The Compliance and Regulatory Consulting practice of Duff & Phelps, A Kroll Business, 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 Q1 2021.
Foreign Investments in France Control Measures to Be Extended
On December 18, Bruno Le Maire, the French minister of the economy, announced the extension of the temporary measures to reinforce controls of foreign investments in France to December 22, 2021. These controls were implemented temporarily to tackle the crisis generated by the pandemic. These measures lowered, from 25% to 10%, the threshold for the acquisition of voting rights in companies considered as sensitive (such as activities in biotechnologies or the defense industry). These control measures only concern listed companies and outside-EU investors. Read the full article here.
European Securities and Markets Authority (ESMA) Publishes Guidance on Cloud Outsourcing
On December 18, European Securities and Markets Authority (ESMA) published its final guidance on outsourcing to cloud service providers (CSPs). These guidelines aim at helping firms identify, address and monitor risks linked to outsourcing to CSPs. They provide guidance on the following questions:
- Which risk assessment and due diligences should firms undertake on their CSPs?
- Which control framework should firms implement to assess CSPs’ performances, and how to exit their cloud outsourcing arrangements without undue disruption to their businesses?
- Which contractual elements should they include in the outsourcing agreement?
- Which information should be notified to the national competent authority?
The guidance will be translated into the official EU languages soon and published on the ESMA’s website. The national competent authorities (NCA) must confirm if they plan to comply within a two-month period. Read the full article here.
The AMF and ACPR Warn Against Firms Providing Investments on Forex and Crypto Assets
On December 21, the AMF and the ACPR warn the public about several providers that offer investments in forex and derivatives in crypto assets in France without being authorized. For now, their blacklist includes 12 non- authorized websites. Read the full article here.
The AMF’s Supervision Priorities For 2021
On January 1, the AMF’s supervisory priorities might happen through different supervision channels: from permanent monitoring to specific inspections. The priorities for asset management cover the following topics:
- Best selection/execution
- Market abuse framework
- Fees transparency
- Valuation and liquidity of real estate funds
- Depositories’ monitoring of firms
These priorities highlight the different risk areas identified by the AMF, aiming to incentivize regulated actors to scrutinize some of their practices more carefully to ensure they are in accordance with professional obligations. Read the full article here.
DOC-2020-01: The New AMF Doctrine on Performance Fees
On January 5, the new doctrine DOC-2021-01 incorporated the guidelines published by ESMA on performance fees for the Undertakings for the Collective Investment in Transferable Securities (UCITS) and certain types of alternative investment funds (AIF). The aim is to converge towards a harmonized framework in terms of performance fee calculations of different funds.
These guidelines ensure that the models used for fee calculations align with the principles of acting honestly and fairly in conducting business activities by preventing undue costs imposed on the fund and its investors. Moreover, they aim to establish a common standard for the disclosure of performance fees to investors. Read the full article here.
Brexit: The ACPR Reminds British Financial Establishments of Their Obligations
On January 4, following Brexit, European law no longer applies in the UK. Therefore, banking/insurance companies authorized in the UK are no longer able to offer their services in France. A list of relevant establishments is available on the ACPR website.
These establishments must give their clients in France personalised information on how their services will continue or discontinue in France from 1 January 2021. Contracts signed before the UK’s exit continue to be valid and must be executed. Read the full article here.
Brexit: ESMA Updates Its Transparency Calculations After the End of Transition Period
On January 8, ESMA published its first financial instruments transparency system (FITRS) file following the end of the Brexit transition period. This file was initially introduced by Markets in Financial Instruments Directive (MiFID II), and it focuses on transparency requirements.
The equity transparency calculation results delta file (DLTECR) contains updated transparency calculation results for equity instruments that previously had a UK venue as the most relevant market. Read the full article here.
Administrative Sanction of €150,000 for Almagest in Luxembourg
On January 15, the Commission de Surveillance du Secteur Financier (CSSF) published information about the sanction it had pronounced against Almagest in October 2020. The sanction is an administrative fine of €150,000 towards the investment firm. It is based on a failure to comply with its obligation to cooperate fully with the authorities and poor management of the risks identified by the CSSF during the inspection. Moreover, the company had beached certain professional duties with regards to the fight against money laundering. This 150 000€ fine follows up a first sanction (fine of €25,000) pronounced in January 2020 for the same reasons. Read the full article here.
AML–CTF: The AMF Updates Its General Regulation
On January 18, the AMF updated its third book and four of its doctrine positions relating to AML–CTF. These updates stem from the EU’s fifth AML directive transposition works introduced by the ordinance 2020-115 and governmental decrees 2020-118 and 119. The AMF recommends relevant entities to include an assessment method in their internal procedures to evaluate the equivalence level in terms of AML–CTF of third countries. To do so, the AMF recommends checking not only GAFI’s lists but also GAFI’s mutual evaluation reports.
