22 May 2019.

    With regards to the 1st Law, most of its Articles would enter into force on the day on which the UK, in accordance with Article 50(3) TEU withdraws from the EU without having ratified the Withdrawal Agreement as referred to in Article 50(2) TEU.

    With regards to the 2nd Law, it would enter into force on the day on which the UK, in accordance with Article 50(3) TEU withdraws from the EU.

    On 12 April 2019, the CSSF issued a specific communication regarding the 1st Law and the 2nd Law (PR 19/18, available here). Considering the political uncertainties surrounding the Brexit date, as well as the occurrence of a hard Brexit, the CSSF has decided to adopt a wait-and-see approach and, based on the developments at a political level, will communicate further in due course to the public as regards the actions to be taken by UK firms to benefit from the transitional period provided for in the 1st Law and 2nd Law. Any Brexit-related questions can be addressed to brexit@cssf.lu.

  • EMIR - CSSF communicates on the ESMA Public Statement on the implementation of the new EMIR Refit regime for the clearing obligation

  • Background

    The regulation (EU) No 648/2012 of the European Parliament (the "Parliament") and of the Council on over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") entered into force on 16 August 2012 ("EMIR", available here). EMIR aims to counter the risks associated with OTC derivatives, by:

    • Increasing transparency in the OTC derivatives markets;
    • Mitigating credit risk; and
    • Reducing operational risk.

    On 4 May 2017, in the context of the regulatory fitness and performance programme ("Refit", available here), the European Commission (the "Commission") introduced a first set of amendments to EMIR (the "Amendments", available here) by means of a proposal for a regulation amending EMIR (the "Proposal", available here). The Amendments aim to introduce simpler and more proportionate rules on OTC derivatives that would reduce costs and burdens for market participants, without compromising financial stability.

    On 5 February 2019, the Parliament and the Council Presidency reached a political agreement on the Amendments (the "Political Agreement", available here). The text of the Political Agreement, which was confirmed by the Committee of Permanent Representatives in the EU ("COREPER") on 6 March 2019, is available here (the "Published Refit Text"). The Published Refit Text includes a new EMIR Refit regime to determine when financial and non-financial counterparties (respectively "FC" or "NFC") are subject to the clearing obligation, depending on whether or not their positions exceed the clearing thresholds. The clearing thresholds to be used to determine whether, according to their aggregate month-end average position for the previous 12 months, FC and NFC are subject to the clearing obligation are defined by asset class and set in the Commission delegated regulation (EU) No 149/2013 (available here).

    On 28 March 2019, the ESMA issued a public statement on the implementation of the new EMIR Refit regime (ESMA70-151-2181 ? the "Public Statement", available here), which is addressed to all FC and NFC subject to EMIR. The Public Statement highlights when FC and NFC need to determine whether they are subject to the clearing obligation under the new EMIR Refit regime, and equally when they need to notify the ESMA and their relevant competent authority ("CA") that they are indeed subject to the clearing obligation, i.e. on the day the final EMIR Refit text enters into force.

    What's new?

    On 8 April 2019, the CSSF communicated on the ESMA Public Statement (19/16 ? the "Press Release").

    The Press Release is available here.

    What's next?

    The Published Refit Text does not include a delayed implementation, meaning that the new EMIR Refit regime applies as soon as the final text enters into force. The CSSF reminds that it is reasonable to expect that the final EMIR Refit text could be published in the OJEU as early as May 2019 and thus could enter into force as early as end of May 2019, i.e. 20 days after its publication.

    As a result, FC and NFC taking positions in OTC derivative contracts and choosing to calculate their aggregate month-end average position for the previous 12 months would need to determine the results of that calculation on the day the final EMIR Refit text enters into force.

  • Financial Reporting - CSSF issues Circular 19/715 updating Circular 14/593 on supervisory reporting requirements applicable to credit institutions

  • Background

    The Regulation (EU) 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms applies since 1 January 2014 (the "CRR", available here).

