The Financial Services Compliance and Regulation practice of Kroll, provides updates from the French financial regulator, Autorité des marchés financiers (AMF) and Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) for asset managers during Q2 2021.
Autorité des Marchés Financiers (AMF) Updates
The AMF Published 2019 Key Figures of Asset Management Activities
As part of the monitoring of the third-party asset management sector, the AMF published key figures related to the sector annually.
In 2019, the number of live management companies reached 657, its highest level so far, and the number of authorization withdrawals remained low (21 withdrawals in 2019).
The amount of assets under management of companies has increased by almost €440 billion (bn) compared to 2018.
The revenue generated by portfolio management companies amounted to €16,200 million (mn) at the end of 2019, and the operating expenses reached a level of €12,954 mn in 2019.
With regards to the control system of management companies, the number of staff dedicated to the compliance and internal control function of the French asset management industry has increased compared to previous years.
As of December 31, 2019, the total amount of equity reported by management companies has reached €5.4 bn. At the same time, 27 of them had a capital shortfall under the applicable regulatory requirements. For these companies, immediate remedial measures were required (capital increase, setting up of Tier 2 capital, etc.).
Reform of the socially responsible investment label
With the aim to modernize the socially responsible investment (SRI) label and to take into account the many developments in the responsible investment market in France and Europe, the Minister of Economy and the Secretary of State for Social, Solidarity and Responsible Economy have initiated a consultation among professionals in Paris on the evolution of the governance of the SRI label.
This consultation follows the conclusions of the assessment and outlook analysis of the SRI label submitted by the General Inspectorate of Finance (IGF) in January 2021 that stresses the need to strengthen the requirements of the label. Read the article here.
The AMF's response to the European Commission's public consultation on the Central Securities Depositories Regulation review
On 8 December 2020, the European Commission launched a review of the European Regulation CSDR. For that purpose, it has published a public consultation paper composed of eight main themes.
The AMF and the Bank of France jointly responded to this public consultation and recommend the following:
- On the authorization of the central securities depositories’ (CSDs) review and evaluation processes, the AMF considers that there is no need to review the authorization procedure at this stage. Instead, it recommends setting a deadline for the approval of CSDs that are not yet approved under the CSDR. In addition, the AMF supports a review of the evaluation process and the establishment of supervisory colleges.
- On the cross-border provision of services, the AMF considers the current passport procedure unsatisfactory and proposes a series of improvements, including a right of supervision for the host country's supervision authority in addition to the authorization of the country of origin.
- On the reporting of internalized settlement, the AMF proposes to focus on improving the quality of the data as this reporting is still relatively new.
- On new technologies, the AMF believes that it is necessary to consider possible improvements that could be made to CSDR in addition to the pilot regime on market infrastructures, based on distributed register technologies, to ensure its technological neutrality.
- On banking-type ancillary services, the AMF remains committed to a separation of banking and settlement-delivery activities but is open to proposals that could be formulated to facilitate settlement.
- On settlement discipline, the AMF believes that several points mainly relating to the buy-in process, deserve clarification.
- On the scope of application, the AMF mainly notes that the concept of "transaction" should be clarified in the regulations' settlement provisions.
The AMF publishes the results of a new series of thematic inspections of the cyber security systems and processes of asset management companies
After a first inspection in December 2019, the AMF published the results of a new thematic short inspection SPOT on the systems and processes put in place by five asset management firms to address cyber security.
The regulator’s focus points are:
- The organization and governance of cyber security systems and processes
- Coordination of sensitive IT service providers
- Cyber security incidents management
- Supervision of processes for remote access to the information system
The good practices observed by the AMF include the appointment of a dedicated manager from the executive committee to handle cyber security topics, regular awareness-rising campaigns for employees and including cyber risks into risk mapping and control plans.
Moreover, the AMF highlights the importance of elaborating on sensitive data/critical systems classification and mapping prior to the formalization of a cyber security strategy. Read the article here.
The Commission de Surveillance du Secteur Financier publishes governance and security requirements for supervised entities to perform tasks or activities through telework
The Commission de Surveillance du Secteur Financier (CSSF) published a circular 21/769 that defines the governance and security requirements for supervised firms that implement telework solutions. This circular applies under normal general working conditions. It does not apply under pandemic situations.
The circular mentions the need to define a telework policy defining the framework and limits in which telework can be authorized.
