17.08.2018 | KPMG Law Insights

Investment | Law | Compact – Issue 08/2018

Dear Readers,

sometimes questions to ESMA lead to answers that have major implications for supervision and practice.
For example, ESMA recently clarified in its Q&A catalogs on the UCITS and AIFM Directives that hedging transactions may not be taken into account when determining the issuer limits. As a result, an amendment to the Derivatives Regulation is now under discussion, according to which credit default swaps can be explicitly counted in the calculation of issuer limits. This is also likely to affect one or another investment strategy, especially in the UCITS sector.
We also report on the final report of a peer review conducted by ESMA. The European Securities and Markets Authority has examined the application of the guidelines on ETFs and other UCITS issues by various national supervisory authorities and has identified a number of shortcomings.
BaFin has announced that the new model cost clauses must also be implemented for existing funds by December 31, 2019. Accordingly, the industry expects a renewed need for major adjustments to the relevant investment conditions and sales prospectuses in the next 15 months.


ESMA updates Q&A catalog on benchmark regulation

ESMA updated its Q&A catalog on the Benchmark Regulation on July 17, 2018.
Among other things, it clarifies that the calculation agent is generally not considered to be a user of benchmarks.
Furthermore, ESMA states that a benchmark can in principle also qualify as a benchmark for regulated data if third parties are involved in the data procurement process.

The updated Q&A can be found here.


ESMA updates Q&A catalogs on UCITS and AIFM Directive

ESMA added further questions and answers to its Q&A catalogs on the UCITS Directive and AIFM Directive on July 23, 2018. The following topics or points will be clarified:

  • The supervisory authority of the Member State in which the branch of an AIF/UCITS management company is located should be responsible for supervising its organizational and conduct obligations in relation to MiFID services.
  • UCITS may also acquire units in target UCITS whose investment policies and investment restrictions deviate from the investing UCITS, provided this is disclosed in the prospectus and does not lead to a circumvention of the investment strategy of the UCITS.
  • As a matter of principle, a UCITS depositary may also simultaneously be a counterparty to transactions involving assets held in custody by it.
  • The determination of the utilization of issuer limits for UCITS may only be made on the basis of netting, but not on the basis of hedging. BaFin is therefore examining the need to amend the Derivatives Ordinance, which explicitly allows exceptions for credit default swaps.


You can find more information here.


ESMA sees shortcomings in the application of guidelines for ETFs and other UCITS issues

ESMA has published the final report of a peer review on the implementation of the guidelines on exchange-traded funds (ETFs) and
other UCITS topics (ESMA/2014/937) published.
The subject of the study is the implementation of the requirements of the guidelines by six national supervisory authorities (Germany, England, Estonia, France, Ireland and Luxembourg) on the following topics:
– Disclosure obligations to investors,
– Internal risk management and compliance,
– Handling of income from securities lending and
– Provision of collateral.
In the last two areas in particular, ESMA criticizes deficits in the national implementation of the guidelines. BaFin’s supervisory practices are also rated as inadequate. The German supervisory authority has already commented on this (see Annex 5 of the final report). It considers the assessment of its supervisory practices to be too formalistic and points out, among other things, that it has already taken measures in line with the ESMA investigations.
The recommendations of the investigation must first be confirmed by the competent committee of ESMA. Thereafter, ESMA will decide whether the questions requiring clarification require a revision of the guidelines or are to be answered in the context of Q&A catalogs.


Further information with all relevant details and additional links can be found here.


New model cost clauses to be applied by December 31, 2019 at the latest

The new model building blocks for cost clauses of open-ended mutual securities and real estate fundshave been applicable to both new applications for approval of investment terms and amendments since their publication on June 22, 2018.
According to BaFin, all investment terms and conditions already approved must also be compatible with the new model modules by December 31, 2019. As already reported (see Newsletter 07/2018), BaFin has in particular restricted the pricing freedom of the capital management company in connection with the execution of securities lending transactions and repurchase agreements. Furthermore, under the new model cost clauses, the capital management company can no longer be remunerated for the successful enforcement of disputed claims.

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