In an address to the ECON Committee of the European Parliament, Steven Maijoor, chair of the European Securities and Markets Authority (ESMA) has cast doubt on the 3 January 2017 implementation date for the second iteration of the Markets in Financial Instruments Directive (MiFID II).

Reviewing the current state of play, Maijoor remarked that necessary IT system building could not get fully underway until finalisation of the relevant Regulatory Technical Standards.  That is not expected until well into 2016.  As such “there are a few areas where the calendar is already unfeasible”.  Maijoor said that ESMA had raised with the European Commission whether this uncertainty would entail a delay in bringing into force certain parts of MIFID II, mainly related to transparency, transaction and position reporting.

A representative of the Commission has been quoted as saying that implementation should be delayed by a year.

Any delay would involve an amendment to the level 1 Directive and this would need to be agreed by the European Parliament and the Council of the EU.


HM Treasury has published a consultation paper on the implementation of the UCITS V Directive (2014/91/EU).

The paper seeks views on proposed implementation methods as well as impact and costs to the industry regarding each of the main areas of the UCITS V Directive: Depositaries; Remuneration Principles and National Sanction Regimes (chapters 2 to 4) as well as a small number of miscellaneous provisions including the requirement for reporting infringements (chapter 5).

Implementation of UCITS V will be largely achieved through changes to FCA rules and the FCA is consulting separately  on the proposed changes. FCA’s Policy Development update No 27 foreshadows publication of a Policy Statement in the first quarter of 2016. However, some legislative action will be required in order to implement UCITS V before the deadline of 18 March 2016.

HM Treasury’s main focus will be on implementation of sections of the directive relating to UCITS depositaries and sanctions. HM Treasury will also be making minor changes to the Financial Services and Markets Act (FSMA) relating to national sanctions regimes, to clarify that the FCA is able to use domestic administrative sanctions powers in relation to contraventions of national legislation transposing UCITS V. Provisions relating to remuneration will be made wholly through changes to the FCA Handbook and so are beyond the scope of the HM Treasury consultation paper.

Annex B of the consultation contains a draft Statutory Instrument (SI) entitled “The Undertakings for Collective Investment in Transferable Securities Regulations 2016”.

The deadline for responses to the consultation is midnight on 17 December 2015.


The Joint Committee of the European Supervisory Authorities (ESAs) – EBA, EIOPA and ESMA – has launched a joint Consultation Paper (CP) on Key Information Documents (KIDs) for Packaged Retail and Insurance-based Investment Products (PRIIPs). The KID is intended to provide EU retail investors with consumer-friendly information to enable them to understand and compare PRIIPs across the EU, whether offered by banking, insurance or securities firms. The aim of the CP is to gather views on proposed rules on the content and presentation of the KID.

The CP contains draft regulatory technical standards on presentation, content, review and provision of KIDs, including the methodologies underpinning risk, reward and costs information. It sets out details of the proposed requirements for the KID, which include:

  • a common mandatory template for each KID, including the texts and layouts to be used;
  • summary risk indicator of seven simple classes for the risk and reward section of the KID;
  • a methodology to assign each PRIIP to one of the seven classes contained in the summary risk indicator, and for the inclusion of additional warnings and narrative explanations for certain PRIIPs;
  • details on performance scenarios and a format for their presentation, including possible performance for different time periods and at least three scenarios;
  • costs presentation, including the figures that must be calculated and the format to be used for these in both cash and percentage terms;
  • specific layouts and contents for the KID for products offering multiple options that cannot be effectively covered in three pages;
  • the revision and republication of the KID, to be done at least annually; and
  • the KID must be provided sufficiently early for a retail investor to be able to take its contents into account when making an investment decision.

The closing date for responses to the CP is 29 January 2016.


The International Organization of Securities Commissions (IOSCO) has published its final report on Standards for the Custody of Collective Investment Schemes’ Assets (CIS).

This report seeks to clarify, modernise and further develop standards for the custody of “CIS assets” consistent with the core IOSCO’s Objectives and Principles of Securities Regulation June 2010 (IOSCO Principles).

It sets out eight standards aimed at identifying the core issues that should be kept under review by the regulatory framework to ensure investors’ assets are effectively protected. The first section focuses on key aspects relating to the custody function. It reaffirms the importance for the regulatory framework to provide for suitable custodial arrangements to be in place, clear segregation requirements and appropriate independence. The second part of the report is dedicated to standards relating more specifically to the appointment and ongoing monitoring of custodians.

