FUND NEWS

Financial Services / Regulatory and Tax / Issue 121

Developments in November 2014 Investment Fund Regulatoryand Tax developments in selected jurisdictions

Regulatory Content

European Union 3 ESMA issues Consultation Paper on Guidelines

on asset segregation under AIFMD 3 ESMA updated Q&A on AIFMD 4 ESMA update of Q&A on the application of

EuVECA and EuSEF Regulations 5 ESMA, EBA and EIOPA issue a joint Discussion

Paper on KID for PRIIPs 7 European Council agrees on general approach for

a Securities Financing Transactions Regulation 8 ESMA consults on updating the technical

standards on reporting under EMIR 8 ESMA issues Final Report for delegated acts on

UCITS V depositaries

Ireland 10 Central Bank Publishes 11th Edition of AIFMD

Q&A – Non EU AIFM Reporting – Loan Originating QIAIF

10 Central Bank Publishes 3rd Edition of UCITS Q&A 10 ICAV to go live in 2015 11 Central Bank Publishes Latest Prospectus

Handbook 11 Central Bank Updates Fitness & Probity

Documents for SSM 12 Irish Stock Exchange Launches “ISE Fund Hub”. 12 ISE Removes Daily Disclosure Requirement for

Actively-Managed ETFs

Contents

12 ISE Reduces Clearing Fees by 50% in Irish Equities and ETFs

12 Ireland’s ISE & China’s SSE Sign MoU 12 Address by Central Bank Director of Markets

Supervision at the IFIA UK Symposium 12 Central Bank Statement on Skilled Persons’

Reporting 13 Companies Bill 2012 13 Consultation on a New International Financial

Services Strategy for Ireland 13 Key Dates Reminder

Switzerland 14 Revision of Collective Investment Schemes

Ordinance of Swiss Financial Market Supervisory Authority (CISO-FINMA)

International 15 FSB Proposes Standards and Processes for

Global Securities Financing Data Collection and Aggregation

15 FSB issues Progress Report and Roadmap for 2015 on Transforming Shadow Banking into Resilient Market-based Financing

16 FSB issues Eighth Progress Report on the Implementation of OTC Derivatives Market Reforms

2 / Fund News / Issue 121 / Developments in November 2014

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Option1:

The account on which the AIF’s assets are to be kept by the sub-delegate may only comprise assets of the AIF and assets of other AIFs of the same delegating depositary. Assets of AIFs of other depositaries would be considered as assets of the third party’s “other clients” for the purpose of Article 99(1)(a) of the Commission Delegated Regulation No 231/2013.

Option 2:

A sub-delegate holding assets for multiple depositary clients would not be required to have separate accounts for the AIF assets of each of the delegating depositaries.

ESMA is seeking feedback from AIF depositaries and their delegates, AIFMs and AIF investors until 30 January 2015 with a view to finalize the guidelines and to publish a final report in the second quarter of 2015.The full consultation paper is available for download via the following web link.

http://www.esma.europa.eu/system/files/2014-1326_cp_-_guidelines_on_aifmd_asset_segregation.pdf

ESMA updated Q&A on AIFMD

On 11 November 2014 the European Securities and Markets Authority (ESMA) issued an updated Questions & Answers (Q&A) document concerning the Alternative Investment Fund Managers Directive (AIFMD). The amendments concern the reporting to national authorities and the calculation of the total value of assets under management (AuM).

Reporting to national authorities:

• ESMA specifies that, where AIFMs include repo and reverse repurchase agreements for the purpose of answering questions 148 and 149 of the consolidated reporting template, they should only mention securities received by the managed AIFs.

• When answering questions 157 to 159 of the above mentioned template, therefore reporting the value of collateral and other credit support posted to all counterparties, AIFMs shall also include collateral passed to a clearing member for transmission to a CCP.

ESMA issues Consultation Paper on Guidelines on asset segregation under AIFMD

On 01 December 2014, the European Securities and Markets Authority (ESMA) published a consultation paper (ESMA/2014/1326) with a proposal on the guidance on the asset segregation requirements in case of third party delegation of safe-keeping duties under the Alternative Investment Fund Managers Directive (AIFMD).

When the depositary delegates safe-keeping duties to a third party, the asset segregation requirements under Article 21(11)(d) of the AIFMD and Article 99(1)(a) of the Commission Delegated Regulation No 231/2013 apply at the level of the third party as well as at the level of any further sub-delegates of that third-party. Practical questions have arisen whether the AIF assets which can be held in an AIF omnibus account at the sub-delegate level shall be only those deposited by the same delegating depositary or, alternatively, whether the omnibus account can contain AIF assets deposited by several delegating depositaries. The proposal points out two possible options:

European Union

Fund News / Issue 121 / Developments in November 2014 / 3

• For the purpose of calculating the notional value for derivative instruments as required by question 127, AIFMs should convert the derivative positions into an equivalent position in the underlying assets in accordance with Annex II of the Delegated Regulation using the value at trading date, not the value at the reporting date.

• AIFMs should allocate sovereign bonds which fall in the categories “Non-G10 with 0-1 year/1year+ term to maturity” and also in the categories “EU bonds with 0-1 year/1 year + term to maturity” to the categories “EU bonds with 0-1 year/1 year + term to maturity”.

Calculation of the total value of AuM:

• AIFMs should include short derivative positions in the calculation of the total value of AuM. They shall be converted into an equivalent position in the underlying assets and the absolute value of that equivalent position shall be used in the calculation.

• AIFMs should additionally include short non-derivative positions for the calculation of the total value of AuM since the Delegated Regulation requires the inclusion of all assets acquired through use of leverage.