    The Commission regulation No 680/2014 harmonises the content and format of data to be reported by European banks to their supervisors in order to comply with the CRR (the "Regulation 680/2014", available here).

    At Luxembourg level, the circular CSSF 14/593 sets out the supervisory reporting requirements applicable to credit institutions (the "Circular 14/593", as amended, available here).

    The CSSF has set up a test environment enabling credit institutions to send test reporting files to the CSSF in order to obtain feedback on the validation results (the "Test Environment"). The Test Environment shall apply from 1 January 2019. More information on the Test Environment is available in Chapter 5, Section 2, 2.2 of the CSSF document entitled "reporting requirements for credit institutions" dated 15 March 2019 (the "Reporting Requirements", available here).

    What's new?

    On 10 April 2019, taking into account the Test Environment and the Reporting Requirements, the CSSF issued its circular 19/715 amending the Circular 14/593 on the supervisory reporting requirements applicable to credit institutions (the "Circular 19/715").

    In particular, the Annex to the Circular 19/715 updates the Section VII of the Circular 14/593 (mark-up version). Credit institutions may decide themselves whether or not to use the Test Environment. Credit institutions must however send the CSSF at least one production instance (i.e. production instance flagged with an 'N' or 'D' code) for each reporting table by the relevant deadline for transmission. Any absence of a production instance shall lead to non-compliance with the applicable reporting requirements.

    For further information, the Circular 19/715 is available here (only in French).

    What's next?

    For any queries regarding the Circular 19/715, stakeholders may contact the CSSF at the following email address: ReportingBanques@cssf.lu.

  • MiFID II/MiFIR - CSSF issues Circular 19/716 and Press Release 19/17 on the provision of investment services in Luxembourg or performance of investment activities and ancillary services by 3rd-country firms

  • Background

    The directive 2014/65/EU and the regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II", available here and "MiFIR", available here).

    At Luxembourg level, the law of 30 May 2018 on markets in financial instruments (the "2018 Law", available here only in French), which entered into force on 4 June 2018, introduces a new Article 32-1 into the Law of 5 April 1993 on the financial sector (the "LFS", as amended, available here only in French) in order to transpose and to implement the relevant provisions of MiFID II and MiFIR.

    What's new?

    On 12 April 2019, the CSSF issued its circular 19/716, which lays out the different regimes available to 3rd-country firms that wish to provide, in Luxembourg, investment services or perform investment activities together with ancillary investment services (i.e. "investment services") in accordance with Article 32-1 of the LFS, as amended, and Article 46 et seq. of MiFIR (the "Circular 19/716").

    Before providing any investment service covered by the LFS in Luxembourg, a 3rd-country firm must first identify (i) the type of service it intends to provide (investment service or any other service covered by the LFS), and (ii) the type of clients it intends to service pursuant to the MiFID II client classification as transposed in the LFS (retail client, per se professional client, professional client on request or eligible counterparty). For clarity purposes, the CSSF summarises this decision process in the Annex I to the Circular 19/716.

    Noteworthy is that where an investment service covered by the LFS is provided at the client's own exclusive initiative (i.e. "reverse solicitation"), the 3rd-country firm is neither required to establish a branch in Luxembourg nor to request an authorisation from the CSSF (see Part III of the Circular 19/716).

    On 12 April 2019, the CSSF issued a specific press release 19/17 on the Circular 19/716 (the "Press Release 19/17"). The Press Release 19/17 states that the "Circular CSSF 11/515" (available here) dealing in point (4) of Part II with the regime provided for in Article 32(5) of the LFS, is no longer up to date, as this Article no longer applies to investment services provided by 3rd-country firms.

    For further information, the Circular 19/716 is available here (in English) and here (in French).

    The Press Release 19/17 is available here.

    What's next?

    The Circular 19/716 entered into force on 12 April 2019. The Circular 11/515 is currently being reviewed.

    In order to benefit from one of the regimes which fall under the CSSF's remit, the concerned 3rd-country firms must contact the CSSF and submit an application file at direction@cssf.lu (the form is provided in the Annex II to the Circular 19/716), in accordance with Article 32-1 of the LFS.

