23.07.2018 | KPMG Law Insights

Alternative Investments Legal | Issue 07/2018

Dear Readers,

Summer, sun, sunshine characterize July this year and the summer shows its best side. With sun rays on your face, an ice cream in your hand and sand under your feet, you can enjoy a little vacation atmosphere.

However, the vacation season did not stop the alternative investments sector and there are again some news around the topic, which we would like to present to you in this issue.

Among other things, EBA and ESMA have published joint guidelines on the assessment of the suitability of members of the management body and of key function holders. ESMA has also launched two public consultations under the new Prospectus Regulation and the Bundesrat has adopted resolutions on the rules on cross-border distribution of investment funds, the EU Prospectus Regulation and the civil law provisions to the General Data Protection Regulation.

We wish you an insightful reading and remain

With best regards
Dr. Ulrich Keunecke

Insurance Europe

Publication of Insight Briefing on the Results of the “2018 Solvency II Review”.

On June 26, 2018, Insurance Europe published the Insight Briefing on the results of the “2018 Solvency II Review.” The survey of insurers from across Europe found that more than three-quarters of respondents see a positive impact from the 2016 EU Solvency II Regulation on their risk management and governance practices, as well as their asset and liability management.

However, 58% of respondents offering long-term savings products with guarantees indicated that Solvency II has had a negative impact on these products. 48% indicated that Solvency II has led them to invest less than optimal in equities, long-term bonds, private placements or unrated debt.

The press releases can be viewed here (in English).


Survey on sustainable investment activity in the insurance sector

On June 27, 2018, the German Federal Financial Supervisory Authority (BaFin) published results of a survey conducted on sustainable investment activity in the insurance sector.

The industry survey covered all insurance and reinsurance companies – with the exception of death funds – as well as institutions for occupational retirement provision that are supervised by BaFin. Specifically, BaFin asked the companies how they take into account ESG (environmental, social and governance) criteria in their investments.

Insurers classify around 73 percent of their investments relevant to the survey as sustainable. At around 49 percent, the negative list is currently the most frequently used investment strategy in terms of sustainability.

In this process, companies draw up a list of individual securities on the basis of previously defined criteria, avoiding investments in certain companies, countries or sectors. In contrast to the negative list, when positive lists are used, the company determines criteria against which a company, state or sector is classified as sustainable.

The press releases and the results of the survey can be viewed here.


Publication “Blockchain – Rethinking Business Models in the Digital Age”.

On June 28, 2018, the Association of German Public Sector Banks (VöB) made available a publication on blockchains on the Internet in its “VÖB Digital” publication series.

Although few practical use cases exist to date, there are a variety of business models in the financial services sector that can be revolutionized or re-envisioned by blockchain. Blockchain or distributed ledger technologies (DLT) could be the foundation of future innovations.

This paper provides an overview and is intended to illustrate the different areas of application.

The article can be viewed here.


Publication of two parts of the FinTechRoadmap

The European Banking Authority (EBA) published the first products of its FinTech Roadmap on July 3, 2018, namely a thematic report on the impact of FinTech on the business models of established credit institutions and a thematic report on the regulatory risks and opportunities for institutions from FinTech.

Both reports fall within the broader context of the newly established EBA FinTech Knowledge Hub and aim to raise awareness among supervisors and the industry of potential supervisory risks and opportunities arising from current and potential FinTech applications.

The reports will also be used to understand key trends that could impact incumbents’ business models and pose potential challenges to their sustainability.

The reports can be viewed here (in English).

Insurance Europe

Publication of information on the Solvency II conference “Two years on and two reviews

On June 26, Insurance Europe hosted a full-day Solvency II conference in Brussels titled “Two years on and two reviews.”

The conference included keynote speeches from European Commission Vice President Valdis Dombrovskis, EIOPA Chairman Gabriel Bernardino and Insurance Europe President Andreas Brandstetter.

The conference will also include a presentation by Olav Jones, deputy director general of Insurance Europe, who outlined the results of a survey of insurance companies that showed Solvency II encourages companies to gain benefits but discourages companies from making long-term commitments.

The conference was recorded and made available for streaming on the Internet. The recording is available on the Insurance Europe YouTube channel. The program, presentations, photos and press releases are available on the Insurance Europe website.

The materials and recordings can be viewed here (in English).


Publication of guidelines for assessing the suitability of members of the management body and holders of key functions

On July 5, 2018, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published their joint guidelines on the assessment of the suitability of members of the management body and key function holders.

These guidelines set forth, among other things, requirements with respect to the suitability of members of the management body of credit institutions, investment firms, financial holding companies, and mixed financial holding companies, as well as the concepts of sufficient time; honesty, integrity, and impartiality of a member of the management body; sufficient collective knowledge, skills, and experience of the management body; and adequate levels of human and financial resources for the induction of members of the management body into office and their training.

The guidelines can be viewed here (German translation).

Federal Council

Resolutions on the regulations on the cross-border distribution of investment funds, the EU Prospectus Regulation and the civil law provisions to the General Data Protection Regulation

On July 6, 2018, the Federal Council adopted the following resolutions, among others, at its meeting:

  1. Proposal for a Regulation of the European Parliament and of the Council facilitating the cross-border marketing of investment funds and amending Regulations (EU) No 345/2013 and (EU) No 346/2013 (Item 22a: 73/18);
  2. Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/65/EC of the European Parliament and of the Council and Directive 2011/61/EU of the European Parliament and of the Council as regards cross-border marketing of investment funds (Top 22b: 72/18);
  3. Act on the Exercise of Options of the EU Prospectus Regulation and on the Adaptation of Further Financial Market Laws (Top 51: 312/18);
  4. Draft law on the adaptation of civil law provisions to the General Data Protection Regulation (Item 55: 304/18).

