Investment Funds Update – Europe: Legal and regulatory updates for the funds industry from the key asset management centres and primary European fund domiciles - Issue 12, 2019: European Union Developments

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AIFMD – ESMA issues draft guidelines on liquidity stress testing in UCITS and AIFs

On February 5, ESMA issued a consultation paper on issuing liquidity stress test guidance for investment funds. The draft guidelines aim to promote convergence in the way national competent authorities supervise funds’ liquidity stress testing across the EU.

The consultation sets out 14 principle-based criteria for managers’ liquidity stress tests to follow when executing liquidity stress tests on their funds.

The consultation is open for feedback until April 1, 2019.

Read: The consultation 

Read: The associated press release 

MiFID II – further MiFIR Q&A 

ESMA has issued new Q&As on MiFID II and MiFIR transparency topics and market structures. The new Q&As provide clarification on the following topics:

  1. Reports to competent authorities and ESMA; and 
  2. Identification of high frequency trading techniques.


Read: The Q&A on transparency topics 

Read: The Q&A on market structures topics 

Read: The associated press release

EMIR – new Q&A and no-deal Brexit preparations

ESMA issued updated Q&As on EMIR on February 4, 2019.

The new Q&As confirm that counterparties may report a derivative with Action Type “P” if the derivative is included in a position on the same day that it is reported.

Read: The Q&A 

Read: The associated press release

On February 18, ESMA adopted recognition decisions in order to limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU. Three CCPs will be recognized to provide their services in the EU- LCH Limited, ICE Clear Europe Limited and LME Clear Limited.

Read: The associated press release

ESMA agreed an MoU in the event of a no-deal Brexit with the Bank of England on February 4, 2019 for the recognition of central counterparties (CCPs) and of the central securities depository (CSD) established in the United Kingdom. 

Read: The associated press release

Other – regulatory MoUs in place, Brexit “will pose regulatory challenges” and binary options still banned

ESMA and the FCA announced on February 1, 2019 that they had agreed MoUs to be in place in the event of a no-deal Brexit. Two MoUs have been agreed:

  1. An MoU between ESMA and the FCA concerning the exchange of information in relation to the supervision of credit rating agencies (CRAs) and trade repositories (TRs). 
  2. A multilateral MoU (between EU/EEA securities regulators and the FCA) covering supervisory cooperation, enforcement and information exchange between individual regulators and the FCA. This will allow certain activities, such as fund manager outsourcing and delegation, to continue to be carried out by UK-based entities on behalf of counterparties based in the EEA.

Read: The associated press release 

To date, ESMA has not indicated that the MoUs will be published, with the FCA sharing this position.

Speaking in Dublin on February 13, 2019, Steven Maijoor, Chair of ESMA, focused on ESMA's preparations for a no-deal Brexit across a number of areas including secondary markets, clearing and settlement and cooperation agreements, while also looking to the future of the European Union's market after Brexit.

Read: The speech

Read: The associated press release

ESMA renewed its prohibition on the marketing, distribution or sale of binary options to retail clients, in effect since July 2, 2018, for a further three-month period.

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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