fund news - issue 126 - april 2015
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FUND NEWS
Financial Services / Regulatory and Tax / Issue 126
Developments in April 2015 Investment Fund Regulatoryand Tax developments in selected jurisdictions
Contents
Regulatory Content
European Union 3 European Parliament votes its position on Money
Market Funds 4 ESMA issues updated EMIR Q&A 5 ESMA issues a consultation paper on draft
guidelines for the assessment of knowledge and competence
Ireland 7 New ISE NAV submission process from
September 2015 7 Amended Approval Fees for Prospectuses
and other Related 7 Key Dates Reminder
2 / Fund News / Issue 126 / Developments in April 2015
Regulatory News
• Credit quality
A MMF shall diversify its portfolio and invest only in high-quality assets. Therefore, it has to put in place a prudent and rigorous internal assessment procedure for determining the credit quality of the money market instruments in which it intends to invest. The assets of a MMF shall be valued at least once a day and the results published daily on the website of the MMF.
• Eligible assets
In addition of not being able to inter alia, short-sell money market instruments, entering into securities lending or borrowing agreements, a MMF shall not invest in other MMFs.
A MMF could have the possibility to borrow or enter into repurchase agreements provided that certain conditions are fulfilled e.g. inter alia, the repurchase agreement is temporary, the sum of the repurchase agreements do not exceed 10% of the assets of the MMF concerned and shall not be invested in eligible assets, the cash collateral received shall follow prudential investment guidelines e.g. invest in short-term money market funds as defined in the Guidelines on a Common Definition of European Money Market Funds.
• Know-your-customer
In addition to performing a due diligence to identify the number of investors and their behavioral biases; where the MMF investors
route their investments via an intermediary, the MMF manager shall seek, and the intermediary shall provide, data allowing the manager of the MMF to manage appropriately the liquidity and investor concentration of the MMF
• Transparency regime
MMFs shall report, on a weekly basis, all of the following information to their investors:
– The liquidity profile
– The credit profile and portfolio composition
– Weighted average maturity (WAM) of the portfolio
– Weighted average life (WAL) of the portfolio
– The cumulative concentration of the top five investors in the MMF
• Redemptions gates and liquidity fee
Public Debt CNAV MMFs, Retail CNAV MMFs and LVNAV MMFs should apply “liquidity fees” and “redemption gates” to prevent significant redemptions in times of market stress and to prevent other investors being unfairly exposed to prevailing market conditions.
• External support
In its proposal, the European Commission allowed MMF other than CNAV MMFs to receive external support on exceptional circumstances. In its voted text, the European Parliament has voted
European Parliament votes its position on Money Market Funds
On 29 April 2015, the European Parliament voted its final position regarding the Regulation on Money Market Funds (MMF).
The European Commission (EC) published the proposal in September 2013, further details are available in the Issue 107 of the Fund News.
Main features of the text voted at the European Parliament:
• The CNAV MMFs operating in the European Union shall be either:
– a Retail CNAV, available for subscription only for charities and non-profit organization, public authority and public foundation;
– a Public Debt CNAV which would invest 99.5% of its assets in public debt instruments; or
– a Low Volatility Net Asset Value MMF (LVNAV MMF) which can also display a constant net asset value but under strict conditions e.g. inter alia; use of amortised cost method to value assets with a residual maturity below 90 days, potential investors are clearly warned in writing prior to the conclusion of the contract of the circumstances in which the fund will no longer redeem or subscribe at a constant NAV. Authorisations granted to LVNAVs shall cease after five years. However, the Commission has the discretion of allowing authorisations for LVNAVs to continue beyond the 5 year period.
European Union
Fund News / Issue 126 / Developments in April 2015 / 3
that a MMF shall not receive external support.
The European Council now needs to agree on common general approach before the proposed Regulation could enter into the final negotiation phase with the European Commission and Parliament. Thereafter, the legislative text will be published at the Official Journal of the European Union in order to enter into force.
ESMA issues updated EMIR Q&A
On 27 April 2015 the European Securities and Markets Authority (ESMA) issued an updated Questions & Answers (Q&A) document
concerning the European Market Infrastructure Regulation (EMIR), with a focus on the second level of the EMIR validation specifications to be commonly applied by the Trade Repositories (TR) to ensure that reporting is performed according to the requirements of Article 19 of the Commission Delegated Regulation (EU) 150/2013.
The Q&A clarifies the following points:
• The maturity date field is intended to reflect the updated (modified) maturity date. As described in field 21 in the regulatory technical standards (RTS) on the minimum details of the data to be reported to TRs, early terminations of a
contract shall not be reported in this field. Accordingly, when an opening of a new contract occurs, the maturity date field represents the “original date of expiry of the reported contract”. However, when the maturity date of an existing contract is subject to changes which are already foreseen in the original contract specifications, counterparties send a modification report to the initial entry, modifying the maturity date field accordingly to reflect the updated maturity date.
