20.07.2018 | KPMG Law Insights

Investment | Law | Compact – Issue 07/2018

Dear Readers,

as already reported here, BaFin has announced that it will, in principle, incorporate guidelines and question and answer (Q&A) catalogs of the European Securities Authorities (ESAs) into its administrative practice.

This had raised the question among some market participants whether these texts were legally binding for them and thus had to be constantly checked for any changes. It would have created a significant amount of work, particularly in light of the ESAs’ continually changing and expanding Q&A. However, the Association of German Banks (BdB) was able to give the all-clear after discussions with BaFin.

BaFin has now published the new model cost clauses. There were also changes to the KVG’s financial participation options in the income from securities lending and repurchase agreements and in the success from the assertion of legal claims.

With warm regards,
Henning Brockhaus

European supervision

Extension of the ESMA register for administrators and benchmarks

ESMA is required under Article 36 of the Benchmark Regulation (BER) to maintain a public register of administrators and benchmarks. The register of administrators currently already contains 15 entries on administrators who are registered or accredited according to Article 34 BVO. The benchmarks register does not yet contain an entry.

ESMA indicates on its website that the register of benchmarks includes only those provided by administrators outside the European Union; benchmarks provided by EU administrators are not listed in the benchmark section of the register. The register and further explanations from ESMA can be found here.

Pursuant to Article 29(1) of the BER, a supervised entity may use a benchmark or a combination of benchmarks in the Union if the benchmark is provided by an administrator established in the European Union and entered in the register referred to in Article 36 of the BER or if it is a benchmark entered in the register referred to in Article 36 of the BER.

National supervision

BaFin publishes updated model cost clauses for mutual funds

On June 19, 2018, BaFin published its revised model building blocks for cost clauses of open-ended securities funds as well as real estate mutual funds. With them, BaFin announces its administrative practice regarding the approval of cost regulations in the investment conditions.

Compared to the consultation version, BaFin has in particular restricted the pricing freedom of the capital management company (KVG) in connection with the execution of securities lending transactions and securities repurchase agreements. Thus, the KVG should only be entitled to a maximum of one third of the income from these transactions. Previously, it could collect a maximum of 49 percent of the revenue.

Previously, the KVG was also able to collect a portion of the disputed amount as remuneration for the successful enforcement of disputed claims, which is no longer to be possible under the new model modules.

The new model clauses for open-end mutual securities funds can be found here. The for open-ended mutual property funds can be accessed here.

National supervision

BaFin explains its statements on incorporating guidance and Q&A from the ESAs into its administrative practices

As reported in previous issues, BaFin had repeatedly emphasized that it generally adopts the guidelines and Q&A of the three European Supervisory Authorities (ESAs) in its administrative practice.

The statement led some market participants to question whether guidance and Q&A should thus be included in regulatory monitoring. In particular, this would lead to a considerable monitoring effort for the Q&A, as these are supplemented and adjusted by ESMA at irregular intervals.

The BdB wrote to its members on July 12, 2018, stating that it had held discussions with BaFin on the issue. It was clarified that BaFin does not intend to change its previous administrative practice. As BaFin itself states on its homepage, guidelines and Q&A are not legally binding. Market participants are therefore allowed to deviate from them as long as the chosen solution is in line with regulation. Auditors are also not supposed to make findings based on guidance or Q&A unless BaFin requires the application of the relevant provision on a case-by-case basis.

European legislation

EU Commission publishes two delegated regulations on depositary duties

In a press release dated July 12, 2018, the EU Commission drew attention to two Delegated Regulations concerning the duties of depositaries for UCITS and AIFs:

  • Delegated Regulation amending Commission Delegated Regulations (EU) No 231/2013 with regard to the safekeeping duties of depositaries (AIFMD)
  • Delegated Regulation amending Commission Delegated Regulation (EU) No 2016/438 with regard to the safekeeping duties of depositaries (UCITS)

The new rules are designed to prevent national competent authorities and market participants from applying EU asset segregation rules differently.

The Delegated Regulations also provide for an extension of the depositaries’ monitoring obligations down to the account level of the sub-custodians. According to the Delegated Regulations, depositaries should have an overview of the assets of the investment funds they supervise at all times, even if they are held in custody by sub-custodians. Up to now, both depositaries and sub-depositaries have been required to keep the assets under custody in separate accounts. In relation to the sub-custodian, however, the depositary currently has only an organizational monitoring function. It does not have to directly track the individual transactions with regard to financial instruments for which the sub-custodian has assumed custody.

The new regulations will be issued in the form of Delegated Regulations supplementing the AIFM and UCITS Directives. Provided the European Parliament and the Council do not raise any objections, the amendments are to apply from spring 2020.

The EU press release with further links to the documents can be found here.

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