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Bimonthly Report September/October 2018

3W - Fund Distribution WatchWhat’s new in the cross-border distribution world?

https://www.pwc.lu/3w-watch

What’s new?

Belgium• Withholding tax evasion and avoidance :

new measures announced

8

China• China announces a three-years tax exemption

on bond interest for foreign investor

8

Europe• CRR - Level 2 - EBA consults on Draft Amending

ITS on supervisory reporting of institutions of the liquidity coverage requirement

• CRR - Level 2 - EBA consults on Draft Amending ITS on supervisory reporting with regard to financial reporting

• Financial Stability - September 2018 Joint Committee Report on risks and vulnerabilities in the EU financial system

• MiFID II/MiFIR - Level 3 - ESMA Follow-Up Letter concerning some requirements on investor protection and intermediaries

• PRIIPs Regulation - Level 2 - ESAs Response to the Commission Letters on the PRIIPs KID

8

Norway• Dividends from Norwegian companies to

foreign shareholders - Documentation requirements for reduced withholding tax rate

21

World• FSB publishes Report on potential implications

of crypto-assets for financial stability

26

France• The AMF updated DOC-2010-05 relating to the

marketing of complex financial instruments

• The AMF changes its approach concerning the review of marketing documents of various financial products for retail investors

13

Germany• Draft of BMF Circular introducting changes and

supplementary conditions for granting partial exemption to funds

• BaFin to follow IOSCO Good Practice for Fees and Expenses of CIS in terms of performance fees

14

Hong Kong• The Securities and Futures Commission (SFC)

provides guidance on disclosure of trailer fees (non-quantifiable monetary benefits).

• The Securities and Futures Commission (SFC) entered into Memorandum of Understanding on Mutual Recognition of Funds with the UK Financial Conduct Authority (FCA)

16

Luxembourg• IDD - Transposition Law will enter into force

on 1 October 2018

• Financial Reporting - CSSF issues Instructions on Guaranteed Funds’ Table O 1.2

• Investment Funds - ALFI Recommendations for the future development of the investment fund sector

• EMIR - CSSF Application Form Update

• Luxembourg amends the CbCR obligations relating to exchange of information

• AIFMD - CSSF updates its FAQ

• GDPR - CNPD releases first Feedback on data breaches

16

Singapore• The Singapore Variable Capital Companies

(VCC) at a glance

22

Netherlands• Changes for the Real Estate sector

21

United Kingdom• Update on Brexit for EEA firms and funds

• Brexit - Government publishes draft legislative texts

• FCA consults on temporary permissions and handbook changes

22

September/October 2018 |3

Editorial

Dariush Yazdani

Increasing assets under management (AuM). Increasing, but decoupling revenues, rising at a lower rate. Increasing costs. There is pressure on profitability for asset & wealth managers (AWMs). Much like other industries, managers will need to make sweeping changes to their operating models to win in the coming years.

Facing the pressure on profitability

Despite increasing global AuM (see Figure 1), a 53.7% growth between 2012 and 2017, AuM revenues only grew by 38.5% over the same period. This pressure is set to continue in the coming years as fee pressures mount. Average asset-weighted global management fees of mutual funds are set to decline

4| PwC | Fund Distribution Watch Bimonthly Report

by almost a fifth, dropping from 0.44% in 2017 to 0.36% by 2025. Alternatives will remain popular with investors due to relatively higher yields and their diversification benefits. However, depending on the asset class, their average management fees are expected to decline by between 13.1% and 16.4%.

Figure 1: Global AuM growth in USD trillion

Source: PwC Global AWM Research Centre analysis. Past data from Lipper, ICI, EFAMA, The City UK, Hedge Fund Research, and Preqin.

160

140

120

100

80

60

40

20

02004

16.1

2.5

5.36.4

11.4

13.9

21.1

25.4 27.043.3 46.5

59.55.0%7.0%

8.7%

2.4% 5.0%

5.3%

5.5%

4.3%

11.3%

1.5%

16.8%

64.8

50.743.4

30.428.8

18.7

37.3

59.463.9

98.1111.2

145.4

2007

Mutual funds Mandates Alternatives

2012 2017 2020e 2025e

between managers heats up, we expect management fees across all passive asset classes to decline by more than 20% by 2025. Overall, asset-weighted average passive management fees are set to fall from 0.15% in 2017 to 0.12% by 2025, a 20.7% CAGR.

The continued introduction of fiduciary duty and value-for-money frameworks

Our latest publication, Asset & Wealth Management Revolution: Pressure on profitability, outlines these challenges in more detail. Additionally, we delve into how managers can build on four foundations to help future-proof their operating models. As we state, the AWM industry will need to continue pushing

and regulations has seen TER decline by 15.2% from 2012 to 2017, and this fall will accelerate in the coming years, rising to 22% between 2017 and 2025 (see Figure 2). Investors are set to benefit greatly as global TER falls to 0.53% in 2025; however, this will increasingly put pressure on AWMs and their distributors as margins are squeezed in the coming years.

efficiencies while balancing costs as it adapts to changes ushering in a new era.

Dariush Yazdani

Managers in Europe and Asia will see the strongest declines in average asset weighted management fees of active mutual funds, as investor and regulatory pressures increase and the regions seek to align more closely with the US. On the passive side, as institutional investors continue to flock to these products and competition

Despite operating margins having returned to pre-crisis levels and assets showing strong growth, mounting fee pressures and the very real possibility of near-future revenue pressure are set to make protecting or improving profitability significantly more challenging in the coming years.

Figure 2: TER continues to decline

Note: TER is measured as an end-of-year AuM-weighted average. These figures include both retail and institutional share classes of mutual funds and ETFs. Percentage changes may not correspond due to decimal approximation. Source: PwC Global AWM Research Centre analysis. Past data from Lipper

0.90

0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00

0.80

2012 2013 2014 2015 2016 2017 2025

0.800.76

-15.2%

-22.0%0.72

0.69 0.68

0.53


Hot topicsFrance16 October 2018

The AMF changes its approach concerning the review of marketing documents of various financial products for retail investors

On 8 October 2018, the AMF announced on its website a change in its approach regarding collective investment schemes, structured debt issued by banks and formula-based funds, when these products are marketed in France to retail investors.

The AMF is now changing its approach, especially since it noticed an overall and satisfactory improvement in the quality of the submitted marketing documents and due to the growing importance of compliance functions within supervised entities.

Germany24 October 2018

BaFin to follow IOSCO Good Practice for Fees and Expenses of CIS in terms of performance fees

BaFin has changed their requirements for the performance fees of UCITS share classes to their interpretation of IOSCO’s Good Practice for Fees and Expenses of CIS (the IOSCO Principles). While an official statement by BaFin is pending, some Asset Managers and EU regulators have received a communication from BaFin in regards to the new requirements.

Luxembourg6 September 2018

IDD - Transposition Law will enter into force on 1 October 2018

The Directive (EU) 2016/97 on insurance distribution recast ("IDD") entered into force on 23 February 2016. Initially planned to be transposed and applied before 23 February 2018, the Directive (EU) 2018/411 postponed the transposition date of IDD to 1 July 2018 and the application date of IDD to 1 October 2018.

On 22 August 2018, based on the adopted Bill 7215, the law of 10 August 2018 transposing IDD and amending the 2015 Law was published in the Memorial A N° 710 (the "IDD Law").


AIFMD - CSSF updates its FAQ

The Directive 2011/61/EU of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on alternative investment fund managers and the Commission Delegated Regulation (EU) No 231/2013 supplementing AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision apply since 22 July 2013.

The AIFMD is transposed in Luxembourg legislation by the Law of 12 July 2013. The CSSF last updated its FAQ on 6 July 2017. The FAQ v11 introduced a new Section 23 in order to specify the impact of the PRIIPs Regulation on Luxembourg AIFs.

13

14

16

16


United Kingdom11 October 2018

Update on Brexit for EEA firms and funds

The UK is currently due to leave the EU on the 29th of March 2019. In mainland Europe, ESMA is finalising preparations for co-operation agreements to be put in place in the event of a no-deal Brexit. This is looking more likely each day unless the UK and the EU reach some common ground in the very near term. On the other side of the Channel, the UK FCA has published a detailed plan on how it would issue temporary authorisations for EU firms doing business in the UK. The FCA announced that, in case no deal would be reached, it would introduce a temporary permissions regime to try to smooth the end of the passporting arrangements for EEA firms and funds. This grace period will provide a backstop, allowing inbound firms to continue operating in the UK within the scope of their current permissions for a limited period after exit day.

Singapore12 September 2018

The Singapore Variable Capital Companies (VCC) at a glance

The introduction of the Singapore Variable Capital Companies (“VCC”) legislation in Singapore is a potential game-changer for the fund management industry, both within the city-state and across the Asia-Pacific region. As this development stands poised to usher in a new era of options for fund managers, we answer some pertinent questions regarding this regime below.

22



The UK is currently due to leave the EU on the 29th of March 2019. In mainland Europe, ESMA is finalising preparations for co-operation agreements to be put in place in the event of a no-deal Brexit. This is looking more likely each day unless the UK and the EU reach some common ground in the very near term. On the other side of the Channel, the UK FCA has published a detailed plan on how it would issue temporary authorisations for EU firms doing business in the UK. The FCA announced that, in case no deal would be reached, it would introduce a temporary permissions regime to try to smooth the end of the passporting arrangements for EEA firms and funds. This grace period will provide a backstop, allowing inbound firms to continue operating in the UK within the scope of their current permissions for a limited period after exit day.