IOSCO recognises that the regulatory regimes for the custody of CIS assets are diverse and the responsibilities and regulatory status of the entities that provide custodial services are also varied (from custodians providing pure asset safekeeping with no ancillary services to authorised depositaries providing safekeeping services and performing an additional oversight role).

The eight standards are:

  • The regulatory regime should make appropriate provision for the custodial arrangements of the CIS.
  • CIS assets should be segregated from:
    • the assets of the responsible entity and its related entities (the “responsible entity” being the party with overall responsibility for the operation of the CIS and in particular its compliance with legal and regulatory requirements);
    • the assets of the custodian / sub-custodian throughout the custody chain; and
    • the assets of other schemes and other clients of the custodian throughout the custody chain (unless CIS assets are held in a permissible omnibus account).
  • CIS assets should be entrusted to a third party custodian that is functionally independent from the responsible entity.
  • The responsible entity should seek to ensure that the custody arrangements in place are disclosed appropriately to investors in the CIS offering documents or otherwise made transparent to investors.
  • The responsible entity should use appropriate care, skill and diligence when appointing a custodian.
  • The responsible entity should at a minimum, consider a custodian’s legal / regulatory status, financial resources and organisational capabilities during the due diligence process.
  • The responsible entity should formally document its relationship with the custodian and the agreement should seek to include provisions about the scope of the custodian’s responsibility and liability.
  • Custody arrangements should be monitored on an ongoing basis for compliance with the terms of the custody agreement.


The Hedge Fund Standards Board (HFSB) has published a revised version of its “Hedge Fund Standards” (Standards). The Standards were originally published in 2012 and are adhered to by over 120 signatory managers. In March 2015, the HFSB undertook a consultation on proposed revisions to the Standards. The proposed revisions sought to address the following areas of concern:

  • investor disclosure of similar funds, accounts and vehicles including employee/partner co-investment;
  • investor disclosure of trade allocation policies; and
  • internal arrangements to mitigate conflicts of interest.

The revised Standards closely reflect the amendments proposed during the consultation although some of the feedback received by the HFSB during the consultation process has been incorporated.

The revised Standards will take effect from 2 May 2016. The main revisions are summarised below.

Disclosure of similar funds, accounts and vehicles including employee / partner co-investment

The Standards previously required a signatory manager to disclose to investors the existence of funds or accounts managed by it using the “same” strategy along with any material adverse effects which the existence of such other funds may have on investors. The revised Standards broaden this disclosure requirement to include any “funds, accounts or vehicles” traded substantially in parallel by the manager which employ “the same or similar” strategy. According to  the Standards, similarity is indicated by the existence of “substantially similar” trading patterns over time. The Standards include non-binding guidance setting out cumulative conditions the fulfillment of which would indicate such similarity.

Under the non-binding guidance, where:

  • the investment mandate (equity, fixed income, macro) and the strategy or style (market neutral, relative value, trend following) are the same; and
  • an 80 per cent overlap exists in the following areas: asset classes traded; target risk and return; time horizon of positions; and the average liquidity of positions;

the fund, account or vehicle may be considered to employ a similar strategy to the fund.

Multi-strategy funds would need to have 80 per cent overlap of allocations among sub-strategies, and the sub-strategies would have to be substantially similar (as per the conditions set out in the non-binding guidance, above).

The revised standards introduce a number of further disclosure requirements under this category, including: the aggregate value of assets managed by the manager using the same or a similar investment strategy; the aggregate size of employee or partner interests in the investment strategy; and the existence of any other funds or accounts managed by the manager following the same or similar investment strategy to the fund and which are available only to partners or employees of the manager for investment and the size of such funds.

Investor disclosure of trade allocation policies

The Standards add a requirement for managers to put in place trade allocation policies, which must be disclosed to investors upon request on a confidential basis.

Internal arrangements to mitigate conflicts of interest

Finally, the Standards require managers to ensure that they  have put in place internal arrangements to manage and mitigate conflicts of interest (including, for example, a conflicts of interest policy). Conflicts of interest should be recorded and periodically reported to senior management and, where applicable, reported to the fund’s governing body.

A non-exhaustive list of example conflicts of interest is provided, including: cross trades; the fair allocation of trades; employee / partner funds; investments in internal / external funds where incremental fees are charged; internal resource allocation across different funds and client accounts; personal account dealing policies; allocation of expenses; use of affiliated service providers; lack of independent valuation; differential terms or fees; use of soft dollars / dealing commissions; other business interests of employees; gifts and entertainment; and suspension and / or gating of redemptions.