The full text of the Q&A is available at the following web link.

http://www.esma.europa.eu/system/files/2014-esma-1357_qa_aifmd.pdf

ESMA update of Q&A on the application of EuVECA and EuSEF Regulations.

On 11 November 2014 ESMA issued an update of its Q&A on the application of EuSEF and EuVECA regulations, focusing on the promotion of common supervisory approaches and practices in the application of the two Regulations. The document addresses to competent authorities under EuSEF and EuVECA regulations to ensure the convergence of the actions they take in their supervisory activities. However, it also intended to help EuSEF and EuVECA managers by clarifying the content of the rules of both Regulations.

In particular, the Q&A clarifies the following points:

• EuSEF and EuVECA managers that exceed the threshold of EUR 500 million (unleveraged portfolio) (Article 3(2)(b)) of the AIFMD have to seek an authorization in accordance with the AIFMD requirements and thereafter can continue using the EuSEF and EuVECA denomination in relation to the marketing of those funds. Therefore managers of “collective investment undertaking” under the article 2(1) of both regulations cannot exclude authorized AIFMs from using the designation EuVECA or EuSEF in relation to qualifying funds as long as they comply with the underlying provisions. From a regulatory and supervisory perspective, an authorization under the AIFMD is more rigorous than a registration under the EuVECA and EuSEF Regulation. Therefore being authorized under AIFMD shall not

trigger the supervisory measures that are foreseen in Article 21(1) (c) and 22(1)(c).

• Concerning the provisions of the two regulations that shall apply to authorized AIFMs that manage and market EuVECA and EuSEF, the Q&A specifies that they must comply with the requirements of the AIFMD and the following provisions of the two regulations:

– Articles 3 (definitions), 5 (rules on non-qualifying assets, leverage and borrowing) and points (c) and (i) of Article 13 (information to investors) of the EuVECA Regulation;

– Articles 3 (definitions), 5 (rules on non-qualifying assets, leverage and borrowing), 10 (measurement of social impact), 13(2) and points (d), (e) and (f) of Article 14(1) (information to investors) of the EuSEF Regulation.

• Clarification is also provided as regards the type of investors that these authorized AIFMs can target: investors under the AIFMD (i.e. MiFID professional investors plus those set out in national rules) or investors under the EuVECA and EuSEF Regulations (Art. 6, i.e. MiFID professional investors; those aware of the risks that invest a minimum amount of €100,000; and executives, directors or employees of the fund). It is clarified that the EuVECA and EuSEF regulations should prevail over AIFMD provisions. As a consequence, AIFMs above the threshold of EUR 500 million of the AIFMD can market EuSEF and EuVECA to

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investors as defined in Article 6 of the EuSEF and EuVECA Regulations.

The updated Q&A for the application of the EuSEF and EuVECA regulations is available via the following link.

http://www.esma.europa.eu/system/files/2014-esma-1354_qa_eusef-euveca.pdf

ESMA, EBA and EIOPA issue a joint Discussion Paper on KID for PRIIPs

Empowered by the Regulation on Key Information Documents (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs Regulation), the European Supervisory Authorities (ESAs), meaning the European Securities and Market Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), have issued on 17 November 2014 a Discussion Paper (DP) to help them in the preparation of the draft Regulatory Technical Standards (RTS) on the following three topics:

– The KID content and presentation rules (article 8 of the PRIIPs Regulation)

– The way the KID shall be reviewed, revised and republished (article 10 and 13 of the PRIIPs Regulation)

– The meaning of “provision in good time” of the KID in the context of the Regulation

Although addressing the above three subjects, this DP mainly focuses on

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defining the content of the KID. The two other topics will be addressed more specifically in separate Consultation Papers expected prior to the summer of 2015.

The DP will be followed, in the spring of 2015, by a more technical DP to cover methodologically complex aspects of the guidelines such as the calculation of the summary risk indicator.

Given the significance of developing a KID that will meet the needs of the investors, the European Commission has organized a consumer testing exercise that will seek to assess different presentational options for the KID. The feedback of the DP and that of the consumer testing will help shaping the final RTS on the content of the KID that is due from the ESAs by December 2016.

Content of the KID

The PRIIPs Regulation divides the KID in sections whose headings are mostly formulated in the form of questions. The objective of the RTS that the DP prepares is to explain which information needs to provided and how it should be presented.

What are the risks and what could I get in return?

This caption of the KID focuses on the summary risk indicator and the performance scenarios. The discussion paper covers the following elements:

• Definition of risk and reward, identifying the key questions that investors may raise in this respect and defining the types of risks that are relevant;

• Possible ways to measure the different risks;

• How risks can be aggregated;

• Defining relevant performance scenarios;

• Exploring options for the presentation of the summary risk indicator and of performance as well as the possible ways of combining their presentation.

What are the costs?

This caption of the KID focuses on the costs disclosure. The discussion paper deals with the following elements:

• Identification of the key questions that investors may raise in relation to costs to understand their needs in terms of costs disclosure;

• Identification and quantification of all the cost related to the PRIIPs, including implicit costs;

• Analysis of different methodologies to aggregate costs;

• Exploring options for the presentation of the summary cost indicator.

Other sections of the KID

• The DP seeks views on the preliminary thoughts that are presented in the following captions:

• Identity of the PRIIP: Which contact details of the PRIIPs manufacturer and which information on its competent authority should be disclosed?

Fund News / Issue 121 / Developments in November 2014 / 5

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• Comprehension alert for “non-simple products” that “may be difficult to understand”: Are the proposed criteria sufficiently clear to identify the products to which the alert is applicable?