22


Belgium4 October 2018

Withholding tax evasion and avoidance: new measures announced

Background

The Belgian Council of Ministers has approved a draft bill aimed at fighting several situations of Belgian WHT (withholding tax) evasion and avoidance. The purpose of the new rules is to tackle improper WHT exemptions or refunds and make it easier to recover WHT in such cases.

What's new?

In a communication published on his website, the Belgian Minister of Finance gives an overview of the measures contained in the draft bill.

The link is available here.

What's next?

These measures are expected to have a significant impact on WHT refunds and relief at source.

PwC will keep you updated on further developments.

What is the impact for you?

For your information only.

China13 September 2018

China announces a three-year tax exemption on bond interest for foreign investors

Background

On 30 August 2018, the Standing Committee of the State Council proposed a three-year exemption from Corporate Income Tax (CIT) and Value Added Tax (VAT) on interest income derived by overseas investors from their investment in Chinese bond markets.

What's new?

Under the new proposal, the coupon interest derived by foreign institutional investors would be exempt from Chinese CIT and VAT. However, a few issues remain unclear such as when the new rule will become effective, the applicable market and participants as well as tax provision and backlog-filing concerns.

The Tax News Flash is available here.

What's next?




Europe7 September 2018

Capital Requirements Regulation - Level 2 - The EBA publishes a consultation paper regarding draft implementing technical standards amending implementing technical standards with regard to supervisory reporting of institutions of the liquidity coverage requirement

Background

Regulation (EU) No 575/2013 of the European Parliament and of the Council of the EU on prudential requirements for credit institutions and investment firms (the Capital Requirements Regulation – "CRR", available here) has been applicable since 1 January 2014. The CRR allows the European Banking Authority ("EBA") to develop certain implementing technical standards with regard to supervisory reporting.

Commission Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council ("Commission Implementing Regulation (EU) No 680/2014, available here) has been applicable since 1 January 2014. It lays down uniform requirements in relation to supervisory reporting to competent authorities for the following areas:

• own funds requirements and financial information (according to Article 99 CRR);

• losses stemming from lending collateralised by immovable property (according to Article 101(4)(a) CRR);

• large exposures and other largest exposures (according to Article 394(1) CRR);

• leverage ratio (according to Article 430 of CRR); and

• Liquidity coverage requirements

https://news.pwc.be/withholding-tax-evasion-avoidance-new-measures-announced/?utm_source=Selligent&utm_medium=email&utm_campaign=&utm_content=&utm_term=_290

https://www.pwccn.com/en/financial-services/publications/fstax-news-sep2018.pdf

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0575&from=en

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0680&from=EN

("LCR") and Net Stable Funding requirements (according to Article 415 CRR).

Commission Implementing Regulation (EU) 2016/322 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions of the liquidity coverage requirement ("Commission Implementing Regulation (EU) 2016/322", available here) has been applicable since 10 September 2016.

Commission Delegated Regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions ("Commission Delegated Regulation (EU) 2015/61", available here) has been applicable since 1 October 2015.

On 13 July 2018, the European Commission adopted and published draft Commission Delegated Regulation amending Commission Delegated Regulation (EU) 2015/61 (C(2018) 4404 final – "Draft Delegated Regulation", available here). This Regulation triggers some changes in the calculation of the LCR, meaning that a subsequent update of Commission Implementing Regulation (EU) 2016/322 is needed in order to capture the necessary elements for calculating and monitoring the LCR. These are mainly the cases of calculation of inflows and outflows in securities financing transactions ("SFTs") and collateral swaps or the unwind waivers envisaged for some SFTs and collateral swaps with central banks.

What’s new?

On 28 August 2018, the EBA published a consultation paper entitled "Draft Implementing technical standards amending Implementing Regulation (EU) 2016/322 for liquidity reporting"

(EBA/CP/2018/12 — the "Draft").

The Draft:

• Aims to keep reporting requirements (of Commission Implementing Regulation (EU) 2016/322) updated in line with the evolving needs of supervisory authorities' risk assessments and with the changes in the regulatory framework, in particular Draft Delegated Regulation;

• Introduces changes to the specific templates and instructions on reporting liquidity coverage in Annexes XXIV and XXV to Commission Implementing Regulation (EU) No 680/2014. These annexes are now Annexes I and II to the Draft).

The Draft is available here.

Annex I to the Draft (templates in Excel) is available here.

Annex II to the Draft (instructions) is available here.

The consultation form is available here.

What’s next?

The deadline for submitting comments regarding the Draft is 27 November 2018. Comments can be submitted using the consultation form. The public hearing will take place at the EBA premises on 10 October 2018 (11:00–12:30 GMT).

The EBA’s submission of the final text to the European Commission will take place once Draft Delegated Regulation has been finalised and published in the Official Journal of the European Union.

It is proposed that the final t text enter into force on the 20th day following that of its publication in the Official Journal of the European Union.



7 September 2018

Capital Requirements Regulation - Level 2 - The EBA publishes a consultation paper regarding draft implementing technical standards on supervisory reporting with regard to financial reporting

Background

On 13 January 2016, the International Accounting Standards Board published International Financial Reporting Standard 16 providing guidance on the accounting for leases ("IFRS 16"). IFRS 16 aims to improve financial reporting on lease contracts and changes the accounting of leases for certain institutions. IFRS 16 was implemented into EU law by Commission Regulation (EU) 2017/1986 (available here), and its "improvements" shall be applied, at the latest, as from the commencement date of the first financial year starting on or after January 2019.

In order to reflect the implementation of IFRS 16 in EU law, the implementing technical standards on supervisory reporting need to be amended. Amendments are also required to reflect competent authorities’ ability to effectively monitor and assess the institutions’ risk profile and to obtain a view on the risks posed to the financial sector.

Institutions’ risk profile and profitability are affected by high levels of non-performing exposures, which adversely affect institutions’ profitability, solvency and consequently lending capacity to the overall economy. It is necessary to revise the reporting requirements that strengthen the competent authorities’ ability to assess and monitor non-performing portfolios by collecting more granular information on these assets on a recurring basis and thereby close identified data gaps.

What’s new?

On 28 August 2018, the EBA published a consultation paper entitled "Draft Implementing Standards amending Implementing Regulation (EU)


http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0322&from=EN


http://ec.europa.eu/info/banking-and-finance-website-notice-users_en

https://www.eba.europa.eu/documents/10180/2321510/Consultation+paper+on+LCR+Reporting+%28EBA-CP-2018-12%29.pdf/6e03a8e2-9cda-4d77-975e-5ef1ed4e6da6

https://www.eba.europa.eu/documents/10180/2321510/Annex+1+to+CP+on+LCR+reporting+-+Annex+I+%28templates%29.xls/b61c455e-7d29-44d1-bba9-ad1e6dee9d2d

https://www.eba.europa.eu/documents/10180/2321510/Annex+2+to+CP+on+LCR+reporting+-+Annex+II+%28instructions%29.docx/15da8e4c-032f-4789-bff3-ecc21d39fedd

http://https://eba.europa.eu/consultation-form?p_p_auth=GC5LH60c&p_p_id=169_INSTANCE_7VUgrvE7vt97&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&_169_INSTANCE_7VUgrvE7vt97_struts_action=/dynamic_data_list_display/edit_record&_169_INSTANCE_7VUgrvE7vt97_redirect=https://www.eba.europa.eu/regulation-and-policy/supervisory-reporting/its-on-supervisory-reporting-amendments-with-regards-to-corep-lcr?p_p_id%3Dregulatoryactivity_WAR_regulatoryactivityportlet%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn-2%26p_p_col_pos%3D1%26p_p_col_count%3D2&_169_INSTANCE_7VUgrvE7vt97_recordSetId=2321533&_169_INSTANCE_7VUgrvE7vt97_backURL=https://www.eba.europa.eu/regulation-and-policy/supervisory-reporting/its-on-supervisory-reporting-amendments-with-regards-to-corep-lcr?p_p_id%3Dregulatoryactivity_WAR_regulatoryactivityportlet%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn-2%26p_p_col_pos%3D1%26p_p_col_count%3D2&_169_INSTANCE_7VUgrvE7vt97_clearSuccess=true



2016/322 with regard to FINREP (EBA-CP-2018-13 — the "Draft"). The changes proposed by the Draft relate to:

• Reporting of data on leases due to the new IFRS 16 (aimed at obtaining a complete view of the main impacts on leases’ financial situation and profit or loss);

• Reporting of non-performing and forborne exposures (aimed at strengthening supervisors’ ability to assess and monitor non-performing portfolios by way of collecting more granular information on these assets on a recurring basis); and

• Reporting of profit or loss items (on expenses aimed at improving supervisory information especially into operating and administrative expenses).

The Draft Amending ITS amends specific templates in Annex III, Annex IV and instructions in Annex V to Commission Implementing Regulation (EU) No 680/2014 in relation to reporting financial information according to IFRS and national accounting frameworks.

