27.06.2017 | KPMG Law Insights

Alternative Investments Legal – Alternative Investments Legal | Issue 6/2017

Dear Readers,

according to the farmer’s rule, a stormy June promises a bountiful year. Although the stormy weather conditions were limited in the area of alternative investments, there was no sign of a lull here either. A lot has happened again in June, which we would like to present to you in this issue.

Among other things, the European Commission has published a Communication on the mid-term review of the Capital Markets Union Action Plan.

We wish you an insightful reading and remain

With best regards

Dr. Ulrich Keunecke


Updated catalog of questions and answers on the implementation of the Market Abuse Regulation

The European Securities and Markets Authority (ESMA) updated its “Q&A on the Market Abuse Regulation (MAR)” on May 30, 2017.

The additions relate in particular to new answers on “Blanket cancellation of orders policy” and “Disclosure of inside information related to Pillar II requirements”.

ESMA has been asked whether a business policy under which a person who has come into possession of inside information and immediately and without exercising discretion cancels all orders relating to that information (“order cancellation policy”) is in compliance with the insider trading prohibition pursuant to MAR is. ESMA states that pursuant to. Art. 8 par. 1 MAR “the use of inside information in the form of cancellation or modification of an order in respect of a financial instrument to which the information relates shall also be deemed to be insider dealing if the order was placed before the inside information was obtained”. However, this presumption is not applicable pursuant to sec. Recital 25 rebuttable “if the person provides evidence that he or she did not use the inside information in the transaction.”

For these reasons, it should therefore not be possible to conclude that such an order cancellation policy constitutes insider trading per se. Should a company use an order cancellation policy, it should remain on a case-by-case basis.

The second newly added issue relates to the systematic disclosure of Pillar 2 results. ESMA notes that the issuer must assess, on a case-by-case basis, the particular circumstances before deciding to make a disclosure under Pillar 2. Art. 17 par. 4 MAR or to notify the supervisory authority of the intention to defer in accordance with Art. 17 par. 5 MAR to be notified.

Related links
The updated catalog can be here (in English language).


Updated list of third-country central counterparties recognized under EMIR

ESMA has published an updated list “of recognized central counterparties (CCPs) based in third countries”.

The update concerns New Zealand Clearing Limited. The European Market Infrastructure Regulation (EMIR) requires that central counterparties originating from third countries be recognized in order to operate in the European Union.

Related links
The updated list can be found here (in English language).


Opinion and updated Q&As on the implementation of MiFID II and MiFIR.

ESMA published the following information on the implementation of MiFID II and MiFIR on May 31, 2017:

“ESMA opinion on third-country trading venues for the purpose of position limits under MiFID II” and “updated Q&A`s on MiFID II”.

In the Opinion, ESMA comments on Article 57(4) of Directive 2014/65/EU (MiFID II), which requires competent authorities to set limits on positions that a person may hold at any time in a contract relating to traded commodity derivatives on a trading venue. Among other things, ESMA believes that the position limits should apply only to contracts in commodity derivatives traded on EU trading venues and to OTC contracts that are economically equivalent to those contracts.

Furthermore, ESMA believes that contracts in commodity derivatives traded on a third-country trading facility that is considered a trading venue should not be considered OTC and that, therefore, the positions resulting from the trading of these contracts should not count towards the EU position limit regime.

In the updated list of Q&As, ESMA implements new responses on “algorithmic trading” and “commodity derivatives”, among others.

Related links
The opinion can be here and the update
(in English language).


Consultation on Measures for Central Counterparties to Manage Conflicts of Interest Pursuant to. EMIR

ESMA published the consultation paper “ESMA`s Guidelines on CCP`s conflicts of interest management” on June 1, 2017.

CCPs have, according to EMIR, to act in the interests of their clearing members and clients. Therefore, they must establish robust organizational measures and policies for preventing and resolving conflicts of interest.

The deadline for comments is August 24, 2017.

Related links
The publication can be here (in English language).

EU Commission

Implementing regulation extending the transitional periods provided for in the CRR and EMIR with regard to capital requirements for risk exposures to central counterparties

In the EU Official Journal of June 7, 2017, the “Commission Implementing Regulation (EU) 2017/954 of June 6, 2017, extending the transitional periods provided for in Regulations (EU) No. 575/2013 and (EU) No. 648/2012 of the European Parliament and of the Council in relation to own funds requirements for exposures to central counterparties” has been published.

