Welcome to the first monthly regulatory round-up of 2021. Each month we will be summarising the key announcements and regulatory developments impacting the fund industry.
The past month brought developments on a range of issues, from updated FAQs and guidelines impacting UCITS and AIFMs, to consultations on the Irish Investment Firms Directive, MiFID EMT v3.1 and the future of the UK fund landscape.
Other developments tracked last month, include updates to the UK short selling regime, Italy’s major shareholding disclosure requirements, and CP86.
Continue reading below to find out more about these and many other recent regulatory developments.
On 6th January 2021, ESMA launched a Common Supervisory Action (CSA) with national competent authorities (NCAs) on the supervision of costs and fees of UCITS across the European Union (EU). The CSA will be conducted during 2021.
The CSA aim is to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation of not charging investors with undue costs.
For further information see our blogs below:
On 12th January 2021, ESMA published an updated compliance table on the reporting to Competent Authorities under Article 37 of the MMF Regulation.
The majority of Competent Authorities have reported that they comply, or intend to comply with ESMA’s Guidelines on the reporting to Competent Authorities under Article 37 of the MMF Regulation.
The outstanding NCA is the Greek authority – HCMC have announced that they do not comply, and do not intend to comply with the reporting obligation related to 2019 Stress Test results based on ESMA scenarios. However, HCMC has stated that it intends to comply with parts of the Guidelines by 2022.
On 28th January 2021, ESMA updated its Questions and Answers related to reporting under the Securities Financing Transactions Regulation (SFTR).
The Q&As were updated to clarify:
- Reporting of events that were not duly reported on time;
- Updates to records of outstanding SFTs by the Trade Repositories based on reports made by the counterparties; and
- Operational aspects concerning the reporting by financial counterparties on behalf of small non-financial counterparties pursuant to the Article 4(3) of SFTR.
ESMA has published the updated Compliance Table for the Guidelines on liquidity stress testing in UCITS and AIFs. The majority of jurisdictions comply or intend to comply with the guidelines.
Poland’s KNF is the only outstanding NCA and has reported that they will comply by 30 September 2021.
FinDatEx has published EMT V3.1 for public consultation.
EMT V3.1 is a ‘high-level’ interim version which means to answer the demand of distributors and producers to cope with the basic implementation of MiFID ESG/SFDR principles.
V3.0 and V3.1 cannot be merged, but will co-exist until FinDatEx will be able to produce a new version based on relevant legislation.
The final version will be available for public use from 10 March 2021.
The Croatian Financial Services Supervisory Agency (Hanfa) has published a circular on the application of the Guidelines of the European Securities and Market Authority on performance fees in UCITS and certain types of AIFs.
Hanfa will apply the guidelines in full.
On 21st January 2021, the Autorité des Marchés Financiers (AMF) announced the application of the ESMA guidelines on performance fees in undertakings for collective investment in transferable securities (UCITS) and certain types of alternative investment funds (AIFs).
The five ESMA guidelines, which applied as of 5 January 2021, provide clarifications regarding the following aspects:
- The method for calculating performance fees.
- Consistency between the performance fee model and a fund’s investment objectives, strategy and policy.
- The payment frequency of performance fees.
- Catch-up processes relating to negative performance.
- Disclosure of the performance fee model.
With the implementation of the SFDR regulation for asset management companies on 10th March 2021, the AMF has published a document clarifying the relationship between these new obligations and national requirements, and the position-recommendation DOC-2020-03 on the information to be provided by collective investment schemes integrating non-financial approaches.
The Central Bank of Ireland has issued a letter to Irish Funds. The letter provides responses to queries received relating to the Central Bank’s thematic review of the implementation of its framework for governance, management and oversight in fund management companies.
The letter addresses the impact of the Central Bank’s resourcing expectations on Regulation 104 of the Central Bank UCITS Regulations 2019 and is an extension of the original CP86 Review Letter.
For further information on the Central Bank of Ireland’s CP86 Thematic Review, see our blog below:
Consultation on Competent Authority Discretions in the Investment Firms Directive and the Investment Firms Regulation
On 14th January 2020, the Central Bank published Consultation Paper 135 “Consultation on Competent Authority Discretions in the Investment Firms Directive and the Investment Firms Regulation”.
The consultation seeks stakeholders’ views on the proposed treatment of competent authority discretions set out in the Investment Firm Directive (“IFD”) and the Investment Firm Regulation (“IFR”). The consultation includes proposed changes to the general reporting requirements for investment firms to align with the new reporting regime under IFD/IFR.
Responses should be submitted no later than 26th March 2021.
On 21st January 2021, the Central Bank of Ireland (CBI) published the updated forms for Retail Investor AIF (RIAIF) and Qualifying Investor AIF (QIAIF).
Consob Extends Lower Major Shareholding Thresholds
The Italian regulation (CONSOB) has once again extended the lower major shareholding disclosure threshold for a further three months to 13 April 2021.
