Welcome to the Funds-Axis Regulation Round Up!
The past month brought a number of important regulatory developments, most significantly on funds’ marketing communications and the extension of the PRIIPs exemption of UK UCITS funds. There were also notable update on topics such as AIFMD, UCITS, Liquidity and EU short selling reporting.
Continue reading below to find out more about these and many other recent regulatory developments.
The European Securities and Markets Authority (ESMA), has updated its Questions and Answers on the following topics:
• EMIR implementation
• MiFID II and MiFIR Investor Protection topics
• MiFIR data reporting topics
• SFTR reporting
ESMA has published the final report on its Guidelines under the Regulation on cross-border distribution of funds. The Guidelines specify the requirements that funds’ marketing communications must meet.
The purpose of the Guidelines is to clarify the requirements that funds’ marketing communications must meet, which is to:
- Be identifiable as such;
- Describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner; and
- Contain clear, fair and not misleading information, taking into account the on-line aspects of marketing communications.
HM Treasury has announced that the current exemption for Undertakings for the Collective Investment in Transferable Securities (UCITS) funds from the requirements of the Packaged Retail Investment and Insurance-based Products (PRIIPs) Regulation will be extended by five years to 31 December 2026.
The exemption was due to expire on 31 December 2021. HM Treasury intends to legislate to extend this exemption to 31 December 2026.
The Central Bank of Ireland (CBI) has published a letter following the Central Bank of Ireland’s review in early 2020 on UCITS liquidity risk management (LRM).
The Letter, which is addressed to all Irish authorised UCITS managers, including both UCITS Management Companies and Self-Managed Investment Companies (SMICs), directs them to carry out a review of their liquidity risk management practices, documentation, systems and controls.
The review should have regard to the findings set out in the ESMA Public Statement and a further list of related adverse findings contained in the CBI Letter.
See our blog for the full list of adverse findings and required action:
In August 2020, the FCA published consultation paper CP20/15: Liquidity mismatch in authorised open-ended property funds. In the consultation, the FCA discussed reducing the potential for investor harm that arises because the terms for frequent (typically daily) dealing in units of some property funds are not aligned with the time it takes to buy or sell the buildings in which the funds invest. This creates a liquidity mismatch between the redemption terms that the fund offers to investors and the fund’s assets.
To reduce the risk posed by the liquidity mismatch, the FCA consulted on whether property funds should be required to have notice periods before an investment can be redeemed. They suggested a notice period of between 90 and 180 days for these funds.
Following the consultation in 2020 on the liquidity mismatch in authorised open-ended property funds, the FCA have published FS21/8 and a statement on next steps. In the light of its consultation on long-term assets, the FCA notes that it will not take a final decision on its policy position on property funds until Q3 2021 at the earliest in order to take feedback to the LTAF consultation into account.
The FCA has launched a consultation on proposals for a new category of fund designed to invest efficiently in long-term, illiquid assets. The aim of this new long-term asset fund (LTAF) would be to provide a fund structure through which investors can invest with appropriate confidence in less liquid assets because the fund structure is specifically designed to accommodate relatively illiquid assets.
The FCA is proposing that LTAF rules embed longer redemption periods, high levels of disclosure, and specific liquidity management and governance features. These would take account of the types of risk to which LTAFs might be exposed and help give investors’ confidence that they are being managed appropriately and in their interests.
The Commission de Surveillance du Secteur Financier (CSSF) has published a user guide concerning reporting under Art.37 of the MMFR” and a list of “MMFR Error Codes”.
The purpose of these documents is to provide IFMs with an explanation on recurring problems encountered with the MMFR reporting and the full list of ESMA error messages which are mentioned in the Excel file validation_rules_V06.
CONSOB has published an updated document providing guidance on fulfilling the obligations referred to in Resolution no. 21639 of 15 December 2020 on access to KIDs by Consob.
Additionally, Consob has provided guidance on 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.
The Autorité des Marchés Financiers (AMF) has published a detailed analysis of French money market fund (MMF) portfolios during the Covid crisis. It presents the French MMF market and the distortion of portfolios during this period marked by a massive wave of redemptions in March.
The study presents the following findings:
- The bulk of the French MMFs portfolio consists of securities issued by the financial sector and these securities were sold as a priority to meet redemptions. This led to a distortion of the portfolio to the benefit of cash and sovereign securities;
- The exposure of a French MMF to securities issued by the bank of the group to which its fund manager belongs is no greater than to other banks and the crisis did not change this observation;
- The share of cash and short-dated securities (less than one month maturity) increased at the expense of longer-dated securities, especially those maturing between 6 and 12 months;
- In March 2020, the €53 billion decline in assets under management corresponds to €42 billion in securities reaching maturity and €56 billion in active sales while at the same time MMFs purchased €27 billion of new securities and increased their cash holdings by €19 billion.
The European Commission has published FAQs on the EU Taxonomy Article 8 delegated act and how will it work in practice. The purpose of this FAQ document is to provide guidance on the EU Taxonomy Article 8 delegated act (disclosures delegated act).
On Monday 24 May 2021, the Overseas Investment Amendment Act 2021 received Royal Assent. This Act amends the Overseas Investment Act 2005. On 7 June 2021, the Emergency Notification Regime (ENR) will be replaced by a more targeted National Security and Public Order notification regime (NSPO).
The changes will:
• Remove the need for consent for lower risk transactions
• Better manage higher risk transactions and assets of significance to New Zealanders
• Simplify application requirements for investors.
The European Securities and Markets Authority (ESMA) has recommended to the European Commission (EC) to permanently lower the threshold to notify net short positions on shares to national competent authorities (NCAs) from 0.2% to 0.1%.
The Central Bank has published a third edition of the Central Bank Transparency Regulatory Framework – Questions and Answers document.
The new QA added (ID 1006) reminds issuers of the Transparency Directive home Member State disclosure obligations where, in light of the UK’s withdrawal from the EU, an issuer is now disclosing its choice of a new home Member State.