In addition, regarding internal controls, the supervised entities must carry out a risk analysis to assess risks inherent to the implementation of telework, in particular the following risks: operational, legal, compliance and those related to information and communication technology (ICT).
Companies must also take the necessary measures to ensure that the level of residual risk remains acceptable.
The circular also includes requirements related to ICT and security risks.
The AMF Enforcement Committee fines the management company Efigest Conseil and its directors for breaches of their professional obligations
In its decision of April 12, the committee issued a reprimand to Efigest Conseil. It also imposed a €50,000 fine and a reprimand on Jean-Noel Vignon and a €30,000 fine and a warning on Sylvain Bruley, the company’s directors at the time of the events.
The identified breaches include:
- Fees for investment decisions were paid to an external service provider in return for alleged financial analysis of which the existence could not be established, making these fees undue costs. The committee found that these amounts were recovered by the firm through a retrocession mechanism.
- Not informing retail clients of the amount of indirect charges levied for the management of their mandate
- Lack of regular evaluation of the adequacy and effectiveness of internal controls
- Lack of monitoring of the external service provider in charge of its internal control and failing to deal reasonably and substantively with a recommendation concerning the investor information risks
Read the article here.
The AMF amends its doctrine on fees and commissions
The AMF has amended the provisions of its position-recommendation DOC-2013-10 on incentives and remuneration fees regarding the distribution and management under the mandate of financial instruments.
The changes made include:
- The position on placement fees: ISPs distributing financial instruments to investors for which they simultaneously provide placement services to the issuer will no longer be required to submit the placement commissions received to the requirements on incentives and remuneration when these commissions do not vary according to the amounts of securities actually distributed to investors.
- Modification of conditions for improving the service provided to customers:
- Generalizing the developments on the condition of improving services to customers by providing an additional service. These developments were integrated into the “general considerations” of paragraph 3 dedicated to improving the service provided to clients and the ability to act in the best interests of that client.
- These service improvements will no longer be required to be contracted out with the customer but simply brought to his attention.
- It is possible to justify the legitimacy of a remuneration received punctually for a service improvement spread over time.
Read the article here.
The AMF Enforcement Committee fines the management company Gestys SA and its directors for breaches of their professional obligations
The AMF Enforcement Committee pronounced against the management company Gestys SA and the chairman of its management board, Jean-Laurent Bruel, a financial fine of €50,000 with a reprimand.
The identified breaches include:
- Non-compliance with the rules on capital and liquidity requirements
- The inadequacy of the system for managing conflicts of interest, ignorance of the interests of investors and lack of client information
- Failure to meet the requirements of the anti-money laundering and terrorist financing system regarding client information collection
Read the article here.
The European Commission makes a proposal for a new directive on the disclosure of sustainability information by companies
The Corporate Sustainability Reporting Directive (CSRD) proposal published by the European Commission would amend the current reporting requirements NRFD. This new directive aims to:
- Extend the scope of application of these requirements to all large companies and all companies listed on regulated markets (except listed micro-companies)
- Require the audit (assurance) of the information declared
- Introduce more detailed reporting requirements and the obligation to report in accordance with EU sustainability reporting standards
- Require companies to digitally identify the information communicated so that it is readable by IT systems and can be used in the European Single Access Point (ESAP) as part of the Financial Markets Union
Sustainable Finance and EU Taxonomy: The European Commission takes further steps to channel money towards sustainable activities
The European Commission has adopted a set of measures to help improve the flow of money towards sustainable activities across the EU.
These measures include:
- The EU Taxonomy Climate Delegated Act that aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU's environmental objectives
- A proposal for a CSRD that aims to improve the flow of sustainability information in the corporate world
- Six amended delegated acts on fiduciary duties, investment and insurance advice that aim to ensure that financial firms, e.g., advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients
Read the article here.
Digital assets service providers – cyber security requirements
Instruction DOC-2019-24 specifies the cybersecurity requirements that digital asset service providers must meet in order to ensure the resilience and security of their information systems.
The requirements include:
- Wallets holding digital assets being compromised
- Personal data breaches
- Denial of service attacks
- Identity theft
- Inability to investigate in the event of fraudulent activity or an incident
The AMF updates its Doctrine and General Regulation with regards to the new provisions of the Commercial Code
Since January 1, 2021, the Commercial Code contains a new Chapter X grouping together all the provisions specific to listed companies. To consider the change in the numbering of articles of the Commercial Code resulting from this reform, the AMF has updated its Doctrine.