  • MiFIR - CSSF updates TAF Handbook (Version 2019.1) valid from 29 April 2019

  • Background

    The Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments applies since 3 January 2018 ("MiFIR", available here).

    Article 26 of MiFIR contains the obligation for investment firms ("IFs") and credit institutions which execute transactions in financial instruments and trading venue operators whose members are not themselves subject to that MiFIR, are required to report complete and accurate details of such transactions to their competent authority ("CA"). As foreseen by the 3rd subparagraph of Article 26(9) of MiFIR and, in order to ensure consistency in the standards and formats used, the European Commission (the "Commission"), based on drafts prepared by the ESMA, adopted the Commission Delegated Regulation (EU) 2017/590 with regard to regulatory technical standards for the reporting of transactions to CAs ("Delegated Regulation 2017/590", available here).

    Further guidance in relation to transaction reporting is provided by the ESMA's guidelines on transaction reporting, order record keeping and clock synchronisation under MiFID II (the "Guidelines", available here), transposed in Luxembourg via the circular CSSF 17/674 (the "Circular 17/674", available here), and the ESMA's technical reporting instructions on the MiFIR transaction reporting (the "TR instructions", available here).

    The initial version of the CSSF transactions on financial assets handbook was issued on 20 February 2018 (the "TAF Handbook V.2018.1", available here). The TAF Handbook V.2018.1 describes the transaction reporting system to be used by IFs, market operators, and the approved reporting mechanisms ("ARMs"), in order to report transactions on financial instruments to the CSSF.

    What's new?

    On 10 April 2019, the CSSF updated its TAF Handbook (the "TAF Handbook V.2019.1").

    In particular, the CSSF notes that the TAF Handbook V.2019.1 has been restructured, it shall provide additional clarification regarding the feedback files and several specific validation rules of type LUX, and it deleted details relating to the transitional phase.

    For further information, the TAF Handbook V.2019.1 is available here.

    What's next?

    The TAF Handbook V.2019.1 is valid from 29 April 2019.

    In case of questions, stakeholders should contact the CSSF at the following email address: gfd@cssf.lu.

  • Outsourcing - CSSF issues Circular 19/714 updating Circular 17/654 on IT outsourcing relying on a cloud computing infrastructure

  • Background

    The Luxembourg Law of 5 April 1993 on the financial sector, as amended, sets out provisions concerning authorisation of professionals of the financial sector ("PFS") and of credit institutions (the "1993 Law", available here).

    The Luxembourg Law of 10 November 2009 on payment services, on the activity of electronic money institution ("EMI") and settlement finality in payment and securities settlement systems, as amended, sets out provisions concerning authorisation of payment institutions ("PIs") and EMIs (the "2009 Law", available here).

    At the international level, "cloud computing" is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g. networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.

    On 18 May 2017, the Commission de Surveillance du Secteur Financier (the "CSSF") published its circular 17/654 which concerns IT outsourcing relying on a cloud computing infrastructure and which entered into force on the same day (the "Cloud Circular", available here). The CSSF published also its dedicated frequently asked questions document of 17 May 2017 (the "FAQs on Cloud Circular", available here). The Cloud Circular applies to credit institutions and PFS as defined under the 1993 Law, and to PIs and EMIs as defined under the 2009 Law. The Cloud Circular clarifies the applicable regulatory framework for IT outsourcing relying on a cloud computing infrastructure provided by an external provider. The use of private clouds without outsourcing is thus excluded from the scope of the Cloud Circular.

    The Cloud Circular specifies the 5 main characteristics of cloud computing and the requirements for outsourcing on a cloud computing infrastructure (e.g. resource operation, governance, notification and consent of customers, notification to CSSF or authorisation by CSSF, security systems, etc.). These requirements apply to the entire outsourcing chain as long as all outsourcing (activities) are exclusively of a data-processing/IT nature ("nature informatique") and at least one outsourcing (activity) corresponds to the definition of "cloud computing". The requirements of the Cloud Circular therefore do not apply to "business process outsourcing", even if these outsourcing (activities) are themselves based on an outsourced cloud computing infrastructure.