The Draft is available here.

Annex I to the Draft (templates in Excel with changes tracked) is available here.

Annex I to the Draft (templates in Excel) is available here.

Annex II to the Draft (templates in Excel with changes tracked) is available here.

Annex II to the Draft (templates in Excel) is available here.

Annex III to the Draft (instructions with changes tracked) is available here.

Annex III to the Draft (instructions) is available here.

Annex III to the Draft (instructions) is available here.

What’s next?

The deadline for submitting comments regarding the Draft is 27 November 2018. Comments can be submitted using the Consultation Form. The public hearing will take place at the EBA premises on 3 October 2018 (10:00– 11:30 GMT).

After 27 November 2018, the EBA will revise the Draft, taking into account the feedback received. The final text shall be submitted to European Commission after the consultation and publication of the data-point model, XBRL taxonomy and validation rules, in April/May 2019.

It is proposed that the final text enter into force on the 20th day following that of their publication in the Official Journal of the European Union. It shall apply from 1 March 2020.



7 September 2018

Financial Stability - September 2018 Joint Committee Report on risks and vulnerabilities in the EU financial system

Background

Through the Joint Committee (the "JC"), the European supervisory authorities monitor financial activities and the associated risks in the EU, giving it scope to advise appropriate measures that promote consumer protection, the safety and stability of the markets, and convergence in regulatory practices. The JC also works towards improved transparency in the investment market through the provision of consumer-friendly information on key features of investment products.

On 12 April 2018, the JC released its report on risks and vulnerabilities in the EU financial system (JC 2018 07, available here). Policy actions were suggested in response to the risks related to valuations and sudden risk premia reversals, the UK's withdrawal from the EU, cybersecurity and operational IT risks, as well as climate change.

What’s new?

On 11 September 2018, the JC issued its updated report on risks and vulnerabilities in the EU financial system (JC 2018 34 – the "September 2018 Report").

In the September 2018 Report, the JC suggests the following policy actions:

• In response to rising interest rates and the risk of premia reversals, the JC will continue to conduct and develop stress tests;

• To combat the risks posed by the unpredictable and changing risk appetite of financial institutions, the JC will monitor them constantly. Banks are advised to promptly address their stocks of non-

http://www.eba.europa.eu/documents/10180/2321183/Consultation+paper+on+FINREP+amendments+%28EBA-CP-2018-13%29.pdf

http://www.eba.europa.eu/documents/10180/2321183/Annex+1+to+CP+on+FINREP+-+Annex+III+%28templates+with+changes+tracked%29.xlsx

http://www.eba.europa.eu/documents/10180/2321183/Annex+1+to+CP+on+FINREP+-+Annex+III+%28templates%29.xlsx

http://www.eba.europa.eu/documents/10180/2321183/Annex+2+to+CP+on+FINREP+-+Annex+IV+%28templates+with+changes+tracked%29.xlsx

http://www.eba.europa.eu/documents/10180/2321183/Annex+2+to+CP+on+FINREP+-+Annex+IV+%28templates%29.xlsx

http://www.eba.europa.eu/documents/10180/2321183/Annex+3+to+CP+on+FINREP+-+Annex+V+%28instructions+with+changes+tracked%29.docx

http://www.eba.europa.eu/documents/10180/2321183/Annex+3+to+CP+on+FINREP+-+Annex+V+%28instructions%29.docx

http://www.eba.europa.eu/documents/10180/2321183/Annex+3+to+CP+on+FINREP+-+Annex+V+%28instructions%29.pdf

https://esas-joint-committee.europa.eu/Publications/Reports/Joint%20Committee%20Risk%20Report.pdf

performing loans, to adapt business models geared towards more sustainable profitability, as well as manage interest rate risk;

• To address possible contagion risks, macro and micro prudential authorities are advised to continue their efforts in the monitoring of lending standards, as well as their efforts of monitoring and improving asset quality; and

• With regard to Brexit, the JC recommends that EU financial institutions and their counterparties plan appropriate mitigating actions, which should address the potential risks that inconclusive agreements on withdrawal terms would pose. The competent authorities involved should monitor these contingency plans and encourage quick implementation.

The September 2018 Report is available here.



12 October 2018

MiFID II/MiFIR – Level 3 – ESMA follow-up letter concerning requirements on investor protection and intermediaries

Background

Directive 2014/65/EU and Regulation (EU) No 600/2014 on markets in financial instruments have applied since 3 January 2018 (“MiFID II” (available here) and “MiFIR” (available here) respectively).

On 20 November 2017, ESMA sent a letter to the European Commission (the “Commission”) highlighting the following three concerns, especially in the context of its work on Brexit (ESMA70-156-236 – the “2017 Letter”, here):

• The MiFID II/MiFIR third-country (“TC”) regime, in particular with respect to firms dealing on own account;

• The lack of an EU-wide regime for TC trading venues accessing the EU market and placing trading screens; and

• The lack of a suspension regime for the trading obligation for derivatives.

What’s new?

On 1 October 2018, following up on the 2017 Letter, ESMA issued a letter to contribute to any future work carried out by the Commission in relation to issues concerning the MiFID II/MiFIR requirements on investor protection and intermediaries (ESMA35-36-1442 – the “2018 Letter”).

In the 2018 Letter, ESMA focused on the following four areas:

• Concerns regarding the MiFIR regime for TC firms performing investment services and activities for eligible counterparties (“ECPs”) and per se professional clients:

- The Commission may consider measures to ensure that TC firms

carrying out services and activities in the European Union directly comply with relevant MiFID II/MiFIR provisions when services are provided to ECPs or per se professional clients, and that some direct supervisory powers are exercised by NCAs in the Union; and

- Concerns regarding the MiFID II regime for TC firms performing investment services and activities for retail and professional clients on request:

• Concerns regarding the MiFID II regime for TC firms providing investment services and activities to retail and professional clients on request

- The Commission may consider further harmonising the national regimes applicable to TC firms providing investment services to retail clients in the EU.

• Concerns regarding TC firms performing investment services and activities on the exclusive initiative of EU clients (“reverse solicitation”):

- The Commission may consider the explicit obligation for TC firms to demonstrate the client’s initiative to supervisory authorities in the EU, on request;

- The Commission may consider submitting any disputes to EU courts and dispute-resolution bodies at a client’s request, even in cases of reverse solicitation; and

- The Commission may consider reassessing and clarifying existing provisions on reverse solicitation (e.g. clarifying that reverse solicitation for retail clients should be assessed on a transaction-by-transaction basis, and specifying the concept of “new categories of investment products and services” to limit the scope of services that can be provided by TC firms on a client’s initiative).


https://esas-joint-committee.europa.eu/Publications/Reports/Joint%20Committee%20Risk%20Report%20-%20Autumn%202018%20%28JC%202018%2034%29.pdf

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0065

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014R0600

https://www.esma.europa.eu/sites/default/files/library/esma70-156-236_letter_to_the_commission_on_mifid_ii_third_country_regime.pdf


• Concerns regarding investment firms outsourcing critical or important functions (other than those related to portfolio management) to TC providers:

- The Commission may consider clarifying and strengthening the existing MiFID II requirements (e.g. by including additional provisions in MiFID II Delegated Regulation (EU) 2017/565 (available here) aiming to avoid the establishment of letter-box entities, similarly to requirements provided under the current AIFMD framework).

The 2018 Letter is available here.



12 October 2018

PRIIPs Regulation – Level 2 – ESAs’ response to Commission Letters on PRIIPs KID

Background

Regulation (EU) No 1286/2014 on key information documents (“KIDs”) for packaged retail and insurance-based investment products has applied in Luxembourg since 1 January 2018 (the “PRIIPs Regulation”, available here).

In this context, Commission Delegated Regulation (EU) 2017/653 supplementing the PRIIPs Regulation lays down regulatory technical standards with regard to the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide such documents (the “Delegated Regulation”, available here).

Article 32(1) of the PRIIPs Regulation provides for a temporary exemption until 31 December 2019 for management and investment companies, as well as persons advising on or selling UCITS, from the obligation to produce and provide PRIIPs KIDs in their dealings with retail investors. This exemption also applies to non-UCITS funds in EU Member States, extending the application of UCITS rules on the format and content of the UCITS key investor information document (“UCITS KIID”) to non-UCITS made available to retail investors.

On 6 July 2018 and 10 August 2018, the European supervisory authorities (the “ESAs”) received letters from the European Commission stating that the review of the PRIIPs Regulation would be deferred and requesting guidance regarding the information to be disclosed for investment funds (the “Letters”, available here and here).

What’s new?

On 1 October 2018, the ESAs issued their response to the Letters, entitled

“ESA response to Commission request to develop guidance on facilitating the production and distribution of information on investment funds as of 1 January 2020” (JC 2018 55 – the “Response”).

In the Letter, the ESAs express their concerns regarding the possibility of duplicating information requirements for investment funds from 1 January 2020 (“An approach whereby retail investors will receive both PRIIPs KIDs and UCITS KIIDs … is not satisfactory and risks undermining the aims of the PRIIPs Regulation”. “These overlapping disclosure documents could in fact deter investors from using them rather than facilitating informed investment decision making”). In particular, the ESAs highlight the importance of legislative changes to avoid such a situation.