The update includes minor changes in the references to articles of the Commercial Code whose numbering has been changed by the order and the decree.
In addition, an update of articles 221-1, 222-3, 222-9, 223-38, 231-19, 231-41, 231-54, 233-1 and 241-1 of the general regulations of the AMF is in the process.
Read the article here.
€600,000 fine for Corum Asset Management for breaches of its professional obligations
The AMF’s Enforcement Committee imposed a financial fine of €600,000 against Corum Asset Management for the following reasons:
- The publication of promotional materials containing unclear, inaccurate or misleading information
- The internal control of the commercial documentation put in place by Corum Asset Management was insufficiently formalized and ineffective
- Breaches of professional obligations of investment advisory service providers, particularly in terms of customer knowledge and the adequacy of the investments offered with the customer’s risk tolerance
- The internal procedures, second-level controls and due diligence implemented within the framework of AML/CFT were deficient
- Corum Asset Management did not ensure that its external service providers comply with their own professional obligations, particularly those relating to know your customer KYC and the fight against money laundering and the financing of terrorism.
Read the article here.
The AMF specifies the certification conditions for organizations
The AMF has published instruction DOC 2021-03 specifying the conditions for certification by the AMF of a training organization in order to provide the AMF sustainable finance exam.
The instruction specifies the characteristics of the examination, the operating rules of the common examination bases and certification request procedures.
The exam in sustainable finance is aimed at retail professionals wishing to have a general knowledge of the institutional and economic framework of sustainable finance to understand the essential concepts and the methodologies used.
Packaged Retail Investment and Insurance-Based Products regulation, clarification for closed funds
As per the Commission Delegated Regulation (EU) 2017/653 of March 8, 2017, the key information document (KID) must contain up-to-date information, allowing investors to make informed decisions if the product remains “available” to retail investors. This requirement is imposed "over the life of the product in question where it remains accessible to retail investors."
Therefore, when a Packaged Retail Investment and Insurance-Based Products regulation (PRIIP) is closed for subscriptions to non-professional investors, within the meaning of the multilateral interchange fees (MiF) directive after an initial subscription period and no structured secondary market is organized by or on behalf of the producer, the said PRIIP should no longer be considered accessible or "made available" to retail investors. In this case, the initiator would no longer have the obligation to update the existing KID.
Source: Response from the AMF - Asset Management Department to AFG - France Invest Joint Letter
The AMF specified in its instruction DOC-2016-01, the information on the identity of the head of the depository function of Undertakings for the Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFs). The instruction has been amended to include a form that the depository must send to the AMF to declare the person responsible for the depository function.
For depositories whose program of activity has been approved or sent before May 4, 2021, this form must be sent to the AMF within three months, i.e., before August 4, 2021.
In addition, in the event of a change in the head of the depository function, the form must be sent to the AMF within 30 days of the appointment of the new head, along with his curriculum vitae.
Moreover, the depository regime had undergone some modifications, following the approval of the modifications to the AMF general regulations on March 29, 2021. In particular, the articles relating to the procedures for exercising control over the regularity of the decisions for UCITS and AIFs, the duties of the depository of AIFs, the terms of custody of assets and the sections relating to the depositories of securitization undertakings.
Read the article here.
The AMF publishes a study on the fees and performance of marketed funds incorporating an extra-financial approach
The AMF published a study that sheds light on the costs and performance of funds marketed in France, incorporating an extra-financial approach between 2012 and 2018. The results of the analysis highlight the fact that the net performance of funds integrating an extra-financial dimension are not significantly different from those of classic funds, while the units of funds taking into account extra-financial criteria tend to be less expensive than their equivalent without an extra-financial approach. Several hypotheses explaining this result are presented (proactive policy of management companies, lower management fees, etc.)
Association Française des Sociétés de Placement Immobilier (ASPIM) publishes a study on SRI Labelling practices of real estate funds
The ASPIM and OID, with the support of Novethic Market Data, have joined forces to draw up an initial assessment and identify the first trends in SRI labeling in real estate.
According to this study, 6% of the global real estate AIF funds were labeled in 2020. Most of these funds have adopted a best-in-progress strategy.
Management companies that label their funds are required to publish several documents, either publicly on their website (for retail funds) or directly to investors.
The study raises the difficulties encountered by real estate funds for collecting environmental, social and governance (ESG) information. Indeed, ESG data is often fragmented between different actors such as owners, tenants, operators and suppliers. In addition, the lack of a database makes it difficult to set up a quality control process.
