FUNDS QUARTERLY LEGAL AND REGULATORY UPDATE
Undertakings in Collective Investments and Transferrable Securities ("UCITS")
(i) ESMA publishes updates to the Q&A on application of UCITS Directive
On 6 April 2017, the European Securities and Markets Authority ("ESMA") published its updated Q&A on the application of the UCITS Directive (2009/65/EC), as revised by UCITS V (2014/91/EU) (together the "UCITS Directive"). One new Q&A was added concerning cross-border activities by UCITS management companies. It clarifies that a UCITS management company can notify cross-border activities without having to identify a specific UCITS.
On 24 May 2017, ESMA published a press release announcing it has further updated the UCITS Directive Q&A. One new Q&A was added concerning the use by a UCITS of the exemption for intragroup transactions under Article 4(2) of the Regulation on OTC derivative transactions, central counterparties and trade repositories (Regulation 648/2012) ("EMIR") if subject to the clearing obligation in Article 4(1) of EMIR.
The updated questions and answers document is available for download here.
(ii) ESMA publishes findings on thematic study on notification frameworks and the operation of home-host responsibilities under the UCITS Directive
On 7 April 2017, ESMA published the findings of its thematic study on notification frameworks and home-host responsibilities under the UCITS Directive and AIFMD (ESMA34-43-340). In the context of UCITS, ESMA's findings include:
- The extent to which the EU passports for the marketing and management of UCITS are used varies extensively across the Member States. Under the UCITS framework, UCITS management companies in 21 Member States carry out various kinds of cross- border management activities, including collective portfolio management. The extent of these activities is mostly consistent with the size of national fund markets and the share the respective Member State has in the single European fund market.
- Compared to cross-border management, the cross-border marketing of UCITS plays a significantly bigger role. Figures show that there is cross-border marketing activity in most Member States, with only a handful of Member States not reporting any outbound cross-border marketing activity. Again, a number of Member States have a larger share in cross-border marketing of UCITS, reflecting their central role in the single European financial market.
ESMA's full findings can be accessed here.
(iii) Section 167 of the Companies Act 2014 (Audit Committees) – Application to UCITS
Section 167 of the Companies Act 2014 ("CA 2014") imposes an obligation on "large private companies" (i.e. those companies exceeding the specified thresholds, or where the company has subsidiary undertakings, where the company and its subsidiaries exceed the specified thresholds) and public limited companies to establish an audit committee or, if they choose not to do so, explain in their annual report as to why they do not think it necessary to establish an audit committee.
Under the CA 2014, non-UCITS investment companies established under Part 24 of the Companies Act (such as retail AIF and QIAIFs) are exempt from the requirements under Section 167. UCITS investment companies and their wholly-owned subsidiaries are not exempt from these requirements.
On 16 June 2017, the Department of Jobs, Enterprise and Innovation ("DEJI") indicated in a letter to the Irish Funds ("Irish Funds") that it is intended to amend the CA 2014 to grant an exemption to UCITS investment companies but not their wholly-owned subsidiaries from the obligation to comply with Section 167. In the letter, the DEJI indicates that an amendment to this effect will be included in the forthcoming Companies (Statutory) Audits Bill.
Section 167 of CA14 may be viewed here.
(iv) Section 225 of the Companies Act 2014 (Directors' Compliance Statements) - Application to UCITS
Section 225 of CA 2014 imposes an obligation on "large private companies" (i.e. those exceeding the specified thresholds) and all public limited companies to prepare a directors' compliance statement which must be included in the company's annual report.
Under CA 2014, non-UCITS investment companies established under Part 24 of the Companies Act (such as retail AIF and QIAIFs) are exempt from the requirements under Section 225. UCITS investment companies and their wholly-owned subsidiaries are not exempt from these requirements.
On 16 June 2017, the DEJI indicated in a letter to the Irish Funds that there is no intention at present to amend CA 2014 to grant an exemption to UCITS investment companies or their wholly-owned subsidiaries from the requirements under Section 225.
Section 225 of CA14 may be accessed here.
(v) Central Bank publishes updated UCITS Q&A
On 15 May 2017, the Central Bank published a seventeenth edition of the UCITS Q&A. A new question ID 1076 related to the designated email for fund management companies was included.
On 28 June 2017, the Central Bank published the eighteenth edition of its UCITS Q&A. Two new Q&As (questions, ID 1077 and ID 1078) were added to provide clarity as regards the treatment of existing share classes of a UCITS which are not in compliance with ESMA's opinion concerning 'Share classes of UCITS', dated 30 January 2017 (the "ESMA
Question ID 1077 has been added to clarify that where a share class of a UCITS approved by the Central Bank on or prior to 30 January 2017 does not comply entirely with the principles of the Opinion, that share class must be closed for investment by new investors on or before 30 July 2017, and for additional investment by existing investors on or before 30 July 2018.
Question ID 1078 has been added to clarify that where a UCITS employs derivatives in order to engage in currency hedging at the level of a share class approved by the Central Bank on or prior to 30 January 2017, then if the UCITS intends to continue to offer that share class to investors, the UCITS must make any necessary amendments at the earliest opportunity. Any amendments to the documentation arising out of such process should be made at the time of the next update of the prospectus and/or supplement(s), if applicable in the case of sub-fund.
The latest version of the UCITS Q&A may be accessed here.
(vi) Central Bank issues revised "UCITS and AIF Share Classes" Guidance
On 28 June 2017, the Central Bank issued revised "UCITS and AIF Share Classes" Guidance in order to fully reflect the principles covered in the ESMA Opinion.
