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

Cross-border fund distribution improvements from August 2021

The following Capital Markets Union proposals on the cross-border distribution of funds (CBDF) were published in the Official Journal of the EU. They will come into force on 1 August 2019.

  • Directive (EU) 2019/1160  (the Directive) amending the UCITS Directive and the AIFMD with regard to the cross-border distribution of collective investment undertakings. The Directive is to be transposed by 2 August 2021.
  • Regulation (EU) 2019/1156 (the Regulation) on facilitating the cross-border distribution of UCITS and AIFs and amending the European Venture Capital Funds Regulation (EuVECA Regulation), the European Social Entrepreneurship Funds Regulation (EuSEF Regulation) and the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (PRIIPs Regulation). The Regulation applies from 1 August 2019 with more substantive provisions applying from 2 August 2021.

Key provisions include:

  • harmonised rules for the content of marketing materials
  • harmonised rules for local facilities which may be provided on-line
  • national competent authorities (NCAs) to publish their rules and fees for cross border marketing
  • updates (including new share classes) for UCITS and AIFs to be notified a month in advance to home and host NCAs
  • harmonised rules for notifying document updates to home and host NCAs
  • harmonised rules for discontinuation of marketing
  • new harmonised regime for pre-marketing of AIFs by EU authorised AIFMs
  • ESMA to host centralised databases of:
    • cross border marketing rules
    • cross border marketing fees
    • listings of UCITS and AIFs which are marketed cross border with details of their ManCos and AIFMs

ESMA consultation on performance fees

ESMA launched a public consultation on draft guidelines on performance fees under the UCITS Directive.

The draft guidelines aim to harmonise the way in which performance fees can be charged to the UCITS and its investors while ensuring common standards of disclosure. ESMA is seeking stakeholders’ feedback on the proposals made in a number of areas as well as on whether the principles set out in the guidelines should also be applied to AIFs marketed to retail investors. 

ESMA’s draft guidelines propose common criteria to promote supervisory convergence in the following areas:

  • general principles on performance fee calculation methods
  • consistency between the performance fee model and the fund’s investment objectives, strategy and policy
  • frequency for the performance fee crystallisation and payment
  • the circumstances where a performance fee should be payable
  • disclosure of the performance fee model

In developing its draft guidelines, ESMA also considered the Good Practice for Fees and Expenses of Collective Investment Schemes by the International Organization of Securities Commissions. See our In Focus paper here. 

ESMA's stress testing guidelines for money market funds

ESMA issued two sets of guidelines regarding the stress testing of money market funds and reporting on money market funds to national competent authorities (NCAs), aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation.

The guidelines on stress testing establish common reference parameters of the stress test scenarios MMFs or managers of MMFs should include in their stress scenarios. The guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities as of Q1 2020.

MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines, the results of which should be shared with regulators through the reporting template with their first quarterly reports for Q1 2020. Therefore, the Guidelines include stress test scenarios in relation to hypothetical changes in MMFs’:

  • liquidity levels
  • credit and interest rate risks
  • redemptions levels
  • widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied
  • macro-economic shocks

The guidelines will be updated at least every year and will take into account the latest market developments. The current guidelines include the calibration of the stress test scenarios for 2019.

Taxonomy for sustainable economic activities

The European Commission announced that its technical expert group on sustainable finance has launched a call for feedback on a classification system (taxonomy) for environmentally-sustainable economic activities.

Among other issues, feedback is invited to comment on the proposed climate change mitigation activities, the climate change adaptation principles and criteria, the usability of the proposed taxonomy and its future development. Submissions can be made until 13 September 2019.

Pan-European Pension Product (PEPP) Regulation

The PEPP Regulation was published in the official journal of the EU on 25 July and will become applicable in two years.

​The PEPP will be a voluntary personal pension scheme that will offer consumers a new pan-European option to save for retirement. This new type of product could be offered by a broad range of financial providers such as insurance companies, asset managers, banks, certain investment firms and certain occupational pension funds. The Regulation will standardise the core product features, such as transparency requirements, investment rules, switching rights and type of investment options.

ESMA newsletter

ESMA newsletter (sixth edition) issued on 11 July 2019. It contains a:

  • full list of June publications.
  • a full list of speaking appearances by ESMA staff
  • a link to the ESMA consultations page

AML / CTF

FATF issued new guidance to assist practitioners in assessing terrorist financing risk. It sets out good approaches, relevant information sources and practical examples based on country experience.

The European Commission  adopted a Communication for better implementation of the EU's anti-money laundering and countering the financing of terrorism framework.

This was accompanied by four reports:

  • Supranational risk assessment of the money laundering and terrorist financing risks affecting the Union
  • Report assessing the framework for Financial Intelligence Units' (FIUs) cooperation with third countries and obstacles and opportunities to enhance cooperation between Financial Intelligence Units within the EU
  • Report assessing the conditions and the technical specifications and procedures for ensuring secure and efficient interconnection of central bank account registers and data retrieval system
  • Report assessing recent alleged money-laundering cases involving EU credit institutions

The Commission's AML & CTF webpages have also been updated.

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

Date published: 26 July 2019