On 11 July 2019, the European Securities and Markets Authority (ESMA) updated its Questions and Answers (Q&As) regarding the implementation of the Central Securities Depository Regulation (CSDR).

The updated Q&As provide answers to questions regarding practical issues on the implementation of the new CSDR regime. The latest CSDR Q&As clarify aspects regarding the scope of internalised settlement reporting, namely: 

• investment firms are not required to report in case they do not execute transfer orders themselves, which they forward in their entirety to a custodian, irrespective of whether the custodian is established in the EEA or not; and 
• trade netting as such does not qualify as internalised settlement.

On 3 July 2019, the European Commission published a draft Commission Delegated Regulation which shall amend Delegated Regulation (EU) 2017/653 to align the transitional arrangement for PRIIP manufacturers offering units of funds referred to in Article 32 of Regulation (EU) No 1286/2014 as underlying investment options with the prolonged exemption period under that Article. Thus, in accordance with this Delegated Regulation, management companies, investment companies and persons advising on or selling UCITS are exempt from the obligation to publish a PRIIPs KID for additional 2 years, i.e., until 31 December 2021. 

This Delegated Act has not yet entered into force. It is subject to the right of the European Parliament and of the Council to express objections, in accordance with Article 2090 (2) of the Treaty on the Functioning of the European Union. 

On 11 July 2019, the European Securities and Markets Authority (ESMA) has issued an update of its Question and Answers (Q&As) on the European Benchmarks Regulation (BMR).

The new Q&As provide clarification on the following issues:

• the commodity benchmark definition; and
• the contribution to the euro short-term rate (€STR).

On 4 July 2019, the European Securities and Markets Authority (ESMA) has informed the public that the Financial Services and Markets Authority (FSMA) of Belgium, on 2 July 2019, has authorized EMMI as the administrator of EURIBOR under the Benchmark Regulation (BMR), following positive advice of the EURIBOR College of Supervisors.

EURIBOR is now considered BMR-compliant and was added to the ESMA benchmark register. This means that European Union (EU) supervised entities will be able to use EURIBOR also after the end of the applicable BMR transitional period. Regarding EONIA, EMMI intends to apply to the FSMA for authorization of EONIA in September 2019, and a decision on its authorization will be taken by FSMA in the following months.

On 11 July 2019, the European Central Bank (ECB) has announced the further details regarding the publication of the euro short-term rate (€STR) starting on 2 October 2019. 

In particular, the ECB has decided that: 

• €STR is to be published at 08:00 CET on each TARGET2 business day; 
• €STR is to be published on ECB’s website, via Market Information Dissemination (MID) platform, and through ECB’s Statistical Data Warehouse; and that 
• governance of the euro short-term rate will transpose IOSCO principles on Financial Benchmarks where relevant and appropriate.

BACKGROUND

Since its introduction in 1999 the euro overnight index average (EONIA) has been one of the most widely used interest rate benchmarks in the euro area. EONIA is used as a reference rate in financial instruments – spot contracts and overnight index swaps (OISs) – and also as a discounting curve for collateralised euro cash flows, including those referenced to the euro interbank offered rate (EURIBOR).

Due to its systemic importance, the European Commission added EONIA to the list of critical benchmarks on 28 June 2017 pursuant to Article 20 of the EU Benchmarks Regulation (BMR). Owing to its current methodology, EONIA is however not yet compliant with the BMR and consequently, in its current form, EONIA cannot be used in new contracts after 1 January 2020. 

For this reason, a working group was set up which should identify and recommend alternative euro risk-free rates as well as develop an adoption plan and a transition plan for legacy contracts referencing existing benchmarks. 

In September 2018, the working group recommended the euro short-term rate (€STR) as the risk-free rate for the euro area, which should replace EONIA after a certain transition period. To facilitate the transition, EONIA’s administrator, the European Money Markets Institute (EMMI), modified the current EONIA methodology to become the €STR plus a spread for the time from the first publication date of the €STR on 2 October 2019 until the end of 2021. 

WHAT'S NEW?

In August 2019, the private sector working group on euro risk-free rates now published a report containing a set of recommendations addressing the impact of the transition from EONIA to €STR. 

The recommendations take an operational and valuation perspective, taking into account EONIA’s wide use as a reference rate and as a collateral remuneration and cash flow discounting rate. The report analyses the various financial products and processes affected by the transition, covering secured (e.g. repos) and unsecured (e.g. current accounts) cash products, securities, investment funds, derivatives and models referencing EONIA. 

More specifically, the report urges market participants to prepare for: 

(i) the change in EONIA’s publication time from day T at 19:00 CET to the next business day T+1 at 9:15 CET that will follow the change in EONIA’s methodology as of 2 October 2019 (representing transactions executed on 1 October 2019); and 

(ii) the discontinuation of EONIA on 3 January 2022.

To deal with the change in EONIA’s publication time, the working group encourages market participants, among other things, to:

• screen their inventory of affected transactions and system environments to assess the modifications needed to cope with the change in EONIA’s publication time and prepare relevant teams for enhanced oversight during the cutover period;
• design a communication strategy geared towards internal and external stakeholders (clients in particular) to ensure awareness of impending changes;
• consider adjusting the default settlement time (i.e. the lag between the last fixing date and the settlement date) in certain cases.

For a proper management of the transition period until EONIA will be discontinued on 3 January 2022, the working group recommends, among other things, that:

• market participants actively transition floating rate options (FROs) referencing EONIA to €STR FROs before the end of 2021; 
• central counterparty clearing houses (CCPs) align their discounting switch dates as much as possible to transition from an EONIA discounting regime to a €STR discounting regime, and set the discounting switch date as early as possible, preferably towards the end of the second quarter of 2020;
• market participants introduce all necessary modifications in order to be able to issue, buy, trade and manage new securities indexed to the €STR and avoid issuing new securities indexed to EONIA with maturities going beyond the transition period.

WHAT'S NEXT?

On 30 September 2019, EONIA will be published for the last time under its current methodology. The first publication date of both €STR and the reformed EONIA will be 2 October 2019. 

Market participants will have to prepare extensively for the benchmark rate change by adapting IT systems, among other things, and reviewing current documentation, processes and procedures, product structures as well as terms of application. 

