Tue, May 9, 2023

AMF, AFG and ESMA Updates—February 2023

The Financial Services Compliance and Regulation practice of Kroll provides updates from the ESMA, and the AMF for asset managers during February 2023.

The AMF Fines Three Legal Entities and Eight Individuals for Insider Dealing Breaches and Failure to Maintain and Update Insider Lists

February 1, 2023

The AMF Enforcement Committee sanctioned several individuals and two legal entities for committing various insider dealing offences concerning the acquisition of a real estate company. The AMF determined that the information met the criteria for insider information, and then relied on a combination of evidence to conclude that the accused and their associates had used this insider information.

Individuals were fined between €5,000 and €1mn for insider dealing and the legal entity was fined €350K for failing to comply with its obligations to maintain and update an insider list.

Read the article here.

The Key Information Document Is Now Applicable to All Collective Investment Schemes

February 1, 2023

After a four-year transition period, funds are now required to provide a Key Information Document (KID) before subscriptions to collective investment schemes, under the PRIIPs regulation.

The KID covers all packaged and insurance-based investment products, i.e., investments in assets (shares, bonds, real estate, etc.) whose value fluctuates and which the investor does not buy the security or asset directly.

The KID provides important information concerning the investment, main characteristics and its nature and it is a standardised document at the EU level. This document replaces the UCITS Key Investor Information Document (KIID) after January 1, 2023 for funds with retail investors.

Read the article here.

ESMA Reviews the Scope of Clearing-and Derivatives-Trading Obligations

February 1, 2023

ESMA issued a final report “on the clearing and derivative trading obligations in view of the 2022 status of the benchmark transition”, related to the transition from Euro Overnight Index Average (EONIA) and London Interbank Offered Rate (LIBOR) to alternative benchmarks European Short Term Rate (€STER), Secured Overnight Rate (SOFR) and Tokyo Overnight Average Rate (TONA). The objective of the proposed amendments was to guarantee a “smooth benchmark transition”.

The report provides draft regulatory technical standards (RTS), with proposed amendments regarding the clearing obligation and the derivative trading obligation for over-the-counter interest rate derivatives in EUR, GBP,JPY, USD, CHF.

The European Commission has received the draft RTS for approval.

Read the article here.

Key Information Document: Understanding Performance Scenarios

February 2, 2023

The AMF has published an article concerning the KID and its performance scenarios. It is explained that the KID includes simulations that provide the investor with an overview of the investment's potential and risks. The article also explains where to find the KID and details the four performance scenarios.

Read the article here.

Key Information Document: Understanding Investment Risk Information

February 2, 2023

The AMF has published an article on the KID and its investment risk information. The section “What are the risks and what could I get in return?” provides the product’s level of risk along with explanations and information on the expected return.

The article provides information on the risk indicators, other risks and where to find the KID.

Read the article here.

Technological Innovations: Which Strategies for Asset Managers?

6 February 2023

The AFG has published a white paper on technological innovations aimed at assisting asset management firms in their "strategic thinking and digitization processes." The challenges of digital transformation, crypto-assets and blockchain technologies as well as the control and appropriate use of data were also addressed.

Read the article here.

Taxonomy Article 8 Reporting: Publication of an FAQ by the European Commission

February 10, 2023

The European Commission published FAQ, clarifying the climate Taxonomy delegated acts and the application of Article 8.

The AMF has subsequently clarified the content and objectives of this FAQ to assist firms in the implementation of the Taxonomy regulation. The AMF encourages firms to take this FAQ into consideration when drafting their Taxonomy related disclosures.

More specifically, the FAQ covers:

  • “The interpretation and implementation of certain legal provisions of the EU Taxonomy Climate Delegated Act establishing technical screening criteria for economic activities that contribute substantially to climate change mitigation or climate change adaptation and do no significant harm to other environmental objectives”
  • “The interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation on the reporting of Taxonomy eligible and Taxonomy-aligned economic activities and assets”

Read the article here.

The Sustainable Finance Disclosure Regulation: The AMF Proposes a Targeted Review To Include Minimum Environmental Criteria

February 13, 2023

The SFDR does not define a “sustainable investment” and does not yet provide minimum requirements. Therefore, the AMF considers it crucial that the European Commission presents “minimum criteria concerning environmental impacts for financial products categorised under Article 8 or Article 9”.

