ESMA consultation on marketing communications under the Regulation on facilitating cross-border distribution of collective investment undertakings

The European Securities and Markets Authority (ESMA) launched a consultation on 9 November 2020 on marketing communications under the Regulation on facilitating cross-border distribution of collective investment undertakings (discussed here). The purpose of the draft guidelines is to specify the requirements for marketing communications sent to investors in order to promote UCITS and AIFs, including EuSEFs, EuVECAs and ELTIFs. These requirements are that the material shall:

  • be identifiable as marketing material
  • describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner
  • contain information which is fair, clear and not misleading

ESMA invites feedback on the proposed guidelines by 8 February 2021 and aims to issue final guidelines by 2 August 2020.

ESMA guidelines on performance fees in UCITS and certain types of AIFs will apply from 5 January 2021

On 5 November 2020, ESMA published the official translations of its Guidelines on performance fees in UCITS and certain types of AIFs. The guidelines apply to fund managers and national competent authorities (NCAs) from 5 January 2021. Managers of any new funds created after 5 January 2021 with a performance fee, or any funds existing before the date of application that introduce a performance fee for the first time after that date, should comply with the guidelines immediately in respect of those funds. Managers of funds with a performance fee existing before 5 January 2021 should apply the guidelines to those funds by the beginning of the financial year following 5 July 2021. NCAs must notify ESMA whether they comply, or intend to comply, with the guidelines by 5 January 2021.

You can listen to an overview from Michael Barr, Partner and read our In Focus paper here.

ESMA identifies EU strategic supervisory priorities for NCAs for 2021

ESMA is obliged to identify, at least every three years, up to two priorities of EU-wide relevance that national competent authorities (NCAs) must take into account when drawing up their work programmes. ESMA announced that the specific topics on which NCAs will undertake supervisory action in 2021, co-ordinated by ESMA, are:

  • costs and fees charged by fund managers
  • improving the quality of transparency data reported under MiFIR

ESMA reports on penalties and measures issued under UCITS Directive and AIFMD

ESMA published its third annual report on penalties and measures issued under the UCITS Directive in 2019, and its first annual report on penalties and measures issued under the AIFMD in 2018 and 2019.

In both reports, ESMA comments that the data gathered shows that the sanctioning powers are not equally used among NCAs and, apart from a few NCAs, the number and amount of sanctions issued at national level seems relatively low.

ESMA's five priority areas for UCITS and AIFMD fund managers with significant exposures to corporate debt and real estate assets

ESMA published a Report which identifies five priority areas for action to improve the preparedness of investment funds with significant exposures to corporate debt and real estate assets, for potential future adverse liquidity and valuation shocks. The report follows the recommendation of the European Systemic Risk Board (ESRB) on liquidity risk in investment funds. The report concludes that fund managers authorised under UCITS and AIFM Directives should enhance their preparedness to potential future adverse shocks that could lead to a deterioration in financial market liquidity and valuation uncertainty.

The five areas concern:

  • ongoing supervision of the alignment of the funds' investment strategy, liquidity profile and redemption policy
  • ongoing supervision of liquidity risk assessment
  • fund liquidity profile reporting
  • increase of the availability and use of LMTs
  • supervision of valuation processes in a context of valuation uncertainty

The report found that the funds exposed to corporate debt and the real estate funds under review overall managed to adequately maintain their activities when facing redemption pressures and/or episodes of valuation uncertainty, and only a limited number suspended temporarily subscriptions and redemptions. Concerns around the valuation of portfolio assets emerged, especially for real estate funds for which the crisis could have a more significant impact over the longer term. Moreover, real estate funds do not frequently adopt liquidity management tools in their liquidity set-up.

Money Market Funds

The International Organisation of Securities Commissions (IOSCO) published two reports relating to Money Market Funds.

  • The Thematic Review on consistency in implementation of Money Market Funds reforms assesses the legislative and regulatory frameworks of the nine largest MMF domiciles in relation to the implementation of selected recommendations from the 2012 IOSCO Policy Recommendations on Money Market Funds. These recommendations had been elaborated in response to the stress observed during the global financial crisis in 2008 and were aimed at strengthening the resilience of MMFs globally. According to IOSCO, the participating jurisdictions (Brazil, China, France, India, Ireland, Japan, Luxembourg, UK and US which together represent approximatively 95% of the total net assets managed by MMFs worldwide) have generally implemented MMF reforms in line with the 2012 Recommendations.
  • The Thematic Note on Money Market Funds during the March-April Episode examines across various jurisdictions COVID-19-related strains in the MMF sector that were observed in March/April 2020. Beyond analysing diverging developments across different MMF types, currencies and fund domiciles it also mentions areas which might merit further consideration for regulatory work.

EFAMA also published a report entitled 'European MMFs in the Covid-19 market turmoil: Evidence, experience and tentative considerations around eventual future reforms'. The report covers all three Money Market Fund categories. EFAMA is of the view that the report invalidates the notion that central bank interventions ‘bailed-out’ MMFs. Despite the severity of the liquidity stress in the secondary market for short-term instruments and the significant outflows experienced by European MMFs across all three of the MMFR-identified categories (public debt CNAV, LVNAV and VNAV), funds proved resilient. Notably, the ECB's Pandemic Emergency Purchase Programme (PEPP), announced on 18 March, only had a limited impact on European MMFs, due to the programme's strict eligibility requirements that excluded purchases of financial commercial paper (i.e. the large bulk of MMF asset holdings by definition), as well as assets denominated in non-Euro currencies.