In addition, in order to address key issues that have arisen from the practical application of the PRIIPs KID, the ESAs intend to propose targeted amendments to the Delegated Regulation (e.g. performance scenarios and other specific changes where issues have been addressed in Q&As published by the ESAs).

The Response is available here.

What’s next?

The ESAs intend to launch a public consultation on the proposed amendments to the Delegated Regulation in Q4 2018.

Taking into account the time needed for the co-legislators to scrutinise any amendments to the Delegated Regulation, the ESAs aim to submit proposals to the European Commission in Q1 2019.



https://www.esma.europa.eu/sites/default/files/library/2018-esma35-36-1442-ipisc_uk_withdrawal_from_the_eu_letter.pdf


https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R0653&qid=1539088756386&from=EN

https://esas-joint-committee.europa.eu/Publications/Letters/Request%20to%20the%20ESAs%20%28July%29.pdf

https://esas-joint-committee.europa.eu/Publications/Letters/20180810%20Letter%20on%20PRIIPs%20to%20ESAs.pdf

https://esas-joint-committee.europa.eu/Publications/Letters/JC%202018%2055%20Joint%20letter%20to%20EC%20on%20PRIIPs.pdf

France16 October 2018

AMF updates DOC-2010-05 on the marketing of complex financial instruments

Background

On 8 October 2018, the AMF published an updated version of AMF Position DOC-2010-05 on the marketing of complex financial instruments. This position aims at limiting the marketing of complex financial instruments to retail investors to four predefined criteria. Since 2010, a dissuasive warning has had to be included in any marketing document if the financial product meets at least one of these four criteria.

What’s new?

This update, which is mainly technical, relates to the following points:

• There is a new appendix – part 3, in which the AMF states how it applies criterion 4 (mechanism count) to most usual structures, which will no longer be subject to prior discussions with players;

• The document has been amended further to the entry into force of MiFID II;

• Criterion 4, relating to how ESG filters (environmental, social and/or governance) used in the underlying indices of financial instruments are counted, has been updated.

What’s next?

These changes do not create new requirements for players.

For more information in this regard, the updated position is available (only in French) at the following link:

https://www.amf-france.org/Reglementation/Doctrine/Doctrine-list/Doctrine?docId=workspace%3A%2F%2FSpacesStore%2F8f1c7f9a-90bc-4afa-94cf-4b5db749a747&xtor=RSS-3&category=IV+-

+Commercialisation+-+Relation+client



16 October 2018

AMF changes its approach to the review of marketing documents of various financial products for retail investors

Background

On 8 October 2018, the AMF announced on its website a change in its approach to collective investment schemes, structured debt issued by banks and formula-based funds, when these products are marketed in France to retail investors.

What’s new?

For several years, the AMF has been conducting a systematic, regular and exhaustive review of all marketing documents of collective investment funds and formula-based funds prior to distribution.

The AMF is now changing its approach, primarily as it has noticed an overall satisfactory improvement in the quality of the marketing documents submitted, and due to the growing importance of compliance functions within supervised entities.

From now on, the AMF will no longer perform the above-mentioned systematic review prior to distribution. However, a risk-based approach will be favoured and sampling controls will be put in place after marketing documents are sent out.

What’s next?

This change does not mean that the AMF will become less vigilant. With this new procedure, the AMF will focus on the most at-risk products and players.


https://www.amf-france.org/Reglementation/Doctrine/Doctrine-list/Doctrine?docId=workspace://SpacesStore/8f1c7f9a-90bc-4afa-94cf-4b5db749a747&xtor=RSS-3&category=IV+-+Commercialisation+-+Relation+client


For more information in this regard, the AMF newsflash is available (only in French) at the following link:

https://www.amf-france.org/Reglementation/Dossiers-thematiques/Epargne-et-prestataires/Commercialisation/Contr-le-des-documentations---caract-re-promotionnel---l-AMF-fait--voluer-son-approche-concernant-diff-rents-produits-financiers---destination-de-s-particuliers?xtor=RSS-12



Germany5 October 2018

Draft BMF Circular introducing changes and supplementary conditions for granting partial exemption to funds

Background

In August 2018, the German Federal Government introduced the draft act on the prevention of VAT failures in trading goods on the Internet and amending further tax regulations (Gesetz zur Vermeidung von USt-Ausfälle beim Handel mit Waren im Internet und zur Änderung weiterer steuerlicher Vorschriften – “the Act”).

Income received from investment funds may be eligible for a defined partial exemption depending on the fund’s category. The Act introduces changes and supplementary conditions for granting a partial exemption for equity funds, real-estate funds, mixed funds and funds of funds. These new conditions may require new calculation procedures for equity and real-estate ratios to be defined and implemented, and investment policies to be amended.

What’s new?

1. Change in the minimum percentage for equity and real-estate funds

According to the Act, an investment of more than 50% of the assets in equity participations or real estate should be sufficient to be defined as an equity or real-estate fund. At least for foreign investment funds, the tax authority has not – at the time of writing – objected to this condition. The Act establishes uniform standards, applying the lower rate for both domestic and foreign investment funds.

This change does not mean that investment funds will have to change their current participation ratios of 51%, as these funds fulfil the requirements for qualification to an even greater degree than before.

2. Reference to assets and definition of assets

Investment funds must compute the equity participation or real-estate ratio in relation to their gross assets (previously their “value”). The new Investment Tax Act (InvTA) defines the gross assets as the value of the investment fund’s assets, excluding liabilities.

Alternatively, it should be permitted to use the net asset value instead of the gross asset value for determining whether legal provisions or the fund’s investment policy provide that borrowing is allowed only up to 30% of the value in the form of short-term borrowing, with no other borrowing permitted.

Applying the alternative net asset method, short-term borrowing must be proportionally deducted from the determination of the assets invested in equity participations or real estate.

3. Consequences of breaching investment conditions

The Act intends to incorporate into the InvTA the consequences of breaching the investment conditions for the classification of funds into the different categories. Significant breaches and any resulting shortfall in the required participation ratios will result in the fund being denied the status of an equity, real-estate or mixed fund at that time.

A short-term shortfall in the participation ratio due to changes in the value of the assets held or an unintentional incorrect classification of an asset as an equity participation or real estate (passive limit breach) should be irrelevant if reasonable countermeasures are initiated immediately.

4. Changes for funds of funds

The Act – like the tax authority’s current stance – aims to make it easier

https://www.amf-france.org/Reglementation/Dossiers-thematiques/Epargne-et-prestataires/Commercialisation/Contr-le-des-documentations---caract-re-promotionnel---l-AMF-fait--voluer-son-approche-concernant-diff-rents-produits-financiers---destination-des-particuliers?xtor=RSS-12










for funds of funds to achieve their participation rates, as it requires the minimum investment ratios disclosed in the investment conditions of target equity and real-estate funds to be applied. Also, under certain conditions, equity and mixed funds of funds can apply the effective target-investment-fund ratios published on each valuation day. However, this should only apply to target investment funds that carry out a valuation at least once a week.

The link to the official website is available here (in German).

What’s next?

The amending Act will enter into force later in 2018. However, the amendments to the InvTA will take effect retroactively from the date on which the German Federal Government submits the bill to the German Federal Council.





24 October 2018

BaFin to follow IOSCO Good Practice for Fees and Expenses of CIS in terms of performance fees

Background

BaFin (the German Federal Financial Supervisory Authority) has changed its requirements for the performance fees of UCITS share classes to align with its interpretation of IOSCO’s Good Practice for Fees and Expenses of CIS (the “IOSCO Principles”). While an official statement by BaFin is pending, some asset managers and EU regulators have received a communication from BaFin in regard to the new requirements.

What’s new?

BaFin is in the opinion that performance fees should not unilaterally charge the investment asset pool or unreasonably run counter to investor interests. Furthermore, a performance-fee provision should not create additional risk for the long-term performance of the fund, for example by enticing the asset management company to take higher risks.

In this regard, the following requirements will apply:

• Calculation method: A performance fee can only be withdrawn from the fund if the fund outperforms the benchmark at the end of the accounting period and if any underperformance with regard to the benchmark at the end of accounting periods within the last five years are considered and carried forward in the form of negative accounts (if the fund has existed for less than five years, the period to be considered is the fund’s complete duration).

• Calculation period: The accounting period must be at least twelve months.

• Cap on the performance fee: For transparency reasons, the performance fee must have a maximum limit.

What does this mean for you?

BaFin has already started reviewing incoming fund, sub-fund and share-class notifications in relation to performance fees. As a result, notifications that do not meet the new requirements have been rejected.

In accordance with a communication issued to the German Investment Fund Association, UCITS funds that are already registered in Germany will have until 31 December 2019 to comply with the new requirements.

We therefore advise investment fund managers to review their performance fees on time and make changes in this regard if necessary.



https://www.bundesfinanzministerium.de/Content/DE/Gesetzestexte/Gesetze_Gesetzesvorhaben/Abteilungen/Abteilung_IV/19_Legislaturperiode/Gesetze_Verordnungen/JStG-2018/0-Gesetz.html

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD543.pdf




Hong Kong6 September 2018

The Securities and Futures Commission (SFC) provides guidance on the disclosure of trailer fees (non-quantifiable monetary benefits).