    Since the entry into force of the Cloud Circular in May 2017, the CSSF has noted the following facts (the "Observations"):

    • Many authorisation or notification requests were submitted to the CSSF by the supervised entities in order to use cloud computing solutions. 2/3 of the intended cloud outsourcing fall under non-critical or non-material activities;
    • Many questions were addressed by the supervised entities to the CSSF. The supervised entities expressed, in that way, the need for more guidance from the CSSF, particularly with respect to the qualification of materiality of the outsourced activities;
    • In December 2017, the European Banking Authority (the "EBA") published its recommendations on outsourcing to cloud service providers (EBA/REC/2017/03 – the "EBA Recommendations", available here). The CSSF assessed that the Cloud Circular includes the requirements laid down the European texts but is stricter and less flexible in some aspects; and
    • On 23 August 2018, the CSSF published its Circular 18/698 regarding authorisation and organisation of investment fund managers incorporated under Luxembourg law, specific provisions on the fight against money laundering and terrorist financing applicable to investment fund managers and entities carrying out the activity of registrar agent (the "Circular 18/698", available here). The Circular 18/698 made the Cloud Circular applicable to investment fund managers ("IFMs") wishing to outsource to a cloud computing infrastructure.

    What's new?

    On 27 March 2019, the CSSF published its circular 19/714 updating the Cloud Circular (the "Circular 19/714"). The new Circular 19/714 is addressed to all: (i) credit institutions and PFS authorised under the 1993 Law (ii) PIs and EMIs authorised under the 2009 Law, and (iii) IFMs subject to the Circular 18/698.

    The purpose of the Circular 19/714 is to make substantial amendments to the Cloud Circular in order to take into account the experience gained by the CSSF and the supervised entities through its application.

    Based on its Observations, the CSSF considers that the notification process for non-material outsourcing is too burdensome for supervised entities and for the CSSF and that more proportionality is needed for its treatment. Moreover, amendments made by the Circular 18/698 must also be included in the Cloud Circular. Therefore, the CSSF makes the following amendments to the Cloud Circular:

    • Addition of IFMs in the scope of application (in line with the Circular 18/698);
    • Reminder of the general principle of proportionality; in this context, introduction of optionality for some requirements for non-material activities only;
    • Introduction of a register to be maintained by the supervised entities which includes all the cloud computing outsourcing of material as well as non-material activities;
    • Cancellation of the necessity to notify the CSSF of a cloud computing outsourcing of non-material activities in favour of maintaining the register;
    • Replacement of the "compliance table" by more specific and pragmatic forms;
    • Minor changes in order to reword and/or reorganise some paragraphs for more clarity.

    The CSSF has also published its updated FAQs on Cloud Circular (the "Updated FAQs on Cloud Circular") and FAQs intend to assist the supervised entities in assessing the materiality of their IT outsourcing projects (the "FAQs on the Assessment of IT Outsourcing Materiality").

    The Circular 19/714 (clean version) is available here.

    The Circular 19/714 presented in track changes is available here.

    The Updated FAQs on Cloud Circular are available here.

    The FAQs on the Assessment of IT Outsourcing Materiality are available here.

    The Authorisation/Notification Documents concerning cloud computing outsourcing are available here.

    What's next?

    The Circular 19/714 is applicable with immediate effect.

    Notably, according to points 38 and 39 of the Circular 19/714:

    • Apart from IFMs subject to the Circular 18/698, the "ISCR" (i.e. an institution supervised by the competent authority and consuming cloud computing resources for the purpose of carrying out its activities) shall establish and complete the register referred to in point 26.a within 6 months as from the entry into force of the Circular 19/714, i.e. by 27 September 2019.

    The IFMs subject to Circular 8/698, which have already outsourced on a cloud computing infrastructure before the entry into force of Circular 19/714, do not have to submit a notification or authorisation request to the competent authority for this outsourcing as referred to in points 26.b and 26.c. They shall, however, establish and complete the register referred to in point 26.a within 1 year as from the entry into force of the Circular 19/714, i.e. by 27 March 2020.

