Germany: PRIIPs KID
Since 1 January 2018 AIFMs registered under section 2(4) of the German Capital Investment Code ("KAGB") must create a key information document ("KID") when marketing fund shares to retail and semi-professional investors. AIFMs with a licence under section 30 of the KAGB do not have to publish a KID until 1 January 2020 if they have already created a key investor information document ("KIID") that complies with the UCITS IV Directive.
Below are the essential requirements:
- Obligation to create and update the KID: The KID must be prepared before interests in the AIF are sold to retail investors;
- The Commission Delegated Regulation (EU) 2017/653 contains a template for the KID, containing significant parts of which are mandatory;
- The KID must contain information on the “summary risk indicator” ("SRI"), intended to ensure transparency and comparability of different investment products for the benefit of retail investors; and
- The PRIIP manufacturer will incur civil liability if the KID is misleading, inaccurate or inconsistent with the contractual documents or with the EU regulatory technical standards.
Further, UCITS are exempt from PRIIPs until 1 January 2020. See our client note for more information regarding Irish authorised AIFs and PRIIPs KID.
Germany: BaFin Guidance on NPPR Registration
On 18 January 2018 the Federal Financial Supervisory Authority, BaFin, issued a guidance note (in German only) on the NPPR registration process under Article 36 of AIFMD in Germany. It sets out the basic features of the notification procedure under section 329 of the KAGB and provides, for the first time, guidance under Article 36 for EU AIFMs wanting to market units or shares of a non-EU AIF in Germany.
Sweden: Sustainability Information
On 1 January 2018 a new regulation came into force requiring the inclusion of sustainability information in funds’ full prospectus and annual reports. Information such as environmental and social issues, human rights, labour practice and anti-corruption work must be included in fund documents aimed at non-professional investors. If fund operations do not include sustainability aspects, this fact must be specified. For more information see the Swedish Investment Fund Association Guidelines for marketing and information by fund management companies.
ESMA Q&As on UCITS and AIFMD
On 5 October 2017 the European Securities and Markets Authority ("ESMA") published an updated Q&A on the application of the UCITS Directive, amending Section VII concerning the impact of Regulation (EU) 2015/2365 (SFTR). That same day, ESMA also updated a Q&A on the application of AIFMD. The Q&A amends Section 1: Remuneration and Section XIII on the impact of Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse ("SFTR") on AIFMD.
Under SFTR, UCITS management companies, UCITS investment companies and AIFMs must inform investors on the use they make of SFTs and total return swaps in annual (UCITS and AIFS) and half yearly (UCITS only) reports.
ESMA confirms that the remuneration – related disclosure requirements under Article 22(2)e of AIFMD also apply to the staff of the delegate of an AIFM to whom portfolio management or risk management activities have been delegated. Further, ESMA confirmed that the information under Article 22(2)(e) and (f) should be included in the annual report and that a link to a document is not sufficient to comply with AIFMD requirements.
Capital Markets Union
On 12 March 2018 the European Commission published legislative proposals on the Capital Markets Union ("CMU") aimed at facilitating the cross-border distribution of investment funds in the EU. This initiative includes measures to limit current national regulatory barriers which reduce the effectiveness of the UCITS and AIFMD marketing passports due to differing interpretation by EU Member States of the rules on how marketing passports may be exercised. For further detail on the proposals, please see our CMU Update here.
France: CIS Marketing Materials and Distributing CISs
On 22 January 2018 the French competent authority, Autorité des Marchés Financiers ("AMF") updated recommendation DOC 2011-24 with additional recommendations on the drafting of CIS marketing materials. The guide outlines the approach to take and bad practices to avoid. Emphasis is placed on clarity of information and the importance of avoiding technical jargon, ambiguous vocabulary and formula that creates confusion between past performance and promise of future profits.
Italy: New PIR Funds for Italian Resident Retail Investors
Italy’s budget law 2017 has opened the door to asset managers to create long term Individual Savings Plans ("piani individuali di risparmio or PIR") benefitting from tax incentives to encourage savers to invest in small and medium-sized Italian firms.
The PIR aims to support Italian small/medium companies by requiring such instruments to mainly be invested in financial assets attributable to Italian and foreign companies rooted in Italy. However, the Italian Government intend the scheme to channel investor savings towards long-term productive investments, favouring the growth of the Italian business system and improving the individual saving rate of potential investors. The PIR funds have been criticised due to the potential high risk environment of the Italian market coupled with a complicated application process.
Italy: Additional Reporting Requirements for UCITS Funds
The Italian competent authority (“CONSOB”) updated the UCITS Prospectus User Manual on 1 January 2018. Each share class marketed in Italy must as a consequence specify whether they are PIR compliant pursuant to the Italian 2017 budget law. Further, additional fee and charges information found in the KIIDs must also be uploaded to the DEPROF (online filing system).
This was carried out for the first time with the annual general KIID filing in February 2018 and must be updated on an ongoing basis.
Italy: Additional MiFID II Disclosure Requirements for Italian Branches of Foreign Investment Firms
CONSOB has issued a communication applicable to all entities considered Italian branches of foreign intermediaries (e.g. MiFID investment firms or UCITS ManCos, or AIFMs), jointly called the "Italian branches of foreign intermediaries".