The SRI label repository does not currently provide any details on the level of data reliability expected in the audit. A working group has been launched to publish an SRI Label Audit Guide for real estate funds.
The AMF publishes its findings on liquidity management in UCITS
The AMF published a summary of the practices observed in the French market, during a supervision exercise, coordinated by the European Securities and Markets Authority (ESMA), relating to liquidity risk management in UCITS.
The objective of this exercise is to ensure that the practices of management companies always comply with regulations and allow investors’ redemption requests to be honored.
The AMF has focused its attention on the following topics:
- Pre-investment controls on fund liquidity
- The overall system for monitoring the liquidity risk of the UCITS and the governance of this monitoring
- Market data and liquidation assumptions for the assets of the UCITS
- Considering the risk of the fund's liquidity requirement in connection with the use of derivative instruments
- Liquidity management where the liquidity needs of funds for share redemptions are considered
- The use of liquidity management tools
The ESMA publishes guidelines on funds’ marketing communications
The ESMA published its final report on its guidelines under the regulation on cross-border distribution of funds. The guidelines specify the requirements that fund marketing communications must meet. Thus, marketing documents must:
- Be identifiable as such
- Describe precisely the risks and advantages related to the purchase of units or shares of an AIF or units of a UCITS in an equivalent manner
- Contain clear, fair and non-misleading information, taking into account the online aspects of marketing communications
Read the article here.
The AMF publishes a guide and new letter templates to unit and shareholders of collective investment undertakings
The AMF updated its doctrine to specify the content and formalization of information letters to unitholders or shareholders of UCITS, retail investment funds, funds of alternative funds and professional investment funds, employee-savings funds, private equity funds, real estate collective investment undertakings and professional real estate collective investment undertakings.
The AMF has also published a guide to writing letters to approved UCIs unitholders, stressing the need to maintain clear and concise language to make it easier for investors to understand the content.
Authorized collective investment management companies will have to comply with this new standard framework from September 1.
The ESMA has updated its Q&A on a series of topics
The ESMA has updated the Q&A on the following topics:
- The implementation of the European Market Infrastructure Regulation (EMIR)
- The Markets in Financial Instruments Directive (MiFID) and Markets in Financial Instruments Regulation (MiFIR) on investor protection issues
- The MiFIR on reporting topics
- Securities financing transactions regulation (SFTR) reporting
- Information relating to sustainable development for benchmarks
Read the article here.
Cross-border distribution of undertakings for collective investment – Cross Border Distribution of Funds Directive
The EU 2019/1160 directive (“Directive”) aimed to facilitate the cross-border distribution of collective investment funds by reducing regulatory barriers to cross-border distribution, identified as the national provisions that the member states have taken in terms of marketing, regulatory fees, distribution infrastructure and passport notification procedures.
This Directive will modify both the UCITS and AIFM directives. Therefore, it will be necessary to modify the national texts transposing these directives and to adapt the monetary and financial code to the modifications made by the regulation.
Impacts of the transposition of the EU cross-border distribution of funds (CBFD) directive:
- Introduction of the concepts of marketing and pre-marketing in the monetary and financial code
- Establishment of a pre-marketing procedure
- Establishment of a procedure for withdrawal of marketing notification
- Establishment of facilities to perform certain tasks with non-professional investors
- Revisions to the AMF general regulations and its doctrine
This directive should be transposed before August 2, 2021.
Global Derivative Trading GmbH sanctioned by the AMF for breach of its professional obligations
The AMF’s Enforcement Committee imposed a fine of €1,200,000 against GDT, the German management company, and a fine of the same amount against Thorsten Wagner, its CEO, for having, between July 1 and October 13, 2015, committed a breach of price manipulation due to orders placed on French sovereign bond futures contract. Read the article here.
The ESMA specifies the method for calculating performance fees
The ESMA published its AIFMD and UCITS Q&A update as of end of May. These updates included details on the method of calculating outperformance fees.
To comply with paragraph 40 of the guidelines on performance fees, the ESMA specifies that it should be ensured that any underperformance is brought forward for a minimum period of five years before a performance fee becomes payable.
If the fund has outperformed the benchmark index, the fund manager should be able to crystallize the performance fees.
These details invalidate certain aspects of the AFG method. Consequently, the document resulting from the AFG working group "Commissions de superformance”(CSP) - paragraph 40 ESMA guidelines" of November 2020 is no longer relevant.
