Asset Management & Investment Funds: EU & International Developments - Jun 2021

Contracts dealing with the transfer of personal data to third countries must use new standard contractual clauses from 27 September 2021; existing contracts will need updating

The European Commission published its final Implementing Decision on new standard contractual clauses (SCCs) for the transfer of personal data to third countries.

The new SCCs have been expected for some time in order to address the entry into force of the GDPR and the requirements of that regime. The delay to the update was due partly to the European Court of Justice’s decision in Schrems II (C-311/18), and the need for the European Commission to reconcile the new SCCs with that decision. They also take into account the Joint Opinion (2/2021) of the European Data Protection Board (EDPB) and the European Data Protection Supervisor (EDPS) on the draft SCCs, as well as the EDPB’s draft recommendations on supplementary measures.

The new SCCs repeal and replace the old controller to controller SCCs (Decision 2001/497/EC, as amended) and the controller to processor SCCs (Decision 2010/87/EC).

The new SCCs come into force on 27 June 2021.

Organisations can use the new SCCs from 27 June 2021. Alternatively, organisations have the option of continuing to execute new contracts using the old SCCs until those SCCs are repealed on 27 September 2021.

From 27 September 2021, all new contracts must be executed using the new SCCs.

Organisations have a total of 18 months from the date the new SCCs come into force (i.e. until 27 December 2022) to replace the old SCCs with the new SCCs (provided the underlying processing operations remain unchanged and the transfer is subject to appropriate safeguards). This will inevitably be an enormous task for many organisations, as it will mean repapering legacy contracts.

You can read more detail on this topic here.

EU Commission Consultation on Distance Marketing

The EU Commission launched a consultation as part of its review of the Directive on distance marketing of consumer financial services. This could lead to a revision of the directive next year.

The directive came into force in 2002. The retail financial sector has since evolved significantly from a digital perspective, with new products and actors available on the market and new sales channels being used. Several EU laws impacting financial services have also been adopted or updated. Many of the directive's elements have been overtaken by subsequent sectoral legislation (such as legislation in response to the financial crisis). Also, the adjusted Commission 2020 Work Programme listed the directive as subject to a “regulatory fitness” exercise. The consultations closes on 28 September.

ESMA's Annual Report on its work in 2020

The European Securities and Markets Authority (ESMA) published its Annual Report, which gives an overview of ESMA's work in 2020. This followed the revised ESMA Regulation and EMIR 2.2 coming into effect and reflects Brexit and Covid responses. Highlights of 2020 included:

Promoting Supervisory Convergence

  • common Supervisory Action (16) on UCITS liquidity risk management
  • ESMA's report on liquidity risk in investment funds
  • guidelines on leverage
  • guidelines on performance fees
  • supervisory briefing on the supervision of costs
  • closet indexing
  • workshop on sanctions in UCITS and AIFs
  • fast-track peer review on Wirecard – enhanced peer review framework
  • first common supervisory action (CSA) on the application of the MiFID II requirements on the assessment of appropriateness and execution requirements related to investor protection
  • identification of union specific supervisory priorities (USSP)

Assessing risks to investors, markets and financial stability

  • annual statistical report series on EU securities markets, retail investment markets, AIF markets and derivatives markets
  • ensuring quality of data reported to ESMA.

Completing a single rulebook for EU financial markets

  • contribution to AIFMD review
  • contribution to PRIIPs review
  • contribution to the European Commission's CMU's action plan
  • publication of ESMA's strategy on sustainable finance including as key priorities; transparency obligations, risk analysis on green bonds, ESG investing, convergence of national supervisory practices on ESG factors, taxonomy and supervision
  • contribution to the European Commission's digital finance strategy
  • directly supervising specific financial entities
  • establishment of the Central Counterparty (CCP) Supervisory Committee
  • enforcement cases for breaches of the CRA Regulation
  • trade repositories landscape reshaped (withdrawals and additions)
  • thematic report on collateralised loan obligations.

AIFMD MoUs signed by the EU authorities

ESMA recently issued a number of iterations of its list of AIFMD Memorandums of Understanding (MoUs) signed by the EU authorities.

EU Taxonomy

The European Commission adopted the climate delegated regulation under the EU Taxonomy Regulation which sets out technical screening criteria that defines which activities contribute to the first two of six environmental objectives under the Taxonomy: climate change mitigation and climate change adaptation.

The relevance of this newly adopted delegated act to investment funds is that the information on taxonomy alignment generated by application of the technical screening criteria at economic activity level will indirectly feed into the disclosures that must be made by UCITS and AIFs, particularly those classified as A8 and A9 SFDR.

The technical screening criteria should give visibility on the level of taxonomy alignment of the investments in which a UCITS or AIF may invest. The criteria also supports the disclosure about taxonomy-alignment required to be made by entities subject to the Non-Financial Reporting Directive under A8 of the Taxonomy Regulation.

The Taxonomy Climate Delegated Act will enter into force 20 days after it is published in the Official Journal. It will apply from 1 January 2022.

The European Commission also hosts a webpage containing information and links to the implementing and delegated acts under the Taxonomy Regulation.

The EU Taxonomy Compass aims to make the contents of the EU Taxonomy easier to access for a variety of users. It enables users to check which activities are included in the EU Taxonomy (taxonomy-eligible activities), to which objectives they substantially contribute and what criteria they have to meet. It is important to note that minimum safeguards (social standards) have to be met for an economic activity to be considered taxonomy-aligned. The EU Taxonomy Compass also aims to make it easier to integrate the criteria into business databases and other IT systems.

For funds, this tool should be helpful in determining the percentage of a fund's portfolio that is taxonomy-aligned for A8 and A9 funds SFDR disclosure purposes.

The EU Taxonomy Compass provides a visual representation of the contents of the EU Taxonomy, starting with the Delegated Act on the climate objectives, as adopted on 4 June 2021 although the delegated act is not yet in force.

ESMA 2020 Guidelines on stress test scenarios under the MMF Regulation

The translations of the 2020 Guidelines on MMF stress tests were published on the ESMA website on 29 June 2020. The updates take account of MMFs' experience during March 2020, particularly in relation to redemption scenarios. The COVID-19 crisis has been challenging for MMFs. Risks have increased for MMFs and the money market instruments in which they invest. Several EU MMFs faced significant liquidity issues during the period of acute stress in March 2020.

  • these guidelines issued in English in December 2020 (flagged in our December 2020 AMIF bulletin)
  • these guidelines apply to competent authorities, MMFs and managers of MMFs (as defined in the MMF Regulation)
  • these guidelines apply in relation to Article 28 of the MMF Regulation and establish common reference parameters for the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs in accordance with that article
  • these guidelines apply from two months after the date of publication of these translations (with respect to parts in red – the other parts of these guidelines already apply from the dates specified in Articles 44 and 47 of the MMF Regulation).
  • within two months of the date of publication of these translations, competent authorities to which these guidelines apply must notify ESMA whether they (i) comply, (ii) do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the guidelines (giving reasons). 

For more information please contact a member of the Asset Management & Investment Funds team.

Date published: 30 June 2021