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Article (7/421)
European regulation update: investor protection
European regulation update: investor protection
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European regulation update: investor protection

23/10/2017

Focus on the latest European regulatory developments

  • Alternative Investment Fund Managers Directive (AIFMD)
  • Undertakings for Collective Investments in Transferable Securities Directive (UCITS V)

 

AIFM and UCITS V Directives

On 20 July 2017, ESMA published an opinion addressed to the three European co-legislators (the European Commission, the Council, and the Parliament) with regard to the segregation of assets and application of depositary delegation rules to central securities depositaries.

ESMA’s opinion recommends to:

  • Specify that the depositary constitutes the first level of the custody chain, and a safekeeping account must be opened in the books of the depositary for each fund
  • Cancel the existing provision under the AIFMD and UCITS V that requires the segregation of the assets of the fund from the assets of other clients, on the condition that the contractual provisions agreed on by the depositary and the different delegated parties in the custody chain be applied. These provisions aim to strengthen the supervision of the depositary in the custody chain, in particular with respect to the reconciliation and use of these assets
  • Clarify that a central depositary that acts as an intermediary in a custody chain for a given security, but does not provide the central maintenance service of the issuing account of this security, is considered a delegate of the depositary and is thus subject to the same controls by the depositary.

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PRIIPS

On 4 July 2017, in order to prepare the entry into force of the regulation on 1 January 2018, the Commission published a communication specifying certain provisions of the regulation, such as its geographical scope and transition measures.

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On the same date, the three European supervisory authorities published a Q&A on the methodology for market risk and credit risk assessment, performance scenarios, derivatives and the methodology for the calculation of costs.

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On 28 July 2017, European Supervisory Authorities (ESAs) submit advice on products with environmental or social objectives. The ESAs have submitted their technical advice to the EU Commission on requirements which manufacturers of packaged retail and insurance-based investment products (PRIIPs) with environmental or social objectives should comply with. In their advice, the ESAs recommend that PRIIPs manufacturers should:

  • Clearly specify the environmental or social objectives that they are targeting, together with an appropriate and proportionate strategy on how to achieve them
  • Disclose to retail investors the objectives and how they will be achieved
  • Install and well document governance and monitoring measures, where the latter need to be proportionate to the objectives
  • Conduct regular reviews on the progress made in achieving the specified and disclosed objectives

The ESAs conclude that the establishment of specific and detailed standalone obligations for PRIIPs targeting specific environmental or social objectives would not be proportionate at this time, and that sufficiently stringent measures are available or are in the process of being implemented.

 

On 18 August 2017, European Supervisory Authorities (ESAs) publish updated Q&As and flow diagram on risk and reward calculations in KID. The ESAs have published an update of its Q&A document on the KID requirements for PRIIPs.

The document has been updated to include new Q&As on:

  • Market risk assessment (Annex II, Part 1)
  • Methodology for assessing credit risk (Annex II, Part 2)
  • Summary risk indicator (SRI) (Annex III)
  • Presentation of costs (Annex VII)

To accompany the updated Q&A document, the ESAs have published flow diagrams setting out the calculation steps for the summary risk indicator (SRI) and performance scenario calculations described in Commission Delegated Regulation (EU) 2017/653.

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