Background

In June 2018, the SFC published FAQs related to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “Code of Conduct”).

The aim of these FAQs is to provide guidance on what is expected regarding the disclosure of trailer fees under paragraph 8.3(b)(ii) of the Code of Conduct, which took effect on 17 August 2018.

What’s new?

Under paragraph 8.3(b)(ii) of the Code of Conduct, licensed and registered persons are expected to disclose the maximum percentage of trailer fees receivable for a particular fund as per the distribution agreement with the product issuer. Where trailer fees receivable are calculated pursuant to the distribution agreement as a specified percentage of management fees, licensed or registered persons are generally expected to disclose the maximum percentage of trailer fees receivable.

What’s next?

For further information, please refer to the FAQs regarding the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, available on the SFC website:

https://www.sfc.hk/web/EN/faqs/intermediaries/supervision/code-of-conduct/2018-06-15.html#1



8 October 2018

Securities and Futures Commission (SFC) enters into Memorandum of Understanding on Mutual Recognition of Funds with UK Financial Conduct Authority (FCA)

Background

On 8 October 2018, the SFC and the FCA signed a Memorandum of Understanding (MoU) concerning Mutual Recognition of Covered Funds and Covered Management Companies and related cooperation between Hong Kong and the United Kingdom.

What’s new?

If covered funds comply with the relevant regulations and the conditions set out in the circular (which was published on 8 October 2018), HK and UK eligible funds will be able to enjoy a streamlined authorisation process for offering to the public in Hong Kong and the United Kingdom.

The circular sets out the general principles as follows (non–exhaustive list):

- the eligibility requirements and types of eligible funds;

- the disclosure and reporting requirements (i.e. representatives, operational and ongoing requirements, sale/distribution offering documents, ongoing disclosure and advertisements); and

- the application process.




Insurance Distribution Directive - Transposition Law to enter into force on 1 October 2018

Background

Directive (EU) 2016/97 on insurance distribution (the Insurance Distribution Directive – "IDD", available here) entered into force on 23 February 2016. While it was initially scheduled to be transposed and applied before 23 February 2018, Directive (EU) 2018/411 postponed the transposition date of the IDD to 1 July 2018 and its application date to 1 October 2018 (available here).

The IDD provides updated rules applicable to the distribution of insurance and reinsurance products, including insurance-based investment products. The particular aim of the IDD is to ensure greater transparency of insurance distributors with regard to the price and costs of insurance products, better and more comprehensible product information and improved conduct of business rules, in particular with regard to advice. The new rules will be applicable to all distribution channels, including direct sales by insurance companies to create a level playing field for all distributors and guarantee uniform high standards of protection for consumers.

On 6 December 2017, the Luxembourg Finance Minister submitted Bill 7215 transposing certain provisions of the IDD to the Luxembourg Parliament ("Bill 7215", available here only in French). On 26 July 2018, Parliament voted at first reading on Bill 7215, and on 27 July 2018, the Luxembourg Council of State waived the second constitutional vote thereon. All legislative steps related to Bill 7215 are available here (only in French).

On 4 June 2018, the Luxembourg Commissariat aux Assurances ("CAA")




http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016L0097&from=FR

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L0411&from=EN


issued the latest consolidated version of the Luxembourg Law of 7 December 2015 on the insurance sector.

What’s new?

On 22 August 2018, based on the adopted Bill 7215, the Law of 10 August 2018 transposing the IDD and amending the Law of 2015 (the "IDD Law") was published in Mémorial A, No 710.

Pursuant to Article 1 of the IDD Law (inserting the new Article 2(1)(bbis) into the Law of 2015), the CAA shall monitor the market for insurance products, including the market for ancillary insurance products that are marketed, distributed or sold in or from Luxembourg.

Articles 39 and 40 of the IDD Law (inserting new Articles 295-7 to 295-20 in the Law of 2015) are of particular interest since they detail the "MiFID II-like" requirements for insurance distributors and intermediaries to enhance transparency and consumer protection. Specific provisions concerning administrative sanctions in case of IDD breaches are laid out in new Articles 304 and 304-1 of the Law of 2015 (e.g. administrative fines up to EUR 5 million for legal persons or 5% of their consolidated annual turnover).

The IDD Law is available here (only in French).

What’s next?

The IDD Law shall enter into force on 1 October 2018.



7 September 2018

Financial Reporting - CSSF issues Instructions on Guaranteed Funds (Table O 1.2)

Background

The CSSF Schedule of Conditions gives specifications for the tables that banks and undertakings for collective investment ("UCIs") have to send to the CSSF via electronic means and for which the CSSF is responsible for monitoring (e.g. the Schedule of Conditions – "Table O 1.2" is available here).

Initially published on 12 March 2008, CSSF Circular 08/344 entitled "Provisions relating to the transmission of reporting files to the CSSF" ("Circular 08/344", available here) is currently under review.

What’s new?

On 22 August 2018, the CSSF issued instructions concerning Table O 1.2 that UCIs, which offer a formal guarantee to their investors ("Guaranteed Funds"), have to send to the CSSF via electronic means on a monthly basis (the "Instructions").

In this context, the CSSF highlights the following points:

1. Content of the reporting (i.e. Table O 1.2 has been attached as an annex to the Instructions);

2. The submission of the reporting via electronic means (according to Circular 08/344);

3. Reference date of the reporting (i.e. the last day of each month);

4. Reporting deadline (i.e. within 10 calendar days of the end of the month);

5. Base currency of the reporting (i.e. the same currency used in the formation and offering documents of the Guaranteed Fund); and

6. The start date of the reporting (i.e. from the first month following the launch of the Guaranteed Fund).


The Instructions are available here (only in French).

What’s next?

Further queries concerning the Instructions are to be submitted to the CSSF via e-mail ([email protected]).



http://legilux.public.lu/eli/etat/leg/loi/2018/08/10/a710/jo

http://www.cssf.lu/fileadmin/files/Reporting_legal/SOC_Banques_OPC/SOC_O1.2.pdf

http://www.cssf.lu/fileadmin/files/Lois_reglements/Circulaires/Hors_blanchiment_terrorisme/cssf08_344eng.pdf

http://www.cssf.lu/fileadmin/files/Reporting_legal/SOC_Banques_OPC/Instructions_O_1.2.pdf


20 September 2018

Investment funds - ALFI issues recommendations for the future development of the investment fund sector

Background

The Association of the Luxembourg Fund Industry ("ALFI") highlights four global trends and challenges affecting the investment fund sector:

- Strong growth of the alternative investment funds' sector;

• Increased cost pressure in a persistently low interest-rate environment;

• Digitisation and increasing automation at all levels of the value chain; and

• The growing importance of passive management (indexed funds) and exchange-traded funds.

What’s new?

On 17 September 2018, ALFI issued its recommendations for the future development of the investment fund sector in Luxembourg (the "Recommendations").

In this context, the Recommendations are divided into the following 3 fields:

• Ecosystem and toolbox

- Promote the development of socially responsible investment funds;

- Develop a framework for real estate investments trusts;

- Ensure that key European directives for the funds' sector are transposed in time;

- Encourage dialogue and optimal responsiveness of all private and public parties involved; and

- Set up a university course in risk management.

• Taxation

- Conduct an in-depth analysis of the subscription tax system for funds (by rethinking the principles, taking into account the different types of investment funds, the categories of investors and the fundamental trend towards lowering the operational costs of investment funds);

- Renegotiate certain double taxation treaties; and

- Continue to adapt the nominal tax rate in order to allow Luxembourg to remain competitive against competing financial centres (especially in the context of Brexit).

• Financial education and long-term investment

- Make every effort to enable the development of new pan-European personal pension products, particularly in terms of tax treatment; and

- Make financial education an integral part of school programmes, especially high schools.

The Recommendations are available here (only in French).

What’s next?

The ALFI has put forward the Recommendations ahead of Luxembourg’s general election, which will be held on 14 October 2018.



20 September 2018

EMIR - CSSF Application Form Update

Background

On 23 August 2018, the CSSF issued Circular 18/698 on the authorisation and organisation of Investment Fund Managers ("IFMs") incorporated under Luxembourg law, and specific provisions on the fight against money laundering and terrorist financing, applicable to IFMs and entities acting as a registrar agent ("Circular 18/698", available here only in French).

In particular, Section 5.5.11 of Circular 18/698 details the obligations of the IFM to monitor compliance with obligations under Regulation (EU) No 648/2012 (the European Market Infrastructure Regulation – "EMIR", available here).

What’s new?

On 4 September 2018, the CSSF updated its application form entitled "IFM Questionnaire – EMIR" to be filled in by the following IFMs (the "Form"):

• Management companies subject to Chapter 15 of the Law of 2010;

• Management companies subject to Chapter 15 of the Law of 2010; and

• Alternative Investment Fund Managers.

The Form is available here in Excel format and here on the CSSF's website.

What’s next?