  • PRIIPs Regulation - CSSF updates FAQs on the impact of PRIIPs Regulation

  • Background

    The Directive 2011/61/EU of the European Parliament and of the Council on alternative investment fund managers (the "AIFMD", available here) and the Commission Delegated Regulation (EU) No 231/2013 supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (the "Delegated Regulation", available here) apply since 22 July 2013.

    The AIFMD is transposed in Luxembourg legislation by the Law of 12 July 2013 (the "Law", available here). In this context, the CSSF frequently asked questions document concerning the AIFMD, the Delegated Regulation and the Law, provides guidance on some of the key aspects of the AIFMD from a Luxembourg point of view (the "AIFMD FAQ"). On 14 August 2018, the CSSF lastly updated its AIFMD FAQ (V12). The AIFMD FAQ shall be read in conjunction with the corresponding ESMA questions and answers' document most recently updated on 29 March 2019 (ESMA-34-32-352 — the "ESMA Q&A on AIFMD", available here).

    With regards to the UCITS Directive (available here), the CSSF lastly amended its FAQ on 5 January 2018 (the "UCITS FAQ V5", available here).

    What's new?

    On 11 April 2019, the CSSF updated its AIFMD FAQ (the "AIFMD FAQ V13") and UCITS FAQ (the "UCITS FAQ V6").

    For ease of reading, the below table compares the main changes between AIFMD FAQ V12 and V13.

    AIMFD FAQ

    Version 12 (14 August 2018)

    AIFMD FAQ

    Version 13 (11 April 2019)

    23.b) Can Luxembourg AIFs the units of which are being advised on, offered or sold to retail investors benefit from the exemption provided under article 32(2) of the PRIIPs Regulation if they have issued a UCITS KIID?

    Yes. Such AIFs may issue a UCITS KIID in order to be exempted from the obligations of the PRIIPs Regulation until 31 December 2019, provided that the following conditions are complied with:

    * The UCITS KIID to be issued under the Law of 2010 should comply with articles 159 to 162 of the Law of 2010, as well as with the provisions of Commission Regulation (EU) n° 583/2010;

    * The UCITS KIID should be issued for each retail share class of the sub-funds of the relevant Luxembourg AIF;

    * The offering document of the Luxembourg AIF in question should be amended in order to reflect the distribution of a UCITS KIID to all retail investors contemplating an investment in the AIF. The offering document should also mention that the UCITS KIID shall be published on the website of the Registered or Authorised AIFM of the Luxembourg AIF and that it shall be available, upon request, in paper form.

    23.[b]) Can Luxembourg AIFs the units of which are being advised on, offered or sold to retail investors benefit from the exemption provided under article 32(2) of the PRIIPs Regulation if they have issued a UCITS KIID (hereafter referred to as "UCITS-like KIID")?

    Yes. Such AIFs may issue a UCITS-like KIID in order to be exempted from the obligations of the PRIIPs Regulation until 31 December 2019 (or later if the period of exemption provided for in Article 32 of the PRIIPs Regulation is extended to a later date), provided that the following conditions are complied with:

    * The UCITS-like KIID to be issued under the Law of 2010 should comply with articles 159 to 162 of the Law of 2010, as well as with the provisions of Commission Regulation (EU) n° 583/2010;

    * The UCITS-like KIID should be issued for each retail share class of the sub-funds of the relevant Luxembourg AIF;

    * The offering document of the Luxembourg AIF in question should be amended in order to reflect the distribution of a UCITS-like KIID to all retail investors contemplating an investment in the AIF. The offering document should also mention that the UCITS-like KIID shall be published on the website of the Registered or Authorised AIFM of the Luxembourg AIF and that it shall be available, upon request, in paper form.

    23.l) Does the CSSF require the notification of a final PRIIPs KID by (the manufacturer of) a Luxembourg AIF the units of which are advised on, offered or sold to retail investors?

