SCANNING FEBRUARY 2019

European Regulatory Watch Newsletter


Summary

EUROPE

From above
AML/CFT - Commission issues new Draft Delegated Regulation identifying 23 High-Risk Third Countries under 4AMLD/5AMLD

  • Background

    The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing applies since 26 June 2017 ("4AMLD", available here). According to Article 9(1) of 4AMLD, third country jurisdictions which have strategic deficiencies in their AML/CFT regimes that pose significant threats to the financial system of the Union (referred to as "High-Risk Third Countries") must be identified in order to protect the proper functioning of the internal market. Article 9(2) of 4AMLD empowers the European Commission (the "Commission") to adopt delegated acts in order to identify the High-Risk Third Countries, taking into account strategic deficiencies, and lays down the criteria on which the Commission's assessment is to be based. Pursuant to Article 64(2) of 4AMLD, such power is conferred on the Commission for an indeterminate period of time from 25 June 2015.

    Against this background, the Commission delegated regulation (EU) 2016/1675 supplementing 4 AMLD by identifying High-Risk Third Countries with strategic deficiencies was published in the OJEU on 20 September 2016 (the "DR 2016/1675", available here). The annex to the DR 2016/1675 was subsequently amended by the Delegated Regulation (EU) 2018/105 (available here), the Delegated Regulation (EU) 2018/212 (available here), and the Delegated Regulation (EU) 2018/1467 (available here) identifying further High-Risk Third Countries. For clarity purposes, the latest consolidated version of DR 2016/1675, as amended, is available here and includes 16 High-Risk Third Countries.

    Noteworthy is that "Obliged Entities" within the meaning of Article 2(1) 4AMLD (e.g. credit institutions and financial institutions) must apply enhanced customer due diligence ("CDD") measures when having a business relationship or transaction involving those High-Risk Third Countries. Article 18a of 4AMLD provides for the list of mandatory measures that must be applied in those circumstances, as well as additional measures that may be applied by Member States ("MS").

    Furthermore, the Directive (EU) 2018/843 amending 4AMLD ("5AMLD", available here) entered into force on 9 July 2018 and will apply from 10 January 2020. For ease of reading, the latest consolidated version of 4AMLD, as amended by 5AMLD, is available here. 5AMLD revised and broadened the criteria to be considered by the Commission when making its assessment of High-Risk Third Countries under Article 9 of 4AMLD. In particular, a criterion related to the availability and exchange of beneficial ownership ("BO") information was added, going beyond the Financial Action Task Force ("FATF") criteria in this regard (available here). The new criteria further cover the existence of effective, proportionate and dissuasive sanctions in case of breaches of AML/CFT obligations, as well as the third country’s practice in cooperation and exchange of information with MS’ competent authorities.

    Upon request from the European Parliament to ensure that the Commission fulfils its obligation based on an autonomous assessment (available here), rather than solely replicating lists adopted by the FATF, the Commission released its new methodology in a staff working document published on 22 June 2018 (SWD(2018) 362 final – the "New Methodology", available here), which applies the revised criteria for the identification of High-Risk Third Countries. On 15 November 2018, the Commission published an analysis listing, among 132 jurisdictions, 54 "Priority 1 Countries" for its assessment in 2018 (the "Analysis", available here). The remaining countries are considered as "Priority 2 Countries", and the Commission will carry out its assessment gradually until 2025.

    In light of the above, the Commission considers necessary to repeal the Regulation 2016/1675 and adopt a new list of High-Risk Third Countries based on the new requirements of 4AMLD, as amended by 5AMLD.

    What's new?

    On 13 February 2019, based on the New Methodology and with regard to the "Priority 1 Countries", the European Commission issued its draft delegated regulation supplementing 4AMLD, as amended by 5 AMLD, by identifying High-Risk Third Countries with strategic deficiencies (C(2019) 1326 final – the "Draft Delegated Regulation" and the "Annex").

    In this context, the Annex comprises the following 23 High-Risk Third Countries:

    12 High-Risk Third Countries listed by the FATF

    11 additional High-Risk Third Countries identified by the Commission

    (1) The Bahamas, (1) Afghanistan,
    (2) Botswana, (2) American Samoa,
    (3) Democratic People's Republic of Korea, (3) Guam,
    (4) Ethiopia, (4) Iraq,
    (5) Ghana, (5) Libya,>
    (6) Iran, (6) Nigeria,
    (7) Pakistan, (7) Panama,
    (8) Sri Lanka, (8) Puerto Rico,
    (9) Syria, (9) Samoa,
    (10) Trinidad and Tobago, (10) Saudi Arabia, and
    (11) Tunisia, and (11) US Virgin Islands.
    (12) Yemen.

    Hence, the Commission proposes to de-list 6 countries previously included in the consolidated DR 2016/1675, namely Bosnia-Herzegovina, Guyana, Lao PDR, Uganda and Vanuatu.

    Besides, Article 2 of the Draft Delegated Regulation provides that the DR 2016/1675 shall be repealed, and references to the Regulation 2016/1675 shall be construed as references to the present Draft Delegated Regulation.

    For further information, the Draft Delegated Regulation is available here.

    The Annex is available here.

    The related Press Release is available here.

    The related FAQ Document is available here.

    The related Factsheet is available here.

    What's next?

    Pursuant to Article 9(3) of 4AMLD, the Draft Delegated Regulation will be submitted to the European Parliament and the Council of the EU for approval within one month (with a possible one-month extension) after the identification of the strategic deficiencies.

    Once approved, the final version of the Delegated Regulation will be published in the OJEU and will enter into force on the 20th day following its publication.

    The Commission will continue its engagement with the 23 High-Risk Third Countries and will further engage especially on the delisting criteria. In parallel, the Commission will assess the "Priority 2 Countries" until 2025.

    The Commission stresses that the listing of the 23 High-Risk Third Countries does not entail any type of sanctions, restrictions on trade relations or impediment to development aid. However, it requires credit institutions, financial institution and other Obliged Entities to apply enhanced CDD measures on transactions involving these High-Risk Third Countries.

  • AML/CFT - Commission publishes draft Delegated Regulation supplementing 4AMLD with RTS to mitigate ML/TF risks in certain 3rd countries

  • Background

    The Directive (EU) 2015/849 ("4AMLD", available here) requires that credit and financial institutions (the "Obliged Entities") put in place anti-money laundering and countering the financing of terrorism ("AML/CFT") policies and procedures to effectively mitigate and manage risks.

    Where an Obliged Entity is part of a group, such policies and procedures should be implemented at group level. Additional measures are however required to be implemented at the level of the branches or majority-owned subsidiaries, when:

    • A 3rd country's law does not permit the implementation of group-wide AML/CFT policies and procedures (e.g. due to its data protection and bank secrecy laws); and
    • The competent authorities' (the "CAs") ability to supervise the group's compliance with 4AMLD is impeded, because the CAs do not have access to relevant information held at branches or majority-owned subsidiaries in 3rd countries.

    In accordance with Article 45 (6) of 4AMLD, the European Supervisory Authorities (the "ESAs") shall develop draft regulatory technical standards (the "draft RTS") that set out the additional measures to be taken by branches or majority-owned subsidiaries in such 3rd countries.

    What's new?

    On 31 January 2019, the European Commission (the "Commission") published a draft delegated regulation whereby it adopts the draft RTS (C(2019) 646 final – the "Delegated Regulation"). By doing so, the Delegated Regulation supplements 4AMLD with the RTS which stipulate the minimum actions and the type of additional measures branches or majority-owned subsidiaries of Obliged Entities must take in order to mitigate ML/TF risks in certain 3rd countries.

    In particular, the Delegated Regulation comprises the following Articles:

    • Article 3 on a series of general obligations for each 3rd country concerned by the rules;
    • Article 4 on the obligation to carry out individual risk assessments;
    • Article 5 on the obligations applicable to customer data sharing and processing;
    • Article 6 on the rules applicable to the disclosure of information related to suspicious transactions;
    • Article 7 on the measures necessary to ensure a correct transfer of customer data to Member States;
    • Article 8 on specific obligations related to record-keeping; and
    • Article 9 on specific additional measures required under 4AMLD.

    The Delegated Regulation is available here.