On 26 July 2019, Guideline (EU) 2019/1265 of the European Central Bank (ECB) on the euro short-term rate (€STR) was published in the Official Journal of the EU. 

The Guideline is considered necessary to govern the €STR and to establish the ECB’s responsibility for its administration and the oversight of the euro short-term rate determination process. The Guideline should also establish the tasks and responsibilities of the ECB and the National Central Banks (NCBs) with respect to their contribution to the euro short-term rate determination process and other business procedures. 

The Guideline is addressed to all Eurosystem central banks, and it shall take effect on the day of its notification to the NCBs.

On 11 July 2019, the European Securities and Markets Authority (ESMA) updated its Questions and Answers (Q&As) on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

The Q&As on MiFID II and MiFIR investor protection and intermediaries topics provide a new answer on the topic of best execution, i.e. the classification of financial instruments under RTS 27 if ESMA has not published any calibrated market sizes is clarified. 

On 12 July 2019, the European Securities and Markets Authority (ESMA) has updated its Questions and Answers (Q&As) regarding market structures and transparency issues under the Market in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).

The new Q&As provide clarification on the following topics:

• The use of pre-arranged transactions for non-equity instruments (Amendment to an existing Q&A); 
• The hedging exemption of Article 8 of MiFIR;  
• The treatment of constant maturity swaps; and 
• The application of the tick size regime to periodic auction systems. 

On 17 July 2019, the European Securities and Markets Authority (ESMA) published its first report concerning sanctions and measures imposed under MiFID II by National Competent Authorities (NCAs). 

NCAs are required under MiFID II to provide ESMA with aggregated information on all sanctions and measures imposed annually. As MiFID II only entered into force on 3 January 2018, and later in some jurisdictions, data on sanctions and measures taken in 2018 is limited. 

For this reason, ESMA found that the data on sanctions and measures imposed under MiFID II in 2018 – 117 sanctions and measures in 11 jurisdictions – does not allow for the observation of clear trends in the imposition of sanctions and measures, nor to produce detailed statistics based on it.

On 31 July 2019, the European Securities and Markets Authority (ESMA) informed market participants that ESMA will not renew the temporary restriction on the marketing, distribution or sale of contracts for differences to retail clients in the European Union (EU).

ESMA had taken product intervention measures relating to contracts for differences, imposing a temporary restriction on their marketing, distribution or sale, in Decisions (EU) 2018/796, (EU) 2018/1636, (EU) 2019/155 and (EU) 2019/679.

As most national competent authorities (NCAs) have taken by now permanent national product intervention measures relating to contracts for differences that are at least as stringent as ESMA’s measures, ESMA has decided to not renew its temporary restriction.  As a result, the currently applicable measures in ESMA Decision (EU) 2019/679 will automatically expire at the end of the day on 31 July 2019.

On 16 July 2019, the European Securities and Markets Authority (ESMA) launched a consultation paper (CP) seeking feedback on the draft Guidelines on performance fees in UCITS (Guidelines). Currently, several National Competent Authorities use different practices regarding performance fee structures, as well as have different circumstances in which performance fees can be paid. This creates risks in regulatory arbitrage and inconsistent levels of investor protection. Therefore, ESMA decided to carry out further convergence work, which led to the development of this CP.

The draft Guidelines set out common criteria in order to promote supervisory convergence on the following areas:

• General principles on performance fee calculation methods
• Consistency between the performance fee model and the fund’s investment objectives, strategy, and policy
• Frequency for the crystallization of the performance fee
• The circumstances in which a performance fee is payable 
• Disclosure of performance fee model.

Once the final version of the Guidelines is adopted, any new UCITS or any existing UCITS that introduces a performance fee for the first time after the date of application of the Guidelines should comply with the Guidelines immediately. Existing UCITS that already operated a performance fee before the application date of the Guidelines should align their procedures with the Guidelines within 12 months of the application date.

ESMA will consider the feedback it receives to this consultation in Q4 2019 with a view to finalizing the Guidelines for publication afterwards.

BACKGROUND

The objectives of creating a European Capital Markets Union (CMU) include ensuring a level playing field among financial market participants, such as collective investment undertakings (CIUs), and removing restrictions to the free movement of capital, for instance units and shares of CIUs in the Union. At the same time, more uniform protection for investors shall be ensured. 

For this purpose, on 12 March 2018, the European Commission adopted a package of legislative initiatives aimed at completing the CMU. As part of the package, a Regulation and a Directive on facilitating cross-border distribution of CIUs were proposed. These two texts should address certain barriers still hampering the ability of fund managers to fully benefit from the EU’s internal market. 

The final versions of both the Regulation and the Directive have been officially adopted and were now published in the EU’s Official Journal on 12 July 2019. They apply to AIFMs, UCITS management companies and self-managed UCITS, EuVECA managers and EuSEF managers.

WHAT'S NEW?

The legislative package aligns national marketing requirements and regulatory fees, harmonises the process and requirements for the verification of marketing material by national competent authorities (NCAs) and enables the European Securities and Markets Authority (ESMA) to better monitor investment funds.  

As regards the marketing communications of CIUs, the following harmonized rules were introduced: 

• All marketing communications addressed to investors must be identifiable as such and describe the risks and rewards of purchasing units or shares of an AIF or UCITS in an equally prominent manner;
• The information must be fair, clear and not misleading;
• Marketing communications containing specific information about a UCITS must not contradict or diminish the significance of the information contained in the prospectus or the key investor information;
• Marketing communications must contain clear information that the manager may decide to terminate the arrangements made for the marketing of its CIUs; 
• AIFMs, EuVECA and EuSEF managers shall ensure that marketing communications do not contradict the information which is to be disclosed to investors in accordance with other applicable EU legislation.

In addition, the transparency on additional national requirements is enhanced: NCAs are obliged to publish and maintain on their websites up-to-date and complete information on the applicable laws and regulations governing marketing requirements for AIFs and UCITS. They also shall notify the legislative framework and any changes thereto to ESMA. ESMA, in turn, will publish and maintain a central database containing summaries of the national laws and regulations.

Furthermore, NCAs may require prior notification of marketing communications which UCITS management companies, and, in respect to marketing to retail investors only, AIFMs, EuVECA or EuSEF managers intend to use. 

