Investment Funds Update - Europe: Legal and regulatory updates for the funds industry from the key asset management centres and primary European fund domiciles - July 2016 - Issue 6: European Legal Developments

by Dechert LLP

AIFMD – ESMA Updates Q&A on the Application of the AIFMD

ESMA updated its questions and answers on the application of the AIFMD on 3 June 2016.

The new content includes a new question and answer on requirements regarding the domicile of EU Alternative Investment Funds (AIFs) which are marketed in the home Member State of the AIFM, as well as a new question and answer relating to the marketing of EU feeder AIFs which have a non-EU master AIF.

Read the new Q&A in full

Read the associated press release

EMIR – New Regulatory Technical Standards on Indirect Clearing, New Q&A, Final Rules for Clearing of Interest Rate Derivative Contracts Denominated in Specific European Currencies and an Updated List of CCPs

ESMA issued its final report on draft regulatory technical standards (“RTS”) on indirect clearing arrangements under EMIR and MiFIR on 26 May 2016. 

The draft RTS provide guidance on the following points:

  • Default management: in order to take into account that there can be a conflict of law between EU regulation and certain national insolvency regimes, the draft RTS propose an obligation of means, i.e. relying on having appropriate default procedures and committing to trigger them.
  • Choice of account structures to be offered to indirect clients: the draft RTS provide a choice of possible account structures that reflect the current practice in the OTC derivative and the exchange traded derivative markets in terms of level of segregation. Furthermore, the number of accounts required has been simplified to minimise the operational burden for market participants.
  • Long chains: the draft RTS, under certain conditions, allow indirect clearing chains that are longer than the standard chains of four entities.

ESMA has sent its draft RTS on indirect clients for endorsement to the European Commission which has three month to accept or reject them

Read ESMA's final report.

Read the associated press release

ESMA updated its questions and answers on EMIR on 6 June 2016.  

The new content includes new answers in relation to the clearing obligation, specifically about the self-categorisation that is necessary in order to establish which counterparties belong to which categories.

The Q&A also provides clarifications on how counterparties should handle the situation where some of their counterparties have not provided the information on the category they belong to.

Read the new Q&A.

Read the associated press release

The European Commission formally endorsed central clearing of interest rate derivative contracts denominated in Norwegian Krone (NOK), Polish Zloty (PLN) and Swedish Krona (SEK) on 10 June 2016.  

Read the associated press release

Read the relevant annex to EMIR.  

ESMA updated its list of third-country central counterparties recognised to offer services and activities in the EU on 14 June 2016. 

The Chicago Mercantile Exchange has now been added.

Read the full list.

MiFID II – Regulatory Technical Standards on Ancillary Activity, Derivatives Trading and Best Execution

ESMA issued its opinion in response to a letter sent by the European Commission asking it to amend its draft RTS 20 on 26 May 2016. RTS 20 provides criteria to establish when a non-financial firm’s commodity derivatives trading activity is considered to be ancillary to its main business.

Read the associated press release.

Read the opinion

The European Commission published a delegated regulation supporting the best execution obligation in MiFID II on 8 June 2016.

The regulation specifies the content, the format and the periodicity of data relating to the quality of execution to be published by execution venues.

Read the delegated regulation and associated annexes.

Consultation on Cross-Border Distribution of Investment Funds and Draft Regulatory Technical Standards under the ELTIF Regulation

The European Commission launched a consultation on cross-border distribution of investment funds, focussed on the main barriers to the cross-border distribution of investment funds (UCITS and AIF) on 2 June 2016.

The consultation closes on 2 October. 

ESMA issued draft regulatory technical standards (RTS) for European Long-Term Investment Funds under the ELTIF Regulation on 8 June 2016. 

The RTS propose:

  • Criteria to determine the circumstances in which financial derivatives are used solely for hedging purposes.
  • The life of an ELTIF should be determined with reference to the individual asset within the ELTIF portfolio which has the longest investment horizon.
  • A non-exhaustive list of the types of market risk ELTIF managers should take into account when assessing the market for potential buyers.
  • The criteria for the valuation of the ELTIF assets ahead of their divestment.
  • A grandfathering provision, whereby ELTIFs have one year after the RTS come into force to comply with these rules

Read the RTS. 

Read the associated press release.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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