The CSSF states that in case of changes in either the EMIR classification or the organisational model for the use of derivative contracts, the Form shall be updated and sent back to the CSSF without undue delay.



http://www.alfi.lu/sites/alfi.lu/files/files/Press/Press%20releases/Elections%20press%20release%20final_170918.pdf

http://www.cssf.lu/fileadmin/files/Lois_reglements/Circulaires/Hors_blanchiment_terrorisme/cssf18_698.pdf

https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1537452210102&uri=CELEX:32012R0648

http://www.cssf.lu/fileadmin/files/EMIR/IFM_QUESTIONNAIRE_EMIR.xlsx

http://www.cssf.lu/en/supervision/ivm/manco15/forms/

25 September 2018

Luxembourg amends the Country-by-Country Reporting (CbCR) obligations relating to exchange of information

Background

On 10 July 2018, a new grand-ducal regulation, replacing the one published on 20 February 2018, was published by the Ministry of Finance with regard to the Luxembourg CbCR regime. The new regulation amends the list of jurisdictions with which the Luxembourg tax authorities will exchange Country-by-Country reports.

What's new?





26 September 2018

AIFMD – The CSSF updates its FAQs

Background

Directive 2011/61/EU of the European Parliament and of the Council of the EU on alternative investment fund managers (the "AIFMD", available here) and Commission Delegated Regulation (EU) No 231/2013 supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (the "Delegated Regulation", available here) have been applicable since 22 July 2013.

The AIFMD is transposed in Luxembourg legislation by the Law of 12 July 2013 (the "Law", available here).

In this context, the CSSF’s Frequently Asked Questions ("FAQs") concerning the AIFMD, the Delegated Regulation and the Law, provide guidance on some of the key aspects of the AIFMD from a Luxembourg point of view since 18 June 2013. The FAQs shall be read in conjunction with the corresponding European Securities and Markets Authority's Questions and Answers, most recently updated on 23 July 2018 (ESMA-34-32-352 — the "ESMA Q&A", available here).

Regulation (EU) No 1286/2014 of the Parliament and the Council (the "PRIIPs Regulation", available here) entered into force on 29 December 2014 and has been applicable since 1 January 2018.

The CSSF last updated its FAQs on 6 July 2017 ("FAQs v11", available here). FAQs v11 introduced a new Section 23 in order to specify the PRIIPs Regulation’s impact on Luxembourg AIFs.

What’s new?

On 14 August 2018, the CSSF updated FAQs v11 in order to update Q&A 23.b as follows ("FAQs v12"):

• Question 23.b — "Can Luxembourg AIFs, the units of which are being advised on, offered or sold to retail investors, benefit from the exemption provided under Article 32(2) of the PRIIPs Regulation if they have issued a UCITS KIID?

• Answer 23.b — Yes. Such AIFs may issue a UCITS KIID [deleted text: "before 1 January 2018"] in order to be exempted from the obligations of the PRIIPs Regulation until 31 December 2019, provided that the following conditions are complied with:

- The UCITS KIID to be issued under the Law of 2010 should comply with Articles 159–162 of the Law of 2010 as well as the provisions of Commission Regulation (EU) No 583/2010;

- The UCITS KIID should be issued for each retail share class of the sub-funds of the relevant Luxembourg AIF [deleted text: "before 1 January 2018"]; and

- • The offering document of the Luxembourg AIF in question should be amended in order to reflect the distribution of a UCITS KIID to all retail investors contemplating an investment in the AIF. The offering document should also mention that the UCITS KIID shall be published on the website of the Registered or Authorised AIFM of the Luxembourg AIF and that it shall be available, upon request, in paper form."

FAQs v12 is available here.

https://www.pwc.lu/en/newsletter/2018/cbcr-obligations-relating-to-exchange-of-information.html

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32011L0061&from=EN


http://www.cssf.lu/fileadmin/files/Lois_reglements/Legislation/Lois/L_120713_AIFM_eng_upd_060618.pdf

https://www.esma.europa.eu/sites/default/files/library/esma34-32-352_qa_aifmd.pdf

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R1286&from=FR

http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD_version180717.pdf

http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf


What’s next?

FAQs v12 is shall be continually edited and updated by the CSSF as and when new questions are received.



5 October 2018

GDPR – CNPD releases first feedback on data breaches

Background

Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data has applied since 25 May 2018 (“GDPR”, available here).

In accordance with Articles 33 and 34 of GDPR, the data controller must notify personal-data breaches to the competent supervisory authority within 72 hours and to the data subject(s) without undue delay, save for a few exceptions.

On 20 August 2018, the Luxembourg Law of 1 August 2018 implementing certain provisions of GDPR entered into force and repealed the Law of 2 August 2002 on the protection of persons with regard to the processing of personal data (Loi du 1er août 2018 portant organisation de la Commission nationale pour la protection des données [CNPD] et du régime général sur la protection des données or the “GDPR Implementing Law”, available here only in French). In this context, Articles 12 to 14 of the GDPR Implementing Law grant the CNPD new regulatory powers in relation to GDPR (most notably the powers defined in Article 58 of GDPR).

What’s new?

On 28 September 2018, the CNPD issued its first feedback on data breaches reported under GDPR in the period from 25 May 2018 to 27 September 2018 (the “Feedback”).

In the Feedback, the CNPD highlights the following:

• The causes of violations are identified and explained:

- 56% of violations were internal acts of non-malicious intent, 36% were external acts of malicious intent, 2% were internal acts of malicious intent and 6% were attributed to other causes;

- The cause of around half of the incidents is attributed to human error;

- Some of the external acts of malicious intent were carried out for the purpose of financial gain; and

- Some other violations were attributed to the accidental disclosure of personal information to the wrong person.

• The nature of the incidents is also specified:

- A third of incidents are categorised as the sending of emails (which can be curbed by a greater awareness of the risks and supplementary checks/procedures on manually prepared emails);

- A quarter of incidents are attributed to piracy or external hacking, which can be curbed through better technical and organisational security measures.

• The nature of the impact of the violations is broken down into 93% confidentiality, 5% availability and 2% integrity:

- Most violations of personal information concern a breach of confidentiality granting access to external third parties or unauthorised internal parties.

- In other cases, HR data was accessible to internal employees due to a faulty technical configuration.

• The severity of the impact for the data subjects affected by a data breach is also broken down as 53% limited, 28% negligible, 18% significant and 1% maximum.

The Feedback is available here (only in French).


http://legilux.public.lu/eli/etat/leg/loi/2018/08/01/a686/jo

https://cnpd.public.lu/fr/actualites/national/2018/11/violation-donnees.html

What’s next?

In accordance with the requirements of GDPR, failure to notify the CNPD or to inform data subjects of a data breach may lead to the data controller being sanctioned.




Netherlands19 October 2018

Changes for the real estate sector

Background

On 15 October 2018, the Dutch Government proposed amendments to the Fiscal Investment Institution regime, while confirming that the Dutch dividend withholding tax would not be abolished and a conditional withholding tax would not be introduced.

What’s new?


What’s next?




Norway12 October 2018

Dividends from Norwegian companies to foreign shareholders – Documentation requirements for reduced withholding-tax rate

Background

From 1 January 2019, new rules concerning the application of a withholding-tax rate below 25% will apply to dividend distributions from Norwegian companies to foreign shareholders.

What’s new?

The new rules were originally scheduled to enter into force on 1 January 2018 (which itself was a one-year postponement). A further one-year postponement of the entry into force of the new rules was granted to give the parties affected by the rules enough time to ensure that the documentation requirements are met in time for the entry into force of the rules.


What’s next?




https://thesuite.pwc.com/media/8996/2018_re_16_the-netherlands-1.pdf

https://www.skatteetaten.no/en/business-and-organisation/starte-og-drive/rutiner-regnskap-og-kassasystem/lonn-lan-og-utbytte/dividends-from-norwegian-companies-to-foreign-shareholders---documentation-requirements-for-reduced-withholding-tax-rate/




Background

The UK is currently due to leave the EU on 29 March 2019. In mainland Europe, ESMA is finalising preparations for cooperation agreements to be put in place in the event of a no-deal Brexit. This is looking more likely each day unless the UK and the EU reach some common ground in the very near future. On the other side of the Channel, the UK FCA has published a detailed plan on how it would issue temporary authorisations for EU firms doing business in the UK. The FCA has announced that if no deal were reached, it would introduce a temporary permissions regime to try to smooth the end of passporting arrangements for EEA firms and funds. This grace period would provide a backstop, allowing inbound firms to continue operating in the UK under their current permissions for a limited period after exit day.

Deal or no deal – impact of the outcome

Soft Brexit – implementation period

If an agreement is reached with the EU, there will be an implementation period. The EU Withdrawal Act agreement between the UK and the EU contains a clause specifically dealing with a transition period, which would apply from 29 March 2019 until 31 December 2020. During this period, EU law will still be applicable in the UK, and firms and funds will continue to benefit from the passporting regime.

Hard Brexit - Temporary permissions regime

The UK Government has announced that if no agreement were reached with the EU, it would introduce a temporary permissions regime for inbound passporting of EU firms and funds. This temporary permissions regime would

Singapore12 September 2018

The Singapore Variable Capital Companies Act at a glance

Background

The introduction of the Singapore Variable Capital Companies (“VCC”) Act in Singapore is a potential game-changer for the fund management industry, both within the city-state and across the Asia-Pacific region. As this development stands poised to usher in a new era of options for fund managers, we answer some questions regarding this regime in the Tax News Flash (link below).

What’s new?

