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

ESMA Guidelines on marketing communications under the Regulation on cross-border distribution of funds

The European Securities and Markets Authority (ESMA) published the final report on its guidelines under the Regulation on cross-border distribution of funds (CBDF). You can read our In Focus paper on CBDF here.

The guidelines apply to UCITS ManCos, SMICs, AIFMs, internally managed AIFs, EuVECA managers and EuSEF managers. 

The guidelines specify the requirements that funds’ marketing communications must meet, which is to:

  • be identifiable as such
  • describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner
  • contain clear, fair and not misleading information, taking into account the on-line aspects of marketing communications

The guidelines take account of social media forums including Twitter, LinkedIn, Facebook. Instagram, TikTok, YouTube, Discord and discussion forums. They deal with scope and purpose as well as:

  • compliance and reporting obligations
  • the identification as such of marketing communications
  • the description of risks and rewards in an equally prominent manner
  • the fair, clear and not misleading character of marketing communications
    • general requirements
    • information on risks and rewards
    • information on costs
    • information on past performance and expected future performance
    • information on sustainability-related aspects

ESMA held a public consultation. The report contains a feedback statement summarising the responses received and highlighting the revisions in the final guidelines, which reflect that feedback.

The CBDF Directive is to be transposed by Member States by 2 August 2021. The substantive provisions of the CBDF Regulation are to apply from that date.

The guidelines will be translated into the official languages of the EU and published on ESMA’s website. The publication of the translations will trigger a two-month period during which national competent authorities (NCAs) must notify ESMA whether they comply or intend to comply with the guidelines. The guidelines will apply six months after the publication of the translations.

 European Commission consultation on EU Retail Investment Strategy

The European Commission (EC) launched a public consultation on its retail investment strategy, which is planned for adoption in early 2022, as part of the capital markets union (CMU) action plan. The EC seeks input on how to improve the EU’s existing retail investor protection framework to ensure that it is suitably adapted to the profile and needs of consumers, helps ensure improved market outcomes, empowers retail investors and enhances their participation in the capital markets. The consultation closes on 3 August 2021.

European Commission consultation on Supervisory Data Strategy

The EC published a roadmap on a strategy for supervisory data collection in its EU financial services (Supervisory Data Strategy). This follows a fitness check of supervisory reporting requirements in EU financial services legislation, which identified a number of shortcomings and areas where supervisory data collection could be improved. Comments are invited by 15 June 2021. The EC will carry out further work relating to the Supervisory Data Strategy in Q3 2021.

The aim of the Supervisory Data Strategy is to update the data collection system so that it delivers accurate, comparable, and timely data to supervisory authorities at EU and national level, while minimising the aggregate reporting costs and burden for all parties.

 ESMA publishes official translations of its guidelines on outsourcing to cloud service providers

ESMA published the official translations of its guidelines on outsourcing to cloud service providers (discussed here). These guidelines will apply to NCAs and firms including AIFMs, UCITS ManCos, AIFs, UCITS, depositaries and administrators.

These guidelines apply from 31 July 2021 to all cloud outsourcing arrangements entered into, renewed or amended on or after this date. Firms should review and amend accordingly existing cloud outsourcing arrangements with a view to ensuring that they take into account these guidelines by 31 December 2022. Where the review of cloud outsourcing arrangements of critical or important functions is not finalised by 31 December 2022, firms should inform their NCA of this fact, including the measures planned to complete the review or the possible exit strategy.

ESMA response to the European Commission’s targeted consultation on the functioning of the ESAs

ESMA published its response to the European Commission’s targeted consultation on the functioning of the European Supervisory Authorities (ESAs). ESMA's recommendations focus on:

  • reinforcing ESMA’s approach to supervisory convergence
  • considering the merits of EU level direct supervision
  • building ESMA’s data capabilities
  • ensuring the single rulebook remains fit-for-purpose
  • funding

ESMA recommends permanently lowering the threshold to notify net short positions on shares from 0.2% to 0.1%.

ESMA recommended to the EC to permanently lower the threshold for notifying net short positions, on shares admitted to trading on a regulated market, to NCAs, from 0.2% to 0.1%. ESMA has examined the evidence gathered from its successive emergency decisions (first discussed here) lowering the notification threshold to 0.1% on a temporary basis. NCAs gained substantial additional information from the reporting of net short positions at the level of 0.1%. This additional transparency to NCAs improved NCAs' ability to conduct market oversight. The EC may adopt a delegated act modifying the notification threshold in Article 5(2) of the Short Selling Regulation.

AML/ CTF

The EC published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union in which she outlines elements of the reforms the Commission intends to present further to its May 2020 anti-money laundering (AML) and counter-terrorist financing (CTF) action plan.

The presentation of a package of legal proposals to deliver the proposed new EU AML and CTF framework,  initially planned for Q1 2021, will be presented in July 2021. Commissioner McGuiness shared some elements of the Commission's plans, including the single AML/ CTF rulebook and the role of the new AML/ CTF authority. Of particular interest was the comment that a key priority is making sure that beneficial ownership registers are up and running and fully populated. Furthermore, work on the cross-border interconnection between national beneficial ownership registers should start later this year.

The European Banking Authority (EBA) published a consultation paper on draft regulatory technical standards (RTS) for an AML/ CFT central database. The database is to contain data on weaknesses in systems and controls within individual firms identified by their NCA.  In turn this will be used by the EBA to understand ML/ TF risk affecting the EU's financial sector, so as to make supervision more effective and targeted. The consultation closes on 17 June 2021.

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

Date published: 28 May 2021