Should NCAs levy fees or charges for carrying out their duties, they must ensure consistency with the overall cost of performing their functions and publish the respective levies on their websites.

WHAT'S NEXT?

Both legislative texts will enter into force on 2 August 2019. While the Regulation will be directly applicable in all EU member states, the Directive is addressed to member states and will need to be transposed into national law.

On 19 July 2019, the European Securities and Markets Authority (ESMA) has issued guidelines regarding the stress testing of money market funds, aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation.  

The Guidelines on stress testing establish common reference parameters of the stress test scenarios MMFs or managers of MMFs should include in their stress scenarios.

In addition, ESMA has issued guidelines regarding the reporting on money market funds to national competent authorities (NCAs), aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation.  

The Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities as of Q1 2020. They are supplemented by Technical Reporting Instructions, published by ESMA together with the Guidelines. 

The European Securities and Markets Authority has issued guideline regarding reporting on money market funds to national competent authorities (NCAs), aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation.  

The Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities as of Q1 2020.

This document covers the elements of the interface that shall be built between CAs and managers of MMFs in their Member States. This in particular refers to the common technical format for MMF reporting and common set of data quality rules.

On 24 July 2019, the European Commission adopted a Communication and four reports that will support European and national authorities in better addressing money laundering and terrorist financing risks. 

The Commission has put strong EU rules in place with the fourth and the fifth Anti-Money laundering directives and reinforced the supervisory role of the European Banking Authority. The reports stress the need for their full implementation while underlining that a number of structural shortcomings in the implementation of the Union's anti-money laundering and counter terrorist financing rules still need to be addressed. This new package will serve as a basis for future policy choices on how to further strengthen the EU anti-money laundering framework.

The supranational risk assessment report is a tool to help Member States identify and address money laundering and terrorist financing risks.

The report shows that most recommendations of the first supranational risk assessment have been implemented by the various actors. However, some horizontal vulnerabilities remain, particularly with regard to anonymous products, the identification of beneficial owners and new unregulated products such as virtual assets. Some of these will be addressed by the upcoming transposition of the fifth Anti-Money Laundering Directive. The report also recalls that Member States still have to fully transpose the fourth Anti-money laundering directive. The Commission calls upon Member States to implement the directive fully and follow the recommendations of this report. This would improve cooperation between supervisors, raise awareness among obliged entities and provide further guidance on beneficial ownership identification.

The European Commission has analyzed recent publicly known cases of money laundering in EU banks to provide an analysis of some of the current shortcomings and outline a possible way forward.

The report shows that Banks, in a number of the cases analyzed, did not respect effectively or sometimes did not comply at all with anti-money laundering requirements. They lacked the right internal mechanisms to prevent money laundering and did not align their anti-money laundering/counter terrorism financing policies when they had risky business models. The findings also highlighted a lack of coordination between such policies, either at the level of individual entities or at group level.

The Commission also highlights the need for reinforced cooperation between Financial Intelligence Units (FIU). 

The report on the interconnection of central bank account registries sets out a number of elements to be considered for a possible interconnection of bank account registries and data retrieval systems.

On 5 August 2019, the Council of the EU published a communication from the European Commission (EC) on the topic of equivalence in the area of financial services and the respective annex on its website. 

The communication presents the status quo of the subject in the EU, explaining the purpose of equivalence and recent improvements to the design of EU equivalence regimes. 

Furthermore, the EC describes in its communication the assessments and decision-making processes leading to equivalence and outlines the equivalence decisions that have been adopted since January 2018.

The monitoring and review process of equivalence is described and the priorities for 2019-2020 are provided. Most important in that respect is stated to be the current work in the areas of statutory audit (adequacy) and benchmarks. A further priority is the assessment of equivalence decisions in the view of changes in the EU legislative framework, high-impact areas or third countries, expiry of existing decisions and general market developments. 

In sum, the EC comes to the conclusion that the EU equivalence policy emerges as a flexible regulatory instrument capable of building bridges across jurisdictional fault-lines. The EU equivalence approach, including both its initial assessment mechanisms and its ex-post monitoring, should continue to deliver genuine added value to the regulatory and supervisory architecture and to safe and efficient financial markets both in the EU and globally.

On 15 July 2019, the European Securities and Markets Authority (ESMA) has issued an update of its Q&A on practical questions regarding the European Markets Infrastructure Regulation (EMIR). Following the entry into force of the EMIR review (so-called EMIR Refit), ESMA is reviewing the existing Q&As to align them, where necessary, with the new text requirements. A new Q&A not related to the entry into force of EMIR Refit has been added too. The changes refer to:

• Removal of references to the frontloading requirement, as frontloading is no longer a requirement under EMIR Refit;
• Removal of references relating to backloading, following the elimination of the backloading requirement;
• Identification and reporting obligations for funds, and block trades and allocations;
• Clarification on the applicability of reporting to intragroup transactions;
• Reporting of notional amount field for credit index derivatives.

On 15 July 2019, the European Securities and Markets Authority (ESMA) has fined the trade repository Regis-TR S.A. €56 000 for negligently failing to provide to regulators direct and immediate access to details of derivative contracts.  

The European Markets and Infrastructure Regulation (EMIR) requires TRs to provide such data to regulators. This is a key requirement to improve transparency and facilitate the monitoring of systemic risks in the derivatives markets.

ESMA publishes responses to its Consultation on Guidelines for reporting under Articles 4 and 12 of the SFTR.

On 27 August 2019, the European Fund and Asset Management Association (EFAMA) has published its latest Investment Fund Industry Fact Sheet, which provides net sales of UCITS and AIFs for June 2019. 29 associations representing 98 percent of total UCITS and AIF assets provided us with net sales data.

The main developments in June 2019 can be summarized as follows: 

• Net sales of UCITS and AIFs totaled EUR 23 billion, up from EUR 12 billion in May; 
• UCITS registered net inflows of EUR 7 billion, up from EUR 1 billion in May; 
• AIFs registered net inflows of EUR 17 billion, up from EUR 12 billion in May; and 
• Total net assets of UCITS and AIFs increased by 2.1% to EUR 16,599 billion.