    What's next?

    The Delegated Regulation is subject to the scrutiny rights of the European Parliament and of the Council of the EU, pursuant to Article 290(2) of the Treaty on the functioning of the EU (available here).

    The final Delegated Regulation shall enter into force on the 20th day following that of its publication in the OJEU. It shall apply as from 3 months after date of entry into force.

  • AIFMD - ESMA updates Table of MoUs signed by the EU authorities

  • Background

    On 5 February 2019, the ESMA released statistical data regarding Alternative Investment Funds ("AIFs") exposures to commercial real estate ("CRE") markets in the EU (ESMA50-164-1942 – the "Statistical Data", available here). As of 31 December 2017, 1244 AIFs pursuing a CRE strategy were marketed and/or managed by authorised EU AIFMs (with a NAV of EUR 309.8 bn.).

    On 12 February 2019, the ESMA Executive Director, Verena Ross, issued the keynote of her statement delivered at the 7th annual cross-border distribution conference – European convention centre Luxembourg (ESMA34-45-634 – the "Keynote Address", available here). In particular, the ESMA noted it 'has been doing its own analysis on leverage and liquidity in alternative funds" and announced that it 'will shortly publish a report on EU AIFs using data collected under the AIFMD' in order to provide a comprehensive overview of the EU AIF market (with around EUR 5 trillion of assets under management).

    What's new?

    On 20 February 2019, the ESMA issued an updated table of the AIFMD Memoranda of Understanding signed by the authorities of the EU Member States with those outside the EU (ESMA34-32-418– the "Updated Table").

    In the case of the CSSF (Luxembourg), cross-border activity can still be performed with all the non-EU countries shown except for Bahrain.

    The Updated Table is available here.

    What's next?

    The ESMA will continue to update the table of AIFMD MoUs as further supervisory cooperation arrangements are signed.

  • AIFs/UCITS - ESMA consults on Draft Guidelines on liquidity stress testing for fund managers and depositaries until 1 April 2019

  • 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).

    What's new?

    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
      • LST should be properly integrated an embedded in the fund’s risk management framework supporting its liquidity management, which should be subject to appropriate governance and oversight;
      • There should be a documented LST policy, which should require the manager to periodically review and adapt (if necessary) its LST programme and models as appropriate (it should also be documented within the UCITS risk management process ("RMP") and the AIF RMP);
      • LST should demonstrate the manager has a strong understanding of the liquidity risks arising from the assets and liabilities on the fund's balance sheet, and its overall liquidity profile;
      • LST should be conducted at least annually and employed at all stages in a fund’s lifecycle, where appropriate;
      • LST should provide outcomes which can be used to (i) help ensure the fund is sufficiently liquid, (ii) strengthen the ability of managers to manage fund liquidity in the best interests of investors, (iii) help identify potential weaknesses of an investment strategy, and (iv) to assist in risk management monitoring and decision-making;
      • LST should assist a manager in preparing a fund for a crisis, and its broader contingency planning;
      • LST should be applied to in-scope UCITS and AIFs and adapted appropriately to each fund, depending on its nature, scale and complexity;
      • LST should employ hypothetical and historical scenarios, and reverse-stress testing; and
      • LST should demonstrate a manager is able to overcome limitations related to the availability of data.
    • Draft Guidelines specific to stress testing fund assets to determine the effect on fund liquidity (10);
      • LST should enable a manager to assess not only the time and/or cost to liquidate assets in a portfolio, but also whether such an activity would be permissible given certain factors.
      • Draft Guidelines specific to stress testing fund liabilities to determine the effect on fund liquidity (11 to 12); and
      • LST should incorporate scenarios relating to the liabilities of the fund, including both redemptions and other types of potential sources of risk; and
      • LST should incorporate risk factors related to investor type and concentration.
    • Draft Guidelines on combined asset and liability LST (13 to 14).
      • Managers should combine the LST undertaken on both the assets and liabilities side of the fund balance sheet to determine an overall effect on fund liquidity; and
      • Aggregate LST should be undertaken by managers where appropriate.

    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.

    The Consultation Paper containing the 15 Draft Guidelines is available here.

    What's next?

    Comments on the Consultation Paper shall be submitted to the ESMA by 1 April 2019 (the response form is available here).

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

  • BMR - ESMA updates its Q&As

  • Background

    The Regulation (EU) 2016/1011 of the European Parliament and of the Council of the EU on indices used as benchmark in financial instruments and financial contracts 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.

    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 the BMR (the "BMR Implementing and Delegated Acts", available here).

    The BMR Delegated and Implementing Acts include the Commission delegated regulations (the "Delegated Regulations") supplementing the BMR with regard to, among other, the following regulatory technical standards ("RTS") which entered into force on 24 November 2018 and shall apply from 25 January 2019:

    • (EU) 2018/1637 - for the procedures and characteristics of the oversight function (available here);
    • (EU) 2018/1638 - specifying further how to ensure that input data is appropriate and verifiable, and the internal oversight and verification procedures of a contributor that the administrator of a critical or significant benchmark has to ensure are in place where the input data is contributed from a front office function (available here);
    • (EU) 2018/1639 - specifying further the elements of the code of conduct to be developed by administrators of benchmarks that are based on input data from contributors (available here); and
    • (EU) 2018/1640 - specifying further the governance and control requirements for supervised contributors (available here).

    The general public, financial market participants, CAs and other stakeholders can submit to the European Securities and Markets Authority (the "ESMA") questions on the practical application of the BMR requirements. The ESMA provides answers to these questions by publishing updates to its dedicated questions and answers document (ESMA70-145-11 — the "Q&A Document").

    On 7 November 2018, the ESMA published version 10 of the Q&A Document including a new Q&A in its Part 5 on definitions. The new Q&A 5.11 (on page 15) provided a clarification that the reference to an index in a bilateral agreement on the interest to be paid on exchanged collateral under various over-the-counter ("OTC") derivatives does not amount to "use of a benchmark".

    On 18 December 2018, the ESMA updated version 10 of the Q&A Document including 2 new Q&As in its Part 5 on definitions. The new Q&A 5.12 and Q&A 5.13 (on pages 16 - 17) concerned methodology and input data.

    What's new?

    On 30 January 2019, the ESMA published version 11 of the Q&A Document (ESMA70-145-11 – the "Updated Q&A Document") adding one question its Part 4.

    The new Q&A 4.5 (on pages 12-11) provides clarification on provisions of the BMR regarding the scope of application of the Delegated Regulations depending on the type of benchmark and in particular:

    • Regulated-data benchmarks;
    • Interest-rate benchmarks; and
    • Commodity benchmarks.

    The Updated Q&A Document is available here.

    What's next?

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

  • Brexit - Council Agreement and Signing Decision published in the OJEU

  • Background

    On 29 March 2017, the United Kingdom (the "UK") notified the European Council of its intention to withdraw from the European Union ("EU") and the European Atomic Energy Community ("Euratom") in accordance with Article 50 of the Treaty on EU (the "TEU", available here). In accordance with Article 106a of the treaty establishing Euratom (the "Euratom Treaty", available here), Article 50 TEU applies to Euratom.

    On 22 May 2017, the Council authorised the European Commission (the "Commission") to open negotiations with the UK for an agreement setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union (the "Press Release", available here).

    The negotiations were conducted in light of the guidelines of 29 April 2017, of 15 December 2017 and of 23 March 2018 (the "Guidelines", respectively available here, here and here) provided by the European Council with the overall objective of ensuring an orderly withdrawal of the UK from the Union and Euratom.

    On 25 November 2018, the European Council endorsed the agreement setting out the arrangements for the withdrawal of the UK of Great Britain and Northern Ireland from the EU and the Euratom (the "Endorsed Draft Agreement", available here). The negotiations being concluded, the Endorsed Draft Agreement should be signed on behalf of the Union, subject to the fulfilment of the procedures required for its conclusion at a later date.

    In particular, the Endorsed Draft Agreement provides for a transition period during which — notwithstanding all consequences of the UK's withdrawal from the Union as regards the UK's participation in the institutions, bodies, offices and agencies of the Union — Union law, including international agreements, will be applicable to and in the UK. The Commission, on behalf of the Union and of Euratom, should therefore notify the other parties to those agreements that the UK is to be treated as a Member State ("MS") for the purposes of those agreements during the transition period.

