Welcome to the Funds-Axis Regulation Round Up!
Our monthly update highlights the latest developments impacting the investment compliance industry. The past month brought developments on a range of topics, including:
- UCITS & AIFMD
- Fund Liquidity
- Major Shareholdings
- Short Selling
- PRIIPs KID
Continue reading below to find out more about these and many other recent regulatory developments.
AIMA, IMMFA, ICI, ISDA and SIFMA AMG (collectively “the associations”) have written a letter to the Prudential Regulation Authority (PRA). The letter urges the PRA to permit use of European Economic Area (EEA) UCITS for initial margin (IM) purposes in the UK Uncleared Margin Requirements (UMR) Binding Technical Standards (2016/2251) once the current ‘standstill’ comes to an end on 31 March 2022.
Under the EU UMR, financial counterparties are permitted to use EEA UCITS as IM, subject to the conditions set out in Articles 4 and 5 of the EU Margin RTS. The UK UMR have similarly restricted financial counterparties to use of UK UCITS as IM (Article 4 (r)).
The impact of this restriction is postponed by the ‘standstill’ approach adopted under UK rules, whereby UK counterparties do not have to adapt current procedures and arrangements for exchange of margin in uncleared derivatives business until 31 March 2022.
The associations believe, however, that once the restriction to use of UK UCITS as IM is in effect, there will be negative consequences for the counterparties concerned and for the attractiveness of the UK as a jurisdiction in which to do uncleared derivatives business.
The European Central Bank (ECB) has published a number of bulletins providing insights into their ongoing work in the field of macroprudential policy. The topics in the bulletin include:
The aim of the Macroprudential Bulletins are to raise awareness of macroprudential policy issues in the euro area by bringing greater transparency to the ECB’s ongoing work and thinking in this field, and to foster broader discussion on key issues.
ESMA has published its third annual statistical report on the Alternative Investment Fund (AIF) sector.
The report flagged that the main risks faced by the sector relate to a mismatch between the potential liquidity of the assets, and the redemption timeframe offered to investors. This is particularly the case for real estate funds and funds of funds.
For hedge funds, leverage being very high at more than 900% after adjustments was also raised as a key issue.
ESMA has updated its Q&As on the application of the UCITS and Alternative Investment Fund Managers Directives. ESMA has added two new Q&As on the ESMA’s guidelines on performance fees in UCITS and three Q&As on AIFs.
The Q&As provides clarification on the crystallisation of the performance fees and on the timeline of the application of the performance reference period.
The Danish Financial Supervisory Authority (Danish FSA) have issued a press release highlighting that major shareholders make a number of significant mistakes when using the latest version of the standard form for reporting major shareholder announcements.
In its investigation, the Danish Financial Supervisory Authority found that the major shareholders in 30 per cent of the reports had used previous versions of the standard form, which are now obsolete.
The study also identified that there were errors in the completion of the standard form in 65 per cent of the reports made by major shareholders in the latest version of the standard form.
On 28th April 2021, the Financial Conduct Authority (FCA) published consultation paper (CP21/9) on changes to UK MIFID’s conduct and organisational requirements.
The FCA are proposing to change the existing inducements requirements relating to research. This includes an exemption from the inducement rules for research on SMEs with a market cap below £200m and an exemption for FICC research. The FCA are also proposing to remove two sets of reporting obligations on firms known as RTS 27 and 28 reports.
The Central Bank has published guidance for Performance fees of UCITS and certain types of Retail Investor AIFs.
The Guidance incorporates the ESMA Guidelines on performance fees in UCITS and certain types of AIFs into the Central Bank’s regulatory framework.
The Central Bank of Ireland (CBI) has issued the 38th edition of the Central Bank AIFMD Q&A, which includes two new Q&A’s, ID 1141 and ID 1142.
The Q&A [ID 1141] relates to raising capital from investors by way of a shareholder (unitholder) loan. The AIF Rulebook does not envisage or specifically permit arrangements which involve loans between an authorised AIF and its members (investors). Such arrangements would not appear to be consistent with the objective of collective investment on behalf of an authorised AIF’s members. The Central Bank may revisit this matter during future public consultations related to the Central Bank’s AIF Rulebook (and their subsequent conversion into regulations).
The Q&A [ID 1142] relates to whether an authorised AIF can enter into transactions with its investors. Except as where expressly set out in relevant legislation, there appears to be no particular prohibition in the legislation or the AIF Rulebook to prevent an authorised AIF from entering into transactions with investors. However, the AIF Rulebook does not envisage that such transactions would take place. ID 1142 sets out the Central Bank’s expectations in this regard. The Central Bank may also revisit this matter during future public consultations related to the Central Bank’s AIF Rulebook.
CONSOB has published an updated document providing guidance on fulfilling the obligations required under Resolution no. 21639 of 15 December 2020 on access to KIDs by Consob and Resolution no. 21640 of 15 December 2020 on the provisions concerning the obligations to make information and structured data related to Packaged Retail and Insurance-based Investment Products (“PRIIPs”) accessible to Consob by PRIIPs manufacturers.
For the purposes of making the KIDs and structured data available, manufacturers must be accredited by sending Consob a completed “PRIIPs Manufacturer” form, which can be downloaded from the Consob website.
The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) has sent a sector letter to alternative investment fund managers (AIFMs) falling under the ‘light’ regime.
‘Light’ AIFMs are exempted from the EU Alternative Investment Fund Managers Directive’s license obligation as laid down in Article 2:65 of the Act on the Financial Supervision (Wet op het financieel toezicht, the AFS), but are required to register themselves with the AFM.
In the letter, the AFM has provides a non-exhaustive overview of applicable legislation and regulations.
The Norwegian government is proposing new rules that will increase transparency around foreign owners of shares in Norway, as well as increasing the opportunities for foreign shareholders to participate in the general meetings of companies in which they own shares.
The government is proposing to amend the Limited Liability Companies Act, the Public Limited Liability Companies Act, and the Central Securities Depository Act which will result in increased transparency regarding who the owners of nominee-registered shares are.
The proposals also make provisions allowing the owners of nominee-registered shares to exercise their rights as shareholders to the same extent as other company shareholders. The proposals only apply to public limited liability companies (ASA) and limited liability companies (AS) whose shares are registered with a central securities depository.
The Securities and Futures Commission (SFC) has publicly reprimanded and fined Optimas Capital Limited HK$1.05 million for failures concerning short position reporting between 2017 and 2018.
This is the second large fine the Securities and Futures Commission (SFC) has issued this year, and follows the $3.15 million fine the Securities and Futures Commission (SFC) issued in February following short position reporting failures by Brilliance Asset Management Limited.