On 16 July 2019, the Chambre des représentants de Belgique published a draft law imposing transparency with regard to the relations of financial institutions with tax havens.

 The draft law seeks to achieve more transparency on the relations between Belgian financial institutions and tax havens and formulates two measures for this purpose. On the one hand, it aims to oblige credit institutions to transmit annually to the National Bank of Belgium relevant data concerning their activities. On the other hand, it prohibits any direct activity between a Belgian bank assisted by the Belgian State and an establishment located in a tax haven recognized by the OECD.

BACKGROUND

In the context of the Law of 18 September 2017 on the prevention of money laundering and terrorist financing and on the limitation of the use of cash (the AML/CFT Law), the FSMA published on 27 June 2019 a Circular_2019_12 introducing some measures for the application of the provisions regarding organization and internal control contained in the AML/CFT Law. As a reminder, all Belgian entities concerned must define and establish policies, procedures and preventive measures regarding internal control in respect with Article 8, § 1 of the AML/CFT Law.

WHAT'S NEW?

The FSMA details which elements shall at least include the abovementioned policies, procedures and measures. The FSMA also clarifies its expectations regarding the application of the provisions of the AML/CFT Law by the entities concerned.

WHAT'S NEXT?

This Circular applies to all Belgian entities listed in Art. 5, § 1, 11° to 20° of the AML/CFT Law, including UCITS, AIF and management companies. Those entities shall refer to its content when establishing the appropriate measures in relation with the organization and internal control requested by the AML/CFT Law.

The European Repo and Collateral Committee  publishes a memorandum outlining recommendations for repo market best practice to address the transition from EONIA to €STR.

The ERCC has agreed on the following recommended best practice to be followed from October 1 2019:

• The Interbank market should transact purely on a fixed-rate basis and should no longer use floating rate repo.
• In the case of non-interbank transactions, where firms agree to transact on a floating-rate basis (using EONIA or €STR), best practice will be to apply the fixing of the penultimate accrual date of the transaction to the final (repurchase) date.
• Any claim should be made immediately (ideally on the repurchase date, once the final fixing is known), and any reimbursement should be made on the business day following the repurchase date.
• Where parties transact on a floating basis, using the crystallization methodology, this will create discrepancies between the repurchase price calculated and settled by the parties and the repurchase price that would have applied had it been possible to instruct after the final fixing. In this instance, the disadvantaged party can elect to claim the differential from the advantaged party, so long as the differential is equal to or greater than an agreed threshold per transaction.

The implementation of MiFID 2 has altered the market economy of research and brings the issue of small caps and mid caps coverage by analysts more sharply into focus. To fine-tune the assessment, the AMF Board has asked Jacqueline Eli-Namer, an AMF Board member, and Thierry Giami, president of the French Society of Financial Analysts (SFAF), to work with financial market stakeholders in order to explore concrete ways of improving the situation.

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La mise en œuvre de MIFID II a modifié l’économie du marché de la recherche et pose avec une nouvelle acuité la question de la couverture des petites et moyennes capitalisations par les analystes. Afin d’affiner le diagnostic, le Collège de l’AMF a confié pour mission à Jacqueline Eli-Namer, membre du Collège de l’AMF et Thierry Giami, président de la Société française des analystes financiers (SFAF), d’explorer, avec les acteurs de la place, les pistes concrètes qui pourraient améliorer la situation.

Two separate ex-ante cost information regimes are planned:

• A dual information regime, covering both the Costs related to the Services and those related to Products – Full disclosure regime (RD MiFID 2, s. 50.2 and .5).
• A simple information regime that deals only with Service Only Costs (RD MiFID 2, s. 50.2 and .6).

In addition to these two ex-ante reporting regimes, Article 50.1 of RD MiFID 2 allows for the possibility, where the conditions for implementation are met (see below 4.1), of implementing a limited application of these obligations.

Version française

Le guide de mise en œuvre « MIF 2 – Couts et frais » d’AMAFI prévoit deux régimes distincts d’information ex-ante sur les coûts :

• un régime d’information double, qui porte à la fois sur les Coûts liés aux Services et à ceux liés aux Produits – Régime « Full disclosure » ;
• un régime d’information simple qui ne porte que sur les Coûts liés aux Services – Régime « Service only ».

A ces deux régimes d’information ex-ante s’ajoute la possibilité, lorsque les conditions de mise en œuvre sont réunies, de mettre en place une application limitée de ces obligations.

On 12 July 2019, the Autorité des marchés financiers (AMF) published a summary of the practices for Socially Responsible Investments observed during its thematic checks. 

As part of its short and thematic checks (Supervision of Operational and Thematic Practices, SOTP), the AMF examined the socially responsible investment schemes (SRI) of 5 management companies and the integration of environmental, social and governance criteria (ESG). Its objective is to ensure that the SRI information provided to investors is clear, accurate and not misleading, and consistent with the investment and management process implemented.

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Dans le cadre de ses contrôles courts et thématiques intitulés « SPOT » (Supervision des Pratiques Opérationnelle et Thématique), l’AMF a examiné les dispositifs d’investissement socialement responsable (ISR) de 5 sociétés de gestion (SGP) et l’intégration des critères environnementaux, sociaux et de gouvernance (« ESG »). Son objectif est de s’assurer que l’information délivrée aux investisseurs en matière d’ISR est claire, exacte et non trompeuse, et conforme au processus d’investissement et de gestion mis en œuvre.

On 24 July 2019, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) published its position on the placing and marketing of financial instruments.

The purpose of this document is to clarify the scope of investment services in relation to the marketing activities of financial instruments. It specifies to what extent persons seeking underwriters or acquirers of financial instruments, whether or not in conjunction with an investment service provider providing an investment service, provide an investment service to an issuer or a transferor of financial instruments.

This clarification is important for distributors whose activity leads them to market financial instruments: investment service providers (including, where appropriate, their related agents), management companies and financial investment advisors.

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Le 24 juillet 2019, l'Autorité de Contrôle Prudentiel et de Résolution (ACPR) a publié sa position sur le placement et la commercialisation des instruments financiers.