Compliance function requirements: The AMF integrates the ESMA’s guidelines
The AMF published its position DOC-2021-04 replacing position DOC-2012-17 to integrate the ESMA's guidelines on certain aspects of MiFID II relating to the requirements of the compliance function.
The new ESMA guidelines provide details on the following points:
- The responsibilities of the compliance function
- The organizational requirements of the compliance function
- The supervision of the compliance function by the competent authority
These guidelines are applicable to investment firms, credit institutions and portfolio management companies in the context of the provision of investment services or related services.
The AMF’s Enforcement Committee issues a sanction against Arkea Direct Bank
The AMF’s Enforcement Committee imposed a €220,000 fine against Arkea Direct Bank for the following reasons:
- Lack of policies and procedures to ensure compliance with professional obligations in terms of recording and data storage
- Lack of mechanisms and procedures to meet its obligations in terms of monitoring the order executions, selecting the entities responsible for the execution and controlling the quality of the execution
- Failure to inform clients in the event of incidents that could be qualified as serious difficulties likely to affect the proper transmission or execution of orders
Read the article here.
The AMF amends its general regulations and updates its doctrine on digital asset service providers
The AMF has introduced a new article in its general regulations that defines the conditions under which a service on digital assets is provided in France.
Thus, a digital asset service is provided in France when it is provided by a digital asset service provider with facilities in France or at the initiative of the digital asset service provider to resident or established customers in France.
In addition, the AMF has updated its doctrine relating to the regulations applicable to digital asset service providers:
- Instruction DOC-2019-23 has been modified to adapt and clarify the list of elements requested in a registration and/or approval file
- Instruction DOC-2019-24 relating to the cyber security requirements repository specifies that the relations of the digital asset service provider with a subcontractor or a service provider in connection with its information system must be governed by a contract
- Position DOC-2020-07 Q&A on digital asset service providers regime has also been updated
Publication of the decree implementing article 29 of the Energie Climat law
The decree implementing article 29 of the Energie Climat law was published in the Official Journal on May 27, 2021, and entered into force the day after its publication.
This decree provides details on the information to be published about the means implemented to contribute to the energy and ecological transition and disclosure obligations on the strategy of investors to comply with the provisions of the Paris Agreement and international agreements resulting from Conference of parties of the United Nations (COPs) on biodiversity.
In addition, the decree specifies the formats and methods of publication of this information on the website of the management companies and in the annual and half-yearly reports.
The AMF updates its General Regulation and Doctrine on employee investment undertakings
The AMF has amended its general regulations and its policy to consider the impact of the PACTE law on the retirement savings scheme.
Changes to the Doctrine include:
- The modification of the conditions of the constitution and the holding duration of the sums paid into buyout employee investment undertakings
- The eligibility for inclusion of the assets of employee savings funds of the shares of cooperative undertakings subject to Law No. 47-1775 of September 10, 1947, on the statute of the cooperative undertakings
- The consequences linked to the subscription of employee investment fund units by insurers
- The new provisions applicable to the representation of unitholders on the supervisory boards of employee investment funds
Regarding the general regulations, article 424-3 has been amended to give the possibility of subscription of employee investment undertakings units by insurers in addition to employees. Moreover, article 322-73 has been amended to exempt retirement savings schemes in the form of insurance contracts from compliance with the provisions of the AMF general regulations relating to account-keeping of the employee savings scheme.
First use of SFTR reporting data
The AMF has published an analysis of the securities financing transactions market, using data from SFTR reporting.
As a reminder, the content of the SFTR reporting is included in the Delegated Regulation 2019/356 of December 13, 2018, and its appendix. It is broken down into four tables of data on: counterparties, loan and collateral, margins and the reuse of collateral.
These data constitute a source of additional information that is quite useful for the AMF in carrying out its missions of detecting potential dysfunctions or market abuse and analysing risks.
A first analysis by the AMF on the volume and amounts declared by the type of product shows the preponderance of repo and buy-sell back operations. Banks and credit institutions contribute to the most declarations on repo and securities lending and borrowing. Investment funds represent a small part (2% to 3%) of the amounts declared.
New quarterly reporting to the AMF on investment rule violations and compensation
Following the decree of March 29, 2021, approving the AMF general regulations, the AMF has implemented two new reports for the control and monitoring of the activity of management companies.
