Recent regulatory developments of interest to financial institutions.

Contents

• ESMA publishes guidance on performance fees in UCITS and certain AIFs
• MMF Regulation: ESMA postpones deadline for Article 37 reporting
• Regulation on cross-border distribution of collective investment undertakings: ESMA consults on draft ITS

ESMA publishes guidance on performance fees in UCITS and certain AIFs

Following consultation, the European Securities and Markets Authority (ESMA) has published its final report on performance fees in investment funds, applicable to Undertakings for the Collective Investment in Transferable Securities (UCITS) and certain types of alternative investment funds (AIFs). The report gives an overview of the feedback ESMA received to its consultation, ESMA's response, and the final guidelines. In general, respondents agreed with ESMA's approach of introducing minimum standards for performance fee models.

The guidelines provide comprehensive guidance to fund managers when designing performance fee models for the funds they manage, including the assessment of the consistency between the performance fee model and the fund's investment objective, policy and strategy, particularly when the fund is managed in reference to a benchmark.

ESMA aims to harmonise the way fund managers charge performance fees to retail investors, as well as the circumstances in which performance fees can be paid.

The guidelines will now be translated into the official EU languages and subsequently published on ESMA's website. The publication of the translations will trigger a two-month period during which national competent authorities must notify ESMA whether they comply or intend to comply with the guidelines. The guidelines will apply from the end of this two-month period.

MMF Regulation: ESMA postpones deadline for Article 37 reporting

ESMA has announced that the first reports by money market funds (MMF) managers under Article 37 of the MMF Regulation (MMFR) should be submitted in September 2020 rather than April 2020.

Following feedback received by market participants after the publication of this first version of the XML schema (v.1.0) that should be used for reporting, and upon assessment of the technical committee on 25 February 2020, ESMA has decided to implement amendments on the XML schema and reporting instructions in a new version, v1.1. Therefore, MMF managers will need additional time to comply with the reporting obligation.

The amended XML schema and reporting instructions will be published shortly on ESMA's website.

The reference period for the first reporting is still envisaged for Q1 2020. That means that the MMF Managers will have to report in September 2020 quarterly reports for both the Q1 and Q2 reporting periods.

Regulation on cross-border distribution of collective investment undertakings: ESMA consults on draft ITS

ESMA has published a consultation paper on draft implementing technical standards (ITS) under the Regulation on the cross-border distribution of collective investment undertakings.

The consultation represents the first stage in the development of the draft ITS under the following provisions in the Regulation:

• Article 5(3), which requires ESMA to draft ITS to determine standard forms, templates and procedures for the publication and notifications that NCAs are required to make in relation to national provisions concerning marketing requirements applicable within their jurisdiction;
• Article 10(3), which requires ESMA to draft ITS to determine standard forms, templates and procedures for the publication and notification that national competent authorities (NCAs) are required to make in relation to national provisions concerning fees and charges levied by them in relation to activities of alternative investment fund managers (AIFMs), European venture capital fund (EuVECA) managers, European social entrepreneurship fund (EuSEF) managers and UCITS management companies; and
• Article 13(3), which requires ESMA to draft ITS to specify the information to be communicated by NCAs, and the standard forms, templates and procedures for communication of the information, that is necessary for the creation and maintenance of the central database on cross-border marketing of AIFs and UCITS (referred to in Article 12), and the technical arrangements necessary for the functioning of the notification portal into which each NCA must upload all documents necessary for the creation and maintenance of this central database.

In the consultation, ESMA sets out its proposals for these ITS. Annex IV contains the text of the draft ITS on which ESMA is seeking feedback in the form of a draft Commission Implementing Regulation laying down ITS for the application of the Regulation with regard to publication by competent authorities of marketing requirements as well as fees and charges.

The consultation ends on 30 June 2020. ESMA aims to finalise the ITS for submission to the European Commission by 2 February 2021.

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