Le présent document a pour objet de clarifier le périmètre des services de placement au regard des activités de commercialisation d’instruments financiers. Il précise ainsi dans quelle mesure, des personnes qui recherchent des souscripteurs ou acquéreurs d’instruments financiers, en liaison ou non avec un prestataire de services d’investissement fournissant un service de placement, fournissent eux-mêmes un service de placement à un émetteur ou un cédant d’instruments financiers. Cette clarification est importante pour les distributeurs dont l’activité les amène à commercialiser des instruments financiers : prestataires de services d’investissement (y compris, le cas échéant, leurs agents liés), sociétés de gestion et conseillers en investissements financiers.

On 1 August 2019, the Autorité des marchés financiers (AMF) informs the public of its decision to restrict the marketing, distribution or sale of contracts for difference (CFD).

As explained by the AMF, ESMA considered it necessary to impose a temporary restriction on the marketing, distribution or sale of CFD to non-professional customers in accordance with Article 40 of Regulation (EU) No 600/2014 (MiFIR). As the intervention powers conferred on ESMA by MiFIR are by nature temporary, ESMA has regularly called on the NCAs of the Member States to adopt national measures at least as stringent as those previously adopted by ESMA.

Therefore, the AMF now adopted the decision to restrict the marketing, distribution and sale, in France or from France, of CFD to non-professional customers, in accordance with the provisions of Article 42 of the MIFIR Regulation, as supplemented by the provisions of Article 21 of Council Regulation (EU) 2017/567 of 18 May 2016.

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Le 1er août 2019, l'Autorité des marchés financiers (AMF) informe le public de sa décision de restreindre la commercialisation, la distribution ou la vente de contrats pour différence (CFD).

L'Autorité européenne des marchés financiers (ESMA) a considéré qu'il était nécessaire d'imposer une restriction temporaire de la commercialisation, de la distribution ou de la vente de CFD aux clients non professionnels, conformément à l'article 40 du règlement (UE) no 600/2014 (Règlement MiFIR).

Les pouvoirs d’intervention conférés à l’ESMA par le Règlement MiFIR étant par nature temporaires, l’ESMA a régulièrement appelé les autorités nationales compétentes (ANC) des Etats Membres, qui disposent en vertu des dispositions du Règlement MiFIR de pouvoirs d’intervention plus pérennes, à adopter des mesures nationales au moins aussi strictes que celles précédemment adoptées par l’ESMA. 

Dans ce contexte, l'AMF a adopté la décision de restreindre, en France ou depuis la France, la commercialisation, la distribution ou la vente de contrats financiers avec paiement d'un différentiel à des investisseurs non professionnels. 

On 4 July 2019, the ministerial service Tracfin (Traitement du renseignement et action contre les circuits financiers clandestins) in charge of combating money laundering (ML) and terrorism financing (TF) published its annual report for the year 2018. 

According to the report, the year 2018 was defined by a net augmentation of the activities of Tracfin. The service received and analyzed 79 376 pieces of information and declarations of suspicion (+12% in a year and 75% in three years). This augmentation is considered as the fruit of sound vigilance by professionals subject to the rules aimed at fighting ML/TF.

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Le 4 juillet 2019, le service ministériel Tracfin (Traitement du renseignement et action contre les circuits financiers clandestins) chargé de lutter contre le blanchiment d’argent (CB) et le financement du terrorisme (FT) a publié son rapport d'activité 2018.

L’année 2018 constitue une nouvelle année de forte progression de l’activité de Tracfin, le service a reçu et analysé 79 376 informations (+12 % en 1 an et de 75 % en 3 ans). Cette progression d’activité est notamment le fruit de la vigilance pérenne des professionnels assujettis au dispositif de lutte contre le blanchiment de capitaux et le financement du terrorisme (LCB/FT).

On 10 July 2019, the French Anti-Corruption Agency (Agence Française Anticorruption, AFA) has published its first decision on a corruption case. 

After a long process during which the concerned company improved its risk mapping (from 2018 through the first semester of 2019), the AFA now decided that the deficiencies pursuant to Article 17 of the Law of 9 December 2016 that were reproached to the company in its last audit were successfully resolved and not present anymore at the time of the current hearing. 

Recommendations addressed to the company and the perspective of a sanction have led the institution to improve its prevention of corruption measures. 

This first decision highlights some important points concerning the Agency:

• The intervention of the Director of the Agency to the hearing does not affect neither the independence of the Commission, nor the impartiality or contradictory aspect of the procedure;
• Controls of the Agency should not simply be formal but should focus on the efficiency of anti-corruption measures of supervised entities;
• The Agency is allowed to ask for any document useful to its control. Asking for documents anterior to the entry into force of Law 9 December 2016 does not affect the principle of non-retro activity;
• The proof of deficiencies bears on the Agency, taking into account its analysis and hearings.

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Le 10 juillet 2019, l'Agence Française Anticorruption (AFA) a publié sa première décision relative à une affaire d'anti-corruption.

L'AFA estime qu’au terme d’un long processus d’amélioration et de mise au point de sa cartographie des risques de corruption mené durant l’année 2018 et au cours du premier semestre 2019, soit postérieurement au contrôle de l’AFA, les manquements à l’article 17 de la loi du 9 décembre 2016 reprochés à l’entreprise n’étaient plus constitués à la date de l’audience. Le contrôle conduit par les services de l'Agence, les recommandations adressées à l’entreprise et les perspectives d’une sanction aient incité la société concernée à améliorer son dispositif de prévention de la corruption.

Cette première décision conforte les pratiques de l’Agence sur plusieurs points :

• L’intervention du Directeur de l’Agence à l’audience publique ne porte atteinte ni à l’indépendance de la commission, ni à son impartialité, ni au caractère contradictoire de la procédure;
• Les contrôles de l’Agence française anticorruption ne doivent pas être simplement formels mais doivent porter sur l’efficacité des dispositifs anticorruption des entreprises contrôlées;
• L’Agence peut demander tout document utile à ce contrôle. En particulier, elle ne méconnaît pas le principe de non-rétroactivité de la loi en demandant des documents antérieurs à l’entrée en vigueur de la loi du 9 décembre 2016;
• Il appartient à l’Agence de démontrer les manquements. Elle s’appuie pour cela sur ses constats et sur les auditions auxquelles elle procède à l’occasion de ses contrôles.