    On 11 January 2019, the Council announced that all delegations agreed to adopt the Council decision on the signing, on behalf of the EU and of the Euratom, of the Agreement on the withdrawal of the UK of Great Britain and Northern Ireland from the EU and the Euratom (the "Communication", available here) as set out in attached documents concerning the decision and agreement (respectively doc. XT 21106/18 — the "Adopted Decision", available here; XT 21107/18 + COR 1 (mt) — the "Agreement", available here; and XT 21116/18 the "Approved Note Verbale to 3rd countries", available here).

    What's new?

    On 19 February 2019, the final version of the text of the Agreement was published in the OJEU, as information from the Council (2019/C 66 I/01 — the "Final Agreement").

    The Final Agreement was attached to the Council decision (EU) 2019/274 of 11 January 2019 (the "Decision 2019/274") stating notably that:

    • The signing, on behalf of the Union and the Euratom, of the Final Agreement is authorised, subject to the conclusion of the said Agreement;
    • The President of the European Council and the President of the Commission is authorised to sign the Final Agreement on behalf of the Union and the Euratom; and
    • Immediately after the signature of the Final Agreement, the Commission shall notify the other parties to the international agreements referred to in Article 2(a)(iv) (including 'the international agreements to which the Union is party and the international agreements concluded by the MSs acting on behalf of the Union') of the Final Agreement, that, subject to the entry into force of the Final Agreement, the UK is to be treated as a MS for the purposes of those international agreements during the transition period.

    For further information, the Final Agreement is available here.

    The Decision 2019/274 is available here.

    What's next?

    The Decision 2019/274 shall enter into force on the date of its adoption (i.e. 11 January 2019).

    According to Article 185 of the Final Agreement, the Agreement shall enter into force on 30 March 2019. In the event that, prior to that date, the depositary of the Final Agreement has not received the written notification of the completion of the necessary internal procedures by the Union and the UK, the Final Agreement shall not enter into force.

  • Brexit - ESMA Updates on Brexit regulatory challenges

  • Background

    On 1 and 4 February 2019, the ESMA and the Luxembourg CSSF issued press releases (respectively ESMA71-99-1096 ? the "ESMA PR 1", available here; ESMA71-99-1107 ? the "ESMA PR 2", available here; and 19/07 ? the "CSSF PR", available here) on the following Memoranda of Understanding ("MoUs") which have been agreed in case the UK leaves the EU without a withdrawal agreement on 29 March 2019 (i.e. a "no-deal" Brexit):

    • MoU between the ESMA and the UK FCA concerning the exchange of information in relation to the supervision of credit rating agencies ("CRAs") and trade repositories ("TRs"). The MoU will allow the ESMA to continue to discharge its mission and meet its mandate regarding investor protection, orderly markets and financial stability in the EU (the "ESMA - UK FCA MoU");
    • A multilateral MoU between the EU/EEA securities regulators and the UK FCA which covers supervisory cooperation, enforcement and information exchange relating to, amongst others, market surveillance, investment services and asset management activities (the "EU/EEA securities - UK FCA MMoU"); and

    MoUs between the ESMA and the Bank of England on the recognition of central counterparties ("CCPs") and central securities depositories ("CSDs") established in the UK (the "ESMA - BoE MoUs").

    What's new?

    On 13 February 2019, the ESMA published a speech held by its Chair Steven Maijoor at the European Financial Forum in Dublin, Ireland, on the regulatory challenges surrounding the Brexit (ESMA71-319-91 ? the "Speech"). The Speech adopts an ex ante as well as an ex post no-deal Brexit approach, covering, on the one hand the preparations made by the ESMA, while on the other hand the long-term improvements needed to the EU's capital market. The ESMA's preparations particularly concern trading, clearing and supervisory cooperation. More specifically, this encompasses the following:

    • No longer collecting UK data under the MiFID II transparency framework after a "no-deal" Brexit;
    • Gradually phasing out UK data for future calculations submitted before a "no-deal" Brexit;
    • Taking initiative with regard to other MiFID II provisions where 3rd-country trading venues play an important role, such as the tick size regime, as well as the trading obligation for shares;
    • Starting the process to recognise UK CCPs for centrally cleared derivatives under EMIR 3rd-country regime in case of a "no-deal" Brexit;
    • Starting the process to recognise the UK CSD as a 3rd-country CSD in case of a "no-deal" Brexit, in order to allow the UK CSD to serve Irish securities and to reduce the risk of disruption to the Irish securities market; and
    • Having agreed on MoUs which apply in case of a "no-deal" Brexit (i.e. the ESMA - UK FCA MoU and the ESMA - BoE MoUs).

    For further information, the Speech is available here.

    What's next?

    On 18 February 2019, the ESMA announced in a press release (ESMA71-99-1114, available here) that it will recognise 3 UK CCPs (i.e. LCH Limited, ICE Clear Europe Limited and LME Clear Limited) as 3rd country CCPs, in the event of a "no-deal" Brexit.

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

  • Background

    The Directive 2013/50/EU (the "Amending TD", available here) amending the Directive 2004/109/EC of the European Parliament and of the Council (the "Transparency Directive", available here) on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, entered into force on 26 November 2013.

    At present, the EU's prospectus regime comprises mostly the following texts:

    • The Directive 2003/71/EC 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, which became effective on 1 July 2005 (the "Prospectus Directive", available here); and
    • The Commission Regulation (EC) No 809/2004 implementing the Prospectus Directive as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements, which also became effective on 1 July 2005 (the "Implementing Regulation", available here).

    The general public, market participants and competent authorities (the "CAs") can submit to the ESMA questions in relation to the practical application of the Transparency Directive and of the Prospectus Directive.

    What's new?

    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 Transparency Directive (ESMA31-67-127 – TD Q&A Document) and on the Prospectus Directive (ESMA31-62-780 – the "PD Q&A Document").

    As regards the TD Q&A Document, the ESMA:

    • Added new Q&A 26 (page 19-20) concerning the obligations of issuers of securities ? which currently have the UK as their TD home Member State ("MS") and are admitted to trading on one or more regulated markets in the EU27/EEA/EFTA ? when disclosing their choice of new home MS following a "no-deal" Brexit on 29 March 2019.
      • 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; and
      • The ESMA stresses that, if a withdrawal agreement is in place at the time of the UK's withdrawal, the Q&A 26 will not be applicable.

    As regards the PD Q&A Document, the ESMA:

    • Added new Q&A 103 (page 85-86) clarifying that, when issuers of equity securities and non-equity securities below EUR 1'000 who currently 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).
      • The ESMA stresses that, if a withdrawal agreement is in place at the time of the UK's withdrawal, the Q&A 103 will not be applicable.
    • Added new Q&A 104 (page 86-88) clarifying mostly that prospectuses and supplements approved by the UK 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 third country.
      • The ESMA specifies 4 ways on how issuers with prospectuses approved by the UK FCA before the UK's withdrawal should proceed following such withdrawal; and
      • The ESMA stresses that, if a withdrawal agreement is in place at the time of the UK's withdrawal, the Q&A 104 will not be applicable.

    The TD Q&A Document is available here.

    The PD Q&A Document is available here.

    What's next?

    The ESMA will continue to review and update its TD and PD Q&A Documents 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 Prospectus Directive, in accordance with Article 46 of the Prospectus Regulation.