In addition, the AMF adjusted its position on AML-CTF diligences for collective investment management companies towards the tenants of buildings acquired by the real estate funds they manage. Indeed, when the collective investment management company carries out itself the rental activity, it must conduct AML diligences towards the tenants (only applicable if the monthly rent is equal to or higher than €10,000). Read the full article here.
Entry into Force of the SFDR on 10 March 2021
On January 20, most measures stemming from the European Regulation (EU) 2019/2088, known as the Sustainable Finance Disclosure Regulation (SFDR or “Disclosure Regulation”), came into force on 10 March 2021. Transparency requirements included two new concepts to be applied to both firms and products: sustainability risks and principal adverse sustainability impacts. This regulation imposes obligation at both the entity and product levels. Two new categories of ESG products are to be identified: products promoting environmental or social criteria (article 8) and sustainable investments (article 9).
To give more precision on what information to publish and to clarify the identification of the two ESG product categories, European Supervisory Authorities have published their final report on draft regulatory technical standards on 2 February 2021.
Brexit and Continuation of Intermediation Activities
On January 22, the AMF indicates that the transition introduced by Brexit has gone smoothly, due to the majority of UK establishments having taken measures to relocate some branches within the EU. The AMF and the ACPR remind that entities relocated in the European Economic Area must have sufficient staff to ensure prudential risk management and effective supervision of their activities. In this respect, entities must complete their relocation plans, which are currently in progress, as soon as possible and finalise the transfer of those individuals who may still need to be relocated. Read the full article here.
The Three European Supervisory Authorities Publish Draft RTS on the SFDR
On February 4, the draft regulatory technical standards (RTS) for the SFDR gave clarity on the expected website and precontractual arrangement disclosures. The RTS provided templates for disclaimers, especially for products falling in articles 8 and 9. There is an annex to include at the end of the precontractual information to answer concrete questions such as “which investment strategy does that product follow?” or “what sustainability indicators are used to measure the attainment of environmental and social characteristics promoted by this product?” Finally, these draft RTS list precise examples of indicators in the fields of E (environmental), S (social) and G (governance) applicable to investments in investee companies, real estate or sovereign and supranationals.
The AMF Tightens the Professional Certification Requirements for Sustainable Finance
On February 10, acting on a proposal by the Financial Skills Certification Board (HCCP), the AMF has decided to create a module to verify professionals’ knowledge in green and responsible finance and to give greater weight to these issues in the general examination for AMF certification. The number of questions on sustainable finance in the general examination will be increased from four to 15 out of a total of 120 questions (compared with 115 today). These questions will address key concepts such as green finance, managing climate risk, socially responsible investment (SRI) and labels, ESG criteria and management’s approach. Read the full article here.
A New AML–CFT Framework for Digital Assets Service Providers
On February 12, the ordinance 2020-1544 amended the PACTE Law, which gave for the first time a regulatory framework for digital assets service providers (DASPs). This ordonnance requires a mandatory authorisation from the AMF for the following DASPs:
- DASPs providing services of exchange of digital assets for other assets and for those whose activity is based on the operation of a trading platform for digital assets
- DASPs whose activity is based on operations on a trading platform for digital assets
The registration needs to be done with the AMF after the approval of the ACPR. DASPs who were already carrying out these activities have six months starting from the publication date of the ordonnance to register with the AMF (before 11 June 2021).
The ordonnance 2020-1544 imposes a control on the AML/CFT framework and the freezing of assets as part of the registration procedure. This control is now focused on key points such as risk classification, identification and identity checks, knowledge of customers, enhanced scrutiny, reporting of suspicions, etc. This means that it is now forbidden for DASPs to hold anonymous accounts. Read the full article here.
Luxembourg: CSSF Unveils Its New Online Module for the Submission of AML/CFT Market Entry Form
Starting from February 15, 2021, the CSSF launched a new module available on the eDesk platform for the AML/CFT market entry form. The digitalization of this form aims at replacing the previous Excel files sent in the eDesk portal and ensuring a greater centralisation of data. The AML/CFT market entry forms for funds supervised by the CSSF must be submitted on the eDesk platform in the event of an authorisation, a license extension or a modification of the qualified shareholding. This AML/CFT can be submitted by an employee who is clearly identified. However, the ultimate responsibility for the adequate completion of the form remains with the RC (responsable du contrôle) and the RR (responsable du respect des obligations professionnelles).
The Success of Relance Label
On March 2, the Relance label aims to identify the investment funds committed to raising new resources to support the equity and quasi-equity of French companies, especially small and medium-sized enterprises (SMEs) and intermediate size companies.