The lower thresholds apply to 104 companies listed in Italy, reducing the reporting thresholds to:
- 1% for non-SMEs; and
- 3% for SMEs;
Additionally, the10% threshold for “declarations of intention” has been reduced to 5%.
On 20th January 2021, the Commission de Surveillance du Secteur Financier (CSSF) published an updated FAQs concerning Luxembourg Law of 12 July 2013 on alternative investment fund managers.
Question L.2 has been updated on accounting standards accepted under article 20(3) of the Luxembourg Law of 12 July 2013 on alternative investment fund managers.
An Authorised AIFM established in Luxembourg managing an EU AIF is required to prepare the accounting information given in the annual report in accordance with the accounting standards of the home Member State of the AIF.
The accounting standards generally accepted for Luxembourg AIFs managed by an Authorised AIFM established in Luxembourg are LUX GAAP and IFRS.
The Malta Financial Services Authority (MFSA) has updated certain sections of the Investment Services Rules for Investment Services Providers.
The update implements ESMA’s Guidance on performance fees in investment funds applicable to Undertakings for the Collective Investment in Transferable Securities (UCITS), and certain types of Alternative Investment Funds (AIFs).
The Financial Supervisory Authority (FI) has imposed the following fines for major shareholding disclosure failings:
- Bees Invest SA SPF: SEK 2,400,000
- Brax Investments SA: SEK 2,400,000
- RoosGruppen AB: SEK 500,000
On 28th January 2021, the Financial Markets Authority (FMA) published a press release stating that it had found that the stock exchange had failed to meet its licensed market operator obligations due to insufficient technology resources.
Overall, the FMA review found NZX did not have adequate technology capability across its people, processes and platform to comply with market operator obligations and especially in the context of its systemic importance. Additionally, the performance of NZX’s systems did not meet regulatory requirements or expectations for fair, orderly and transparent markets.
This development will particularly impact those conducted their annual UCITS eligible market due diligence requirements, and assessing if the market is sufficiently regulated, operating regulatory, and open to the public.
In light of the CFTC’s amendments, the NFA modified its Form PQR to capture LEIs, eliminate certain questions and schedules related to reporting thresholds and made minor organizational and help text changes. These changes became effective for the 31st December 2020 filing.
NFA Member CPOs have been reminded that although the CFTC did not require a CPO-PQR filing on 31st December, pursuant to NFA Compliance Rule 2-46, they are required to submit the 31st December 2020 NFA Form PQR to NFA via EasyFile (Quarterly Reports) by 31st March 2021.
On the 14th January, the SEC announced that they were aware that filers have experienced issues with form 13H (and its variants) caused by the end of life of Adobe Flash software.
The issue has since been resolved, and filers who attempted to file a Form 13H (or variant), but were unable to do so as a result of the issue, should submit their filings as soon as possible.
United Kingdom Updates
The Financial Conduct Authority (FCA) has updated its website to explain its proposed process for adding a new sub-fund to an umbrella scheme that will be in the temporary marketing permissions regime (the “TMPR”).
The Collective Investment Schemes (CIS) Regulations create a UK-wide TMPR for Undertakings for the Collective Investment in Transferable Securities (UCITS) funds which were already passporting into the UK before the end of the transition period. The Regulations have extended this regime to new sub-funds.
The Financial Conduct Authority (FCA) published the List of third-country markets considered as equivalent to a UK regulated market in accordance with article 2a of UK EMIR.
Click here to see the FCA register for the list of UK regulated markets.
HM Treasury has published their “Review of the UK funds regime: a call for input”, seeking comments from stakeholder regarding what reforms should be taken in order to improve the UK fund regime.
The consultation is wide-ranging, covering direct and indirect tax and relevant areas of funds regulation, and includes chapters on:
- The UK’s approach to funds taxation;
- The UK’s approach to funds regulation; and
- Opportunities for wider reform.
Click here for further information on Chapter 3 of the Call of Input and the UK’s approach to fund regulation.
Click here for further information on Chapter 4 of the call for input and the opportunities for wider reform.
The Takeover Panel has published a revised version of the Takeover Code reflecting the amendments made by Instrument 2019/3 (The United Kingdom’s withdrawal from the European Union), Instrument 2020/1 (Document charges) and Instrument 2020/2 (Minor amendments to the Takeover Code).
In addition, Practice Statement No 18 (Cross-Border Mergers) has been withdrawn following the revocation of The Companies (Cross-Border Mergers) Regulations 2007.
The amendments took effect at 11:00pm on 31 December 2020.
On 6th January 2021, the Treasury published the Short Selling (Notification Thresholds) Regulations 2021 No. 5 (the Regulations). The regulation amends the notification threshold under Article 5(2) of the Short Selling Regulation from 0.2% to 0.1% of the issued share capital of an issuer.
This change entered into force on 1 February 2021.