CONSOB resolution n.17297 of 28 April 2010 requires intermediaries to submit a report setting out methods used to perform investment services, ancillary services and distribution of financial products issued by investment firms or banks.
In line with the new regulatory framework, CONSOB has notified intermediaries that the report must now cover the following:
- Product governance process;
- Investment consultancy;
- Assessment of adequacy and appropriateness;
- Complex and "execution only" products;
- Disclosure to customers, with particular regard to costs and charges;
- Cross-selling practices;
- Best execution;
- Conflicts of interest;
- Incentives; and
- Knowledge and competence requirements of intermediaries’ staff.
The deadline for sending the report is 30 April 2018.
Luxembourg: UCITS investing in Non-UCITS ETFs
The Luxembourg competent authority, the Commission de Surveillance du Secteur Financier ("CSSF") has updated its Frequently Asked Questions and issued a Press Release explaining a change in its policy, including the deletion of FAQ 1.4 which explains the requirements allowing UCITS to invest in non-UCITS ETFs.
Consequently, UCITS which have previously invested in other UCI based on the policy laid out in FAQ 1.4 will have to disinvest. The CSSF notes that, from 31 March 2018, it will be contacting UCITS managers which had invested in non- UCITS UCIs to check that they are in compliance with the new policy.
Spain: CNMV Reporting
On 2 November 2017 the Spanish competent authority, the Comisión Nacional del Mercado de Valores ("CNMV") published Circular 2/2017 of 25 October requesting that more information regarding foreign funds registered with the CNMV be reported on a quarterly basis. This change reflects the CNMV’s aim to improve the transparency of distribution activities in Spain. The amendments apply to all marketing activities in Spain of foreign collective schemes, whether harmonised or not. The circular entered into force on 1 January 2018.
Switzerland: Sample Questionnaire for Distributors
In November 2017, the Swiss Funds and Asset Management Association ("SFAMA"), in conjunction with the Swiss Financial Market Supervisory Authority ("FINMA"), issued a sample questionnaire for the ongoing regulatory monitoring of distributors of collective investment schemes in Switzerland. The questionnaire applies to all categories of distributor, including foreign distributors, and should be completed annually. This means it is no longer sufficient for foreign distributors to provide an annual comfort letter confirming compliance with Swiss regulations. While the questionnaire contains set questions which are aimed at standardising the ongoing regulatory monitoring of distributors, it must be adapted in accordance with the contents of the distribution agreement in question.
Switzerland: New Application Form for UCITS
On 21 February 2018 FINMA published a new template application for UCITS for the following:
- Registration of new UCITS/ sub – funds for distribution in Switzerland;
- Amendments to the relevant fund documents of registered UCITS;
- Change to Swiss representative and/or paying agent; and
- De-registrations and end of registrations due to mergers/liquidations of UCITS.
FINMA have subsequently requested that upon publishing a notice in Switzerland, the relevant document must be inserted as an appendix to the FINMA request form. Previously the document was not indicated as required.
UK: Updated Annex IV Reporting Forms
On 13 November 2017 the UK’s Financial Conduct Authority ("FCA") put in place new AIFMD Annex IV reporting forms AIF001 and AIF002. The changes are intended to align the FCA’s forms with “ESMA’s technical guidance.
UK: Survey for EEA Inbound Passported Firms
On 9 March 2018 the FCA issued a survey for firms who passport or market funds in the UK. This follows the UK Government’s announcement in December 2018 stating that, if necessary, it will legislate to provide a temporary permission scheme post-Brexit for EEA firms and funds passporting into the UK. The survey is aimed at gathering information that will assist in the creation of such a scheme and allow the FCA to keep firms up to date. The survey closes on 11 May 2018.
Hong Kong: FAQ on ETFs and Listed Funds
On 21 November 2017 the SFC ("Securities and Futures Commission") issued an updated version of its "Frequently Asked Questions on Exchange Traded Funds and Listed Funds" (the "FAQ"). The FAQ includes new guidance at question 7 on what ETF managers should disclose regarding securities lending, repo and reverse repo transactions (collectively, "securities financing transactions"). This includes:
- Details of the arrangements regarding securities financing transactions, including at a minimum the information referred to in FAQ 21 on the Code of Unit Trusts and Mutual Funds; and
- To increase the level of transparency in view of the nature of ETFs, see FAQ for list of minimum information that should be made available to investors and updated monthly on the ETF’s website.
Hong Kong: Online Submission of Information
On 24 November 2017 the SFC published a circular to announce the launch of online submission of information to the SFC under section 110 (1) of the SFO via the SFC Online Portal. Prior to this update, prescribed information could only be submitted to the SFC by paper.
Hong Kong: Revamped Post Authorisation Process
On 25 January 2018 the SFC published a circular to announce their formal adoption of the revamped post authorisation process. As reported in our Q2 2017 Market Update, the SFC aims to enhance the processing of applications under this new process with a view of increasing transparency and efficiency. This took effect on 1 February 2018.
Chile: Direct Investment of Chilean Pension Funds
Superintendencia de Pensiones (Chilean Pensions Supervisor) issued regulations on 1 November 2017 allowing the investment in alternative assets by pension funds and unemployment funds. The driving force behind the reform is to allow direct investment in a larger class of assets and to achieve greater diversification of investments in order to improve the profitability of such funds.