It is granted following a check carried out by the French Treasury. After receiving the label, investment funds are required to provide semi-annual reporting.
Most funds are accessible to savers through life insurance, savings plans or online subscriptions.
As of March 1, 2021, 147 funds were labelled, including mutual funds, pension funds and PE funds open to non-professional investors. The contribution of the banking and insurance sector will continue in the coming months. Read the full article here.
The AMF Strengthens the Doctrine on Real Estate Investment Companies, Forestry Investment Companies and Forestry Investment Groups
On March 5, following the amendment that covers two aspects of the DOC-2019-04. The first one relates to investor information, specifying that the number of directorships held by supervisory board members must be stated in the notice of the general meeting. If the complete list of directorships is not given in the notice, it must be stated in it that the list is available on the company's website.
The second amendment considers the extension in French law of the concept of public offer in the prospectus regulation. The AMF specifies in DOC-2019-04 that this instruction does not apply to offers intended to investors acting on their own account or to qualified investors. Read the full article here.
“Energie Climat- Article 29”: Recommendations of the ASPIM on the Application Decree
On March 5, the “Energie-Climat” law aims to build a more resilient and sustainable European model by 2050. Article 29 aligns with the SFDR around sustainability-related information in the financial services sector and provides additional requirements on climate risk and investor strategy disclosure obligations to meet the provisions of the Paris Agreement and international agreements from the COPs on biodiversity.
The application decree of this article sets out disclosure requirements for investors regarding sustainability risks.
The recommendations of the ASPIM mainly concern informing investors on the methods used to produce information. They also highlight the fact that some aspects of the decree don’t apply to real estate investment companies. Finally, they recommend distinguishing in the text between disclosure requirements for public funds and professional funds.
New Accounting Standards for Funds
On March 7, the Accounting Standards Authority published a new regulation applicable to AIFs and the UCITS. The new accounting standards will be applicable for open exercises as of October 1, 2023.
- Fees can no longer be included in the cost price.
- Unrealized gains or losses must be recognized in the P&L.
- Unrealized gains can be distributed by Money Market Funds (MMF).
Impacts on the presentation of financial statements:
- Convertible bonds and traditional bonds to be separated in the balance sheet
- A new classification of target funds held in portfolio (UCITS, AIF, other)
- New reporting and presentation of financial statements requirements
Read the full article here.
GDPR: 2020 Commission nationale de l'informatique et des libertés (CNIL) Sanction Review
On March 7, the GDPR law sets out rules for the protection of personnel data. The CNIL’s review allows for the identification of potential risk areas.
The number of sanctions pronounced by the CNIL increased from 10 sanctions in 2019 to 15 in 2020. Moreover, the total amount of pecuniary sanctions also considerably increased going from €51 million euros in 2019 to €138 million in 2020.
France Invest Answers to the ESAP Consultation
On March 10, the European single access point (ESAP) aimed to create a single access point for all financial and extra-financial data on public companies.
France Invest’s recommendation focused on the reliability and fairness of published data. Data must be exhaustive and precise while respecting business secrecy. This means that companies must be able to access data and modify it if necessary; they must be able to choose data they publish and have visibility on the way it is used. They also highlighted the importance of data security and protection against cyberattacks. Finally, they recommended allowing companies to take part in the governance of the ESAP and enabling SMEs to participate in the ESAP voluntarily.
ESMA’s 2021 Report on Trends, Risks and Vulnerabilities
On March 17, ESMA analyzed the impact of COVID-19 on financial markets in H2 2020 and highlighted the risks induced by the growing public and private debt. Globally, the risk in financial markets remains high, mainly due to weak economic fundamentals.
In this risk analysis, ESMA provides five articles about sustainable finance during COVID-19 (vulnerabilities in MMF, climate risk perspective in fund portfolio network, a stress simulation in the context of COVID-19 , how to read Packaged Retail Investment and Insurance-based Products (PRIIPS), Key Information Document (KIDs) and ESG ratings.
Moreover, the European Supervisory Authorities have reminded that non-regulated crypto assets are risky as they don’t benefit from the guarantees and safeguards associated with regulated financial services.
Finally, the report shows that most on-exchange UK-based trading venues moved to EU venues following Brexit.
ESAS Consult on Taxonomy-Related Product Disclosure
On March 17, the European Supervisory Authorities published a consultation paper on Regulatory Technical Standards regarding financial products used to finance environmental and sustainable activities. The aim of these standards is to create a single reference and rulebook on sustainability-related disclosure requirements and to facilitate access to relevant information for impact investors under the SFDR and the Taxonomy Regulation.
The paper includes disclosure requirements about environmental objectives of the financial products and how these investments are taxonomy-aligned.
The closing date for the consultation is 12 May 2021. Thereafter, the document will be submitted to the European Commission.