• What is this product? (i) What criteria should be used to classify the PRIIPs, (ii) is there a need for general principles and prescribed statements to describe the aims and objectives of the product, and (iii) which information should be provided concerning the target consumer types?

• “What happens if the PRIIP manufacturer is unable to pay out?” Is further guidance required as to how the applicable guarantee and/or compensation schemes shall be presented?

• “How long should I hold [the PRIIPS] and can I take my money out early?” what is the most efficient way to present the possibilities for redeeming or cashing-in a PRIIP? “How can I complain?” Which information shall be given especially when the manufacturer does not know the distributor?

Products offering many options

The standardization of investor information in a single, concise stand-alone document might not be possible for PRIIPs offering a range of investment options. A derogation shall be introduced for products offering many options. Therefore, the following elements are discussed within the DP:

• Criteria to identify which products fall into this category;

• A presentation for the KID attached to those products.

Review, Revision and Republication

• On these aspects, the ESAs consider to adapt the UCITS KIID’s measures to the PRIIPs KID as far as possible.

Timing of delivery

• The ESAs consider to use the criteria set out in Recital 83 of MIFID II to assess if the provision of the KID has been done in good time before the retail investor is bound by the conclusion of the contract. Therefore, following criteria should be taken into

account: (i) The urgency of the situation from the perspective of the retail investor; (ii) the time necessary for the specific retail investor to read and understand the KID; (ii) the complexity of the investment; (iv) the familiarity of the investment for the retail investor.

General aspects of the KID

• The ESAs expect it to be difficult to establish RTS to set requirements on “plain language”. This topic will probably be addressed by a “best practice guide” or similar tool.

• Templates to establish consistent “look and feel” could be prepared by the ESAs. Nevertheless, the ESAs privilege flexibility for the manufacturers producing the KID for their PRIIPs.

• The ESAs also consider the option to reflect the payment structure in the KID to distinguish, whether the PRIIPs is offered with regular payment or on a single payment basis.

Deadline for the stakeholders to submit their comments is 17 February 2015. In

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the meantime, the PRIIPs Regulation is expected to be published in the Official Journal of The European Union (OJEU) in the course of December and to enter into force 20 days later.

The Discussion Paper on the KID for PRIIPs is available via the following link.

http://www.esma.europa.eu/system/files/jc_dp_2014_02_-_priips_discus-sion_paper.pdf

European Council agrees on general approach for a Securities Financing Transactions Regulation

On 20 November 2014, the European Council took stance on the draft regulation proposed by the European Commission on 29 January 2014, which is aimed at improving the transparency of securities lending and repurchase transactions. Following the financial crisis, International organizations which supervise the financial system had identified shadow banking or shadow banking activities, such as securities financing transactions (“SFTs”) as a potential source of systematic risk. The FSB adopted a policy framework for addressing shadow banking risks in securities lending and repos that was subsequently endorsed by the G20.

The Commission proposal

• Introduced reporting requirements of securities financing transactions to trade repositories by any EU entity, including UCITS, AIFs, pension funds, banks, insurance companies. The reporting would be based on the existing reporting

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framework for derivatives reporting under EMIR. by any

• Required disclosure on any securities financing transactions to investors in annual/ semi-annual reports and offering documents.

• Increased the transparency in relation to re-hypothecation by setting minimum conditions for the parties involved, including written agreement and prior consent.

The main changes in the Council’s general approach

• Transactions with members of the European System of Central Banks should be exempted from the reporting obligation to trade repositories.

• The definition of SFT to which this regulation should apply has been clarified and extended. Beside repurchase transactions defined under Regulation No.575/2013 (CRR) and securities/commodities lending and borrowing, the definition now also include buy-sell back or sell-buy back transactions and margin lending transactions as defined under Regulation No. 575/2013 (CRR).

• Where a UCITS is the counterparty to SFTs, the reporting obligation applies to the management company of the UCITS or the UCITS investment companies and where an AIF is the counterparty to SFTs, the reporting obligation applies to the AIFMs. This puts management companies at the center of the European Council’s general approach as they would also be

required to disclose the SFTs, which their UCITS or AIFs are authorized to use in annual/ semi-annual reports and offering documents.

• All references to re-hypothecation have been removed and replaced with reuse of financial instruments to align with the FSB Recommendations. The requirements for reuse would be subject to a 6-month phase-in period, rather than apply from the entry into force of the proposed regulation.

• Trade repositories already authorized under Regulation 648/2012 (EMIR) shall submit an application for the extension of their services to the European Securities Markets Authority (ESMA) for the purpose of the reporting obligation of SFTs. In this respect, ESMA may propose the application of a simplified procedure when developing technical standards.

• The European Commission should cooperate with third countries to ensure consistency between this regulation and requirements in other jurisdictions. In particular, the European Commission may be tasked with performing equivalence assessments on third countries. The European Commission, with ESMA, will be required to monitor and prepare reports to the European Parliament and European Council on the international application of the transparency requirements, in particular with regards to potential duplicative or conflicting requirements.

Fund News / Issue 121 / Developments in November 2014 / 7

clarify the interpretation of the data fields needed for the reporting to trade repositories and seeks the most appropriate way of populating them.

Therefore, ESMA suggests to transform the key EMIR Q&A together with other improvements into updated RTS and ITS, which should enhance the quality of trade reports. The intended changes to reports can be categorized into broadly three sections: clarifications, adaptations and introductions.