    Yes, (including any updates).

    23.l) Does the CSSF require the notification of a final PRIIPs KID by (the manufacturer of) a Luxembourg AIF the units of which are advised on, offered or sold to retail investors?

    No. However, the CSSF reserves the right to request the notification of a final PRIIPs KID on a case-by-case basis. Such notification does not render the CSSF responsible for the content of a final PRIIPs KID. Manufacturers of Luxembourg AIFs remain at all times responsible for the drawing up and the content of a final PRIIPs KID.

    23.n) Which procedure must be followed in order to file the final version of a PRIIPs KID with the CSSF?

    The final version of a PRIIPs KID must be filed by adhering to the instructions provided in Circular CSSF 08/371 and in Circular CSSF11/509 and by applying the nomenclature detailed in the information that is provided under the following link: www.cssf.lu/fileadmin/files/

    Metier_OPC/Transmission_electronique_des_documentsPRIIPs_KID_.pdf

    23.n) Which procedure must be followed in order to file the final version of a PRIIPs KID with the CSSF?

    If requested, the final version of a PRIIPs KID must be filed by adhering to the instructions provided in Circular CSSF 19/708 [available here only in French].

    23.q) Do Luxembourg AIFs that have issued a UCITS KIID need to file a final version of such document with the CSSF?

    Yes.

    23.q) Do Luxembourg AIFs that have issued a UCITS-like KIID need to file a final version of such document with the CSSF?

    No. However, the CSSF reserves the right to request the notification of a final UCITS-like KIID regarding Luxembourg AIFs on a case-by-case basis. Such notification does not render the CSSF responsible for the content of a final UCITS-like KIID. Manufacturers of Luxembourg AIFs remain at all times responsible for the drawing up and the content of a final UCITS-like KIID.

    Besides, the CSSF updated the Q&A 6.1 in its UCITS FAQ V6 as follows:

    "Do manufacturers of Luxembourg UCITS need to draw up a PRIIPs KID? Yes, manufacturers of Luxembourg UCITS need to have in place a PRIIPs KID as of 1 January 2020, or later if the period of exemption provided for in article 32(1) of the PRIIPs Regulation is extended to a later date. Until such date Luxembourg UCITS will be exempt from the obligations of the PRIIPs Regulation in conformity with article 32(1) of such Regulation".

    For further information, the AIFMD FAQ V13 is available here and the UCITS FAQ V6 is available here.

    What's next?

    The AIFMD FAQ and the UCITS FAQ are intended to be continually edited and updated by the CSSF, as and when new questions are received.

  • THE NETHERLANDS

    Ultimate Beneficial Ownership Register - Submission to the lower house of parliament of law on ultimate beneficial ownership register

  • Background

    On 20 May 2015, the 4th Anti-Money Laundering Directive ("4 AMLD") was published with a revamped Regulation (EU) 2015/847 on information accompanying transfers of funds as part of a single "package".

    These new rules apply to a vast array of market players, ranging from credit and financial institutions, auditors, external accountants and tax advisors, independent legal professionals to trusts and estate agents, among others. The Proposal also seeks to widen the scope of "obliged entities" including providers engaged primarily and professionally in exchange services between virtual currencies and fiat currencies, as well as wallet providers offering custodial services of credentials necessary to access virtual currencies.

    The new rule, introduced by the 4 AMLD, are amongst others, an increased transparency through the creation of beneficial owners' national central registers.

    What's new?

    On 4 April 2019, a bill to introduce an ultimate beneficial ownership register was submitted to the Dutch lower house of the parliament (the "Bill"). This Bill aims to implement the requirement for ultimate beneficial ownership register, as mandated by article 30 of the 4 AMLD.

    The Bill is available here (only in Dutch).

    What's next?

    The registry of ultimate beneficial owners of companies shall be live in the Netherlands as from the 10th of January 2020 at the latest.
    For trusts and legal structures similar to a trust, as well as funds for joint accounts a separate regulation will be published. This regulation is expected to be implemented in March 2020.