The first report covers investment rule violations and compensation paid by portfolio management companies. The data is transmitted to the AMF via the ROSA system, either by direct entry or by importing a file in the Excel format. This reporting must be carried out quarterly and is expected within 30 days of the end of the quarter. The first reporting will therefore be required by October 31, 2021.
The second report is incumbent on the depositories on investment rule violations and on the centralizers on subscriptions in the funds. This report will be carried out at the request of the AMF.
Liquidity contracts – the AMF’s decision to update accepted market practice
The AMF notified the ESMA and the competent European authorities on March 31, 2021, of its intention to introduce a accepted market practice (AMP) relating to liquidity contracts that will replace the accepted market practice in place since January 2019.
On May 31, the ESMA published a negative opinion on this practice, deeming it incompatible with Market Abuse Regulations and the ESMA's opinion on the Points for Convergence of 2017. The ESMA raised several concerns, in particular the absence of position limits and the presence of volume and resources that are significantly higher than the recommended limits.
Following an in-depth review of the ESMA's opinion, the AMF published an explanatory note on June 23, detailing the reasons for its decision to introduce the amended AMP and why the modified AMP does not threaten market confidence, given certain stricter provisions that the AMF has taken to regulate liquidity contracts in light of the ESMA’s recommendations.
Commission de Surveillance du Secteur Financier (CSSF) Updates
The ESMA publishes its Annual statistical report on the AIF sector
On April 8, the ESMA published its third annual statistical report on the AIF sector covering the 2019 period.
In 2019, the AIF market reached €6.8 trillion in net asset value (NAV) (+15% compared to 2018) due to the launch of new funds and positive valuation effects. As part of the AIF universe:
- Funds of funds account for 15% of the NAV
- Real estate funds account for 12% of the NAV
- Private equity funds account 7% of the NAV
- Hedge funds account 5% of the NAV
- Other AIFs account for 60% of the NAV
As per the statistical report, the main risk is a mismatch between the potential liquidity of the assets and the redemption time frame offered to investors, especially for fund of funds and real estate funds.
CSSF publishes Circular CSSF 21/769 on governance and security requirements for Supervised Entities to perform tasks or activities through Telework
On April 9, the CSSF published the Circular 21/769 (“Circular”) on governance and security requirements for Supervised Entities to perform tasks or activities through Telework.
The Circular defines the governance and security requirements with regards to the Telework solutions under normal working conditions. Therefore, the Circular does not apply under pandemic situations or in case of other exceptional circumstances having a comparable impact on the general working conditions.
Companies under the supervision of the CSSF must, among others:
- Perform a risk analysis to identify the inherent risks in implementing Telework (operational and reputational risks). The identified risks and mitigation measures must be adequately formalized.
- Draft a Telework policy, which defines the scope under which Telework is allowed
- Monitor the use of Telework. Supervised entities shall be able to evidence such monitoring.
- Inform all staff members on Telework's best practices and risks (through training, newsletters or other communications)
- Review and adapt its access right management procedures
Furthermore, the Circular highlights that:
- The implementation and use of Telework arrangements do not require prior approval by the CSSF
- The board of directors or anybody that represents the supervised entity is ultimately responsible for the organization of the Telework
The Circular will be effective from September 30, 2021.
CSSF applied the ESMA guidelines on the reporting under Articles 4 and 12 SFTR
On April 13, the CSSF published a Circular CSSF 21/770 (“Circular”) on the ESMA guidelines on the reporting under Articles 4 and 12 SFTR. The purpose of the Circular is the application in the Luxembourg framework of the ESMA guidelines on the reporting under Articles 4 and 12 SFTR, amending among others:
- The reporting of collateral for margin lending
- The cross-references tables
The circular applies from April13, 2021.
The ESMA publishes its Annual statistical report on the cost and performance of EU retail investment products
On April 14, the ESMA published its third annual statistical report on the cost and performance of the EU retail investment products.
As part of the EU investment products offered to retail investors, the UCITS market is the largest with €11 trillion in NAV (+ €9 trillion compared to 2018). The ESMA highlighted that the main challenge for UCITS funds remains the costs impacting the outcome for the investors. The ESMA provided the following example: “A 10-year retail investment of €10,000 in a hypothetical portfolio of equity, bond or mixed assets funds provided a value of €21,813 declining to €18,616 net of costs.”