• Clarifications mainly aim at renaming or adapting the format of reporting fields to make explicit what needs to be populated and by whom;

• Adaptations focus on adapting existing fields to the needs that have become evident since the reporting start date. Such changes may be the standardization of format of dates, amending and replacing fields such as “Notional amount” to be replaced by “Original notional” and “Actual notional” or to simply deleting possibilities of using certain codes in fields;

• Introductions refer to new fields or new values in an EMIR report. Introductions include inter alia new fields to differentiate between trade and position level reporting, possibility to populate negative prices or values, and new fields to replace collateral value reporting with initial/variation margin received/posted.

Annex IV and Annex V comprise draft technical standards that contain all the changes to EMIR reports and which

are intended to replace the current RTS and ITS in force. ESMA will consider stakeholder’s feedback to the proposed revised standards by 13 February 2015.

The ESMA consultation paper is available at the following web link.

http://www.esma.europa.eu/system/files/esma-2014-1352_consulta-tion_paper_on_the_review_of_emir_reporting_standards_under_ar-ticle_9_0.pdf

ESMA issues Final Report for delegated acts on UCITS V depositaries

On 28 November 2014 the European Securities and Markets Authority (ESMA) issued its technical advice to the EU Commission on delegated acts on depositaries required by the UCITS V Directive. This advice follows the consultation launched by ESMA on 26 September 2014 (See article in the September Fund News – Issue 119)

ESMA’s mandate is to provide advice on two aspects of the new depositary regime:

• The requirements to be put in place to ensure that in case of insolvency of a delegate of the depositary, the assets it holds in custody are unavailable for distribution among or for the benefit of the depositary’s creditors;

• And those that will ensure that the management company/ investment company and the depositary carry out their respective functions independently.

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• Rather than having an 18 months phase-in period for the reporting obligation, the Council intends to split between financial and non-financial counterparties, where the former would have a 12 months and the latter a 24 months phase-in period, after the entry into force of the respective regulatory and implementing technical standards.

The European Parliament has just initiated its discussions on the European Commission’s proposal and is not due to vote its report before March 2015 and the trilogues will only start after that vote has occurred.

The general approach of the European Council is available at the following web link.

http://data.consilium.europa.eu/doc/document/ST-15424-2014-INIT/en/pdf

ESMA consults on updating the technical standards on reporting under EMIR

On 10 November 2014, the European Securities Markets Authority (ESMA) launched a consultation on the review of Regulation No. 148/2013 (RTS) and Regulation No. 1247/2012 (ITS) supplementing Regulation 648/2012 (EMIR) regarding the reporting obligation. Since the practical implementation of EMIR reporting in 2014 illustrated some shortcomings, ESMA started to bring out validation rules for EMIR reports. The deficiencies highlighted where improvements were required in order to ensure that the reports fulfill their objectives. In the consultation, the ESMA revised standards proposes to

8 / Fund News / Issue 121 / Developments in November 2014

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After consultation of the stakeholders, the Final Report integrates the following new element:

Protection of the assets in case of insolvency of the delegate

As soon as the management company/ investment company is informed by the depositary that the law or the jurisprudence of the non-EU country where the third party is located does no longer recognise the segregation of the UCITS’ assets in the event of insolvency, it shall immediately notify its competent authority of this event and take the appropriate measures for the assets concerned, including their disposal. In doing so, it must ensure to act in the best interest of the funds and of its investors. The advice specifies that the rules regarding the protection of the assets in case of insolvency of the delegate must also apply in case of a sub-delegation of the custody function.

Independence requirements

Regarding cross-shareholding, ESMA chose to follow Option 2 of the Consultation Paper. The management company/ the investment company and the depositary are therefore allowed to be part of the same group and cross-shareholding of more than 10% of the capital or of the voting rights or enabling the exercise of a significant influence on the held entity are allowed as well, provided safeguards to avoid conflicts of interest have been put in place.

In addition, the Final Advice requires that the following arrangements are put in place by the management company/investment company:

• Prove to the competent authority of its home Member State that the depositary has been appointed in the sole interest of the UCITS and its investors, after comparing between the entity and its competitors on cost and qualitative aspects;

• Disclose to the investors the existing link to the depositary Where the management company/ investment company and the depositary are part of the same Group, the Final Report requires minimum thresholds of independent members in the management bodies of the entities The thresholds differ whether the members of the management body are in charge of supervisory functions or not.

In this respect, the Final Report provides elements to assess the independence of the members of the management body of the management company/investment company and of the depositary as well as of the members of the body in charge of the supervisory functions. They can be considered as independent if they do not cumulate their mandate with additional memberships of management bodies, of bodies in charge of the supervisory functions, or with a position as employee in another entity within the Group. Business, family or other relationships within the Group can be considered as having an impact on the independence.

The full text of the Final Report is available at the following web link.

http://www.esma.europa.eu/system/files/2014-1417.pdf

Fund News / Issue 121 / Developments in November 2014 / 9

Central Bank Publishes 11th Edition of AIFMD Q&A – Non EU AIFM Reporting – Loan Originating QIAIF

As reported in Issue 119 of Fund News (September 2014) the Central Bank published the final rules for the new loan originating QIAIF in a updated version of the AIF Rulebook – outlined in Section 4 of Chapter 2. Loan originating QIAIF must have an authorised AIFM and satisfy certain product requirements. The Central Bank began accepting applications for loan originating QIAIF on 1 October.

On 5 November 2014, the Central Bank of Ireland published the latest edition of its AIFMD Q&A document to include answers to new questions on reporting by non-EU AIFMs and on the operation of loan originating QIAIFs.

Regarding reporting by non-EU AIFMs that have notified the Central Bank of their intention to market AIFs to Irish professional investors by private placement but have not commenced marketing, the Central Bank has clarified that such AIFM are required to make Article 24/Annex IV reporting to the Central Bank even where the non-EU AIFM has not yet commenced marketing Irish professional investors. Note that the AIFM’s obligation to report will end if it notifies the Central Bank that it has not commenced marketing and is instead withdrawing its notification or is ceasing to market in Ireland and there are no Irish investors in the AIF.