The seven key highlights of the proposed VCC Bill from Post-Consultation Response are listed below:

Delegation, Conversion, Segregation, Director of FMC or Qualified Representative, Single Shareholder, Umbrella VCC, and Tax Treatment.

The Tax News Flash is available here.

What’s next?




enter into force on 29 March 2019 for a maximum period of three years and would allow EU firms to continue to market their funds in the UK.

In order to benefit from the temporary permissions regime, firms and funds would need to register with the FCA between January and March 2019 to enjoy the same market access as they do now. A survey conducted by the FCA revealed that around 1,300 companies would sign up for the temporary permissions regime (less than 20% of the 8,000 EU entities authorised to do business in the UK).

The FCA recently issued a consultation paper detailing and explaining this regime. This paper can be found at the following link: https://www.fca.org.uk/publication/consultation/cp18-29.pdf. EU authorities have not made any similar provisions for the 5,500 UK firms and funds currently operating in the EU.

The FCA also published the proposed changes to its fund management rulebook in order to ensure that there is a robust regulatory regime from day one in the event that the UK leaves the EU without an implementation period. The updated rulebook can be found here:

https://www.fca.org.uk/publication/consultation/cp18-28.pdf

PwC GFD is monitoring the situation and will issue further Flash News articles once there is an update.










12 October 2018

Brexit - Government publishes draft legislative texts

Background

The Financial Conduct Authority (“FCA”) is governed under the provisions of the Financial Services and Markets Act 2000 (“FSMA”, available here). Rules made pursuant to the FSMA are contained in the FCA Handbook (the “Handbook”, available here).

The Bank of England’s (the “Bank”) mission is to maintain monetary and financial stability. The Prudential Regulation Authority (“PRA”) was created as a part of the Bank by the Financial Services Act 2012 (the “FS Act 2012”, available here) and is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. The PRA’s objectives are set out in the FSMA. Rules made by the PRA are contained in the PRA Rulebook (the “PRA Rulebook”, available here).

On 13 July 2017, the “Great Repeal Bill”, officially named the “European Union (Withdrawal) Bill 2017-2019”, was laid before the House of Commons (the “Withdrawal Bill”, available here). On 26 June 2018, the Withdrawal Bill received royal assent as the “European Union (Withdrawal) Act 2018” (the “Withdrawal Act”, available here).

On 27 June 2017, HM Treasury (“HMT”) published a document entitled “HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act” (the “2017 HMT Document”, available here). The 2017 HMT Document noted that the UK Government would ensure that the UK has a functioning legislative and regulatory framework in all scenarios and would legislate to provide financial services regulators with powers to introduce transitional measures. The 2017 HMT Document also outlined


HMT’s intention to delegate powers, subject to parliamentary approval, to financial services regulators to make required changes to onshored binding technical standards (“BTS”) that operate under EU regulations and directives, and to maintain them going forward. It stated that firms should continue to plan on the assumption that there will be an implementation period from 29 March 2019 until December 2020 (the “Implementation Period”). In the event that no Implementation Period is agreed, HMT stated that it would legislate to provide for temporary permissions and recognition regimes (the “TPR”) to enable firms to continue their activities in the UK for a time-limited period after the UK has left the EU.

On 24 July 2018, the UK Government published draft statutory instruments (“SIs”) entitled:

• The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (the “Draft Passport Rights SI”, available here); and

• The Central Counterparties (Amendment etc., and Transitional Provision) (EU Exit) Regulations 2018 (the “Draft Central Counterparties SI”, available here).

On 9 August 2018, HMT published a document entitled “HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act” (the “2018 HMT Document”, available here). The 2018 HMT Document reiterated that firms should continue to plan on the assumption that an Implementation Period will be in place from 29 March 2019, enabling them to trade on the same terms until December 2020 and requiring them to comply with any new EU legislation that becomes applicable during the Implementation Period. The 2018 HMT Document also explained that HMT and financial services regulators had undertaken a

thorough review of EU and UK domestic financial services legislation to identify deficiencies that will arise when the UK leaves the EU and existing EU law is transferred to UK law. It provided examples of deficiencies in financial services legislation and stated that SIs would be drafted under the Withdrawal Act to fix these deficiencies.

Directive 2014/65 and Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments were adopted on 15 May 2014 and took effect on 3 January 2018 (“MiFID II”, available here, and “MiFIR”, available here).

Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories was adopted on 4 July 2012 and took effect on 16 August 2012 (“EMIR”, available here).

What’s new?

On 5 October 2018, HMT published two draft SIs under the provisions of the Withdrawal Act, which it intends to lay before the UK parliament in the autumn:

• An SI entitled “Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018” (the “Draft MiFID SI”, available here) alongside an explanatory policy note (the “MiFID Policy Note”, available here); and

• An SI entitled “The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018” (the “Draft TR SI”, available here) alongside an explanatory policy note (the “TR Policy Note”, available here).

https://www.legislation.gov.uk/ukpga/2000/8/contents

https://www.handbook.fca.org.uk/

http://www.legislation.gov.uk/ukpga/2012/21/contents/enacted

http://www.prarulebook.co.uk/

https://publications.parliament.uk/pa/bills/lbill/2017-2019/0079/lbill_2017-20190079_en_1.htm

http://www.legislation.gov.uk/ukpga/2018/16/contents/enacted/data.htm

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/720298/HM_Treasury_s_approach_to_financial_services_legislation_under_the_European_Union__Withdrawal__Act.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/732434/EEA_passport_rights_draft_SI.pdf

http://www.legislation.gov.uk/ukdsi/2018/9780111171882/pdfs/ukdsi_9780111171882_en.pdf


http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014L0065&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02014R0600-20160701&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02012R0648-20170103&qid=1487861302094&from=EN

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/746247/MiFI__Amendment___EU_Exit__Regulations_3-10-18C.PDF

https://www.gov.uk/government/publications/draft-markets-in-financial-instruments-amendment-eu-exit-regulations-2018/markets-in-financial-instruments-amendment-eu-exit-regulations-2018-explanatory-note

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/746257/Trade_Repositories__Amendmentand_Transitional_Provisions___EU_Exit__Regulations18.pdf

https://www.gov.uk/government/publications/draft-trade-repositories-amendment-and-transitional-provision-eu-exit-regulations-2018/trade-repositories-amendment-and-transitional-provision-eu-exit-regulations-2018-explanatory-information


Regulations 2018” (the “Central Counterparties SI”, available here);

• An SI entitled “The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018” (the “Regulators’ Powers SI”, available here);

• An SI entitled “The Building Societies Legislation (Amendment) (EU Exit) Regulations 2018” (the “Building Societies SI”, available here); and

• An SI entitled “The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018” (the “Passport Rights SI”, available here).

On 5 October 2018, HMT laid two SIs under the provisions of the Withdrawal Act, which are subject to the negative procedure, before the UK Parliament:

• An SI entitled “The Consumer Credit (Amendment) (EU Exit) Regulations 2018” (the “Consumer Credit SI”, available here); and

• An SI entitled “The Friendly Societies (Amendment) (EU Exit) Regulations 2018” (the “Friendly Societies SI”, available here).

What’s next?

The UK Government will publish further amendments in separate SIs to be published in due course, including, inter alia, amendments to the FSMA, the Regulated Activities Order 2001 (“RAO”) and the Recognition Requirements for Investment Exchanges and Clearing Houses Regulations 2001.

The FCA and the PRA will consult on amendments to the relevant parts of the MiFID II BTS in the autumn.



The provisions of the Draft MiFID SI include, inter alia, the following:

• Functions under MiFID II that are carried out by the European Commission will be transferred to HMT, while functions carried out by ESMA will be transferred to the FCA and the PRA;

• Responsibility for drawing up BTS under MiFID II will be transferred to the FCA and the PRA, including responsibility for correcting deficiencies in MiFID II BTS so that they operate effectively immediately on exit day and remain fit for purpose thereafter; and

• The possibility of “substituted compliance” will be introduced for EEA firms intending to operate in the UK under the TPR where not doing so could lead to conflicts of law, meaning that a firm operating under the TPR will not be deemed to be in breach of the UK’s MiFID II rules if it can demonstrate that it complies with corresponding provisions in the EU’s MiFID II rules.

The provisions of the Draft TR SI include, inter alia, the following:

• ESMA’s functions relating to EMIR requirements for registering TRs will be transferred to the FCA, as will responsibility for drawing up related BTS;

• Details of data-sharing requirements for TRs; and

• TRs will be permitted to submit applications for FCA registration in advance of exit day, and the FCA will be granted pre-exit powers to accept and assess applications.

On 5 October 2018, HMT laid four SIs under the provisions of the Withdrawal Act, which are subject to the affirmative procedure, before the UK Parliament:

• An SI entitled “The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit)

19 October 2018

FCA consults on temporary permissions and handbook changes

Background

The Financial Conduct Authority (“FCA”) is governed under the provisions of the Financial Services and Markets Act 2000 (“FSMA”, available here). Rules made pursuant to the FSMA are contained in the FCA Handbook (the “Handbook”, available here).

On 26 June 2018, the European Union (Withdrawal) Act 2018 received royal assent (the “Withdrawal Act”, available here). The Withdrawal Act will convert directly applicable EU law existing at the point of exit into UK law, preserve existing UK laws that implement EU obligations, and grant the UK Government powers to amend the law so that it functions effectively when the UK leaves the EU.

