13.01.2015 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 1/2015

Dear Readers,

regulation continues to dominate the picture at the beginning of the new year. Just before Christmas, ESMA published its final recommendations for the Level 2 measures of MiFID II.

Asset managers have also been hit hard. We have therefore focused on ESMA’s extensive elaboration in this issue.

But European supervisors are also active elsewhere. You have taken on another UCITS issue. Objective: To harmonize supervisory practice on share classes in Europe.

We wish you a good and successful 2015.

With best regards
Henning Brockhaus



ESMA publishes final draft of Commission delegated regulation on MiFID II/MiFIR

On December 19, 2014, ESMA published its final recommendations to the EU Commission (Final Report – ESMA’s Technical Adivce to the Commission on MiFID II and MiFIR) for Level II regulations. Compared to the Consultation Paper of May 22, 2014, the European Securities and Markets Authority has addressed the issue of grants in particular. We present a selection of the essential points:

Negative list for quality improvement remains

Despite critical voices, ESMA maintains a non-exhaustive list of cases in which there are no improvements in the quality of service and thus inducements should not be permitted.

“Factual ban on commissions” deleted

Compared to the Consultation Paper of May 2014, ESMA has moved away from the prohibition of using benefits for the purposes of own business operations. This had been attacked from many sides as a de facto ban on commissions.

Examples of service improvement

On the other hand, ESMA also requires concrete benefits for clients, provided that benefits are granted. ESMA provides examples of additional services that could represent a tangible improvement in quality, for example, higher quality investment advice. However, the amount of the grants must always be proportionate to the improvement in service quality.

Research generally covered by the concept of a donation

In the Authority’s view, research services do not qualify as a gratuity only if the investment firm funds research through its own resources or – under certain conditions – funds it through a separate account for research services.

Recommendations on trade topics

In addition to the Final Report, ESMA has published another Consultation Paper on MiFID II/MiFIR. This paper deals in particular with topics related to trading in financial instruments.

Conclusion and challenges

ESMA’s revised Technical Advice will also pose significant challenges to the asset management industry. In our view, current business models need to be reviewed and new paths analyzed. This also affects other areas such as the new regulations on product governance and cost transparency.

KPMG Law will be happy to investigate for you to what extent and in which positions, processes and legal relationships your company is affected by the above-mentioned changes. We will be happy to support you in implementing the new regulations.

Please also visit our MiFID2 website.

Here you can find the Final Report of December 19, 2015, the Consultation Paper and its Annex B.


Consultation Paper for Guidelines on Asset Segregation under AIFMD

On December 1, 2014, ESMA published a consultation paper on asset segregation in sub-custody under AIFMD. In this context, ESMA provides a choice of two possible options for asset segregation in the case of sub-custody, both of which are intended to be compliant with the AIFMD:

  • Option 1: The sub-custodian may hold such assets of multiple AIFs of multiple AIFMs in a single account (omnibus account) entrusted to it by a single depositary for sub-custody.
  • Option 2: The sub-custodian may hold all assets of all AIFs of all AIFMs in a single omnibus account, even if they have been entrusted to it for sub-custody by several custodians.

For both options, the sub-custodian must segregate the entrusted assets of the AIF from other assets (own assets, assets of other clients, own asset of the depositary).

ESMA is making these options available for consultation until January 30, 2015. Alternatively, suggestions for further segregation models can be made.

ESMA’s consultation paper with the details can be found here.


ESMA publishes discussion paper on share classes

ESMA presented a discussion paper on unit classes for UCITS on December 23, 2014. The aim is to counteract different interpretations of the concept of unit class among the Member States and to achieve harmonization of administrative practice.

In addition to the definition of the term unit class, ESMA lists three criteria for possible unit classes:

  • All unit classes of a UCITS shall pursue the same investment strategy,
  • Particular characteristics of a unit class shall not have a potentially or actually detrimental influence on another unit class of the same UCITS, and
  • Differences between unit classes of a UCITS shall be disclosed to investors if investors may choose between at least two unit classes.

For further clarification, ESMA has developed two non-exhaustive lists of share classes that are compatible with the three criteria and those that should not be permitted under them.

The discussion paper can be found here.


Regulation on key information documents for packaged retail investment products and insurance investment products (PRIIPs)

On December 9, 2014, the PRIIPs Regulation was published in the EU Official Journal. The aim of the regulation is to create a uniform information standard for all packaged investment products.

In future, every retail investor will receive a basic information sheet of no more than three pages for packaged investment products. This must contain, among other things, the most important features of the respective products, in particular their risks and costs.

UCITS and certain AIFs for which a member state applies the provisions of the UCITS Directive on the so-called “Key Investors Documents” (KID) when marketing to investors are exempt from the obligations of the PRIIPs Regulation for a transitional period until December 31, 2019.

The PRIIPs Regulation can be found here.


ESAs publish discussion paper on PRIIPs

Already on November 17, 2014, the three European supervisory authorities ESMA, EBA and EIOPA (together European Supervisory Authorities, ESAs) published a joint 114-page discussion paper on PRIIPs, which in particular specifies the contents and presentation of the new basic information sheet. In this context, the discussion paper primarily addresses the presentation of risk and return as well as the disclosure of costs.

The discussion paper can be found here.

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Henning Brockhaus


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