  • HONG KONG

    Securities and Futures Commission (“SFC”) Circular to Licensed Corporations and Associated Entities - Anti-Money Laundering / Counter-Financing of Terrorism – Updated AML/CFT Self-Assessment Checklist

  • Background

    On 16 April 2019, the Securities and Futures Commission (“SFC”) posted an updated AML/CFT Self-Assessment Checklist which has incorporated revisions to reflect the latest Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations)Note 1. A copy of the updated checklist can be downloaded from the SFC’s website at(https://www.sfc.hk/web/EN/files/IS/AML/AML_Self_Assessment_Checklist_EN.docx).

    What's new?

    The AML/CFT Self-Assessment Checklist has been prepared to provide a structured framework for licensed corporations (“LCs”) and associated entities (“AEs”) to assess compliance with the key AML/CFT requirements. LCs and AEs are advised to use the self-assessment checklist as part of their regular review to monitor their AML/CFT compliance.

    What's next?

    The senior management of LCs and AEs should ensure that any compliance deficiencies identified during the regular reviews are rectified in a timely manner. In the course of our regular inspections, we may require LCs and AEs to provide documentary evidence of the performance of such review and its results.

    Note 1 Please refer to the press release on 12 October 2018 re the consultation conclusions on amendments to anti-money laundering and counter-financing of terrorism guidelines (https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=18PR119).

    Click here to download the document

  • WORLD

    Beneficial Owner Toolkit - OECD publishes Beneficial Ownership toolkit

  • Background

    Tax transparency of beneficial ownership information is essential to deterring, detecting and disrupting tax evasion and other financial crimes. The Global Forum’s standard on beneficial ownership offers jurisdictions flexibility in how they implement the standard to take account of different legal systems and cultures. However, that flexibility can pose challenges particularly to developing countries

    What's new?

    On 20 March 2019, the first ever beneficial ownership toolkit was released in the context of the OECD’s Global Integrity and Anti-Corruption Forum. The toolkit, prepared by the Secretariat of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes in partnership with the Inter-American Development Bank, is intended to help governments implement the Global Forum’s standards on ensuring that law enforcement officials have access to reliable information on who the ultimate beneficial owners are behind, a company or other legal entity so that criminals can no longer hide their illicit activities behind opaque legal structures.

    The toolkit is available here.

    What's next?

    The Toolkit will help countries to implement the international tax transparency standards.

  • This publication is produced by Legal and Compliance teams of CACEIS with the kind support of Communication teams and Group Business Development Support teams.

    Editors
    Gaëlle Kerboeuf, CACEIS Group Legal Manager - Projects & Regulatory Monitoring

    Permanent Editorial Committee
    Gaëlle Kerboeuf, CACEIS Group Legal Manager - Projects & Regulatory Monitoring
    Elisabeth Raisson, CACEIS Group Compliance
    Corinne Brand, CACEIS Group Communications Specialist
    Pauline Fieni, CACEIS Compliance and Regulatory Watch

    Support
    Michele Tuen, Head of Trustee and Legal (Hong Kong)
    Stefan Ullrich, Head of Legal (Germany)
    Fanny Pereira, Legal (France)
    Clément Nicolaizeau, Legal (France)
    Mireille Mol, Legal & Compliance (the Netherlands)
    Charles du Maisnil, Head Compliance, risk  and Legal (Belgium)
    Domitille Jeanson, Legal (Belgium)
    Jennifer Yeboah, Legal (Belgium)
    Isabella Guscetti, Legal & Compliance (Switzerland)
    Alessandra Cremonesi, Legal Fund Structuring (Switzerland)
    Robin Donagh, Legal Advisor (Ireland)
    Neil Coxhead, Managing Director (UK)
    Costanza Bucci, Legal & Compliance (Italy)
    Fernand Costinha, Head of Legal (Luxembourg)
    Gérald Stadelmann, Head of Legal (Luxcellence Luxembourg)

    Design
    CACEIS Group Communications

    Photos credit
    CACEIS, Adobe Stock

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