With over 100 developments tracked in the last month on ATLAS Funds Training, unsurprisingly COVID-19 continues to dominate the headlines. This month’s briefing covers the latest developments impacting asset managers, including:
- PRIIPs back in the spotlight with the EU divided over further reforms,
- Liquidity risk management,
- The renewal of short selling bans despite growing scepticism,
- The French AMF issuing fines, unhappy with the quality of AIFM reporting systems and considering proposals to reduce major shareholding thresholds, and
- The SEC’s proposed new framework for valuation practices.
See below some of the highlights we have tracked this month.
For the full list of developments, click here.
Heavy redemptions during COVID-19 induced sell-off sparked concerns amongst Regulators across Europe who have subsequently increased the scrutiny on liquidity of asset managers in varying manners.
In Luxembourg, the CSSF introduced a weekly questionnaire – the first of which was due by 22nd April 2020. The objective of the questionnaire is to provide the CSSF with weekly updates on financial data (total net assets, subscriptions and redemptions) and an update on governance arrangements in relation to the activities performed by IFMs.
In France, earlier in the month, the AMF issued a reminder to AMCs of their obligations to put in place adequate and effective arrangements, procedures and techniques, to measure and manage at any time the risks which the UCITS and AIFs they manage are or might be exposed to, in particular liquidity risk management. The AMF went on to state that AMCs that breach investment restrictions or experience liquidity difficulties and have to activate certain liquidity risk management mechanisms (gates, side pockets, suspension of subscription and redemption orders, etc.) must notify the AMF on a daily basis.
In Germany, liquidity tools are enshrined in the German Capital Investment Code (KAGB) and were recently expanded by Article 5 Federal Law Gazette. The new liquidity tools have long been at the disposal of fund managers in other EU countries and includes redemption notices and swing pricing.
- Clear and relevant information on PRIIPs KID will be essential for retail investors’ participation in the post-COVID 19 recovery.
- The current framework is misleading for retail investors and therefore damaging for the industry and the UCITS brand.
- An urgent review of the current PRIIPs KID is critical to protect retail investors interests, particularly in times of economic uncertainty.
The BVI is adamant that past performance must be included in the PRIIPs KID at least in addition to performance scenarios.
Although there are many who are sceptical of the benefits of short selling bans, including the WFE who published a paper comparing the arguments against banning short-selling with the arguments in favour, a number of regulators across the EU have renewed their short selling bans that were due to end in April. The bans are to remain in place until 18 May 2020, including:
On 23rd April, the European Supervisory Authorities (ESAs) jointly published a consultation paper setting out the proposed regulatory technical standards (RTS) on sustainability related disclosures under the Sustainable Finance Disclosure Regulation (the Disclosures Regulation).
The Disclosures Regulation imposes new disclosure obligations on asset managers and financial advisers in respect of sustainability, to make it easier for end-investors to make informed investment choices. The draft RTS includes a mandatory reporting template, a set of indicators for ESG adverse impacts and details of the content and presentation of required disclosures.
Continuing with the ESG theme, IOSCO published a report on Sustainable Finance and the Role of Securities Regulators and IOSCO, which seeks to help market participants address issues related to sustainability and climate change.
The report indicates that many issuers and asset managers operating cross border may be subject to different regulatory regimes or participate in multiple regional or international third-party initiatives. This wide variety of regulatory regimes and initiatives, often with inconsistent objectives and requirements, may prevent stakeholders from fully understanding the risks and opportunities that sustainable business activities entail.
The Autorite de Marches Financiers (AMF) carried out a series of SPOT inspections in 2019 assessing the quality of AIFM reporting systems of five asset management companies in France. In the last week of April the regulator published the report – for the five companies that were inspected, the regulator found:
- asset liquidity criteria were only justified by expert opinion without auditing their approach;
- the portfolio distortion caused by liquidating assets was not taken into account;
- the time required for securities settlement was not taken into account when estimating the liquidity of the funds; and
- the stress tests carried out by the asset management companies, designed to simulate a crisis situation, were not sufficiently operational.
The AMF has published a report on shareholder activism. In the report the AMF discuss proposals on enhancing transparency on stake building by lowering the first legal notification threshold to 3%.
On 22nd April the AMF Enforcement Committee fined Elliott Advisors UK Limited and Elliott Capital Advisors L.P. for failing to comply with their reporting obligations in connection with a simplified public tender offer and for obstructing an AMF investigation.
In its decision of 17 April 2020, the Committee imposed fines of €15 million and €5 million on Elliott Advisors UK Limited and Elliott Capital Advisors L.P., managers of several investment funds.
The Luxembourg CSSF has been busy updating a series of FAQs including information on:
- What UCITS have to communicate to the CSSF in relation to an active breach of the VaR limit;
- Data reporting and transparency obligations under MiFIR;
- The CSSF’s position concerning the deadlines applicable under the UCITS Directive and under the AIFMD; and
- Swing Pricing.
The Securities and Exchange Commission (SEC) has announced that it has voted to propose a new rule that would establish a framework for fund valuation practices.
Proposed rule 2a-5 would replace decades-old guidance and interpretations, and is designed to clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.
The rule would require a board to:
- assess and manage material risks associated with fair value determinations;
- select, apply and test fair value methodologies;
- oversee and evaluate any pricing services used;
- adopt and implement policies and procedures; and
- maintain certain records.
- Require the reporting of legal entity identifiers for CPOs and the pools that they operate
- Remove certain questions where the answers are available to the CFTC through alternative data sets;
- Remove the majority of the data fields set forth in Schedules B and C of existing Form CPO-PQR
- Remove the ability of CPOs who are dually registered with the SEC as investment advisers to file Form PF in lieu of Form CPO-PQR
- Allow CPOs to file the updated National Futures Association Form PQR in lieu of the revised Form CPO-PQR;
- Alter the filing frequency of the revised Form CPO-PQR to quarterly for all CPOs
The Central Bank of Ireland has published a notice of intention in relation to the application of the ESMA Guidelines on stress test scenarios under the Money Market Fund Regulation (EU) 2017/1131.
The CBI will, in due course, consult on the incorporation of a provision in the Central Bank UCITS Regulations and AIF Rulebook that all managers of MMFs adhere to the Guidelines.
In the interim, the Central Bank expects full compliance with the Guidelines from 4 May 2020.
Heightened volatility in the Indian capital markets caused by COVID-19 have resulted in liquidity strains for a number of mutual funds. These strains have intensified in the wake of Franklin Templeton closing six debt mutual funds last week.
With a view to easing liquidity pressures on Mutual Funds, the Reserve Bank of India has decided to open a special liquidity facility for mutual funds of ₹50,000 crore (USD6.56bn).
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