On 23 July 2019, the Autorité des marchés financiers (AMF) declared being in conformity with ESMA Orientations on non-significant benchmarks under the Benchmarks Regulation (ESMA70-145-1209) applicable from 19 August 2019.

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Le 23 juillet 2019, l’AMF a déclaré se conformer aux orientations relatives aux indices de référence d’importance non significative au titre du règlement concernant les indices de référence (ESMA70-145-1209) applicables à compter du 19 août 2019.

On 9 July 2019, the AMF published amendments to the clearing house operating rules and the LCH SA financial instrument settlement-delivery system relating to (i) the introduction of the Settlement to Market scheme for variation margins, (ii) the new ability for Select Members to offer clearing services to customers, (iii) the new ability for members to attach multiple position accounts to a single margin account, and (iv) the introduction of the backloading service for options on CDS.

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Le 9 juillet 2019, l'AMF a publié les modifications des règles de fonctionnement de la chambre de compensation et du système de règlement-livraison d’instruments financiers LCH SA portant sur (i) l’introduction du dispositif Settlement to Market pour les marges de variation, (ii) la nouvelle possibilité octroyée aux Select Members d’offrir des services de compensation aux clients, (iii) la nouvelle possibilité offerte aux membres d’attacher plusieurs comptes de position sur un seul compte de marges et (iv) l’introduction du service de backloading pour les options sur CDS.

On 25 June 2019, the AMF published the updated functioning rules of the compensation chamber.

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Le 25 juin 2019, l'AMF a publié les règles de fonctionnement mises à jour de la chambre de compensation.

On 31 July 2019, the Autorité des marchés financiers (AMF) published the Law No. 2019-486 of 22 May 2019 (the Law "PACTE") which strengthens the role and powers of the AMF. It amends and introduces a large number of provisions that concern the actors and activities that it regulates: issuers, markets and infrastructures, asset management, token issuers, digital asset service providers and savings pension schemes.

Version française

La loi n°2019-486 du 22 mai 2019 (PACTE) renforce le rôle et les pouvoirs de l’AMF et modifie et introduit un grand nombre de dispositions qui concernent les acteurs et les activités qu’elle régule : émetteurs, marchés et infrastructures, gestion d’actifs, émetteurs de jetons, prestataires de services sur actifs numériques et protection de l’épargne. 

On 28 June 2019, the Decree No. 2019-655 of 27 June 2019 taken in application of Article  L.532-48 of the Monetary and Financial Code was published in France's Official Journal. 

The current decree concerns enterprises of third countries defined in Article L.532-47 of the Monetary and Financial Code and members of regulated markets, multilateral and negotiation systems or clients of organised systems mentioned in Articles L. 421-1, L.424-1 and L.425-1.

The decree allows enterprises of third countries to perform certain transactions for their own account and without a mandatory physical presence or a subsidiary.

Version française

Le 28 juin 2019, le décret n° 2019-655 du 27 juin 2019 pris en application de l'article L. 532-48 du Code monétaire et financier a été publié au Journal officiel français.

Le présent décret concerne les entreprises de pays tiers définies à l’article L. 532-47 du code monétaire et financier et les membres de marchés réglementés, de systèmes multilatéraux de négociation ou les clients de systèmes organisés de négociation mentionnés aux articles L. 421-1, L. 424-1 et L. 425-1. Son objectif est de permettre aux entreprises de pays tiers d’effectuer certaines transactions pour compte propre, sans obligation de présence physique ou de succursale.

On 30 June 2019, Decree No. 2019-681 was published in the Official Journal of France. 

This decree aims at describing the conditions from which the ACPR is allowed to demand that a compensation chamber would be subject to the ECB's credit institution's authorization as defined in Article 4 of Regulation (EU) No. 575/2013, depending of the nature, size and complexity of activities of the chamber.

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L'objectif de ce décret tient dans la précision des conditions dans lesquelles l’Autorité de contrôle prudentiel et de résolution peut exiger qu’une chambre de compensation soit soumise à l’agrément de la Banque centrale européenne en tant qu’établissement de crédit au sens de l’article 4 du règlement (UE) no 575/2013 en fonction de la nature, de la taille et de la complexité des activités de la chambre.

On 1 August 2019, the Autorité des marchés financiers (AMF) has approved the amendments to the rules of operation of the multilateral trading facility Euronext Access. In the rules of the SMN Euronext Access, the section 9 is inserted. The current section 9 entitled “Fee” is renumbered as section 10.

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Le 1er août, les modifications des règles de fonctionnement du système multilatéral de négociation Euronext Access telles qu’annexées à la présente décision sont approuvées: Dans les règles du SMN Euronext Access, il est inséré la section 9 "Dispositions particulières applicables aux organismes du placement collectif (OPC) ayant la qualité d'ETF et aux ETC/ETN". 

On 1 August 2019, the Autorité des marchés financiers (AMF) informs stakeholders of its decision to approve the amendments to the rules of operation of the multilateral trading system Nowcp.

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Le 1er août, les modifications des règles de fonctionnement du système multilatéral de négociation NowCP telles qu’annexées à la présente décision sont approuvées. 

Elles entreront en vigueur à la date déterminée par NowCP S.A.

On 29 June 2019, Decree No. 2019-672 was published in the Official Journal of France. It describes the information that intermediaries in crowdfunding will have to transmit to the administrative authorities during and after the piloting period of consumer loans.

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Le décret n°2019-672 oublié au Journal Officiel le 29 juin 2019 précise les informations que les intermédiaires en financement participatif devront fournir aux autorités administratives pendant la durée de l’expérimentation du prêt participatif à la consommation et au terme de celle-ci.

On 9 July 2019, the Official Journal of France published Decree No. 2019-673 modifying Article D214-22-1 (V) and Article D214-32-31 (V) of the Monetary and Financial Code.

These articles lay down a list of UCITS admitted to trading on a multilateral trading facility according to their origin and destination (marketed in France or foreign-based UCITS), liquidity and objective.

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Le 9 juillet 2019, le Journal Officiel français a publié le Décret n° 2019-673 modifiant les articles D214-22-1 (V) et D214-32-31 (V) du Code Monétaire et Financier.

Ces articles listent les organismes de placement collectif admis à la cotation sur un système multilatéral de négociation en fonction de leur origine et destination (commercialisés en France ou organismes de placement collectif de droit étranger), leur liquidité et objectif.