Regarding the operation of loan originating QIAIFs, the Central Bank has clarified that:

• such QIAIF must limit its operations to issuing loans,

Ireland

participating in loans, participations in lending and to operations directly arising therefrom. The QIAIF can invest in different levels of debt for example, tranched or mezzanine or subordinated debt;

• where an intermediary introduces a borrower to a QIAIF which subsequently lends to that borrower, the QIAIF will still be regarded as the originator of the loan, not the introducer;

• the levels of seniority and priority of claim are not relevant in determining whether an investment is a loan or not;

• a QIAIF may hold debt securities where these are used solely for treasury management purposes;

• a QIAIF may hold equity assets where these securities have been received as a result of a loan workout. There is no particular timeline within which the QIAIF must dispose of these securities, however, the QIAIF should primarily take into account the best interests of its investors;

• the activities of a QIAIF may be subject to the requirements of the Credit Reporting Act 2013 (i.e. the mandatory credit reporting database for the provision of credit to Irish resident borrowers and where the credit agreement is governed by Irish law), therefore, QIAIFs should consider whether the Credit Reporting Act 2013 applies to their lending activities; and

• QIAIFs are permitted to make loans to wholly-owned subsidiaries,

established in accordance with the requirements of the Central Bank, without being required to seek authorisation as QIAIFs.

Central Bank Publishes 3rd Edition of UCITS Q&A

Also on 5 November 2014, the Central Bank published the latest edition of its UCITS Q&A document to include an answer to new question on master feeder arrangements.

The UCITS Regulations provide that a master UCITS shall not charge subscription and redemption fees in respect of investments made by the feeder UCITS into the master UCITS. The Central Bank has clarified that the application of an anti-dilution levy is not considered to fall within the general prohibition on the charging of subscription and redemption fees by a master UCITS provided that the prospectus includes complete and unambiguous disclosure on the purpose and nature of the charge which may arise and that such anti-dilution levy is applied at the master UCITS level only.

ICAV to go live in 2015

Further to our reports on the Irish Collective Asset-Management Vehicle (“ICAV”) in Issue 111 (January 2014) and Issue 116 (June 2014) of Fund News it has been announced that the legislation allowing for the introduction of the ICAV will be enacted in 2015, and not in 2014 as had been hoped, in order to allow for certain technical amendments.

The Central Bank has indicated that it will be in a position to accept

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applications for ICAV authorizations within two weeks of ministerial enactment of the new legislation.

Central Bank Publishes Latest Prospectus Handbook

Further to our reports in Issue 107 (September 2013) and Issue 115 (May 2014) of Fund News, on 19 November the Central Bank published the latest version of the “Prospectus Handbook – A Guide to Prospectus Approval in Ireland”, which sets out the requirements for the structure and content of a prospectus, procedures for submission and review, together with Central Bank guidance.

See the link for further details.

http://www.centralbank.ie/regula-tion/securities-markets/prospectus/pages/new-prospectushandbook.aspx

Central Bank Updates Fitness & Probity Documents for SSM

Further to our report in Issue 119 of Fund News (September 2014), on 3 November 2014 the Central Bank updated its Guidance on Fitness and Probity Standards, its Fitness and Probity Standards and Frequently Asked Questions document and its Fitness and Probity Standards (Code issued under Section 50 of the Central Bank Reform Act 2010) to reflect the introduction of the Single Supervisory Mechanism (“SSM”) which came into effect on 4 November 2014 with the European Central Bank being the exclusive competent authority from 4 November 2014 for the fitness and probity assessments for the boards of significant credit institutions and the boards of all credit institutions applying for authorisation.

See the links for further details:

Guidance on Fitness and Probity Amendment 2014

http://www.centralbank.ie/regula-tion/processes/fandp/serviceprovid-ers/Documents/Guidance%20on%20Fitness%20and%20Probity%20Amendment%202014.pdf

Fitness and Probity – FAQs 2014

http://www.centralbank.ie/regula-tion/processes/fandp/serviceprovid-ers/Documents/Fitness%20and%20Probity%20-%20FAQs%202014.pdf

Fitness and Probity Standards 2014

http://www.centralbank.ie/regula-tion/processes/fandp/serviceprovid-ers/Documents/Fitness%20and%20Probity%20Standards%202014.pdf

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Fund News / Issue 121 / Developments in November 2014 / 11

Irish Stock Exchange Launches “ISE Fund Hub”

On 10 November 2014 the Irish Stock Exchange (“ISE”) announced the launch of “ISE Fund Hub”, a new web based information portal for funds which are listed on the ISE.

“ISE Fund Hub” displays important information such as fund net asset values, key fund documents and an individual profile area for each manager as well as extensive performance based analytics.

“ISE Fund Hub” allows managers to:

• Display financial analytics – NAV and performance history

• Customize a managers profile area

• Host key fund documentation

• Publish new information relating to their funds

See the link for further details.

http://www.isefundhub.com/

ISE Removes Daily Disclosure Requirement for Actively-Managed ETFs

On 18 November 2014 the Irish Stock Exchange (the “ISE”) removed the requirement to provide daily disclosure of the holdings of actively managed ETFs listed on the ISE which should encourage more issuers to choose Ireland as their preferred market of choice for an ETF listing. 

As the requirements imposed on actively managed ETFs in Europe are primarily driven by stock exchange requirements rather than regulations this development aligns the ISE with many other European exchanges.