  • Brexit - Commission issues 4 Draft Delegated Regulations amending the list of UK public entities exempted under EMIR, MAR, MiFIR and SFTR

  • Background

    In case of a "no-deal" Brexit on 29 March 2019, the following EU exemptions will cease to apply for the Bank of England ("BoE") and other relevant UK public bodies:

    • The exemption for members of the European System of Central Banks ("ESCB") and Union public bodies charged with or intervening in the management of the public debt in Article 1(4)(a) of the Regulation (EU) No 648/2012 ("EMIR", available here);
    • Article 6(1) of the Regulation (EU) No 596/2014 ("MAR", available here) establishes an exemption from its scope for transactions, orders or behaviour, in pursuit of monetary, exchange rate or public debt management policy by a Member State ("MS"), the members of the ESCB, a ministry, agency or special purpose vehicle of one or several MS, or by a person acting on its behalf, or, in the case of a MS that is a federal state, a member making up the federation. In line with that provision, the Commission delegated regulation (EU) 2016/522 ("Regulation 2016/522", available here) extends the exemption from the scope of MAR to certain public bodies and central banks of those third-country jurisdictions;
    • The exemption for the members of the ESCB and other MS’ bodies performing similar functions and other Union public bodies charged with, or intervening in, the management of the public debt in Article 2(2)(a) of the Regulation (EU) 2015/2365 ("SFTR", available here); and
    • The exemption from the pre- and post-trade transparency requirements in accordance with Article 1(6) of the Regulation (EU) No 600/2014 ("MiFIR", available here) insofar as those transactions are in pursuit of monetary, foreign exchange or financial stability policy. Such an exemption may be extended to central banks of third countries, as listed in the Commission delegated regulation (EU) 2017/1799 ("Regulation 2017/1799", available here). 

    What's new?

    On 30 January 2019, based on the information/assurance obtained from the UK, the European Commission (the "Commission") issued the following draft delegated regulations, annexes and reports to address the above-mentioned concerns (altogether the "Draft Delegated Regulations"):

    • Commission draft delegated regulation amending EMIR with regard to the list of exempted entities (C(2019) 791 final – the "EMIR Draft Delegated Regulation", available here);
      • In particular, the Commission conducted a comparative analysis of the treatment as well as of the risk-management standards applicable to the derivative transactions entered into by those bodies and by central banks in the UK (COM(2019) 62 final – the "EMIR Report", available here); and
      • The central bank of the UK and the public bodies charged with or intervening in the management of the public debt in the UK should be included in the list of exempted entities laid down in Regulation (EU) No 648/2012.
    • Commission draft delegated regulation amending Regulation 2016/522 as regards the exemption of the BoE and the UK Debt Management Office from the scope of MAR (C(2019) 792 final – respectively the "MAR Draft Delegated Regulation", available here and the "MAR Draft Annex", available here);
      • In particular, the Commission concluded in a report that it is appropriate to grant an exemption from the scope of MAR to the BoE and the UK Debt Management Office once the UK is a third country (COM(2019) 68 final – the "MAR Report", available here); and
      • The BoE and the UK Debt Management Office would be included in the list of exempted public entities set out in Regulation 2016/522.
    • Commission draft delegated regulation amending Regulation 2017/1799 as regards the exemption of the BoE and the UK Debt Management Office from the pre- and post-trade transparency requirements in MiFIR (C(2019) 793 final – respectively the "MiFIR Draft Delegated Regulation", available here and the "MiFIR Draft Annex", available here); and
      • In particular, the Commission concluded in a report that it is appropriate to grant an exemption from pre- and post-trade transparency requirements in EMIR to the central bank of the UK (COM(2019) 69 final – The "MiFIR Report", available here); and
      • The BoE would be included in the list of exempted central banks set out in Regulation 2017/1799.
    • Commission draft delegated regulation amending SFTR with regard to the list of exempted entities (C(2019) 794 final – the "SFTR Draft Delegated Regulation", available here).
      • In particular, the Commission concludes in a report that the UK central bank and public bodies charged with or intervening in the management of the public debt should be exempted from the reporting obligation under Article 4 and the reuse transparency requirements under Article 15 of SFTR (COM(2019) 63 final – the "SFTR Report", available here); and
      • The central bank of the UK and other bodies performing similar functions and other public bodies charged with, or intervening in, the management of the public debt in the UK should be included in the list of exempted entities laid down in SFTR.

    What's next?

    The Draft Delegated Regulations are subject to the scrutiny rights of the European Parliament and of the Council of the EU, pursuant to Article 290(2) of the Treaty on the functioning of the EU (available here).

    The final delegated regulations shall enter into force on the day following that of their publication in the OJEU. They shall apply from the day following that on which EMIR (respectively MAR, MiFIR or SFTR) ceases to apply to and in the UK.

  • Brexit/EMIR - ESMA announces the recognition of 3 UK CCPs in the event of no-deal Brexit

  • 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 ("TRs") applies since 16 August 2012 ("EMIR", available here). In accordance with Article 25(1) of EMIR, a CCP established in a 3rd country may provide clearing services to clearing members or trading venues established in the EU only where such CCP is recognised by the ESMA.

    On 23 November 2018, the ESMA issued a first public statement entitled "Managing risks of a no-deal Brexit in the area of central clearing" (ESMA70-151-1948 – the "Statement 1", available here).

    On 19 December 2018, the ESMA issued a second public statement announcing that it was ready to review UK CCPs' recognition applications for a no-deal Brexit scenario, if the 4 conditions under Article 25 of EMIR were met (ESMA70-151-2032 – the "Statement 2", available here).

    On 4 February 2019, the ESMA and the Bank of England announced that they had agreed Memoranda of Understanding ("MoUs") for the recognition of CCPs and central security depositories ("CSDs"), that would take effect should the UK leave the EU without a withdrawal agreement (ESMA71-99-1107 – the "Press Release on MoUs", available here).

    What's new?

    On 18 February 2019, following-up on the Public Statements 1 and 2 and the Press Release on MoUs, the ESMA issued a press release, announcing that it will, in the event of a no-deal Brexit, recognise 3 CCPs established in the UK to provide their services in the EU (ESMA71-99-1114 – the "Press Release on CCPs").

    Under a no-deal Brexit scenario, the ESMA would adopt decisions to recognise LCH Limited, ICE Clear Europe Limited and LME Clear Limited as 3rd country CCPs under Article 25 of EMIR.

    The Press Release on CCPs is available here.

    What's next?

    Under a no-deal Brexit scenario, the 3 above-mentioned recognition decisions would take effect on the date following Brexit date.

    In addition, the ESMA stresses that the recognition process for UK CSDs is still ongoing, the results of which will be published as soon as the process is finalised.

  • Brexit/EMIR - ESMA clarifies the reporting and handling of derivatives data in case of "no-deal" Brexit

  • 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 ("TRs") applies since 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.

    In relation to transparency, Article 9 of EMIR provides that counterparties and CCPs must report detailed information on the conclusion, modification or termination of derivative contracts to a TR ("EMIR Data").

    Key ESMA measures on the implementation of EMIR are available here.

    What's new?

    On 1 February 2019, the ESMA issued a public statement on how EMIR Data should be handled in the event of the UK leaving the EU without a withdrawal agreement, i.e. a "no-deal" Brexit (ESMA70-151-1997 – the "Statement"). Based on different EMIR reporting scenarios, namely where both counterparties are from the EU27, both are from the UK, and where one is from the EU27 and the other from the UK, the Statement clarifies:

    • Reporting by counterparties and CCPs;
    • Reconciliation and recordkeeping by TRs and counterparties;
    • EMIR Data Access by the EU27 competent authorities; and
    • Portability and aggregation of data by TRs.

    On 4 February 2019, the ESMA updated its questions and answers' document on the implementation of EMIR (ESMA70-1861941480-52 – the "Q&A Document"). In particular, the ESMA added technical clarification regarding contracts with no maturity date (TR Q&A 34 on pages 93-94), on trades terminated before reporting deadline (TR Q&A 38 on page 96), and on reporting of confirmation means (New TR Q&A 50 on page 113).

    On 7 February 2019, the ESMA launched a new webpage regrouping all the information published by the ESMA on Brexit (the "ESMA's Brexit Webpage"). More specifically, the ESMA's Brexit Webpage contains information on (i) clearing and settlement – access to UK CCPs and UK central securities depositories ("CSDs"), (ii) credit rating agencies ("CRAs") and TRs, (iii) cooperation agreements, and (iv) supervisory convergence.

    The Statement is available here.

    The Q&A Document is available here.

    The ESMA's Brexit Webpage is available here.

    What's next?

    The Statement sets out the timeline for completion of the relevant adjustments by the EU27 TRs.

    The ESMA will continue to review and update the Q&A Document and the ESMA's Brexit Webpage where required.

  • CMU - Council Presidency and Parliament reach Political Agreement on Commission cross-border distribution proposals

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

    Further information on the Proposals is available here.

