Revised depositary safekeeping duties under AIFMD and the UCITS Directive

The following delegated regulations will enter into force on 19 November 2018 and will apply from 1 April 2020. The regulations set out detailed UCITS and AIFMD requirements where custody is delegated to a third party (a sub-custodian).

These regulations introduce additional clarity (by amending existing regulations) in respect of:

  • asset segregation
  • record keeping
  • reconciliations (including frequency of reconciliations)
  • contractual requirements (including mandatory provisions)
  • specific requirements (concerning insolvency) where custody is delegated to a third party in a third country.

Irish Funds had submitted feedback on the proposals.


The Joint Committee of the ESAs published a letter to the European Commission about KIDs for PRIIPs. The ESAs suggest that legislative changes are needed to avoid a situation where retail investors would have to receive both a PRIIPs KID and UCITS KIID from 1 January 2020.

Overlapping disclosure documents may deter investors from using them rather than facilitating informed decision making. Moreover, the PRIIPs KID and UCITS KIID may not provide consistent information due to technical difficulties in the methodologies used in the presentation of risks, performance and costs. For example, the PRIIPs summary risk indicator and the UCITS synthetic risk reward indicator will result in different risk indicators for a material number of PRIIPs.

The ESAs intend to propose targeted amendments to the PRIIPs Delegated Regulation. The ESAs intend to launch a public consultation in Q4 2018. Among other things, the ESAs expect to examine performance scenarios and aim to submit proposed amendments to the Commission in Q1 2019.

The letter from the ESAs was published in response to two letters received from the European Commission in July and August about the PRIIPs Regulation.

ESMA AIFMD Q&A - AIFMs managing EU umbrella AIFs on a cross-border basis - notifications

ESMA updated its AIFMD Q&A on 4 October 2018 with a new Q&A. The Q&A clarifies that where an AIFM intends to manage an EU umbrella AIF on a cross-border basis by way of the AIF management passport, the AIFM must identify the umbrella AIF, as well as the name and investment strategy of its sub-funds, to facilitate administrative procedure in home and host Member States. Any change in the composition of an umbrella AIF that is managed on a cross-border basis has to be notified to the competent authorities under Article 33(6) of AIFMD.

ESMA Q&AS on the Benchmarks Regulation

ESMA updated its Questions and Answers (Q&As) on the Benchmarks Regulation (BMR) on 27 September 2018.

The updated BMR Q&As provide new clarifications on the following topics:

  • the written plan to be produced by users of benchmarks
  • the reference to systematic internaliser in the definition of financial instruments
  • when banks issuing certificates classify as users of benchmarks
  • why NAV of investment funds should be considered input data and not benchmarks
  • the application for endorsement of a family of benchmarks
  • the language of benchmark statements.

ESMA and the Money Market Funds Regulation

ESMA published the EU Commission response to ESMA's letter on the implementation of the MMF Regulation.

The letter from Commission VP Dombrovskis is summarised below:

  • Commission VP Dombrovskis welcomes that the reverse distribution mechanism (often referred to as 'share cancellation') was discussed recently at the Board of Supervisors and that all relevant competent authorities are therefore aware of the opinion of the Legal Service of the Commission that the reverse distribution mechanism is incompatible with the legal framework established by the MMF Regulation.
  • This opinion has already been sent to many market participants who requested to have access to it.
  • The Commission stands ready to share the opinion with any citizen and any natural or legal person upon request.
  • As the MMF Regulation has been applicable to new funds (i.e. funds authorised after 20 July 2017) as from 21 July 2018, it is very important to ensure the consistent application of the MMF Regulation and to prevent divergent supervisory practices.

ESMA published a consultation paper (closing 1 December) on draft guidelines on stress test scenarios under the MMF Regulation.

Under the MMF Regulation, MMFs require sound stress testing processes, including identifying stress events, or future changes in economic conditions, and assess the impacts these different scenarios may have on the MMF. ESMA's 2017 guidelines on stress tests scenarios for MMFs need to be updated at least every year to reflect market developments. ESMA intends to finalise the guidelines in Q1 2019.

Cross-border distribution of collective investment funds

The European Parliament's Economic and Monetary Affairs Committee (ECON) published a draft report on the proposal for a Directive on the cross-border distribution of collective investment funds. The European Commission adopted the proposed Directive, together with the proposed Regulation on facilitating cross-border distribution of collective investment funds, in March 2018

ESG-Sustainable finance

The European Commission updated its webpage on sustainable finance. It adopted legislative proposals on sustainable finance in May 2018 which aims to establish an EU framework that puts environmental, social and governance (ESG) considerations at the heart of the financial system to help transform the EU economy into a greener, more resilient and circular system.

It has established a technical expert group on sustainable finance which will assist in developing:

  • an EU classification system to determine whether an economic activity is environmentally sustainable
  • an EU green bond standard
  • benchmarks for low-carbon investment strategies
  • guidance to improve corporate disclosure of climate-related information. This will amend the UCITS Directive, AIFMD and many other Directives

Targeted consultations are scheduled to issue in October 2018.

European Commission 2019 work programme - financial services aspects

The European Commission published its work programme for 2019 which included proposals on:

  • ESG- sustainable finance
  • cross-border investment funds
  • crowdfunding services
  • the PEPP
  • AML

ESA's 2019 work programme

The ESAs published their 2019 work programme which includes work on:

  • the PRIIPs Regulation
  • ESG - sustainable investment disclosures
  • implementation of the complaints-handling guidelines
  • FinTech and digitalisation issues
  • identifying how NCAs can use behavioural finance findings in their supervisory practices
  • continuing their work on AML/CTF to include identifying AML/ CTF risks, sharing information and good supervisory practices and updating the joint guidelines on risk factors to reflect 5AMLD

AFME highlights dangers of Brexit cliff edge for financial services sector

The Association for Financial Markets in Europe (AFME) issued a press release calling on the Commission, member states and regulators to provide certainty on the steps that will be taken to address the risks arising in financial services in the event of a Brexit cliff edge.

The concerns include:

  • continued access to central counterparties
  • continued servicing of existing contracts
  • cross-border data transfers

Anti-Money Laundering/Combating the Financing of Terror/Corruption

Pakistan added to the 4AMLD list of high-risk third countries

Delegated Regulation 2018/1467 of 27 July 2018 adding Pakistan to the 4AMLD list of high-risk third countries was published in the Official Journal of the EU and is in force.

FATF plenary meeting 17-19 October 2018

The Financial Action Task Force (FATF) met in Paris from 17-19 October 2018. Outcomes included the adoption of Risk-Based Approach Guidance for the Securities Sector.

Directive to combat money laundering by criminal law

The Justice and Home Affairs Council, on 11 October 2018, formally adopted a new AML directive on combating money laundering by criminal law. Ireland is not taking part in the adoption of this directive and is not bound by it or subject to its application.