See the link for further details.

http://www.ise.ie/Products-Services/Investment Funds/List-a-Fund/Policy-Note-01_14-Change-to-LR5-5-2.pdf

ISE Reduces Clearing Fees by 50% in Irish Equities and ETFs

On 24 November 2014 the Irish Stock Exchange (“ISE”) has announced a 50% reduction in clearing fees for order book trades in Irish equities and ETFs, effective from 3 December 2014.

The reduced fee level will benefit trading member firms and investors by significantly decreasing clearing costs for executions on the “ISE Xetra” order book.

See the link for further details.

http://www.ise.ie/Media/News-and-Events/2014/ISE-reduces-clearing-fees-in-the-Irish-market-by-50-.html

Ireland’s ISE & China’s SSE Sign MoU

Further to the IFIA’s MoU with China’s AMAC reported on in Issue 120 of Fund News (October 2014), on 17 November 2014 the Irish Stock Exchange (“ISE”) and the Shanghai Stock Exchange (“SSE”) signed a Memorandum of Understanding (“MOU”) with the aim

of developing a mutually beneficial relationship between the exchanges.

See the link for further details:

http://www.ise.ie/Media/News-and-Events/2014/ISE-signs-Memoran-dum-of-Understanding-with-Shang-hai-Stock-Exchange.html

Address by Central Bank Director of Markets Supervision at the IFIA UK Symposium

On 28 November 2014, Gareth Murphy, Central Bank Director of Markets Supervision, gave an address to the IFIA’s IFIA UK Symposium addressing recent funds policy initiatives (including fund management oversight of delegates and loan originating QIAIFs) and the main European regulatory policy developments (including on Money Market Funds, UCITS V, and AIFMD developments).

See the link for further details.

http://www.centralbank.ie/press-area/speeches/Pages/GarethMur-phy2ndIFIAsymposium.aspx

Central Bank Statement on Skilled Persons’ Reporting

On 19 November 2014 the Central Bank published its “Skilled Persons” Reporting – Statement of Proposed Use’. The Central Bank (Supervision and Enforcement) Act 2013 provides powers which require a regulated financial services provider to prepare an expert report at the Central Bank’s

Regulatory News

12 / Fund News / Issue 121 / Developments in November 2014

request. The statement sets out the Central Bank’s policy and expectations on using such reports as a supervisory tool.

Industry should note that Skilled Persons’ Reports may be increasingly used by the Central Bank in areas such as the Client Asset Requirements and Anti-Money Laundering.

See the link for further details.

http://www.centralbank.ie/press-area/press-releases/Pages/Skilled-PersonsReporting.aspx

Companies Bill 2012

The Companies Bill 2012 (the “Bill”) completed the report stage of the legislative process in Ireland on 30 September 2014 and is expected to come into force on 1 June 2015 following which all Irish companies will have 18 months to choose between converting to a Company Limited by Shares (“CLS”) or a Designated Activity Companies (“DAC”) or another suitable company type such as a public limited company). Companies not making any election will be deemed to be have become a CLS.

Private companies regulated by the Central Bank of Ireland (i.e. UCITS management companies, AIFMs, insurance companies and companies registered under the MiFID Regulations 2007 (as amended) or the Investment Intermediaries Act 1995 etc) will need to convert to DACs before the end of the transitional period i.e. 18 months after the Bill is enacted (expected to be 1 June 2015).

Consultation on a New International Financial Services Strategy for Ireland

On 21 November 2014 a public consultation process to inform the development of a new strategy for the International Financial Services sector was launched. The closing date for submissions is 15 December 2014.

See the link for further details.

http://www.finance.gov.ie/what-we-do/banking-financial-services/consultations/minister-state-harris-opens-public-consultation

Key Dates Reminder

12 December 2014

Closing of the Central Bank’s consultation (CP 86) on new measures to improve the effectiveness of fund management companies oversight of delegates, as discussed in Issue 119 of Fund News (September 2014).

15 December 2014

Effective date of the Credit Ratings Agencies Directive which will restrict Irish AIFM, UCITs investment companies and management companies from relying solely on credit ratings provided by credit rating agencies when assessing investment risks.

15 December 2014

Deadline for submissions to the Consultation on a New International Financial Services Strategy for Ireland – see above.

31 December 2014

Deadline for GIIN registration for FATCA if applicable. See Issue 120 of Fund News (October 2014).

31 December 2014

The Amending Regulation prescribing the six new pre-controlled functions (“PCF”) for the purpose of fitness and probity comes into effect; this includes the head of client asset oversight for investment firms and head of investor money oversight for financial service providers. Also funds, management companies and other regulated financial service providers will need to obtain their annual confirmation from persons performing PCFs (e.g. directors) and CFs (e.g. Money Laundering Reporting Officer (“MLRO”) and Company Secretary) if they have not already done so.

1 January 2015

Fund service providers adopting the IFIA’s voluntary industry corporate governance code to disclose compliance with the code in their annual report or on their website etc.

1 January 2015

Reporting of compliance with the variable remuneration rules to the Central Bank in advance of the remuneration period commencing on 1 January 2015.

Regulatory News

Fund News / Issue 121 / Developments in November 2014 / 13

Revision of Collective Investment Schemes Ordinance of Swiss Financial Market Supervisory Authority (CISO-FINMA)

Reminder for expiring transitional period of revised articles in CISA and CISO with regards to distribution

With regards to the Swiss regulatory framework for collective investment schemes two dates should merit particular attention: On 1 January 2015, the Swiss Financial Market Supervisory Authority FINMA will put its fully revised Collective Investment Schemes Ordinance (CISO-FINMA) into effect. At the end of February 2015, the two-year transitional period for the implementation of the amendments of the Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) will expire. The article focusses on the rules concerning fund distribution activities.