    What's new?

    On 5 February 2019, the Presidency of the Council of the EU (the "Council") and the European Parliament (the "Parliament") reached a political agreement on the Proposals (the "Agreement").

    As a reminder, the main changes introduced by the agreed rules are as follows:

    • Making it easier for EU AIF managers 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.

    The Council press release on the Agreement is available here.

    The Parliament press release on the Agreement is available here.

    The Commission press release on the Agreement is available here.

    What's next?

    The Agreement will be submitted to EU ambassadors for endorsement, after which it will undergo a legal linguistic revision. The Parliament and the Council will then be called on to adopt the proposed regulation and directive at first reading.

  • CSDR - ESMA updates its Q&As

  • Background

    The Regulation (EU) No 909/2014 of the European Parliament and of the Council of the EU on improving securities settlement in the EU and on central securities depositories ("CSDs") applies since 1 January 2015 (the "CSDR", available 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 the CSDR (the "CSDR Delegated Acts", available here). The CSDR Delegated Acts include the Commission Delegated Regulations which supplement the CSDR with regard to, among other, the following regulatory technical standards ("RTS"):

    • (EU) 2018/1229 - on settlement discipline, which was published in the Official Journal of the EU ("OJEU") on 13 September 2018 and shall enter into force on 13 September 2020 (the "RTS on Settlement Discipline", available here); and
    • (EU) 2017/390 - on certain prudential requirements for CSDs and designated credit institutions offering banking-type ancillary services, which entered into force on 30 March 2017 (the "RTS on CSD Requirements", 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 the CSDR requirements. The ESMA provides answers to those questions by publishing updates to its questions and answers' document on implementation of the CSDR (ESMA70-708036281-2 — the "Q&A Document", available here).

    On 12 November 2018, the ESMA last updated the following parts of the Q&A Document:

    • Part II on CSD, including two new sub Q&A added to Q&A 9 (on pages 22 - 23) relating to provision of services in another Member State; and
    • Part III on settlement discipline, including three new sub Q&A added to Q&A 3 (on page 26) relating to the calculation of cash penalties.

    What's new?

    On 30 January 2019, the ESMA updated Part III of the Q&A Document (ESMA70-708036281-2 – the "Updated Q&A Document") clarifying two aspects of the settlement discipline regime in relation to calculation and scope of cash penalties:

    • A new sub Q&A added to Q&A 3 (on page 26) confirms that the net amounts of cash penalties, referred to in Article 17 of the RTS on Settlement Discipline, should be calculated per settlement currency and do not need to be converted in Euros; and
    • A new Q&A 4 (on page 27) explains that there are exceptional situations where should not be applied the cash penalty mechanism provided for under Article 7(2) of the CSDR. In addition to situations where insolvency proceedings are opened against the failing participant in accordance with Article 7(12) of the CSDR, cash penalties should not be applied in certain situations where settlement cannot be performed for reasons that are independent from the involved participants:
      • International securities identification number ("ISIN") suspension from settlement due to a reconciliation issue under Article 65 (2) and (6) of the RTS on CSD Requirements;
      • ISIN suspension from trading;
      • Settlement instructions involving cash settlement outside the securities settlement system operated by the CSD if, on the respective day, the relevant payment system is closed for settlement; and
      • Technical impossibilities at the CSD level that prevent settlement.

    The Updated Q&A Document is available here.

    What's next?

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

  • EuSEF/EuVECA - Commission publishes 2 Draft Delegated Regulations on conflicts of interest

  • Background

    The Regulation (EU) No 345/2013 on European venture capital funds (the "EuVECA Regulation", available here) and the Regulation (EU) No 346/2013 on European social entrepreneurship funds (the "EuSEF Regulation", available here) apply since 22 July 2013 (altogether referred as the "Regulations").

    The Regulations provide for a common EU framework for the managers of EuSEF and EuVECA funds, and for harmonised passporting rules in order to manage and market funds in the EU with the specific EuVECA and EuSEF labels. While EuVECA funds support young and innovative companies, EuSEF focus on enterprises whose aim is to achieve positive social impact.

    Article 9(5) of the Regulations empowers the European Commission ("Commission") to adopt delegated acts specifying:

    • The types of conflicts of interest which managers of qualifying EuVECA and EuSEF need to identify; and
    • The steps to be taken by managers of qualifying EuVECA and EuSEF in terms of structure and organisational and administrative procedures in order to identify, prevent, manage, monitor and disclose conflicts of interest.

    The Regulation (EU) 2017/1991 amending the Regulations applies since 1 March 2018 (the "Regulation 2017/1991", available here). The latest consolidated texts of the EuVECA Regulation and of the EuSEF Regulation are respectively available here and here.

    What's new?

    On 1 February 2019, the Commission published its draft delegated regulation (EU) …/... supplementing the EuSEF Regulation with regard to conflicts of interest, social impact measurement and information to investors in the area of EuSEF (C(2019) 669 final – the "Draft DR on EuSEF").

    On 4 February 2019, the Commission published its draft Delegated Regulation (EU) …/... supplementing the EuVECA Regulation with regard to conflicts of interest in the area of EuVECA (C(2019) 664 final – the "Draft DR on EuVECA"). For ease of reading, the Draft DR on EuSEF and the Draft DR on EuVECA are altogether referred as the "Draft Delegated Regulations".

    The common provisions of the Draft Delegated Regulations encompass the following areas:

    • Types of conflict of interest in the context of qualifying EuSEF/EuVECA;
    • The obligation of managers of qualifying EuSEF/EuVECA to establish, implement and maintain an effective conflicts of interest policy;
    • The steps to be taken as part of the procedures and measures aimed at preventing, managing and monitoring conflicts of interest;
    • The minimum steps where the procedures and measures of the conflicts of interest policy are insufficient to prevent risks to qualifying EuSEF/EuVECA and their investors;
    • The requirements for managers of qualifying EuSEF/EuVECA to develop strategies for exercising voting rights to prevent conflicts of interest; and
    • The requirements, the format and certain conditions pertaining to the disclosure of conflicts of interest.

    In addition, the Draft DR on EuSEF specifies the content of certain information referred to in Article 14(1) of the EuSEF Regulation to be provided to investors (e.g. description of the investment strategy and objectives, information on positive social impact, or information about support services).

    The Draft DR on EuSEF is available here.

    The Draft DR on EuVECA is available here.

    What's next?

    In accordance with Article 25(5) of the EuVECA Regulation and Article 26(5) of the EuSEF Regulation, the Draft Delegated Regulations are subject to the objection rights of the European Parliament and of the Council of the EU during a 3-month period following their notification by the Commission (this period can be extended by 3 months at their initiative).

    In case of no objection within the said period(s), the Draft Delegated Regulations shall enter into force on the 20th day following that of their publication in the OJEU.

    Noteworthy is that Article 7 of the Draft DR on EuVECA (respectively Article 13 of the draft DR on EuSEF) defers the application date by 6 months following the entry into force date, in order to provide managers of qualifying EuVECA/EuSEF time to adapt to the new requirements.

  • PRIIPs Regulation/UCITS - ESAs publish Final Report including Supervisory Statement on proposed amendments to PRIIPs KID

  • Background

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

    Against this background, the Commission delegated regulation (EU) 2017/653 supplementing the PRIIPs Regulation lays down regulatory technical standards ("RTS") with regard to the presentation, content, review and revision of the KIDs and the conditions for fulfilling the requirement to provide such documents (the "Delegated Regulation", available here).

    On 1 October 2018, the European Supervisory Authorities (the "ESAs") issued their response to the "Commission request to develop guidance on facilitating the production and distribution of information on investment funds as of 1 January 2020" (JC 2018 55 – the "Response", available here). In the Response, the ESAs expressed their concerns regarding the possibility of duplicating information requirements for investment funds from 1 January 2020 ("An approach whereby retail investors will receive both PRIIPs KIDs and UCITS KIIDs is not satisfactory and risks undermining the aims of the PRIIPs Regulation").