The revised UCITS and AIF Share Classes Guidance is available here.
Alternative Investment Fund Management Vehicle ("AIFMD")
(i) ESMA publishes updates to the Q&A on application of AIFMD
On 6 April 2017, ESMA published a press release announcing it has updated the Q&A in relation to the Alternative Investment Fund Managers Directive ("AIFMD"). One new Q&A was added concerning the cross-border marketing of EU AIFs by EU AIFMs under Article 32 of the AIFMD, clarifying that the AIF marketing passport may only be used for marketing to professional investors as defined in the AIFMD.
The press release may be accessed here.
On 24 May 2017, ESMA published a press release announcing it has further updated the Q&A in relation to the application of AIFMD. Three new Q&As were added concerning the following matters: (a) reporting to National Competent Authorities ("NCAs") on the breakdown between retail and professional investors; (b) notification of AIFMs on the AIFs to be managed, if domiciled in another Member State; and (c) use by an AIF of the exemption for intragroup transactions under Regulation (EU) 648/2012 ("EMIR"), if subject to the clearing obligation of Article 4(1) of EMIR.
The press release may be accessed here.
(ii) ESMA publishes findings on thematic study on notification frameworks and the operation of home-host responsibilities under AIFMD
On 7 April 2017, ESMA published the findings of its thematic study on notification frameworks and home-host responsibilities under the UCITS Directive and AIFMD. In the context of the AIFM passporting frameworks, ESMA's findings indicate that whilst cross- border management activities are only carried out relatively extensively in a small number of Member States, the use of the AIF marketing passport is more widespread. ESMA's findings further indicate, that AIF managers make use of the AIFMD passports to a much lesser extent and in fewer Member States, compared to the UCITS framework, reflecting the lower number of AIFs set up in Europe overall, the relatively short implementation period of AIFMD, as well as the late transposition of the AIFMD framework in a number of Member States, and the limitations around cross-border marketing by way of the passport to professional investors only.
ESMA's full findings can be accessed here.
(iii) Central Bank publishes twenty-fifth edition of the AIFMD Q&A
On 15 May 2017, the Central Bank published the twenty-fifth edition of its AIFMD Q&A. A new Q&A (question ID 1123) was added concerning the designated email address for fund management companies.
The updated Q&A may be accessed here.
European Venture Capital Funds ("EuVECA") & European Social Entrepreneurship Funds ("EuSEF")
(i) Political agreement reached on proposed Regulation amending EuVECA Regulation and EuSEF Regulation
On 30 May 2017, the European Commission published a press release announcing that it has reached agreement with the Council of the EU and the European Parliament on the proposed Regulation amending the European Venture Capital Funds Regulation (Regulation 345/2013) ("EuVECA Regulation") and the European Social Entrepreneurship Funds Regulation (Regulation 346/2013) ("EuSEF Regulation"). The press release states that the agreement reached:
- Extends the range of managers eligible to market and manage EuVECA and EuSEF funds to larger fund managers (that is, those with assets under management of more than EUR500 million);
- Extends the range of companies that can be invested in by EuVECA funds to "small mid- caps" and "small and medium-sized enterprises" listed on SME growth markets;
- Decreases costs by explicitly prohibiting fees imposed by competent authorities of host Member States where no supervisory activity is performed. It also simplifies the registration process and determines the minimum capital necessary to become a manager.
The press release may be accessed here.
Once both the European Council and the Parliament have adopted it, the proposed Regulations will start to apply three months after its entry into force.
The European Parliament is due to consider the proposed Regulation during its plenary session to be held from 11 to 14 September 2017.
With respect to the European Council, the EU published an "I" item note (10573/17) from its General Secretariat to its Permanent Representatives Committee ("COREPER") on 27 June, 2017 whereby, inter alia, COREPER is invited to approve the final compromise text of the proposed Regulation. The European Council has also published a corrigendum to the addendum (10573/17 ADD1 COR1), which amends two articles of the final compromise text.
Money Market Funds Regulation ("MMF Regulation")
(i) European Parliament and the Council of the EU adopts MMF Regulation
On 16 May 2017, the Council of the EU published a press release announcing that it has adopted the Regulation on the MMF Regulation. The Council's adoption of the MMF Regulation follows the European Parliament's adoption of it in plenary on 5 April 2017.
A copy of the press release can be accessed here.
On 30 June 2017, the MMF Regulation was published in the Official Journal of the EU (the "OJ"), meaning it will formally enter into force on 20 July 2017. The Regulation will then apply as and from 21 July 2018, with the exception of Article 11(4), Article 15(7), Article 22 and Article 37(4) which apply from 20 July 2017.
The text of the MMF Regulation, as published in the OJ is available here.
(ii) ESMA publishes a consultation paper on the MMF Regulation
On 24 May 2017, ESMA published a consultation paper (ESMA34-49-82) on draft technical advice, implementing technical standards ("ITS") and guidelines under the MMF Regulation.
In the consultation paper, ESMA seeks views on its proposals for technical advice for the European Commission relating to:
- The liquidity and credit quality requirements applicable to assets received as part of a reverse repurchase agreement;
- and Internal credit quality assessments.
ESMA also seeks views on:
- Draft ITS on a reporting template containing all the information managers of money market funds ("MMFs") are required to send to the competent authority of the MMF; and
- Draft guidelines on common reference parameters for the scenarios to be included in the stress tests that managers of MMFs are required to conduct.
The deadline for responses to the consultation is 7 August 2017. A copy of the consultation paper can be accessed here.
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