On 20 December 2017, HM Treasury (“HMT”) published a written statement by the Chancellor of the Exchequer (the “HMT Statement”, available here), announcing that while firms should continue to plan on the assumption that there will be an implementation period from 29 March 2019 until December 2020 (the “Implementation Period”), in the event that there were no agreed Implementation Period (the “No-Deal Scenario”), the UK Government would legislate to provide, inter alia, for:

• temporary permissions and recognition regimes (the “TPR”) to enable EEA firms to continue their activities in the UK for a time-limited period after the UK has left the EU; and

• giving the FCA and other financial regulators responsibility for onshored EU binding technical standards (“BTS”).

http://www.legislation.gov.uk/ukdsi/2018/9780111171882/contents




http://www.legislation.gov.uk/uksi/2018/1038/contents/made

http://www.legislation.gov.uk/uksi/2018/1039/contents/made

https://www.legislation.gov.uk/ukpga/2000/8/contents

https://www.handbook.fca.org.uk/

http://www.legislation.gov.uk/ukpga/2018/16/contents/enacted/data.htm

https://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2017-12-20/HCWS382/

On 9 August 2018, HMT published a document entitled “HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act” (the “HMT Document”, available here). The HMT Document stated that firms should continue to plan on the assumption that an Implementation Period will be in place from 29 March 2019, enabling them to trade on the same terms until December 2020 and requiring them to comply with any new EU legislation that becomes applicable during the Implementation Period. The HMT Document also explained that a thorough review of EU and UK domestic financial services legislation had been undertaken to identify deficiencies that will arise when the UK leaves the EU and existing EU law is transferred to UK law. The HMT Document advised that statutory instruments (“SIs”) were being drafted under the Withdrawal Act to fix these deficiencies.

On 5 October 2018, HMT laid the following statutory instruments (“SIs”) under the provisions of the Withdrawal Act, which are subject to the affirmative procedure, before the UK Parliament:

• An SI entitled “The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018” (the “Regulators’ Powers SI”, available here); and

• An SI entitled “The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018” (the “Passport Rights SI”, available here).

The Regulators’ Powers SI grants the FCA and other financial regulators the power to make rules relating to onshored BTS. The Passport Rights SI gives effect to the TPR.

Directive 2011/61/EU of the European Parliament and of the Council of 8 June


2011 on Alternative Investment Fund Managers (the “AIFMD”, available here) and Commission Delegated Regulation (EU) No 231/2013 supplementing the AIFMD (the “Delegated Regulation”, available here) have applied since 22 July 2013.

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (the “UCITS Directive”, available here) entered into force on 7 December 2009.

What’s new?

On 8 October 2018, HMT published two draft SIs under the Withdrawal Act that it intends to lay before the UK Parliament in the autumn for investment funds and their managers:

• The Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018 (the “Draft AIFM SI”, available here), accompanied by an explanatory document (the “AIFM Document”, available here); and

• The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018 (the “Draft CIS SI”, available here) accompanied by an explanatory document (the “CIS Document”, available here).

The Draft AIFMD SI and the Draft CIS SI will amend retained EU law relating to EU AIFMs to ensure that they can continue to operate effectively after 29 March 2019.

On 10 October 2018, the FCA published two consultation papers:

• “Brexit: proposed changes to the Handbook and Binding Technical Standards – first consultation” (CP18/28 – the “BTS Consultation”, available here); and

• “Temporary permissions regime for inbound firms and funds” (CP18/29 – the “TPR Consultation”, available here).

The BTS Consultation sets out, inter alia:

• proposed changes to the Handbook and BTS relating to SIs drawn up under the Withdrawal Act; and

• the FCA’s proposed approach to non-legislative EU material in the form of draft non-Handbook guidance.

The TPR Consultation sets out, inter alia:

• how the FCA expects the TPR to operate;

• how firms and investment funds can enter the TPR; and

• the proposed rules for firms’ and funds’ marketing activities,

What’s next?

The BTS Consultation closes on 7 December 2018. The FCA will publish a second BTS consultation paper in the autumn covering the BTS and parts of the Handbook affected by SIs that are due to be published later. The FCA will provide feedback on the BTS Consultation in early 2019 and publish the final Handbook rules shortly before 29 March 2019.

The TPR Consultation closes on 7 December 2018. The FCA will provide feedback on the TPR Consultation in early 2019 and publish the final Handbook rules shortly before 29 March 2019.

The FCA intends to continue to work closely with regulators across Europe to ensure that firms operating across jurisdictions, including TPR firms and investment funds, are subject to appropriate oversight.









https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/746539/AIFM_Amendment_Regulations_8-10-18__for_publication_.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/746543/2018.10.04_CIS__Amendment_etc.___EU_Exit__SI_Draft_40__watermarked___002_.pdf

https://www.gov.uk/government/publications/draft-eu-exit-sis-for-investment-funds-and-their-managers/the-collective-investment-schemes-amendment-etc-eu-exit-regulations-2018-explanatory-information




Market Infrastructures (“CPMI”), the International Organization of Securities Commissions (“IOSCO”) and the Basel Committee on Banking Supervision (“BCBS”). The Note summarised current work undertaken:

• The FSB and the CPMI have developed a framework and identified metrics for monitoring the financial stability implications of crypto-assets markets;

• BCBS is quantifying the materiality of banks’ direct and indirect exposures to crypto-assets, clarifying the prudential treatment of such exposures, and monitoring crypto-asset and fintech developments for banks and supervisors;

• The CPMI has worked on distributed ledger technology (“DLT”) applications and is conducting outreach, monitoring and analysis of payment innovations; and

• IOSCO has established an initial coin offering (“ICO”) consultation network to discuss concerns, and is developing a support framework to assist members in considering how to address ICO-related issues that could impact on investor protection. IOSCO is also discussing other crypto-asset-related issues, such as regulatory issues around crypto-assets platforms

What’s new?

On 10 October 2018, the FSB published a report assessing crypto-asset markets as potential channels for future financial stability implications (the “Report”).

Following up on the initial assessment set out in the Letter and the Note, the Report concludes that crypto-assets do not currently pose a material risk to global financial stability. However, if their use in financial transactions continues to develop and they become more interconnected with the core of the regulated financial system, this could have implications for financial

World19 October 2018

FSB publishes Report on potential implications of crypto-assets for financial stability

Background

Crypto-assets (such as bitcoin or ether) are a type of private asset that depends primarily on cryptography and distributed ledger or similar technology as part of its perceived or inherent value. According to the Financial Stability Board (the “FSB”), crypto-assets are not yet widely used for financial transactions. However, the growth of crypto-asset trading platforms, the introduction of new financial products (such as crypto-asset funds and trusts and exchange-traded products) and the growing interest from retail investors, are raising concerns about the implications of crypto-assets for financial stability.

On 13 March 2018, the Chair of the FSB sent a letter to the G20 Finance Ministers and Central Bank Governors setting out the FSB’s priorities under the 2018 Argentine Presidency (the “Letter”, available here). The priorities were designed to reinforce the G20’s objective of strong, sustainable and balanced global growth. Among others, the FSB intended to reinforce vigilant monitoring to identify, assess and address new and emerging risks such as those related to crypto-assets, which are still small relative to the financial system but whose market is continuing to develop.

From 19 to 20 March 2018, the G20 Ministers of Finance and Central Bank Governors met in Buenos Aires. They called on the FSB to report by July 2018 on its work on crypto-assets and the work of other standard-setting bodies (“SSBs”).

On 16 July 2018, the FSB published its summary note describing the work of the FSB and SSBs on crypto-assets (the “Note”, available here). The SSBs considered by the FSB were the Committee on Payments and

stability in the future. Such implications may include the following risks:

• Reputational risks and an impact on confidence in financial institutions and their regulators;

• Risks arising from financial institutions’ direct or indirect exposures;

• Risks arising if crypto-assets become widely used in payments and settlement; and

• Risks from market capitalisation and wealth implications.

The Report is available here.

What’s next?

The Report states that the market developments of crypto-assets must be monitored vigilantly due to how quickly the situation is evolving. Metrics to be initially monitored by the FSB to track market developments over time are listed in Annex 1 to the Report. During this process, the FSB will also assess and address data-quality issues and refine the metrics accordingly.



http://www.fsb.org/wp-content/uploads/P180318.pdf

http://www.fsb.org/wp-content/uploads/P160718-1.pdf

http://www.fsb.org/wp-content/uploads/P101018.pdf

Why PwC?

PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,850 people employed from 77 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused approach.

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with more than 236,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com and www.pwc.lu.

© 2018 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document, “PwC” or “PwC Luxembourg” refers to PricewaterhouseCoopers, Société coopérative which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC IL cannot be held liable in any way for the acts or omissions of its member firms.

Key GFD ContactsJosé-Benjamin LongréePartner PwC Luxembourg

+352 49 48 48 2033 [email protected]

Christophe Saint-MardETF Global Distribution Leader PwC Luxembourg

+352 49 48 48 2134 [email protected]

Robert James GloverPartner PwC Luxembourg

+352 49 48 48 4457 [email protected]

Sherry LuManagerPwC Luxembourg

+352 49 48 48 5038 [email protected]

Followus

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