    On 8 November 2018, the ESAs launched a joint consultation paper concerning targeted draft amendments to the Delegated Regulation (JC 2018 60 ? the "CP", available here). In particular, Section 4 of the CP discussed the nature of the proposed amendments in relation to the approach for performance scenarios, the expiration of the UCITS exemption in Article 32 of the PRIIPs Regulation and a limited number of specific issues based on the information gathered by the ESAs. Consultation deadline to submit feedback to the CP was 6 December 2018 (having regard to the urgency of the matter, a shortened period of public consultation was considered appropriate).

    On 3 December 2018, the European Parliament Committee on Economic and Monetary Affairs (the "ECON") adopted amendments to the PRIIPs Regulation, which provide for:

    • A review of the PRIIPs Regulation by 31 December 2019 (amendment to Article 33); and
    • An extension of the exemption for UCITS and relevant non-UCITS funds until 31 December 2021 (amendment to Article 32).

    What's new?

    On 8 February 2019, the ESAs published a final report, which (i) summarises the responses received to the CP on amendments to the Delegated Regulation concerning the PRIIPs KID, and (ii) sets out the next steps regarding the work to review the Delegated Regulation in 2019 (JC 2019 6.2 ? the "Final Report").

    As discussed in the CP, the ESAs recognise the concern that the information in the PRIIPs KID describing what retail investors could get in return (the "performance scenarios") may, in view of the recent economic environment, provide an overly positive outlook. Therefore, the ESAs published a Supervisory Statement ? attached as an annex to the Final Report ? which recommends that PRIIP manufacturers take the following into account in relation to the presentation of performance scenarios by means of the Templates A and B of Part 2 of Annex V of the Delegated Regulation:

    • PRIIP manufacturers include a statement in the KID warning retail investors of the limitations of the figures shown;
    • PRIIP manufacturers take the following approach, or a similar approach where adjustments to the proposed wording are necessary to reflect specific features of the PRIIP:
    • To add under the heading of "Performance scenarios" within the section "What are the risks and what could I get in return", an additional warning that: Market developments in the future cannot be accurately predicted. The scenarios shown are only an indication of some of the possible outcomes based on recent returns. Actual returns could be lower;
    • Other relevant information provided to retail investors in relation to the PRIIP at the pre- or post-contractual stage could include additional explanations or put the performance scenario figures in the KID in additional context; and
    • Any steps taken should be proportionate and should provide information that is complementary to the existing information within the KID. Any additions should be limited to what is considered essential to ensure that the presentation of performance scenarios is fair, accurate, clear and not misleading. Retail investors should not be encouraged to disregard the information in the KID.

    Taking into account the discussions between the EU co-legislators on the application of the KID by UCITS and relevant non-UCITS funds and the timing of a review of the PRIIPs Regulation, together with the feedback to the CP, the ESAs decided that the timing was not appropriate to propose amendments to the Delegated Regulation.

    For further information, the Final Report is available here.

    What's next?

    The national competent authorities (the "NCAs") are recommended to monitor whether the steps taken by PRIIP manufacturers are in line with the above recommendations.

    From a process perspective, the ESAs highlighted the following next steps:

    • The ESAs intend to finalise their work, including proposing new RTS by the end of 2019, well before the expected end of the extended exemption (i.e. adopted by the ECON, but not yet ratified by the Commission and the Council) for UCITS and relevant non-UCITS funds at the end of 2021. Amendments to the Delegated Regulation could be applied to existing PRIIPs during 2020 before the expected end of the aforementioned exemption;
    • The ESAs will work with the Commission regarding the possibility to test both the existing KID approaches and new proposals on consumers; and
    • The ESAs will continue to engage with stakeholders, including on any specific legislative changes proposed and would expect to launch a further public consultation in 2019. The ESAs will also consider the relevance of re-establishing a consultative expert group in order to gather technical input and expertise from external stakeholders.
  • Securitisation Regulation - ESMA issues Opinion and Q&As on disclosure technical standards

  • Background

    The Regulation (EU) 2017/2402 of the European Parliament and of the Council laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised ("STS") securitisation applies since 1 January 2019 (the "Securitisation Regulation", available here).

    On 22 August 2018, the ESMA issued its final report concerning draft technical standards on disclosure requirements pursuant to Articles 7 and 17 of the Securitisation Regulation (ESMA33-128-474 – the "Final Report", available here).

    In a letter dated 30 November 2018, the European Commission ("Commission") informed the ESMA that it intends to endorse those draft technical standards only once certain amendments are introduced (the "EC Letter", available here).

    The Commission requested the ESMA to examine whether the 'No Data" option could be available for additional fields of the draft templates (especially for asset-backed commercial paper ("ABCP") securitisation). In addition, the Commission requested the ESMA to closely monitor the use of and need for these 'No Data' options in each template field, as part of its future contribution to the Joint Committee's report mandated in Article 44 of the Securitisation Regulation.

    Based on the EC Letter, the ESMA may amend the draft technical standards presented in the Final Report within 6 weeks and submit them in a formal opinion to the Commission.

    What's new?

    On 31 January 2019, the ESMA issued an opinion containing a revised set of draft regulatory and implementing technical standards ("Disclosure RTS/ITS") under the Securitisation Regulation, which concern the details of a securitisation to be published by the originator, sponsor and Securitisation Special Purpose Entity ("SSPE"), as well as the relevant format and templates (ESMA33-128-600 – the "Opinion").

    In this context, the ESMA agrees with the above-mentioned Commission’s requests to amend its disclosure RTS/ITS and substantially expanded the ability for reporting entities to use the ‘No Data’ options in the respective disclosure templates (especially for ABCP securitisation). Furthermore, the ESMA adjusted the content of certain fields in the templates, where it considered that this could more appropriately address the EC Letter. The ESMA also clarified the templates to be used to provide any inside information, as well as information on significant events affecting the securitisation, in accordance with Article 7(1) (f) and (g) of the Securitisation Regulation.

    Besides, based on the feedback received to the Final Report, the ESMA issued a set of questions and answers in order to provide a comprehensive package of clarifications for market participants (ESMA33-128-563 – the "Q&As Document"). The Q&As Document covers many technical issues on how to complete template fields and aim at providing guidance to market participants seeking further context to comply with the Disclosure RTS/ITS.

    The ESMA highlights that, before the "possible adoption" of the Disclosure RTS/ITS by the Commission, they are subject to "possible changes".

    The Opinion is available here.

    The Q&As Document is available here.

    What's next?

    The ESMA has sent the Opinion containing the Disclosure RTS/ITS to the Commission for endorsement.

    The Disclosure RTS/ITS will contribute to delivering a regulatory rulebook for EU securitisation markets.

    The XML schema for these templates were published on the ESMA website on 1 February 2019 (available here).

  • BELGIUM

    Publication of the annual list of the Specialised Real Estate Investment Funds

  • Background

    On 5th February 2019, the Federal Public Services Finance (FPS Finance) published the updated list of the Specialised Real Estate Investment Funds (FIIS) in Belgium, drawn up and kept by the FPS Finance in accordance with Art. 3, §2, of the Royal Decree dated 9 November 2016 on specialised investment funds. In application of Art. 5 of this decree, the list must be published annually on the Belgian gazette.

    What's new?

    The list identifies all the registered Belgian FIIS, which comply with all the legal and regulatory requirements, and those that requested to be deregistered. The list is available, anytime, on the FPS Finance website.

  • Additional delay for registering beneficial owners in the Ultimate Beneficial Owners register (“UBO register”)

  • Background

    Following the law of 18th September 2017 on prevention of money laundering and terrorist financing and on limitation of the use of cash, a Royal Decree defining the modalities for the functioning of the UBO register, dated 30th July 2018, was published on 14th August 2018.

    What's new?

    The relevant entities are requested to identify their ultimate beneficial owners, collect the appropriate, accurate information and support them by providing relevant documents, implement internal processes to ensure any update of the UBO register within one month in case of information’s modification.

    What's next?

    Although the Royal Decree entered into force on 31st October 2018, the relevant entities benefited an additional delay until 31st March 2019 to register their beneficial owners. The delay has been extended by six months, to 30th September 2019.