The two other types of investment products offered to retail investors are:
- Retail AIFs with €1 trillion
- Structured retail products with €400 bn
The CSSF applied the ESMA guidelines on disclosure requirements under the Prospectus Regulation
On April 20, the CSSF published the Circular 21/771 (“Circular”) on application of the ESMA guidelines on disclosure requirements under the prospectus regulation. The purpose of the Circular is the application in the Luxembourg framework of the ESMA on disclosure requirements under the prospectus regulation.
The Circular applies from May 5, 2021.
The European Commission adopts Delegated Regulation and Annex correcting Delegated Regulation (EU) 2017/565 supplementing MiFID II
On April 21, the European Commission adopted the Delegated Regulation correcting Delegated Regulation (EU) 2017/565, supplementing MiFID II as regards organizational requirements and operating conditions for investment firms.
The Delegated Regulation amends Article 1(1) (subject-matter and scope) and corrects errors appearing on several cross-references in the Annex 1 (record-keeping), sections:
- Client assessment
- Order handling
- Client order and transactions
- Reporting to clients
- Communication with clients
- Organizational requirements
The Delegated Regulation will come into force on the 20th day following its publication in the Official Journal of the European Union.
Read the article here.
The ESMA updates its Q&A on the Prospectus Regulation
On May 5, the ESMA published the updated Q&A on the Prospectus Regulation.
Compared to the March 2021 version, the below listed topics were updated:
- Global depository receipts over shares (home member state)
- Supplement to prospectuses: audited annual financial statements
- Credit rating disclosure in prospectuses
Read the article here.
The ALFI publishes its AML/CFT guidelines for Luxembourg-regulated and supervised entities
On May 20, the Association of Luxembourg Funds Industry (ALFI) published the AML/CFT guidelines. The guidelines aim to provide the best practices and recommendations on the fight against money laundering and terrorist financing in the Luxembourg’s investment fund industry. The guidelines outline the roles, responsibilities and obligations for market participants (such as investment funds, investment fund managers, fund administrators or portfolio managers) with respect to the current Luxembourg and international regulatory framework.
Due diligence measures are one of the key aspects in the fight against money laundering and terrorist financing and the ALFI guidelines provide details on measures to be taken depending on the counterparty, i.e., delegates, customer/investors and asset types (shares, derivatives, private estate, real estate).
To publish the AML/CFT guidelines, the ALFI worked jointly with the Luxembourg Bankers' Association (ABBL), Association Luxembourgeoise des Compliance Officers (ALCO), Luxembourg Private Equity and Venture Capital Association (LPEA) and Real Estate Association of Luxembourg (LuxReal). The document is available to ALFI’s members only.
Chamber of Deputies discuss the Bill of Law amending the Law of 22 March 2004 on securitization
On May 21, the Bill of Law amending the law of March 22, 2004 on securitization was presented to the Chamber of Deputies. The Bill of Law aims to provide a greater flexibility for certain securitization vehicles to benefit from the opportunities presented by active management, which will enhance the attractivity for collateralized loan obligations (CLO) structures.
Furthermore, the Bill of Law will allow securities vehicles to be established as tax transparent partnerships such as a common limited partnership or a special limited partnership and not only as a securitization fund or as a company.
Publication of the Law of 20 May 2021, amending the Law of 5 April 1993, on the financial sector and transposing the CRD V Directive
The Law of 20 May 2021 (“Law”) was published in the official journal, amending the Law of April 5, 1993, on the financial sector and transposing the CRD V Directive.
In its press release dated June 18, 2021, the CSSF draws the public's attention to the below listed developments under/in connection with the Law:
- New approval process for financial holding companies and mixed financial holding companies (Articles 34-1 to 34-3 of the law on the financial sector)
- Intermediate EU parent undertaking (Article 34-4 of the Law on the financial sector)
- The CSSF regulation N° 15-02 relating to the supervisory review and evaluation process that applies to credit institutions and investment (CRR) institutions
- Capital conservation measures
- Remuneration policies and practices
The above mentioned amendments came into force on May 25, 2021, except for the inclusion of the new Articles 59–13ter and 59–13quater of the LFS and the amendment of Article 59–14, paragraph 1 of the LFS, which entered into force on January 1, 2022, as mentioned in Article 108 of the Law.