The ordinance’s role within the regulatory framework

The revised ordinance contains various modifications and additions. It specifies the provisions set out both in CISA and CISO being revised themselves in March 2013.

CISA, CISO and CISO-FINMA pursue the same objectives, above all the improvement of investor protection and the safeguarding of the quality and competitiveness of the Swiss fund industry. For that purpose, they contain new requirements regarding the management, custody and distribution of collective investment schemes. With the revision of its ordinance, FINMA intends to ensure equivalence of the Swiss regulation with European standards for collective investment.

Switzerland

Main amendments of the revised CISO-FINMA

The new provisions include, for example, requirements for the independent risk management for fund management companies, SICAVs and asset managers of collective investment schemes. Furthermore, the ordinance aligns the risk measurement of derivative financial instruments (Commitment Approach II) with the UCITS directive. Moreover, the provisions for cooperation agreements between the audit firms of Master-Feeder-structures are set up in a more detailed manner. CISO-FINMA also specifies minimum standards for internal guidelines for operators and the control function of custodian banks. Under the revised CISO-FINMA, central depositories may also act as counterparty in securities lending and repurchase agreements for the first time.

In general, FINMA will stick to its model of a risk- and principle-based regulation. This enables the supervisory authority to take into account the individual organizational structure and the business model of the operator. Therefore, Art. 66 CISO-FINMA will replace the current requirements for the delegation of tasks of the fund management company and the SICAV laid down in FINMA Circular 2008/37 by a principle-based, less-detailed and more flexible regulation.

Despite the above-mentioned modifications, FINMA is well aware of the fact that further amendments will be necessary in the near future to adapt CISO-FINMA to EMIR, the revised UCITS and FMIA.

The complete text of the ordinance can be found under.

http://www.finma.ch/e/aktuell/Pages/mm-kkv-finma-20141014.aspx.

Important for distributors: Transitional periods in CISA and CISO will expire soon

End of February 2015 is the deadline for the majority of the transitional provisions stipulated in the CISA/CISO. Art. 158d CISA and Art. 144c para. 5 CISO apply specifically to distributors.

Of outstanding importance is the new statutory license requirement which is applicable for distributors of collective investment schemes that are subject to CISA since the revision. They are obliged to submit their license application by 28 February 2015 (Art. 158d para. 2 CISA).

The same deadline is valid for the observation of new requirements such as Art. 120 para. 4 CISA. According to this provision, foreign collective investment schemes which are only distributed to qualified investors do not require approval but must provide for, inter alia, a representative and a paying agent appointed for the distribution of units in Switzerland (Art. 158d para. 4 CISA).

Regulatory News

14 / Fund News / Issue 121 / Developments in November 2014

FSB Proposes Standards and Processes for Global Securities Financing Data Collection and Aggregation

On 13 November 2014, the Financial Stability Board (FSB) published its report called “Standards and Processes for Global Securities Financing Data Collection and Aggregation”. The proposed standards and processes are based on the policy recommendations contained in the FSB report “Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos” that was published in August 2013.

The proposed standards and processes proposed in the consultative document are as follows:

• Defining the data elements for repurchase agreements (repos), securities lending and margin lending that national/regional authorities will be asked to report as aggregates to the FSB for financial stability purposes

• Describing data architecture issues related to the data collection and transmission from the reporting entity to the national/regional authority and then from the national/regional to the global level.

• Proposing six recommendations to national/regional authorities to ensure the consistency among national/regional data collections, the quality of global aggregates and the efficiency of the reporting framework.

• Discussing potential uses of the aggregated data and the next steps for the completion of the initiative.

International

The FSB intends to complete its work on developing standards and processes in the course of 2015, based on the public consultation feedbacks and further discussion with market participants. By end of 2015, the FSB also intends to develop an implementation timeline for the global data collection and aggregation, including a pilot exercise that help identifying inconsistencies, imprecisions in the standards developed and any comparability issues in the data collected. After that, the publication/sharing of relevant aggregates on the global securities financing markets to improve market transparency will be considered.

The FSB requests interested parties to submit comments on the proposed standards and processes for global securities financing data collection and aggregation along with responses to the detailed questions no later than February 12, 2015. The FSB report is available at the following web link.

FSB issues Progress Report and Roadmap for 2015 on Transforming Shadow Banking into Resilient Market-based Financing

On 14 November 2014, the Financial Stability Board (FSB) issued a report summarizing the outcome of the review conducted across various jurisdictions on the progress made in the development of policies to address the regulatory deficits that contributed to the global financial crisis and to ensure a safer financing of the real economy.

The FSB has implemented a two-way strategy to tackle shortcomings across jurisdictions. First, establishing

system-wide monitoring arrangements that allow the FSB to assess sources of systemic risks within and beyond the limits of regulation and initiate corrective actions when necessary. Second, strengthening the oversight and regulation of shadow banking through coordinating and contributing to the development of policy measures in five areas to (i) reduce excessive build-up of leverage as well as (ii) reduce maturity and liquidity mismatching in the financial system.

The five areas the FSB policy work to prevent the re-emergence of systematic risk has focused on are:

1. The development of policy recommendations to ensure the spill-over of risks from the shadow banking system to the banking system are prudentially mitigated. The BCBS continues its review on banking activities, including banks’ on- and off-balance sheet interactions with the shadow banking system, to ensure their appropriate inclusion in prudential regimes.

2. The reduction of the susceptibility of money market funds (MMFs) to “investors’ runs” as they are important non-bank credit intermediaries and sources of wholesale funding for the banking system. Today, most of the FSB member jurisdiction have measures in force or are progressing towards an improved framework.