Accordingly, the periods referred to in Article 497(2) of Regulation (EU) No 575/2013 and in the second subparagraph of Article 89(5a) of Regulation (EU) No 648/2012, are extended for a further six months until 15 December 2017.

Related links
The ordinance can be viewed here.


Publication of first annual figures under Solvency II

Insurance companies presented annual figures for the first time in May 2017. In addition to the SFCR report (Solvency and Financial Condition Report), which companies must publish at the individual company level, results were submitted to BaFin as part of quantitative reporting, as well as a report that must be prepared exclusively for the supervisory authority, the RSR (Regular Supervisory Report).

All insurers subject to reporting requirements have submitted their data to BaFin. This has shown that one year after the introduction of Solvency II, no German insurance company covered by this supervisory system is undercovered – and that the LTG measures are working.

An in-depth analysis of all reports is also currently being conducted. This will also show whether more convergence within Germany and with Europe is necessary and sensible. BaFin is expected to issue another press release based on this in-depth analysis in early July.

Related links
An evaluation of the initial findings can be here can be viewed.


Consultation 05/2017: Circular on qualified participation in a central counterparty

BaFin has published “Consultation 05/2017 – Circular on qualified participation in a central counterparty”.

According to Art. 32 para. 4 EMIR, Member States are required to publish a list in which certain information is to be disclosed if market participants pursuant to Art. 31 par. 2 EMIR intend to participate in a central counterparty in a qualified manner or to divest to that extent.

With the draft circular and the annexes, the German legislator is now fulfilling the mandate. BaFin will accept comments on this until July 30, 2017.

Further links
The consultation 05/2017 can be found here can be viewed.


Presentation of past performance in the wAI of closed-end funds.

In a discussion between BaFin, bsi and BVI on May 12, 2017, BaFin indicated that it would adhere to the modified internal rate of return method (“mIRR”) when converting performance scenarios to past performance within the key investor information within the meaning of section 270 para. 2 No. 4 KAGB to be adhered to.

Furthermore, BaFin stated that it would not follow the proposal of a TVPI method (total value to paid in) submitted by the associations.


Supervisory principles on Brexit

ESMA published an opinion on May 31, 2017, setting out general principles to support supervisory convergence in the context of the United Kingdom’s withdrawal from the European Union.

This Opinion is intended to serve as a practical tool for achieving supervisory convergence. Therefore, it is aimed in particular at the competent national authorities of those countries that remain EU member states.

The following 9 principles are generally mentioned:

– No automatic recognition of existing authorizations;
– Authorizations granted by EU27 NCAs should be rigorous and efficient;
– NCAs should be able to verify the objective reasons for relocation;
– Special attention should be granted to avoid letter-box entities in the EU27;
– Outsourcing and delegation to third countries is only possible under strict conditions;
– NCAs should ensure that substance requirements are met;
– NCAs should ensure sound governance of EU entities;
– NCAs must be in a position to effectively supervise and enforce Union law; and
– Coordination to ensure effective monitoring by ESMA”.

According to this, the principle is that the United Kingdom will be treated as a third country after a Brexit and the corresponding regulatory requirements must be met.

Further links
The statement can be here (in English language).

European Commission

Mid-term review of the Capital Markets Union Action Plan

On June 8, 2017, the European Commission issued the Communication on the Mid-term Review of the Capital Markets Union (“CMU”) Action Plan. This follows a public consultation on the mid-term review of the Capital Markets Union. The results of this consultation have been incorporated into the mid-term review on the Capital Markets Union Action Plan.

The Action Plan provides a set of measures for the 2015 – 2019 timeframe to advance the strengthening and integration of capital markets. Another concern is the integration of parked savings into the active capital market and money cycle.

Over the past 18 months, the Commission has implemented more than half of the actions announced in the CMU Action Plan (20 of 33), according to the original schedule.

Specifically, the Commission also announced nine new complementary priority initiatives. The main reasons for expansion include Brexit and new market conditions due to the increase in FinTechs.

Related links
The half time balance can be here can be viewed here.

National legislation

Possible adjustments due to investment tax reform

As of January 1, 2018, the new Investment Tax Act is applicable. Thus, the legislator changes the taxation principle for mutual funds.

A little more than six months remain before the new principle is applied. Nevertheless, it is advised to make any necessary adjustments to the investment conditions of mutual and special funds in a timely manner and, if necessary, to coordinate them with investors and asset managers and/or fund initiators. This also applies to sales prospectuses of mutual funds.

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Dr. Ulrich Keunecke

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