On 14 April 2011, the European Securities and Markets Authority (ESMA) published a report containing draft guidelines on risk measurement and the calculation of global exposure for certain types of structured UCITS (structured UCITS offer investors a predefined payoff depending on different scenarios based on the value of the underlying assets).

The report sets out ESMA's agreed policy approach (section 2), a cost-benefit analysis (annex III) and feedback from the November 2010 consultation on the guidelines (annex I).

The final version of the guidelines will be issued on the ESMA website and will accompany the Level 2 implementing measures for the UCITS IV Directive (2009/65/EC) and will also supplement the general guidelines on risk measurement and the calculation of the global exposure and counterparty risk for UCITS which were published by the Committee of European Securities Regulators (CESR) in July 2010.  

The guidelines propose, for certain types of structured UCITS, an optional regime for the calculation of the global exposure. The specific approach adopted by ESMA consists of the calculation, for each scenario to which investors can be exposed at any one time, of the global exposure using the commitment approach. Under this approach, each scenario must comply at all times with the 100% global exposure limit.

A list of all the criteria with which structured UCITS should comply in order to be able to use this specific approach is set out in Guideline 1 of the report. A number of examples have also been included to illustrate how the optional regime should be applied in practice. Guideline 2 in the report sets out additional disclosure obligations on UCITS that make use of the optional regime.

The report also states that ESMA considers structured UCITS authorised prior to 1 July 2011 should not, in certain circumstances, be required to comply with boxes 1 - 25 of the general guidelines, provided they comply with any rules laid down by their home state competent authority for the calculation of global exposure.

Alternative Investment Fund Managers Directive (AIFMD) - implementing measures

Following a request from the EU Commission, ESMA is developing Level 2 implementing measures for the AIFMD in a number of areas. On 15 April 2011, ESMA issued a discussion paper exploring the scope of the AIFMD. The paper sets out ESMA's proposed approach but does not include formal proposals for advice on possible implementing measures. It requests stakeholder views on:

  • how to identify the portfolios of Alternative Investment Funds (AIFs) under management by a particular fund manager and the calculation of the total value of assets under management
  • how leverage affects the assets under management
  • how to determine the value of the assets under management by an AIF for a given calendar year
  • how to treat potential cases of cross-holding among the AIFs managed by a fund manager
  • how to treat AIFMs whose total assets under management occasionally exceed and/or fall below the relevant threshold
  • what the registration requirements for entities falling below the threshold should be
  • how the obligation to register with national competent authorities should be implemented
  • dwhat the suitable mechanisms for gathering information might look like
  • what the procedures should be for small managers to 'opt-in' to the AIFMD

ESMA will issue a formal consultation on the scope of the AIFMD based on the responses to the discussion paper. Comments can be made on the discussion paper until 16 May 2011 and will assist ESMA in narrowing its policy approach. Please speak with your usual contact in A&L Goodbody if you wish to respond to the discussion paper. ESMA is expected to publish the consultation paper setting out formal proposals for implementing measures in summer 2011.

EU Commission consultation on corporate governance principles for listed companies

On 5 April 2011, the EU Commission launched a public consultation to examine and evaluate the effectiveness of the current EU corporate governance principles for listed companies and to seek views on possible improvements at EU level. The EU Commission had already launched a separate consultation on corporate governance in financial institutions. The consultation focuses mainly on listed companies across all sectors, how boards are formed and run, (in particular whether measures to encourage diversity, in terms of gender, professional background or international experience would be desirable), how to encourage shareholders to engage with companies in which they invest, the role played by proxy advisers and improving monitoring and enforcement of the existing national corporate governance codes. The consultation will close on 22 July 2011. The EU Commission will issue a feedback statement summarising the results of the consultation in Autumn 2011 and will then decide whether legislative or non-legislative proposals are necessary.

EU Commission initiatives for 2011: update on adoption of financial services measures

On 5 April 2011, the EU Commission published its agenda and timetable for legislative proposals and non-legislative acts that it expects to adopt between March and December 2011. Changes have been made to the expected adoption dates of a number of financial services measures since the EU last published the document. These include:

  • Recast of the Market Abuse Directive (2003/6/EC) (MAD) and its three implementing directives, now expected to be adopted in July 2011 (rather than June 2011).
  • Review of the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) (known as MiFID II), now expected to be adopted in July 2011 (rather than June 2011).
  • Amendment of the UCITS IV Directive (2009/65/EC) (known as UCITS V), now expected to be adopted in July 2011 (rather than the second quarter of 2011).
  • Level 2 measures for the Solvency II Directive (2009/138/EC), now expected to be adopted in the fourth quarter of 2011 (rather than the third quarter of 2011).

European Market Infrastructure Regulation (EMIR)

The European Parliament has announced a revised indicative date of 5 July 2011 for its plenary sitting on the EMIR, which is the proposed Regulation on over-the-counter (OTC) derivative transactions, central counterparties (CCPs) and trade repositories. A draft report by Rapporteur, Werner Langen, is scheduled for adoption by Parliament's Committee on Economic and Monetary Affairs on 24 May 2011. Political agreement at the Council of the EU is expected on 17 May 2011.

Omnibus II Directive

On 15 April 2011, the Hungarian Presidency of the Council of the EU published a further compromise proposal dated 14 April 2011, for the proposed Omnibus II Directive. The proposed Omnibus II Directive was published by the European Commission on 19 January 2011 and is designed to make targeted changes to the Solvency II Directive (2009/138/EC) and parts of the Prospectus Directive (2003/71/EC) to ensure that the European Insurance and Occupational Pensions Authority (EIOPA) and ESMA can work effectively.

ESMA's role in reforming derivatives markets

On 13 April 2011, Steven Maijoor, ESMA Chair, gave a speech at the annual general meeting of the International Swaps and Derivatives Association (ISDA) regarding ESMA's role in reforming the derivatives markets. Mr Maijoor made a number of points in this respect, including:

  • ESMA is committed to contributing towards achieving the ambitious agenda agreed by the G20 at its November 2010 Seoul summit to ensure comprehensive reform of the OTC derivatives market and aims to promote the concept of mutual recognition so as to avoid duplication of regulation and supervision in different jurisdictions.
  • On post-trading issues, the current version of EMIR (detailed above) affords ESMA a significant role in relation to drafting technical standards, identifying the classes of derivatives eligible for mandatory clearing, and having a supervisory role in respect of trade repositories and a co-ordinatory role in the colleges of competent authorities for CCPs.
  • On trading issues, ESMA is "a bit less advanced compared with the post-trading side". Under the EU Commission's consultation on its review of MiFID (detailed above), ESMA will have some key roles , such as providing advice on MiFID Level 2 measures, drafting technical standards for the practical implementation of the revised MiFID and determining when a derivative would be sufficiently liquid so as to be traded on organised platforms.

If the EU Commission's proposals proceed, Mr Maijoor's believes that the main challenge for ESMA is likely to be balancing the goals of aligning global regulatory objectives and respecting the specific characteristics of European markets.

FATCA - Notice 2011-34

On 8 April 2011, the US Internal Revenue Service (IRS) issued Notice 2011-34 to provide additional guidance on the implementation of the FATCA reporting regime. The notice invites comment by 7 June 2011. While FATCA continues to present significant operational and compliance challenges, the notice represents real progress and acknowledges several of the EFAMA proposals made by the European Fund and Asset Management Association (EFAMA), most notably in relation to deemed compliance for publicly traded funds, "restricted" funds and the publication of US asset values to simplify "passthru payment" withholding.