  • LUXEMBOURG

    AML/CFT - CSSF launches Annual cross-sector Survey

  • Background

    On 20 April 2018, pursuant to the European Supervisory Authorities' risk-based supervision guidelines (ESAs 2016 72 ? the "ESAs Guidelines", available here) and the Financial Action Task Force's recommendations (the "FATF Recommendations", available here), the CSSF informed professionals under its supervision that it would henceforth conduct an annual online survey (the "Annual Survey") collecting standardised key information concerning money laundering and terrorist financing ("ML/TF") risks (the "PR 18/15", available here).

    Against this background. the CSSF has elaborated new sector specific questionnaires supporting on the one hand, the identification of ML/TF risk factors most notably related to clients, countries and geographical areas, delivery or distribution channels, products and services of supervised entities and, on the other hand, the measures put in place to mitigate these risks.

    What's new?

    On 12 February 2019, the CSSF issued the press release 19/10 entitled 'Survey related to the fight against money laundering and terrorist financing' (the "PR 19/10"). The PR 19/10 informs that the CSSF launched the Annual Survey, which collects standardised key information on ML/TF risks to which professionals under the CSSF's supervision are exposed, as well as on the implementation of related risk mitigation and targeted financial sanctions measures.

    The PR 19/10 is available here.

    What's next?

    On 20 February 2019, the CSSF published on its website the Ministerial regulation of 18 February 2019, which amends the Annex I C of the Grand-ducal Regulation of 29 October 2010 enforcing the Law of 27 October 2010 relating to the implementation of UN Security Council resolutions as well as acts adopted by the EU concerning prohibitions and restrictive measures in financial matters in respect of certain persons, entities and groups in the context of the combat against terrorist financing (the "Ministerial Regulation", available here only in French).

  • AML/CFT - Implementing Regulation on the BO Register published in the Memorial A

  • Background

    The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing applies since 26 June 2017 ("4AMLD", available here). In particular, Article 30 of 4AMLD provides for the creation of a register of beneficial owners ("BO Register") in each Member State.

    The Directive (EU) 2018/843 ("5AMLD", available here), which entered into force on 9 July 2018 and will apply from 10 January 2020, opens the access to this information to the public at large as it has removed the need to demonstrate a legitimate interest to access to the information filed with the BO Register.

    On 15 January 2019, based on the adopted "Bill 7217" (available here only in French), the Luxembourg law of 13 January 2019 establishing a BO Register ('Registre des bénéficiaires effectifs" or "RBE" in French) was published in the Luxembourg Memorial A15 (the "Law", available here only in French). In accordance with Article 1(2°) of the Law, the BO Register will be managed by the Luxembourg Business Registers ("LBR", available here) from 1 March 2019.

    On 22 January 2019, the Luxembourg Conseil d'état ("CE") published its opinion (N°CE: 53.091 – the "Opinion", available here only in French) on a draft Grand-ducal regulation implementing the Law (the "Draft Regulation", available here only in French).

    In this context, the Draft Regulation comprises the following 4 Chapters and Annex A:

    • Registration procedures of the BO (Articles 1 to 6);
    • Access to (BO) information (Articles 7 to 10);
    • Payment terms (Articles 11 to 12);
    • Transitional, amending and repealing provisions (Articles 13 to 15); and
    • Table of administrative costs (in relation to the functioning of the BO Register).

    In the Opinion, the CE recommends to amend or delete Articles 4 (2), 5. c), 8, 11, 12, 13 and the Annex A of the Draft Regulation.

    What's new?

    On 19 February 2019, based on the Draft Regulation and the Opinion, the Grand-ducal regulation of 15 February 2019, which relates to registration, payment of administrative fees and access to information recorded in the BO Register, was published in the Luxembourg Memorial A73 (the "Final Regulation").

    Besides some minor deletions or amendments to the Draft Regulation (following most of the CE recommendations), the overall structure of the Final Regulation remains identical to the one used in the Draft Regulation (still containing 15 Articles in 4 Chapters). However, it is to be noted that Article 5(1°) and (3°) of the Final Regulation concerning supporting documentation (pursuant to Article 4(3) of the Law) has been further clarified.

    The Final Regulation ('Règlement grand-ducal du 15 février 2019 relatif aux modalités d’inscription, de paiement des frais administratifs ainsi qu’à l’accès aux informations inscrites au Registre des bénéficiaires effectifs') is available here (only in French).

    What's next?

    The Law and the Final Regulation will enter into force on 1 March 2019.

    Pursuant to Article 13 of the Final Regulation, entities subject to the Law will be exempted to pay the administrative fees detailed in the Annex A to the Final Regulation until 1 September 2019 (i.e. 6 months after the entry into force of the Final Regulation).

  • Brexit - CSSF communicates on Delegation of Investment Management and TPR

  • Background

    Article 110 of the Luxembourg law of 17 December 2010 (the "UCI Law", available here), Article 32 of the Luxembourg law of 12 July 2013 (the "AIFM Law", available here), and Article 42b of the Luxembourg law of 13 February 2007 (the "SIF Law", available here), permit the delegation of investment management/portfolio management and/or risk management activities to undertakings in countries outside the EU ("Third Countries") under specific conditions (altogether the "Legislation").

    On 7 November 2018, the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 entered into force in the UK, except for those provisions relating to the repeal of passport rights which shall enter into force on the "exit day"/29 March 2019 (the "Temporary Permissions Regulations", available here).

    On 7 January 2019, the UK Financial Conduct Authority ("FCA") opened the notification window for the temporary permissions regime ("TPR") until 28 March 2019 (available here). The TPR shall allow EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for a limited period, while they seek full FCA authorisation, if the UK leaves the EU on exit day without an implementation period in place. It shall also allow EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK. Against this background, firms and funds will need to notify the FCA that they wish to use the regime by submitting the relevant notification before 28 March 2019. Firms or funds that have not submitted a notification will not be able to use the TPR. Further information on the TPR is available here.

    At EU level, the European Commission issued a communication entitled 'Preparing for the withdrawal of the UK from the EU on 30 March 2019: Implementing the Commission’s Contingency Action Plan' on 19 December 2018 (COM(2018) 890 final – the "Communication", available here). Further information on the EBA and ECB Brexit preparation guidance for financial institutions is respectively available here and here.

    What's new?

    On 25 January 2019, the CSSF published the press release 19/05 entitled 'Brexit: delegation of investment management; TPR' (the "PR 19/05"), which concerns the following areas:

    • Delegation of investment management/portfolio management and/or risk management activities to undertakings in the UK;
      • In the context of a "no deal" Brexit, the CSSF stresses that the Legislation allows for the said delegations to undertakings in the UK, which would become a Third Country, provided that (i) these undertakings are authorised or registered for the purpose of asset management, (ii) are subject to prudential supervision, and that (iii) cooperation between the UK FCA as supervisory authority of these undertakings and the CSSF is ensured.
    • Operating and marketing in the UK by firms and investment funds established in Luxembourg; and
      • Firms and funds established in Luxembourg that make use of the TPR are required to duly inform the CSSF of any notifications made under the TPR, as soon as they have submitted their notification, by sending an email notification to the dedicated address: opc@cssf.lu; and
      • The email notification must include the name of the firm, fund or sub-fund and a detail of the services/activities for which the TPR notification has been submitted as well as the date of the TPR notification.
    • TPR for financial institutions post Brexit
      • The CSSF reminds Luxembourg financial institutions that the foreseen notification window opened on 7 January 2019 and closes on 28 March 2019; and
      • The CSSF refers to the Communication as well as the guidance provided by the EBA and the ECB to financial institutions, including, banks, to prepare for Brexit and mitigate major "cliff-edge issues".

    The PR 19/05 is available here.

    What's next?

    The CSSF endeavours that the required cooperation between the FCA and the CSSF shall be in place on 29 March 2019 in the event of a "no deal" Brexit. On this basis, delegation of investment management/portfolio management and/or risk management to UK undertakings shall continue to be possible without any disruption post-Brexit, under the condition that the UK delegate continues to fulfil all applicable requirements.

  • Financial Supervision - Circular CSSF 19/708 on electronic transmission of documents enters into force on 1 February 2019

  • Background

    In Luxembourg, the electronic transmission of prospectuses and financial reports of Undertakings for Collective Investment ("UCIs") and Specialised Investment Funds ("SIFs") to the CSSF was specified in the circular CSSF 08/371 (the "Circular 08/371", available here).

