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Regulatory Round-up

 

AIFMD

On 12 September 2016, the Central Bank of Ireland (Central Bank) published its twentieth edition of the AIFMD Q&A. The new questions added, which relate to umbrella cash accounts, are:

  • ID1108: clarifying that the Central Bank’s guidance “Umbrella funds – cash accounts holding subscription, redemption and dividend monies” does not apply to a segregated account established by an umbrella fund in respect of a sub-fund. 
  • ID1109: clarifying that the Central Bank has no objection to the establishment of multiple cash accounts by or on behalf of an umbrella fund, provided that each such umbrella cash account complies with the Central Bank’s guidance “Umbrella funds – cash accounts holding subscription, redemption and dividend monies”.
  • ID1110: clarifying that it is only permissible to open an umbrella cash account for a single umbrella fund and only the sub-funds of a single umbrella fund may utilise that account.

Benchmark Regulation

On 29 September 2016, the European Securities and Markets Authority (ESMA) published a consultation paper on its draft regulatory and implementing technical standards (RTS/ITS) to implement the Benchmark Regulation. ESMA invites stakeholders to comment on its proposed RTS/ITS, which are applicable to benchmark contributors, administrators and national competent authorities. The key provisions of ESMA’s draft RTS/ITS cover both benchmark contributors and administrators and include:

  • Procedures, characteristics and positioning of the oversight function
  • Appropriateness and verifiability of input data
  • Transparency of methodologies applied
  • Governance and control requirements for supervised contributors
  • Provisions for significant/non-significant benchmarks
  • Provisions for recognition by third country administrators

The consultation will run until 2 December 2016

The Benchmark Regulation entered into force on 30 June 2016. It applies from January 2018 save for certain provisions regarding identified critical benchmarks, which were immediately applicable. For more information on what the Benchmark Regulation means for UCITS managers and AIFMs, see our previous article here.

Consultations

On 23 September 2016, ESMA’s consultation on Asset Segregation Requirements closed (see our previous article here). ESMA has published the responses received to the call for evidence, including that from Irish Funds, which provides feedback in relation to a number of areas, including: 

  • A detailed description of prevalent asset segregation models
  • An explanation of the operation of omnibus accounts and the safeguards and oversight practices in relation to these accounts
  • An explanation of how assets of the UCITS/AIF are protected against insolvency of parties in the custody chain and considerations in relation to the speed of return of assets in the event of an insolvency
  • A description of how books and records and effective reconciliation ensures investor protection
  • Consideration of the treatment of central securities depositaries (CSDs) in respect of services that they provide

EMIR

On 19 September 2016, ESMA added ICE Clear Europe Ltd to its list of authorised central counterparties (CCPs) under the European Markets Infrastructure Regulation (EMIR). 

EMIR requires EU-based CCPs to be authorised and non-EU CCPs to be recognised in the European Union (EU). Once a CCP has been authorised or recognised within the EU, EU firms can use these CCPs to fulfil their clearing obligations.

Investment Fund Statistics

On 22 September 2016, the Central Bank published its Investment Funds Q2 2016 statistical release. It reported that the net asset value of investment funds (IFs) resident in Ireland increased by 4.3 percent (€61 billion) over the second quarter of 2016, reaching €1,457 billion, with the second quarter showing strong investor inflows to IFs, amounting to €22 billion. Meanwhile, the European Fund and Asset Management Association (EFAMA) reported that investment fund assets globally saw an increase of 4% in Q2 in 2016. 

Market Abuse Regulation

On 12 September 2016, the Central Bank published the First Edition of the Market Abuse Regulatory Framework Q&A. The questions included are:  

  • ID1001: clarifying that PDMRs and PCAs may not use the relevant issuer’s ONR account in order to notify the Central Bank of transactions under Article 19 of MAR. Accordingly, the Central Bank requires the relevant PDMR and the PCA to apply for access to the ONR.
  • ID1002: clarifying that an individual who qualifies as a PDMR for multiple issuers does not have to register for separate ONR accounts.  
  • ID 1003: clarifying that while third parties may, on behalf of issuers, PDMRs or PCAs apply to the Central Bank in order to access the ONR, the Central Bank will only revert to the nominated contact person within the issuer, or the PDMR or the PCA for the purposes of setting up the account. 
  • ID1004: clarifying that an issuer, PDMR or PCA may delegate notification requirements under MAR to a third party, but notwithstanding any such delegation, the issuer, PDMR or PCA remains legally responsible for complying with the obligations imposed by MAR.
  • ID1005: clarifying that transactions should only be notified and made public once the €5000 threshold has been reached. Therefore, notifications should not be submitted to the Central Bank until the threshold has been reached.