3. The improvement of transparency and the alignment of incentives in securitization. Based on that, IOSCO is currently undertaking a peer review on national/regional

Regulatory News

Fund News / Issue 121 / Developments in November 2014 / 15

approaches to align incentives associated with securitization, including risk retention requirements. The final report is expected for the second quarter of 2015.

4. Dampening pro-cyclicality and other risks in securities financing transactions (SFT) such as repos and securities lending in times of crisis. The FSB has established an expert group to take stock and examine possible harmonization.

5. Assessing and mitigating financial stability risks posed by other shadow banking entities and activities, which take a variety of forms and evolve over time. Following an initial information-sharing exercise in May 2014 on the framework implementation, the FSB is undertaking further analysis of the findings and will conduct a comprehensive exercise covering all FSB members in 2015. Based on the findings, the FSB will develop further policy recommendations and report the result to the G20 in 2015.

The outcome of the progress report is:

1. The BCBS continues its review on banking activities, including banks’ on- and off-balance sheet interactions with the shadow banking system, to ensure their appropriate inclusion in prudential regimes. Proposals for public consultation are expected by the end of 2015.

2. IOSCO is finalizing a review of the progress of national/regional regulatory reforms in relation to MMFs. It appears that most of the

The complete FSB progress report, including an updated Roadmap on further FSB work in 2015, is available at the following web link.

http://www.financialstabilityboard.org/wp-content/uploads/Progress-Report-on-Transforming-Shadow-Banking-into-Resilient-Market-Based-Financing.pdf

FSB issues Eighth Progress Report on the Implementation of OTC Derivatives Market Reforms

On 7 November 2014, the Financial Stability Board (FSB) published its eighth progress report on the implementation of OTC derivatives market reforms across FSB members. Since the previous progress report in April 2014, the shape of the regulatory landscape across jurisdictions has become clearer with the greatest progress achieved in adopting regulations implementing higher capital requirements for non-centrally cleared derivatives and trade reporting requirements. However, measures related to the promotion of trading on exchanges or electronic trading platforms continue to take longer than those in other reform areas.

Latest developments in the various reform areas are the following:

• Trade reporting requirements are effective in the majority of FSB member jurisdictions for one or more products and participant types and globally there are 23 trade repositories currently operational, spanning across all asset classes. Barriers to reporting continue to be a focus and are

FSB member jurisdiction have MMF measures in force or are progressing towards an improved MMF framework. The final IOSCO report is expected in the second quarter of 2015.

3. Following the Policy Recommendations issued in November 2012, IOSCO is currently undertaking a peer review on national/regional approaches to align incentives associated with securitization, including risk retention requirements. The final report is expected for the second quarter of 2015. Also, the BCBS and IOSCO have established a cross-sectorial working group to develop criteria to support the development by the financial industry of simple and transparent securitization structures. A consultation paper is expected in late 2014.

4. National/regional authorities launched legislative and/or data collection initiatives to better understand the securities financing markets and improve market transparency (e.g. the Commission proposal on an SFT regulation). The FSB has established an expert group to review the current regulatory approaches and examine possible international harmonization.

5. The FSB is undertaking further analysis of the financial stability risks posed by other shadow banking entities and activities and will conduct a comprehensive exercise in 2015 to assess the need for any further development of policy recommendations.

16 / Fund News / Issue 121 / Developments in November 2014

mostly related to privacy issues. The usability of reported data for authorities remains challenging due to quality issues. Enhancement efforts by authorities to improve data quality are likely to be seen across jurisdictions. Mandatory central clearing are effective in 5 FSB jurisdictions for selected interest rate, credit and FX derivatives products, today, and is expected to increase to 10 FSB jurisdictions by end-2015. Central Counterparty (CCP) clearing for interest rate derivatives is available in the majority of jurisdictions, whereas the availability of central clearing for other asset classes is rather uneven at present. Where CCPs are operating, it remains the case that few are permitted to operate in more than one or two jurisdictions at the moment although the simultaneous availability of CCPs in multiple jurisdictions is crucial where transactions are conducted across borders. Further, while client clearing activity has increased significantly since 2013, concerns focus on general access to central clearing. Besides that for smaller OTC derivatives markets where the size of the market would not support a domestic CCP and/or local availability of client clearing for certain products, authorities are paying particular attention to client clearing arrangements. Smaller market participants may have to rely on indirect client clearing services by a client of a clearing member at a CCP, which are not available at this time in many jurisdictions.

• Capital and margin requirements under Basel III standards for banks’

counterparty credit risk-related capital treatment of centrally cleared and non-centrally cleared derivatives exposures are now complete, including final standards for the treatment of banks’ exposures towards CCPs. However, margin standards for non-centrally cleared derivatives, including initial and variation margins, are only partially effective in two jurisdictions and further three have reached the stage of having rules in consultation or proposed.

• Mandatory trading requirements are effective in three jurisdictions, while four jurisdictions are taking steps towards implementing legislation, including the EU earlier in 2014 through MiFID II/MiFIR.

The complete eighth progress report, including figures and tables on current implementation status in all 19 FSB jurisdictions, is available at the following web link.

http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf

Publications

Schweizerisches Recht der Kollektiven Kapitalanlagen

Swiss FinancialServices Newsletter: Special Edition Banking

EvolvingInvestmentManagementRegulation

KPeople 2010 | 03 01

SWISS FINANCIAL SERVICES

NEWSLETTER

Special Edition

Banking

July 2014

Swiss FinancialServices Newsletter: Special Edition Investment Management

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