1 Update of the ESMA Q&As relating to the application of AIFMD
On 19 July 2016 and 6 October 2016 respectively, the European Securities and Markets Authority (“ESMA”) updated its Questions and Answers with regard to the application of the Alternative Investment Fund Managers Directive (“AIFMD”) (Ref. ESMA/2016/1439) (“AIFMD Q&As”). The new points concern the impact on the AIFMD of (i) Regulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”), and (ii) Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (“SFTR”):
- In Section XII of the AIFMD Q&As, ESMA clarifies that alternative investment fund managers (“AIFMs”) cannot rely, other than as a point of reference, on the valuation provided by the central counterparty (the “CCP”) for OTC financial derivative transactions which are centrally cleared and subject to the reporting obligation of EMIR. AIFMs must have in place a process for proper and independent verification of the value of such transactions. Nevertheless, the AIFM should be able to justify any deviation from the valuation provided by the CCP.
- In Section XIII of the AIFMD Q&As, ESMA clarifies that under Article 13 of SFTR, information relating to securities financing transactions and total return swaps shall be disclosed by management companies of undertakings for collective investment in transferable securities (“UCITS”), UCITS investment companies and AIFMs, in the next annual report of each UCITS/alternative investment fund (“AIF”) under management (or half-yearly report for UCITS), to be published after 13 January 2017 (which may relate to a reporting period beginning before that date).
The latest version of the AIFMD Q&As is available on ESMA’s website. https://www.esma.europa.eu/sites/default/files/ library/2016-1436_qa_aifmd.pdf
2 Update of the ESMA Q&As relating to the application of the UCITS Directive
On 19 July 2016 and 12 October 2016 respectively, ESMA updated its Questions and Answers with regard to the application of the UCITS Directive (Ref. ESMA/2016/1455) (“UCITS Q&As”). The new points concern (i) regulated markets under the UCITS Directive, (ii) translation requirements in relation to the remuneration disclosure, (iii) reinvestment of cash collateral, and (iv) the impact of EMIR and SFTR on the UCITS Directive:
- In Section I of the UCITS Q&As, ESMA clarifies that the term "regulated market in a Member State" may be understood to include a "multilateral trading facility" ("MTF") operated in the EU, provided that such an MTF meets the requirements set out in Article 50(1)(b) of the UCITS Directive. Furthermore, instruments which are traded on an MTF must comply with the Eligible Assets Directive requirements. Therefore, a UCITS proposing to invest in this type of instrument should actively seek and review information regarding the liquidity and negotiability of that instrument in order to ensure that presumptions of liquidity and negotiability are well-founded.
- In Section II of the UCITS Q&As, ESMA clarifies that in case of cross-border distribution, information on the remuneration policy of a UCITS which has to be made available on a website (and in a paper copy upon request), should fall under Article 94(1)(c) of the UCITS Directive relating to information or documents other than the key investor information document. Such information should be translated, at the choice of the UCITS, into either: (i) (one of) the official language(s) of the UCITS host Member State, (ii) a language approved by the competent authorities of that Member State, or (iii) a language customary in the sphere of international finance.
- In Section III of the UCITS Q&As, ESMA clarifies that (re-) investment of cash collateral in short-term money market funds by a UCITS should be treated in the same way as any other investment made by the UCITS in units of other UCITS or other funds and should be compliant with all the relevant UCITS Directive requirements (including the 10% investment limit in target funds under Article 50(1)(e)(iv)).
- In Section VI of the UCITS Q&As, ESMA clarifies that UCITS management companies cannot rely, other than as a point of reference, on the valuation provided by the CCP for OTC financial derivative transactions which are centrally cleared and subject to the reporting obligation of EMIR. UCITS management companies must have in place a Luxembourg Newsletter Q3 2016 6 process for accurate and independent verification of the value of such transactions. Nevertheless, the UCITS management company should be able to justify any deviation from the valuation provided by the CCP.
- In Section VII of the UCITS Q&As, ESMA clarifies that under Article 13 of SFTR, information relating to securities financing transactions and total return swaps shall be disclosed by UCITS management companies, UCITS investment companies and AIFMs, in the next annual report of each UCITS/AIF under management (or half-yearly report for UCITS), to be published after 13 January 2017 (which may relate to a reporting period beginning before that date).
The latest version of the UCITS Q&As is available on ESMA’s website. https://www.esma.europa.eu/sites/default/files/ library/2016-1455_qa_on_application_of_the_ucits_directive.pdf
3 ESMA advice relating to the AIFMD marketing passport
On 19 July 2016 and 12 September 2016 respectively, ESMA updated its advice relating to the application of the AIFMD passport (the “Passport”) to non-EU AIFMs and non-EU AIFs (Ref. ESMA/2016/1140) (the “Advice”).
It is reminded that the Passport is currently only applicable to EU AIFMs and EU AIFs, while non-EU AIFMs and nonEU AIFs are subject to national private placement regimes in each Member State, as the case may be. In this regard, ESMA already assessed certain non-EU countries in 20153, an assessment which has now been completed and to which a number of non-EU countries have been added. The assessment was based on the following criteria: (i) investor protection, (ii) market disruption, (iii) obstacles to competition, and (iv) monitoring of systemic risk.
Based on such criteria, ESMA concluded that there were no significant obstacles to extending the Passport to Canada, Guernsey, Japan, Jersey and Switzerland.
Concerning the other assessed countries, ESMA advised that: the Passport could be extended to the United States, at least with regard to certain types of funds. ESMA had reservations, however, due to differences between the EU and the United States with regard to the regimes for public offering of funds, which could create an un-level playing field;
- there are no significant obstacles to extending the Passport to Hong Kong and Singapore with regard to AIFs, although ESMA raised some concerns regarding access of UCITS (i.e. possible for UCITS from certain Member States only);
- the Passport could be extended to Australia provided the Australian Securities and Investment Committee (ASIC) extends the “class order relief”, currently available only to some Member States, to all Member States;
- regarding Bermuda and the Cayman Islands, ESMA could not give any definitive advice until further regulatory developments have taken place in the respective countries; and
- for the Isle of Man, the absence of an AIFMD-like regime made it difficult to assess whether the investor protection criteria were met.
The Advice will now be considered by the European Commission, while ESMA will continue to work on its assessment of other non-EU countries not yet covered
