For capital management companies, there is also a lot to do over the summer months:
The investment tax reform requires the adjustment of fund documentation by the end of the year. In addition to coordinating future regulations with special fund investors, the investment conditions for mutual funds must be amended, approved by BaFin and the sales prospectus adapted.
At the beginning of June, ESMA published its guidelines on product governance. In particular, they address issues relating to the determination of a target market for investment products, including the much-discussed question of what requirements should be placed on the target market in the context of financial portfolio management.
ESMA has also launched a consultation on the European MMF Regulation. This contains proposals for technical standards and guidelines.
With warm regards
There are approximately six months until the new investment tax law will be applied on January 1, 2018. Until then, all investment terms and conditions of mutual and special funds must in principle be adapted to the new regulations and – where applicable – coordinated with investors and asset managers and/or fund initiators. In addition, the sales prospectuses of the mutual funds must be amended.
The extensive change measures require increased resources. We will be happy to assist you with your fund documentation customization projects. Our experts will take care of the necessary work for you, right up to complete project execution.
ESMA issued its final guidelines on certain new requirements under product governance on June 2, 2017. The guidelines deal in particular with guidance on determining a target market for investment products or how to deal with it.
According to ESMA, five instead of six criteria are now relevant for the target market for product manufacturers. The criteria “Clients’ Objectives” and “Clients’ Needs” were combined.
As already noted here, as non-securities companies, capital management companies are not obliged to determine target markets for the investment assets they manage. Nevertheless, they will not be able to avoid providing their sales partners with appropriate information so that they, in turn, can determine a target market. ESMA also addresses this interaction in the guidelines and considers it possible for product manufacturers and distributors to act together to identify target markets. With regard to fund distribution, this is unlikely to be accomplished in any other way, since the capital management company can assess its funds better than the distribution partner, but the latter in return knows its customers and their needs – which the capital management company can only do on a theoretical and general basis.
With regard to communication between distributors and product manufacturers, ESMA considers it good practice for capital management companies to receive reports on the distribution of their funds (such as whether it is in line with the target market). Sales outside the target market do not need to be reported to the product manufacturer if the customer has purchased a product for hedging or diversification purposes only.
ESMA also clarifies that portfolio management for the target market does not require a look-through to individual financial instruments as long as the portfolio as a whole is suitable for the client (para. 52ff. of the Guidelines). However, the question arises here whether these explanations do not describe the situation at the point of sale (i.e., the subsequent suitability test) rather than the prior target market determination for the customer.
You can find the guidelines here.
In addition to the publication of the guidelines on product governance, ESMA published an updated version of its question and answer (Q&A) guide on investor protection topics on June 6, 2017.
In the now 67-page paper, additions have been made to the sections “Post-sale reporting”, “Information on costs and charges” and “Appropriateness / Complex Financial Instruments”.
ESMA has, for example, dealt with the handling of cost representations for PRIIPs or with the methodology envisaged for PRIIPs in this regard. In the new questions and answers 13 and 14 on cost transparency (in particular ex-ante), ESMA also provides guidance on the presentation of aggregate costs as well as itemization, and provides guidance on any cost estimation.
The revised Q&A can be found here.
The European Securities and Markets Authority (ESMA) published a comprehensive consultation paper (“Draft technical advice, implementing technical standards and guidelines under the MMF Regulation”) on the European MMF Regulation on May 24, 2017.
In it, ESMA proposes various delegated acts and considers different options for the quantitative and qualitative liquidity and credit quality requirements of other assets that MMFs may accept in reverse repurchase agreements. In addition, ESMA consults on proposals for assessing the credit quality of money market instruments.
ESMA also regulates the reporting of detailed information on MMFs to supervisors and provides draft guidelines on the conduct of stress tests for MMFs.
The consultation period runs until August 7, 2017. You can find the consultation paper here.
On May 24, 2017, ESMA published its updated Q&A on the AIFM Directive. The following topics are new:
You can find the Q&A here.
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