ESMA Q&A on AIFMD
On 11 July 2017, the European Securities and Markets Authority ("ESMA") published an updated Q&A on the application of AIFMD and its implementing measures. The Q&A contains three new questions which address the following matters relating to Annex IV reporting:
- AUM calculation: how AIFMs should convert the total value of AUM into Euro;
- Leverage calculation: where an AIF purchases a loan in a secondary market, how it should measure its exposure in relation to that loan; and
- Reporting currency of NAV: the currency in which the NAV of the AIF should be reported.
Capital Markets Union: Update
On 20 September 2017, the European Commission issued a press release outlining a large number of proposed reforms designed to strengthen and integrate EU financial market supervision. Under the proposals, ESMA will be granted a number of direct supervisory powers, including the authorisation and supervision of data reporting service providers required under EU Directive 2014/65/EU on markets in financial instruments ("MiFID II").
ESMA: Suitability Requirements
On 13 July 2017, ESMA published a Consultation Paper ("CP") on draft guidelines on certain aspects of the suitability requirements under MiFID II. ESMA noted that the additional MiFID II suitability requirements which were not contained in MiFID I have necessitated a review of the existing ESMA guidelines in this area. Through the consultation process and issuing of the draft guidelines, ESMA aims to enhance clarity regarding these obligations and to promote greater convergence between EU Member States in supervisory approaches to MiFID II suitability requirements. The existing ESMA guidelines will be replaced once the draft guidelines are finalised. In addition, ESMA aims to:
- Consider recent technological developments, e.g. "robo-advice";
- Take into account the results of supervisory activities conducted by national competent authorities ("NCAs");
- Incorporate the outcome of studies in behavioural finance; and
- Provide additional detail on some aspects already contained in the existing ESMA guidelines.
The consultation closes on 13 October 2017 and ESMA expects to publish a final report in Q1/Q2 2018.
Belgium: FSMA FAQ on Advertising Material Approval
As outlined in our Q2 2017 Market Update, the Belgian Financial Services and Markets Authority ("FSMA") has updated its FAQ on the approval of advertising material. The updates relate to the use of a template for certain advertising materials relating to the public offer of UCITS or AIFs. The FAQ is available here.
France: AMF Instruction on Marketing AIFs in France
The French competent authority (Autorité des Marchés Financiers ("AMF")) has updated AMF Instruction Doc-2014-03 regarding the procedure for marketing units or shares of AIFs in France. The updated instruction is available in French through the following link. By way of background to this update, Article 421-13 of the AMF General Regulation outlines a procedure where an AIF may be marketed to retail investors in France if the AMF has entered into mutual recognition arrangements with the supervisory authority in the home country of the AIF in question. Article 24 of the instruction, which deals with disclosure to the public in France, clarifies that third country AIFs which are marketed to retail clients in France within the framework of such mutual recognition arrangements are subject to the information disclosure requirements in the mutual recognition arrangements.
Germany: German Investment Tax Act Reform
As referenced in our Q1 2017 Market Update, the German Investment Tax Act ("GITA") will enter into force on 1 January 2018. Managers of funds which are marketed to investors in Germany or invested in German assets should examine what steps may be required by GITA. For example, it may be necessary:
- To request a status certificate (Statusbescheinigung) before 31 December 2017 in order to avoid a higher rate of tax; and
- To amend the prospectus so that a fund meets a particular classification under German law (e.g. mixed fund, equity fund or foreign real estate fund) which enables German investors to benefit from a partial tax exemption.
Spain: Implementation of MiFID II
The implementation of MiFID II in Spain is likely to result in significant changes for foreign funds marketed by local Spanish distributors. In the context of discretionary and advisory mandates, Spanish distributors will need to choose the lowest-charging share class in order meet new suitability requirements. All share classes which are available under the prospectus must be taken into account when making this assessment. Given the administrative burden involved in identifying the lowest charging share class in each case, Spanish distributors may be reluctant to continue distributing third party investment funds. Managers whose funds are marketed in Spain are encouraged to engage with their Spanish distributors on this point and to consider launching clean share classes to continue accessing the Spanish market.
Spain: Public Consultation on Circular 2/2011
On 25 September 2017 the Spanish competent authority (Comisión Nacional del Mercado de Valores – "CNMV") published a draft Circular, including an Annex for public consultation. It is intended to amend Circular 2/2011 on information of foreign collective investment schemes (CIS) registered with the CNMV. In its current format, the draft Circular will increase the quarterly statistical information which foreign UCITS distributed in Spain are obliged to provide to the CNMV via statistical statement A01. Also, for the first time, it will extend the requirement to file statistical statement A01 to AIFs which are distributed in Spain. The consultation closes on 16 October 2017 and the draft Circular is due to enter into force on 1 January 2018.
Switzerland: Draft Financial Services Act and Financial Institutions Act
In September 2017, the Swiss National Council (i.e. the lower house of the Federal Assembly of Switzerland) concluded its debate on the drafts of the Financial Services Act ("FinSA") and Financial Institutions Act ("FinIA"). It is likely that final versions of FinSA and FinIA will be adopted by Parliament in Spring 2018 and will enter into force during 2019. Although the drafts have not yet been finalised, some of the principal measures can be summarised as follows:
- A new code of conduct rules with which financial service providers must comply vis-à-vis their clients;
- Investors to be categorised as "retail clients", "professional clients" and "institutional clients"; and
- The obligation to appoint a Swiss representative and Swiss paying agent when distributing funds to qualified investors (currently applicable) will be abolished except when offering funds to high net worth individuals.
Hong Kong: FAQ on Advertising Materials of CIS Authorised under the Product Codes
On 18 September 2017 the SFC issued an updated version of its "Frequently Asked Questions on Advertising Materials of Collective Investment Schemes Authorized under the Product Codes" (the "FAQ"). The FAQ includes new guidance at question 34A on the presentation of performance information for an unauthorised scheme. Question 34A deals with the circumstances in which a management company of an SFC-authorised scheme may present past performance of an unauthorised scheme from the same management group and with the same investment strategy, in advertisements for the SFC-authorised scheme. The FAQ outlines detailed requirements relating to the presentation of past performance in these circumstances and also makes available a practical example in order to illustrate the requirements in question 34A.
New Zealand: Financial Services Legislation Amendment Bill
On 3 August 2017 the Financial Services Legislation Amendment Bill was introduced to the New Zealand Parliament. The Bill repeals the Financial Advisers Act 2008 and revokes associated regulations and notices. It also makes amendments to the Financial Markets Conduct Act 2013 (the "FMC Act") and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. The reforms to be introduced are wide ranging and include the following:
- The Bill is technology neutral and will fully enable the provision of “robo-advice”. The current requirement for some types of advice to be given by a natural person will no longer apply.
- It aligns the definition of “wholesale client” with the definition of “wholesale investor” under the FMC Act. This is designed to reduce complexity and lead to fewer individuals being classified as wholesale instead of retail.
- Providers of financial advice will be required to disclose certain prescribed information to retail and wholesale clients.
- The Bill aims to address misuse of the Financial Service Providers Register ("FSPR") by offshore entities, in that it introduces more stringent requirements to register on the FSPR.
- A new code of conduct, yet to be drafted, will set minimum standards of competence, knowledge, skill, ethical behaviour and client care, and will apply to all who give financial advice to retail clients.
The Bill is expected to come into force circa May 2019.