The AMF has proposed, among others, the following minimum environmental standards:

  • Implement minimum environmental criteria in order to categorise Article 8 and Article 9 products;
  • A minimum percentage of the portfolio assets of Article 9 funds must be Taxonomy aligned investments
  • Managers of Article 8 and Article 9 funds must implement an ESG approach to their “decision-making process”
  • Investments in fossil fuel related activities, which are not Taxonomy compliant, shall be excluded from Article 9 funds. However, for Article 8 products, it would be possible to invest in these activities, if certain conditions are met.

These proposed amendments may soon become European law.

Read the article here.

The AMF Fines a Financial Investment Advisor for Breaches of Its Professional Obligations.

February 15, 2023

The AMF Enforcement Committee fined a financial investment advisor €120K for:

  • Failing to respect the prohibition on financial investment advisors “receiving payments other than those intended to remunerate their activity”
  • Charging fees for an investment advisory service, which implies disclosing to clients the amount and nature of the fee
  • Providing an order reception-transmission service without providing formal investment advice and no RTO agreement
  • Providing "insufficient, inaccurate or misleading" information on "costs and fees, product performance and risks" in suitability statements
  • Failing to have in place an operational anti-money laundering and anti-terrorist financing procedure and not implementing a risk-based approach.

Read the article here.

The Autorité de contrôle prudentiel et de résolution Has Announced Its Supervisory Priorities for 2023

February 15, 2023

The Autorité de contrôle prudentiel et de résolution’s (ACPR) supervisory priorities for 2023 are as follows:

  • “Monitoring of risks related to the international economic and geopolitical situation in particular the rise in energy prices and the deterioration of growth prospects 
  • Monitoring the risks of rising interest rates, inflation and the valuation of real estate and financial assets, amplified by the consequences of the war in Ukraine 
  • Monitoring structural cyber and climate risks
  • Continued action on customer protection and the fight against money laundering and the financing of terrorism (AML/CFT)

These supervisory priorities aim to ensure the stability of the financial system.

Read more here.

AFG's Response to ESMA's Consultation on Its Draft Guidelines on ESG Labelling of Funds

February 16, 2023

The AFG has responded to ESMA’s consultation paper on “guidelines on funds’ names using ESG or sustainability-related terms”.

The AFG highlighted the following points:

  • Implementing thresholds on undefined or poorly defined elements, such as sustainable investment may affect the sustainable-finance market. Thus, these elements need to be clarified
  • Using thresholds could result in confusion, as investors may not understand the difference between the terms "ESG" and "sustainable"

Read the article here.

Extension of the Preparation of a Key Information Document to All Collective Investments: The AMF Updates Its Policy

February 16, 2023

AMF’s asset management policy was updated to reflect the new requirements for preparing and publishing the KID under the PRIIPs regulation.

Concerning funds open to retail investors, asset managers may opt to keep the old KIID (UCITS format) when addressing professional investors or to switch to the new KID format (PRIIPs regulation).

Read the article here.

Money Laundering and Terrorist Financing: Update of the Advisory Council on Combating Money Laundering and Terrorist Financing’s National Risk Assessment

February 20, 2023

The Advisory Council on Combating Money Laundering and Terrorist Financing updated its National Risk Assessment (NRA) to reflect the recommendations of the Financial Action Task Force and the views of professionals from all sectors regarding AML/CFT. The NRA aims to identify threats, vulnerabilities and risk levels of money laundering and terrorist financing at the national level.

The three main money laundering risks identified are: tax, social and customs fraud drug trafficking and theft and fraud.

Firms should take the NRA and its updates into consideration when drafting and updating their AML risk classification.

Read the article here.

Anti-Money Laundering and Combating the Financing of Terrorism: The AMF Applies the Guidelines of the European Banking Authority

February 21, 2023

The AMF has published guidance to incorporate the European Banking Authority (EBA) guidlines on policies and procedures regarding "compliance management and the role and responsibilities of the AML/CFT compliance officer". The EBA guidelines are intended to ensure a common understanding and proper application of internal governance measures relating to the prevention of the use of the financial system for money laundering and terrorist financing in the EU.

Financial institutions need to designate a member of the management body to be in charge of the application of AML/CFT obligations. In addition, the group's AML/CFT compliance officer should be designated.

Read the article here.

Adoption of the European Long-term Investment Funds 2.0 Regulation by the European Parliament

February 22, 2023

The European Long-Term Investment Funds (ELTIF) 2.0 regulation has been adopted by the European Parliament and will enter into force nine months after its publication in the EU Official Journal expected in March.

There are some new updates to the original ELTIF:

  • More flexible investment rules for ELTIFs, including a broadening of the scope of eligible assets;
  • Changes to the framework that allows redemptions before the end of the fund's life.

Read the article here.

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