• TRs are expected to verify completeness and accuracy of the EMIR reports submitted by the reporting entities. Since late 2014,
Regulatory News
4 / Fund News / Issue 126 / Developments in April 2015
ESMA has specified two levels of validation rules for EMIR reports:
– Since 1 December 2014, a first level validation rules, refer to determining what fields are mandatory in all circumstances and under what conditions fields can be left blank or include the Not Available (NA) value.
– The second level validation rules refer to the verification that the values reported in the fields comply in terms of content and format with the rules set out in the technical standards and are complemented with instructions on the fields which should be populated depending on the
Regulatory News
action type. ESMA expects the TRs to be able to implement the second level validation rules by end October 2015.
In order to be compliant with the reporting requirements, TRs should reject the reports which are not submitted in line with the reporting requirements specified in the Validation table. Accordingly, reporting counterparties or submitting entities should comply with the reporting requirements specified in the Validation table which can be found on ESMA’s website at the following link.
The full text of the Q&A is available at the following web link.
ESMA issues a consultation paper on draft guidelines for the assessment of knowledge and competence
On 23 April 2015, ESMA issued draft guidelines for the assessment of knowledge and competence of individuals providing investment services under MiFID II. The European Securities and Markets Authority is required by Article 25(9) of MiFID II to develop guidelines specifying criteria for the assessment of knowledge and competence for individuals in MiFID firms that give investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of the investment firm to fulfil their obligations under Article 24 and Article 25.
Fund News / Issue 126 / Developments in April 2015 / 5
Regulatory News
The guidelines are divided into requirements for staff giving information about investment products, investment services or ancillary services and requirements for staff giving investment advice.
MiFID firms could be required to ensure that employees giving information on investment products, investment services or ancillary services have the necessary knowledge and competence to, inter alia:
• Understand the key characteristics, complexity, and total costs (including transaction costs) of relevant products or services, including tax implications;
• Understand how markets function and how they impact the value of
the products, the market structure, and the impact of economic data;
• Understand basic valuation principles for investment products.
Employees giving investment advice could be required to, in addition of the above competencies, comply with the followings:
• Fulfil the obligations set out in the Guidelines on certain aspects of the MiFID suitability requirements;
• Understand how the investment product may not be suitable for the client; and
• Understand the fundamentals of portfolio theory, including being able to explain the implications of diversification regarding individual investment alternatives.
The consultation paper (CP) proposes that such elements should be met by attaining an “appropriate qualification” and “appropriate experience” and sets out the areas of knowledge and competence that need to be assessed against, in order to provide investment advice or information to clients.
A clear distinction should be made between employees having responsibilities in providing investment advice from those providing investment information.
National Competent Authorities could consider that employees with 5 consecutive years in providing relevant services, have the necessary “appropriate qualification”. MiFID firms should ensure that employee maintain and update their knowledge and competence by undertaking professional development or training in the appropriate qualification.
6 / Fund News / Issue 126 / Developments in April 2015
Regulatory News
New ISE NAV submission process from September 2015
These changes are relevant for those who submit Net Asset Values (NAVs) of funds listed on the Irish Stock Exchange (ISE).
The ISE has produced an information note and FAQs on the changes which are available here.
Amended Approval Fees for Prospectuses and other Related
The Central Bank of Ireland has amended the fees charged for the approval of prospectuses and related documents related to non-equity securities under the Prospectus Regulations. Further information is available here.
Key Dates Reminder
• 1 June 2015
It is expected that the Companies Act 2014 is planned to be commenced on 1 June 2015. KPMG’s flyer on the changes is available here.
• 30 June 2015
FATCA is now fully operational in Ireland (Irish financial institutions were required to register with the IRS by 31 December 2014) so the first FATCA reports are due to be filed with the Irish tax authority (the Irish Revenue Commissioners) by 30 June 2015 in respect of the 2014 reporting year.
KPMG’s update on FATCA is available here.
Ireland
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MiFID firms should review, on an annual basis, staff development and experience needs and take appropriate action to comply with these provisions. The regulatory developments should be taken into consideration when performing the reviews.
The consultation will be open until 10 July 2015. Thereafter, ESMA will consider the responses and expects to publish final guidelines in Q4 2015.
The consultation paper on draft guidelines for the assessment of knowledge and competence is available at the following web link.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received, or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2015 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Zurich
Markus SchunkPartnerT: +41 58 249 36 82 E: [email protected]
Christoph GroebliPartnerT: +41 58 249 29 76 E: [email protected]
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Yvan MermodPartnerT: +41 58 249 37 80 E: [email protected]
Lugano
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Pierre ZächPartnerT: +41 58 249 64 12 E: [email protected]
Pascal SprengerDirector, LegalT: +41 58 249 42 23 E: [email protected]
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Contacts
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