    On 2 December 2009, the CSSF published its circular 09/423 regarding the electronic transmission to the CSSF of the long form reports and management letters, which was addressed to all UCIs and to all those that take part in the functioning and control of these UCIs (the "Circular 09/423", available here).

    What's new?

    On 29 January 2019, the CSSF issued its circular 19/708 concerning the electronic transmission of documents to the CSSF (the "Circular 19/708"), which is addressed to all Luxembourg investment fund managers ("GFI" in French), to all Luxembourg UCIs ("OPC" in French), pension funds, securitisation undertakings, and to all those that take part in the functioning of these entities.

    In this context, the purpose of the Circular 19/708 is to specify the procedures for the electronic transmission of UCIs' documents to the CSSF. In addition, the Circular 19/708 aims at extending the electronic communication of documents via a secured system for Luxembourg securitisation undertakings, pension funds, investment companies in risk capital ("SICAR" in French), and "GFI" as defined in the Circular 19/708.

    Noteworthy is the Annex to the Circular 19/708, which contains the list of documents to be transmitted, from now on only by electronic means, as well as the relevant nomenclature to be used. In principle, the documents shall be sent in PDF-text format and must not prevent reading access, printing, selecting (copy/paste) and searching for specific words.

    Besides, the CSSF points out that the "déposant" is responsible for the content and format of the transmitted document. In particular, it is the "déposant's" responsibility to ensure that the transmitted documents correspond to the official and final "paper" version.

    For further information, the Circular 19/708 is available here (only in French).

    What's next?

    The Circular 19/708 will enter into force on 1 February 2019. Any other form of communication used after that date will be considered as null and void. The Annex, which shall be published and kept up-to-date on the CSSF's website, should be regularly consulted by the entities concerned to keep abreast of the list of documents that the CSSF will expect to receive only by electronic means.

    The Circular 19/708 will repeal the Circular 08/371 and the Circular 09/423.

  • SRD II - Government submits Bill 7402 transposing Directive (EU) 2017/828 on the encouragement of long-term shareholder engagement to Parliament

  • Background

    The Directive 2007/36/EC of the European Parliament and of the Council on the exercise of certain rights of shareholders in listed companies applies since 3 August 2009 ("SRD", available here). SRD gives the right to listed companies to identify their shareholders and requires intermediaries to cooperate in that identification process. SRD also aims to improve the communication by listed companies to their shareholders, in particular the transmission of information along the chain of intermediaries and requires intermediaries to facilitate the exercise of shareholders rights (e.g. the right to participate and vote in general meetings, or financial rights). At Luxembourg level, the law of 24 May 2011 on the exercise of certain rights of shareholders in listed companies has transposed SRD (the "2011 Law", available here only in French).

    The Directive (EU) 2017/828 of the European Parliament and of the Council amending SRD as regards the encouragement of long-term shareholder engagement entered into force on 9 June 2017 and shall be transposed in Luxembourg legislation by 10 June 2019 ("SRD II", available here). The 5 key areas of SRD II can be summarised as follows:

    • SRD II shall ensure that listed companies are able to identify their shareholders and obtain without delay information regarding shareholder identity from any intermediary in the chain that holds the information. The main purpose is to facilitate the exercise of shareholder rights and their engagement with the company;
    • Institutional investors and asset managers shall disclose an engagement policy describing how they integrate shareholder engagement in their investment. Besides, asset managers should give information to the institutional investor that is sufficient to allow the latter to assess whether and how the manager acts in the best long-term interest of the investor;
    • Proxy advisors, who provide research, advice and recommendations on how to vote in general meetings ("GM") of listed companies, shall publicly disclose reference to a code of conduct which they apply and report on the application of such code of conduct;
    • Listed companies shall pay remuneration to their directors only in accordance with a remuneration policy that has been approved by the GM. In particular, remuneration policy shall be publicly disclosed without delay after the vote by the shareholders at the GM; and
    • SRD II provides that material related party transactions ("RPT") shall be submitted to approval by the shareholders or by the administrative or supervisory body. Listed companies shall publicly disclose material transactions with related parties at the latest at the time of the conclusion of the transaction, together with information necessary to assess whether or not the transaction is fair and reasonable.

    What's new?

    On 4 February 2019, the Luxembourg Minister of Justice submitted the bill 7402 transposing most Articles of SRD II to the Luxembourg Parliament (the "Bill 7402").

    In this context, the Bill 7402 comprises the following 5 chapters that will modify the overall structure of the 2011 Law:

    • Chapter I - General provisions;
    • Chapter II - Identification of shareholders, transmission of information and facilitation of the exercise of shareholder rights;
    • Chapter III - Transparency of institutional investors, asset managers and proxy advisors;
    • Chapter IV - GM of shareholders; and
    • Chapter V - Sanctions.

    At this stage, the transposition options exercised by the Luxembourg Government are listed in the below table:

    Topic Description of the Luxembourg option Relevant Article
    of the Bill 7402
    Relevant Article
    of SRD II
    Identification of shareholders Companies would be allowed to request the central securities depositary ("CSD") or another intermediary or service provider to collect the information regarding shareholder identity. Article 2(2) Article 3a(3)
    Upon request, the intermediary would have to communicate to the company without delay the details of the next intermediary in the chain of intermediaries. Article 2(2) Article 3a(3)
    Facilitation of the exercise of shareholder rights Upon request, shareholders would obtain confirmation that their electronic votes have been validly recorded and counted within 2 months after the GM. Article 4(2) Article 3c(2)
    Remuneration policy of directors The vote at the GM on the remuneration policy would be advisory. Article 17(2) Article 9a(3)
    In exceptional circumstances, companies would be allowed to temporarily derogate from the remuneration policy. Article 17(4) Article 9a(4)
    Information to be provided in and right to vote on the remuneration report For small and medium-sized companies, as an alternative to a vote, the remuneration report of the most recent financial year(s) would be submitted for discussion in the annual GM. Article 18(5) Article 9b(4)
    Transparency and approval of RPT Companies would be allowed to exclude from RPT:
    a) Transactions entered into between the company and its subsidiaries provided that they are wholly owned or that no other related party of the company has an interest in the subsidiary undertaking;
    b) Transactions regarding remuneration of directors, or certain elements of remuneration of directors, awarded or due;
    c) Transactions entered into by credit institutions on the basis of measures, aiming at safeguarding their stability, adopted by the CSSF;
    d) Transactions offered to all shareholders on the same terms where equal treatment of all shareholders and protection of the interests of the company is ensured.
    Article 19(6) Article 9c(6)

    For further information, the Bill 7402 is available here (only in French).

    What's next?

    The Bill 7402 should be referred to the parliamentary Commission of Justice for further discussion.

    The final version of the transposition law should enter into force on the first day of the following month after publication in the Luxembourg Memorial A.

  • TAX UPDATES

    EU Blacklist - EU warns watch-list countries that new regimes are still harmful

  • Background

    In January 2016, the Commission launched a three-step process for establishing the common EU list of non-cooperative jurisdictions as part of its broader agenda to curb tax evasion and avoidance. This initiative was justified by the fact that a common EU list of non-cooperative jurisdictions will carry much more weight than the existing patchwork of national lists when dealing with non-EU countries that refuse to comply with international tax good governance standards.

    On 5 December 2017, the ECOFIN Council published its conclusions on the EU common list of non-cooperative jurisdictions in tax matters, also referred to as the "blacklist". This initiative forms part of the EU’s broader agenda on furthering tax transparency, fair taxation and the implementation of anti-BEPS measures with the dual aim of raising the level of good global governance and tackling tax fraud, evasion and avoidance.

    On 21 March 2018, guidelines have been adopted which marked the first step in stopping the transit of EU funds through non-cooperative tax jurisdictions.

    What's new?

    On 1 February 2019, the EU Code of Conduct Group warned, through a series of letters, government officials of Barbados, Belize, Curaçao, Mauritius, Seychelles and St. Lucia that recent reforms will not be sufficient to keep their countries off the EU blacklist.

    The link is available here.

    What's next?

    The countries pointed out by the EU Code of Conduct Group should continue to reform their tax systems in order to comply with the new international 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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