The complete documents can be found under the respective TOPs of the meeting on July 06, 2018.

The agenda items for the meeting can be viewed here.

EU Commission

Stricter rules in the fight against money laundering and terrorist financing come into force

On July 9, 2018, the Fifth Anti-Money Laundering Directive entered into force following its publication in the Official Journal of the EU. The new rules, proposed by the Commission in July 2016, create more transparency regarding the real owners of companies and tackle terrorist financing.

The new rules impose stricter transparency requirements. This includes unrestricted public access to the registers of beneficial owners on companies, more transparency in the registers of beneficial owners of trusts and the interconnection of these registers.

Furthermore, the use of anonymous prepaid card payments will be combated under anti-money laundering regulations, and cooperation and information sharing between money laundering regulators and other regulators, including the European Central Bank, will also be improved.

The policy can be viewed here.

EU Commission

Publication in the EU Official Journal of the Delegated Regulation amending the MMF Regulation with regard to STS securitizations and ABCP, requirements for assets received under reverse repurchase agreements and credit quality assessment methodologies.

On July 13, 2018, the “Commission Delegated Regulation (EU) 2018/990 of April 10, 2018, amending and supplementing Regulation (EU) 2017/1131 of the European Parliament and of the Council as regards simple, transparent and standardized (STS) securitizations and asset-backed commercial paper (ABCP), requirements for assets received under reverse repurchase agreements and methods for assessing credit quality” was published in the Official Journal of the EU.

This Regulation shall enter into force on the twentieth day following its publication in the Official Journal of the EU and shall apply from 21 July 2018, with the exception of Article 1, which shall apply from 01 January 2019.

The ordinance can be viewed here.


Launch of two consultations on the Prospectus Regulation

The European Securities and Markets Authority (ESMA) launched two public consultations under the new Prospectus Regulation (PR) on July 13, 2018.

ESMA invites comments from stakeholders on the proposed technical advice other than documents prepared for the purpose of an offer/admission of securities in connection with a takeover, merger or division. In addition, ESMA is seeking stakeholder comments in relation to the proposed guidelines on risk factors.

Key draft consultations include:

  1. The consultation paper on minimum information content for prospectus exemption.
  2. The consultation paper on risk factor guidelines.

The consultation period ends on October 5, 2018, and the final reports are to be submitted to the EU Commission by March 31, 2019.

The press releases and links to the consultations can be found here (in English).

EU Commission

Adoption of the delegated regulations on the AIFMD and the UCITS Directive

The Commission adopted new rules on July 12, 2018, to provide greater clarity and consistency in asset segregation so that investors are better protected and more market efficiency is ensured.

The new rules are intended to prevent national competent authorities and market participants from adopting different interpretations of existing EU rules on asset segregation.

The rules are issued in the form of delegated regulations supplementing the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. They specify the requirements for the tasks of depositaries.

The changes will apply from spring 2020, unless the European Parliament and the Council raise objections.

The press release of the EU Commission can be viewed here.


Crypto-Asset Framework Report.

The Financial Stability Board (FSB) published a report to G20 finance ministers and central bank governors on July 16, 2018, on the work of the FSB and standard-setting bodies on cryptoassets.

For its part, the FSB, in collaboration with the Committee on Payment and Market Infrastructures (CPMI), has developed a framework for monitoring the financial stability implications of developments in cryptoasset markets.

The published report sets out the metrics that the FSB will use to monitor crypto-asset markets as part of its ongoing assessment of vulnerabilities in the financial system.

The report can be viewed here (in English).


Consultation on Assessing the Effects of Regulatory Reforms on Infrastructure Financing.

The Financial Stability Board (FSB) released a consultation report on July 18, 2018, on the evaluation of the impact of financial market reforms on infrastructure finance and is seeking public feedback on the results of the evaluation to date.

The evaluation is the first in the FSB’s framework for evaluating the post-implementation impact of G20 financial regulatory reforms and is part of a broader FSB examination of the impact of reforms on financial intermediation.

It focuses on infrastructure finance provided in the form of corporate and project finance (loans and bonds), for which financial market reforms are of direct relevance.

The report can be viewed here (in English).


Consultation on the revision of the reporting of credit rating agencies

The European Securities and Markets Authority (ESMA) issued a consultation paper on July 19, 2018, for revised guidelines on information regularly reported to ESMA by credit rating agencies for supervisory purposes.

In March 2015, ESMA published its first guidelines on the periodic information that CRAs should submit to ESMA for their ongoing supervision. The information obtained under these guidelines is critical to ESMA’s ability to efficiently and effectively supervise the CRA sector.

However, since the introduction of the 2015 Guidelines, ESMA’s supervisory processes have evolved to the point where the timing, frequency and format of the information provided under the 2015 Guidelines can no longer support ESMA’s supervisory processes in an efficient and effective manner. Therefore, ESMA proposes a revision of the 2015 Guidelines.

For CRAs, ESMA expects that these guidelines will introduce greater proportionality in their reporting obligations as well as greater predictability in their supervisory interactions with ESMA.

Comments on the consultation paper can be made until September 26, 2018. Following this, ESMA is expected to publish the final report on the guidelines before the end of 2018.

The consultation paper can be viewed here (in English).


Clarification of rules for the adoption of ratings from third countries

On July 18, 2018, the European Securities and Markets Authority (ESMA) published supplementary guidelines on the application of the recognition framework for non-EU credit ratings under the Regulation on Credit Rating Agencies (CRAR).

To ensure that third-country credit ratings approved for EU investors meet at least as stringent requirements as the CRAR, ESMA is adding a new section to its guidelines on approval first published in November 2017.

The guidelines will go into effect on January 1, 2019.

The supplementary guidelines can be viewed here (in English).

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