AMF’s Recommendations for an Effective Supervision of Alternative Investment Fund Managers (AIFM)
On March 17, in response to the European Commission consultation regarding the Alternative Investment Funds Managers Directive (AIFM) review, the AMF recommends to:
- Give a leading supervisory role to the competent authority in charge of supervising the fund manager to monitor its activities across the EU
- Examine extensive delegation arrangements to ensure AIFM and UCITS managers remain fully in charge of the key business function and decisions
- Conduct a thorough examination of current reporting requirements
- Work on a common EU framework to make the use of liquidity management tools (LMTs) available in all EU jurisdictions with gates becoming a mandatory LMT
- Work on a harmonization of AIFMD and UCITS to limit unnecessary discrepancies
Read the full article here.
On March 18, the final day of Compliance and Internal Control Officers and Investment Services Compliance Officers training focused on liquidity management issues. Liquidity risk is increasingly attracting the attention of regulators and is one of the top five risks in asset management, according to ESMA’s Senior Supervisors Forum (SSF). A joint supervisory action has been carried out by European regulators on this subject. In 2019, ESMA published enhanced guidelines on stress liquidity tests that have been in place since September 2020.
There are several tools available for fund managers for liquidity management:
- Ordinary tools: buy-back notice, anti-dilution levy, swing pricing
- Extraordinary tools: suspension of subscriptions/buyouts, side pocket, security buyback and gates
ESMA's guidance on liquidity stress testing applies to all types of funds while adapting the process to the specifics of each fund. They are based on a comprehensive approach to liquidity risk and propose several types of methodologies, such as historical stress test and reverse crisis scenarios applied to the fund's assets and/or liabilities and other sources of liquidity risk.
ESMA recommends performing and documenting these simulations quarterly.
ESMA Updates Brexit Statement on the Provisions of the Benchmark Regulation
On March 24, following the end of the transition period on 31 December 2020, all UK administrators that were included in the “ESMA register of administrators and third-country benchmarks” were deleted from the register. Following the transition period, they qualify as third country administrators. Similarly, the UK-recognized or endorsed third country benchmarks were deleted.
However, due to the fact that the EU Benchmark Regulation (BMR) transition period was extended to 31 December 2023, the change in ESMA’s register does not have any effect on the ability of EU27-supervised entities to use the benchmarks provided by any third country administrators, including the UK ones. Read the full article here.
AMF Study on Complaints from French Retail Clients of European Investment Firms Operating Under the European Passport
On March 24, out of more than 200 complaints between January 2019 and December 2020, it was found that more than 60% of the complaints involved authorized actors in Cyprus.
The main reasons for retail investors complaints included aggressive commercial practices, order execution problems, difficulties in closing trading accounts, illegal provision of investment advice and redirection to non-EU subsidies without informing the client who loses the European protection.
These investment firms don’t fall under the supervision of the French regulator. Therefore, the AMF is currently working with its European counterparts facing the same issue to bring regulatory changes in the context of the forthcoming revision of MiFID II, intending to strengthen investor protection. Read the full article here.
January 4, 2021
Mous with European Authorities in the Areas of Securities, Insurance and Pensions, and Banking
January 11, 2021
The Final Countdown: Completing Sterling LIBOR Transition by End-2021
January 15, 2021
Supreme Court Judgement in FCA's Business Interruption Insurance Test Case
January 22, 2021
Insider Dealer Walid Choucair Ordered to Pay £3.9 Million in Confiscation
January 26, 2021
LIBOR - Are You Ready for Life Without LIBOR from End-2021?
January 27, 2021
FCA And FRC Joint Statement Reminding Companies That Extended Financial Information Timelines Continue to Apply
February 1, 2021
ESMA Launches a Common Supervisory Action on MiFID II Product Governance Rules
February 3, 2021
Authorisation And Supervision of International Firms: FCA Publishes Its Approach to International Firms
February 8, 2021
The Cayman Islands Have Been Added to the FATF List of Countries with Strategic Deficiencies
February 11, 2021
FCA Commences Criminal Proceedings Against Two for Insider Dealing
February 16, 2021
FCA Commences Criminal Proceedings Against Brothers for Insider Dealing and Fraud
February 19, 2021
FCA News and Publications Now Available in a Daily Email Alert
February 25, 2021
Cayman Islands Has Been Added to the FATF Grey List
February 25, 2021
The Financial Conduct Authority (FCA) Makes Senior Appointments to Drive Its Transformation
March 4, 2021
FCA Fines and Prohibits Trader for Market Abuse
March 5, 2021
Announcements on the End of LIBOR
March 8, 2021
Locking Down Market Abuse
March 26, 2021
Technical Negotiations Concluded on UK – EU Memorandum of Understanding