Benchmarks Regulation

ESMA updated its Questions and Answers on the European Benchmarks Regulation (BMR) in respect of the use of critical benchmarks by supervised entities where the index provider has not been granted (or has been refused) authorisation. A critical benchmark existing on or before 10 December 2019, including its updates and modifications, can be used by supervised entities (even if the critical benchmark is transferred to a new index provider after 10 December 2019) until 31 December 2021. In order for this benchmark to continue to be used after 31 December 2021, its index provider has to apply for an authorisation before 31 December 2021. If the authorisation however, is refused before the 31 December 2021, then the relevant critical benchmark can no longer be used.

ESMA speech

Verena Ross, ESMA Executive Director, spoke at the AIMA forum on COVID-19, Delegation (in light of Brexit/ AIFMD) and sustainable finance.

  • On the European Commission's AIFMD review, the speech identifies the need to recognise the increased operational complexities and supervisory risks that come with large-scale delegation arrangements.
  • On ESG, the final report by the ESAs is due by the end of January 2021. The application date of the technical standards under the disclosure regulation will be delayed, but the obligations stemming from the Level 1 regulation must be applied according to the original schedule starting from 10 March 2021. The timely application of the Level 1 regulation is necessary due to the urgency of addressing climate change disclosures in the financial sector. ESMA appreciates the operational challenges of the application of the provisions without the accompanying technical standards fully in place. ESMA hopes to be able to communicate shortly on the exact date of the application of the technical standards and on what the supervisory expectations will be in the "interim" period.
  • The ESAs are also aiming to launch a consultation paper in January 2021 on additional taxonomy-related product disclosures under the Taxonomy Regulation. This consultation paper will seek feedback on proposed transparency rules for how taxonomy-related products must disclose their taxonomy alignment.


ESMA updated three statements which address the impact on reporting under EMIR and SFTR and on the operation of ESMA databases and IT systems after 31 December 2020.

ESMA released a public statement on the derivatives trading obligation (DTO) under Article 28 of MiFIR. The statement clarifies that the DTO will continue applying without changes after the end of the UK's transition from the EU on 31 December 2020. ESMA considers that the continued application of the DTO would not create risks to the stability of the financial system. The statement confirms the approach outlined in ESMA's previous statement in March 2019. ESMA acknowledges that this approach creates challenges for some EU counterparties particularly UK branches of EU investment firms. ESMA considers that EU counterparties can meet their obligations under the DTO by trading on EU trading venues or eligible trading venues in third countries. The classes of derivatives subject to the DTO include certain fixed-to-float interest rate swaps denominated in EUR, USD and GBP and two credit default swap indices. Most UK trading venues that offer trading in derivatives subject to the DTO have established new trading venues in the EU.

ESAs have published proposals for EMIR refinements, in the context of Brexit, for intragroup transactions, equity options and novations from UK counterparties to EU counterparties proposing to extend temporary exemptions and timelines for novations from UK to EU counterparties.


ESMA published a consultation containing its draft advice to the EU Commission on Article 8 of the Taxonomy Regulation. This specifies the content, methodology and presentation of the key performance indicators (KPIs) that non-financial undertakings and asset managers are required to disclose. You can read the ESMA press release here. The consultation affects non-financial undertakings and asset managers that fall within scope of the Non-Financial Reporting Directive (NFRD).

This consultation is one of a series expected under the Taxonomy Regulation. While it does not directly affect fund management companies, investment funds or the disclosures they are required to make under the Taxonomy Regulation, it does affect asset managers. ESMA acknowledges that most asset managers are not required currently to report under the NFRD. ESMA notes that the recent summary statement the EC published on its public consultation on the review of the NFRD saw significant support for expanding the scope of the NFRD.

Notably, extension to large non-listed companies, or all listed companies regardless of size, could bring more asset managers into scope. Indirectly, investment funds are affected because they are assets held by asset managers. Categorisation of investment funds - potentially on a sectoral basis - for taxonomy alignment purposes is discussed in the consultation. You can read about the Taxonomy Regulation here.

​The European Commission, in a letter dated 20 October 2020, wrote to the ESAs formally setting out their position on the delay in publication of the regulatory technical standards (RTS) under the Sustainable Finance Disclosures Regulation (SFDR). The EU Commission expects financial market participants in scope of SFDR to implement the provisions of the Level 1 SFDR without the RTS. The effective date for the first set of these provisions is 10 March 2021. The RTS were originally due to be published on 30 December 2020.

FSB on outsourcing and third-party relationships

On 9 November 2020, the Financial Stability Board (FSB) published a consultation on regulatory and supervisory issues relating to outsourcing and third-party relationships. The paper poses a number of questions and comments are invited by 8 January 2021. The discussion paper builds on the FSB's report on third-party dependency on cloud services (published in December 2019).

The paper does not propose any specific principles or standards, but seeks to promote greater global dialogue among financial institutions, supervisory authorities and third parties. The FSB notes that effective cross-border co-operation and dialogue among supervisory authorities, as well as the effective application of existing standards and other emerging practices, are important to address the challenges and risks. It also notes that additional analysis may be needed to better understand the risks posed by the changing landscape of outsourcing and third-party relationships.

Comments can be made on the paper until 8 January 2021.

EFAMA Cyber Resilience Working Group

EFAMA updated its 'IIFA Cybersecurity Program Basics' which sets out key cyber-prevention standards for investment management companies. The commonly-shared principles that firms should apply in order to minimize the likelihood of cyber incidents were originally launched in 2019. They were updated to reflect Covid-19 issues. EFAMA believes this document will be of particular added-value to small-sized investment management companies, as they may lack the resources needed to fully meet the more demanding international standards.