CSSF – revised FAQ concerning the Luxembourg Law of December 17, 2010, relating to undertakings for collective investment, and the Luxembourg Law of July 12, 2013, on alternative investment fund managers
On June 10, the CSSF published the version 11 of the FAQ concerning the Luxembourg law of December 17 , 2010, relating to undertakings for collective investment. Compared to the November 2020 version, the CSSF added a new section 10. Application of MiFID to Luxembourg investment fund managers (IFMs) to clarify under what circumstances and to what extent MiFID applies to IFMs, their third-party delegates and their investment advisers.
The revised FAQ provides answers to the following questions (non-exhaustive list):
- When does the service rendered by third parties to IFMs fall within the scope of MiFID?
- Do MiFID rules apply to the marketing of funds?
- Which MiFID investment services may be considered as marketing of funds?
- Do MiFID rules apply to investment advisers when they provide investment advice to an IFM?
- Which MiFID exemptions may apply to third parties providing investment services to IFM?
IFMs are expected to comply with the FAQ as soon as possible and by December 31, 2021, at the latest, considering the best interests of investors.
In addition, the CSSF highly suggests that IFMs should perform a gap analysis of their current organization model to assess:
- The need for an authorization to provide services under Article 101 (3) of the law of December 17, 2010, (discretionary portfolio management, investment advice, safekeeping and administration of UCIs’ units)
- The need for an authorization to provide services under Article 5(4) of the law of July 12, 2013, (discretionary portfolio management, investment advice, safekeeping and administration of UCIs’ units, reception and transmission of orders)
- Appropriate compliance, by any third-country entity acting as their delegate or undertaking services on their behalf, with the third-country regime (Circular CSSF 19/716 on the provision in Luxembourg of investment services or performance of investment activities and ancillary services in accordance with Article 32-1 of the law on the financial sector).
CSSF - Circular CSSF 21/773 on the Management of Climate-related and Environmental Risks
On June 21, the CSSF published Circular CSSF 21/773 (“Circular”), a new guidance on the management of climate-related and environmental risks. The Circular applies to all credit institutions designated as less significant institutions under the single supervisory mechanism and to all branches of non-EU credit institutions. Companies in scope are expected to consider and integrate climate-related and environmental risk into their operations.
The Circular is applicable as of June 21, 2021.
The CSSF publishes FAQ on AML/CFT Market Entry Form for Investment Fund Managers and Investment Funds
On June 21, the CSSF published the first version of the FAQ on AML/CFT market entry form for investment fund managers and investment funds.
The FAQ provides clarifications on how and when an AML/CFT market entry form must be submitted to the CSSF and the information to provide regarding, among others, the shareholding structure of the investment fund manager or the approval of several sub-funds of an investment fund. The CSSF reminds market participants that an AML/CFT market entry form must be submitted for the following purposes:
- Set-up of an investment fund (UCITS, UCI Part II, SIF, SICAR) or when asking authorization of a label (ELTIF, EUSEF, EUVECA or money market fund)
- Approval of (a) new sub-fund(s) in an existing investment fund
- Set-up of an authorized investment fund manager or the registration of an investment fund manager
- Approval of an additional license or a license extension of an investment fund manager
- Entry of a qualified shareholder in the shareholding structure of an investment fund manager
Since February 15, 2021, investment funds and investment fund managers must fill out and submit the AML/CFT market entry form through CSSF portal eDesk.
The Importance of Purposeful Anti-Money Laundering Controls
The Division of Examinations’ Review of ESG Investing
Financial Stability Board Publishes Peer Review of UK Remuneration Regime
FCA Bans and Fines Financial Adviser £68,300 for Lacking Honesty and Integrity
FCA Business Plan 2021/22
Compliance, Culture and Evolving Regulatory Expectations
Changes to UK MiFID’s Conduct
Regulation for a Different World
FCA Fines Sapien Capital Ltd. for Serious Financial Crime Control Failings in Relation to Cum/Ex Trading
The Rise in Scams and the Threat to a Legitimate Financial Services Industry
All Reporting Firms Moved to FCA’s New Data Collection Platform Regdata
FCA Charges Ian Hudson with Fraudulent Trading and Carrying on Regulated Activities Without Authorisation
Temporary Registration Regime Extended for Cryptoasset Businesses
The FCA and the Bank of England Encourage Market Participants in a Switch to SOFR in U.S. Dollar
Building a Regulatory Environment for the Future
FCA Review Finds Weaknesses in Some “Host” Authorized Fund Management Firms’ Governance and Operations
PRA and FCA Publish Policy Statement on Bilateral Margin Requirements for Uncleared Derivatives