On 24 July 2019, the Autorité des marchés financiers (AMF) clarified the scope of activities that are considered to constitute placement and/or marketing services of financial instruments. 

Position DOC-2012-08 states that the search of subscribers or acquirers of an investment product in the context of offering savings products (UCITS, AIF and structured debt instruments) falls under the definition of product placement and thus constitutes an investment service. This clarification is of major importance for distributors who commercialize financial products, such as investment service providers and their related agents, management companies and companies offering investment advise. 

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Le 24 juillet 2019, l'Autorité des marchées financiers (AMF) a clarifié le périmètre des services de placement au regard des activités de commercialisation d’instruments financiers.

La position DOC-2012-08 précise dans quelle mesure, des personnes qui recherchent des souscripteurs ou acquéreurs d’instruments financiers, en liaison ou non avec un prestataire de services d’investissement fournissant un service de placement, fournissent eux?mêmes un service de placement à un émetteur ou un cédant d’instruments financiers. Cette clarification est importante pour les distributeurs dont l’activité les amène à commercialiser des instruments financiers : prestataires de services d’investissement (y compris, le cas échéant, leurs agents liés), sociétés de gestion et conseillers en investissements financiers. 

On 25 July 2019, the Order No. 2019-766 of 24 July 2019 on the reform of pension savings was published in France's Official Journal. 

This order sets out the rules concerning corporate and individual pension savings plans. It describes the system of social contributions applicable to pension savings products and the transitional provisions to facilitate the conversion of existing products into new pension savings plans.

Most of the provisions will enter into force on a date to be fixed in a supplementary ordinance or latest on 10 January 2020.

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Le 25 juillet 2019, le Journal Officiel français a publié l'Ordonnance n°2019-766 du 24 juillet 2019 portant réforme de l’épargne retraite.

Cette ordonnance détermine les règles relatives aux plans d'épargne retraite d'entreprise ainsi que celles applicables aux plans d'épargne retraite individuels. Elle précise le régime des prélèvements sociaux applicables aux produits d'épargne retraite ainsi que les dispositions transitoires facilitant la transformation des produits actuels en nouveaux plans d'épargne retraite. La majeure partie des dispositions entreront en force une date définie dans une ordonnance additionnelle ou, au plus tard, le 10 janvier 2020.

On 1 July 2019, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) informed the public in its Circular 4/2019 that it will apply EBA's guidelines on the STS (simple, transparent, standardised) criteria for non-ABCP and for ABCP securitisation. 

BaFin will directly apply these guidelines within its supervisory practice as from 1 July 2019 onward. 

BACKGROUND

As of 21 July 2019, Regulation 2017/1129/EU of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (Prospectus Regulation) will become applicable in its entirety in the EU. 

It replaces the provisions under the previous Prospectus Directive and Commission Prospectus Regulation, and allows for utilization of several types of prospectuses alongside standard prospectuses, which addresses the need for different types of securities, issuers, offers and admissions. In addition, the risk factors section in prospectuses will become more focused on the specificity and materiality of risk factors to the particular issuer. Also, the length of prospectuses summaries will be limited in order to encourage issuers to select the information which is essential for investors. At the same time, issuers have more freedom to choose which information to present in the summary compared to the previous regime.

Although being directly applicable in the Member States, the Prospectus Regulation provides for certain provisions which require transposition into national law, and in this regard, there is also to a certain extent flexibility for the Member States.

WHAT'S NEW?

On 15 July 2019, a new Law on the implementation of the EU Prospectus Regulation in Germany and the corresponding amendments to financial market laws has been published in the German Official Journal. 

The law establishes third-country rules for the UK in case of Brexit as well as simplifications for SMEs and an adjustment of applicable fines for the case of non-compliance with the rules.  

More specifically, the law provides that – in the case of Brexit – Great Britain may be included in the list of third countries (Japan, Canada, Switzerland, USA, Australia, New Zealand, Singapore), in which collateral may be located.

As far as the EU Prospectus Regulation is concerned, it is stipulated that the German Federal Financial Supervisory Authority (BaFin) is designated as the competent authority within the meaning of the EU Prospectus Regulation and thus remains responsible for the prospectus approval. For this purpose, the German Securities Prospectus Act and – to include certain powers, in particular in connection with trade restrictions and suspensions - the  Securities Trading Act have been amended.

The fines defined in the Securities Prospectus Act and the Securities Trading Act have been adjusted to enable that the violations of both the EU Prospectus Regulation and the relevant national provisions will be sanctioned.

In addition, the law introduces adjustments to the numbering, the German designation of delegated acts and the references to those delegated acts in the Official Journal of the European Union in the Securities Prospectus Act.

WHAT'S NEXT?

Most of the rules will apply from 21 July 2019, in parallel with the EU Prospectus Regulation. Certain provisions with respect to the fee schedule for investment assets, as specified by the regulation on fees of prospectuses, will only become applicable twelve months after publication of the law, i.e. on 16 July 2020.

On 30 August 2019, the German Federal Council (Bundesrat) published the Second Law to adapt the German data protection right legislation to the European General Data Protection Regulation (GDPR) and implement Directive (EU) 2016/680 (Zweites Datenschutz-Anpassungs- und Umsetzungsgesetz EU - 2. DSAnpUG-E), which has been adopted by the German Parliament in its session on 27 June 2019. 

The draft law now needs to be adopted by Bundesrat before 20 September 2019.

On 30 August 2019, the German Federal Council (Bundesrat) published the Law to implement Directive (EU) 2016/680 with regard to criminal proceedings and to adapt national data protection requirements to the European General Data Protection Regulation (GDPR), which has been adopted by the German Parliament in its session on 27 June 2019. 

The draft law now needs to be adopted by Bundesrat before 20 September 2019.

On 16 August 2019, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) published the final version of Circular 07/2019 on the minimum requirements for the proper provision of safe custody business and the protection of customer financial instruments for investment services companies (MaDepot). 

The circular provides investment services companies with an overview of the regulatory requirements for behavioral and organizational duties in custody business. In addition, BaFin explains its administrative practice and supervisory interpretation by answering selected questions. The MaDepot are essentially based on the requirements of the second European Markets in Financial Instruments Directive (MiFID II).