MiFID II/MiFIR

On 20 September 2016, ESMA published a discussion paper on the trading obligation under the Markets in Financial Instruments Regulation (MiFIR). The trading obligation under MiFIR is closely linked to the clearing obligation under EMIR. Once a class of derivatives needs to be centrally cleared under EMIR, ESMA must determine whether these derivatives (or a subset of them) should be traded on-venue, meaning on a regulated market (RM), multilateral trading facility (MTF), organised trading facility (OTF) or an equivalent third-country trading venue. 

MiFIR foresees two tests to determine the trading obligation:

  • The venue test: a class of derivatives must be admitted to trading or traded on at least one admissible trading venue
  • The liquidity test: whether a derivative is ‘sufficiently liquid’ and there is sufficient third-party buying and selling interest

The discussion paper includes options on how to determine the trading obligation by applying both tests, including an initial liquidity assessment on the basis of trading data for the six month to end-2015. Comments are invited until 21 November 2016.

SFT Regulation

On 6 October 2016, ESMA published an updated version of its AIFMD Q&A. The update contains a new question and answer clarifying that the information to be included in the periodic reports of UCITS and AIFs pursuant to the Securities Financing Transactions Regulation (SFT Regulation) should be included in the next annual or half-yearly report to be published after 13 January 2017 and which may relate to a reporting period beginning before that date.

On 30 September 2016, ESMA published a consultation paper on draft regulatory technical standards (RTS) and draft implementing technical standards (ITS) implementing the SFT Regulation.

The key areas addressed in the draft technical standards are:

  • RTS and ITS on procedure and criteria for registration as a TR.
  • RTS and ITS on use of internationally agreed reporting standards, the reporting logic and main aspects of the structure and content of SFT reports.
  • RTS on requirements relating to transparency of data, data collection, aggregation and comparison.
  • RTS on access levels for different competent authorities.

ESMA has also proposed certain amendments to existing technical standards implementing requirements relating to trade repositories (TRs) under EMIR. ESMA is consulting on the following with regard to EMIR:

  • Consolidated amended text of RTS on registration of TRs under EMIR.
  • Amendments to RTS on access levels under EMIR.

The consultation closes on 30 November 2016. ESMA will use the feedback it receives to finalise its draft technical standards, which are to be submitted to the European Commission for endorsement by the end of Q1 or beginning of Q2 2017. It is expected that the finalised implementing measures will become applicable from 2018.

UCITS

On 12 September 2016, the Central Bank published its fourteenth edition of the UCITS Q&A. The new questions added, (which relate to umbrella cash accounts and accounts) are:

  • ID1067: clarifying that the Central Bank’s guidance “Umbrella funds – cash accounts holding subscription, redemption and dividend monies” does not apply to a segregated account established by an umbrella fund in respect of a sub-fund. 
  • ID1068: clarifying that the Central Bank has no objection to the establishment of multiple cash accounts by or on behalf of an umbrella fund, provided that each such umbrella cash account complies with the Central Bank’s guidance “Umbrella funds – cash accounts holding subscription, redemption and dividend monies”.
  • ID1069: clarifying that it is only permissible to open an umbrella cash account for a single umbrella fund and only the sub-funds of a single umbrella fund may utilise that account.
  • ID1070: clarifying that the format of the second half yearly accounts, which a UCITS management company/depositary must submit, should follow that of the first half yearly accounts.
  • ID1071: clarifying that pursuant to the Central Bank UCITS Regulations, a minimum capital requirement report is only required for the first set of half yearly accounts. 
  • ID1072: clarifying that half yearly accounts should be submitted within two months of the period end. 

Contributed by Audrey Giles