The circular was under consultation from April to June 2018.

On 9 August 2019, the German Federal Council (Bundesrat) published the adopted version of the draft law implementing the fifth Anti-Money Laundering Directive (AMLD V), which comprises the comment by the German government from end of July 2019 and the position of the National Regulatory Council (Normenkontrollrat).  The Normenkontrollrat draws the conclusion that the costs of the new law were fairly represented by the government and that there should be thus no impediments against implementing the law. 

On 26 August 2019, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) published Circular 08/2019 (GW) that informs stakeholders on third countries that have strategic shortcomings in their anti-money laundering (AML) and combating the financing of terrorism (CFT) systems that pose significant risks to the international financial system (high-risk countries). 

The following documents treating the subject of AML/CFT are discussed: 

1. Delegated Regulation (EU) 2018/1467 of 27 July 2018; 
2. FATF Public Statement of 21 June 2019 on Iran and North Korea; 
3. FATF Report of 21 June 2019 on countries under surveillance. 

The circular is addressed to all entities having to comply with the German AML Law (GwG). and sets out BaFin's expectations regarding the implementation of the requirements laid down in the above-mentioned documents.

On 16 August 2019, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) published a leaflet, informing the public about prospectus and permit requirements in relation with the issuance of crypto-tokens (Initial Coin Offerings, ICOs). 

In the leaflet, BaFin explains which information and documents should be submitted by the issuer, so that BaFin can answer inquiries in advance of the ICO in a targeted and timely manner.

The leaflet deals intensively with the nature of crypto-tokens and provides information about the securities properties according to the Prospectus Regulation or the Securities Prospectus Act (WpPG) and the investment property pursuant to the Investment Act (VermAnlG). Furthermore, the leaflet deals with the prospectus or information sheet requirements pursuant to the Prospectus Regulation, WpPG and VermAnlG, as well as licensing requirements pursuant to the Banking Act (KWG), the Payment Services Supervision Act (ZAG) and the Capital Investment Code (KAGB).

On 5 July 2019, the Securities and Futures Commission (SFC) has published the 23rd version of its Code of Conduct for Persons Licensed by or Registered with the SFC. 

The SFC will be guided by this Code of Conduct in considering whether a licensed or registered person satisfies the requirement that it is fit and proper to remain licensed or registered, and in that context, will have regard to the general principles, as well as the letter, of the Code.  For the purposes of the Code, a registered person includes a “relevant individual” as defined in section 20(10) of the Banking Ordinance (Cap.155), and “registered” shall be construed accordingly. The Code has been published in the Gazette. 

On 8 July 2019, the Securities and Futures Commission (SFC) has reminded intermediaries of their obligations to comply with the requirements under the Code of Conduct when they are in possession or control of client assets. 

To strengthen the safeguarding of client assets, a standardised acknowledgement letter in the form of the template is to be adopted and duly signed by both intermediaries and Authorized Institutions (AIs).

To comply with this requirement, intermediaries shall prepare and sign client asset acknowledgement letters in accordance with the provided template, and then obtain countersignatures from the appropriate AI.

Intermediaries are required to have the countersigned letters in place before depositing any client money or securities into any new Client Asset Accounts. The transition period for implementing this requirement ends on 31 July 2020, where the SFC expects the countersigned letters are in place for all applicable Client Asset Accounts.

On 1 August 2019, an updated version of the "Non-Hong Kong Companies (Disclosure of Company Name, Place of Incorporation and Members’ Limited Liability) Regulation (Cap. 622M)" has been published in the Official Gazette of Hong Kong. 

This piece of legislation establishes provisions requiring non-Hong Kong companies to disclose their company's name, place of incorporation and liability arrangements in every communication document and transaction instrument of the company in Hong Kong. 

If a non-Hong Kong company contravenes this requirement, the company, every responsible person of the company, and every agent of the company who authorizes or permits the contravention, commits an offence and is liable to a fine.

On 23 August 2019, the Securities and Futures Commission (SFC) published a new circular to licensed corporations on managing the liquidity risks of funds. 

This circular highlights deficiencies or inadequacies noted by the SFC  in fund managers’ liquidity risk management practices.

The SFC surveyed selected fund managers which are licensed by the SFC and manage SFC-authorized funds to understand their liquidity risk management processes and conducted inspections on some of these fund managers to assess their compliance with the July 2016 circular on liquidity risk management as well as their implementation of enhanced requirements under the Fund Manager Code of Conduct (FMCC).

The SFC’s survey and inspections noted inadequacies or deficiencies on the part of some Authorized Fund Managers in maintaining proper liquidity risk management systems and controls in the following areas:

(a)  overall liquidity risk management framework; 

(b)  assessments of liquidity profiles of fund assets and liabilities; 

(c)  stress testing; 

(d)  governance structure for risk management; 

(e)  risk management reports; and  

(f)   documentation. 

While some of the SFC’s observations relate to the expected standards in the July 2016 circular on liquidity risk management, most of them are also useful references for fund managers of non-SFC authorized funds. Fund managers are reminded to review their current policies, procedures, systems and processes in light of the regulatory requirements and the observations noted by the SFC and take immediate action to rectify any inadequacies or deficiencies.

To coincide with the coming into force of the Central Bank (Investment Market Conduct) Rules, the Central Bank published updated Guidance on the Prospectus Regulatory Framework. The guidance assists users on the following topics:

• Submission: Initial prospectus submission and review, Subsequent submissions, Approval submission, Documents to be submitted in draft form , Final Form of a Prospectus Submitted for Approval, Agents
• Supplements. A prospectus cannot be amended by way of a supplement after the offer has closed or, as the case may be, trading on a regulated market has begun. 
•  Final terms: Final terms issued after the approval of the relevant base prospectus must be in a format consistent with that set out in the base prospectus.  
• Omission of information – subsidiary guarantors 
• Other Filings: Filing of documents produced in relation to takeovers, mergers and divisions, Article 17 notifications 
• Transfer of approval 
• Maintenance of documentary evidence 
• Collective Investment Undertaking of the Closed-End Type.

Central Bank has issued guidance on a number of topics to assist users of the Transparency (Directive 2004/109/EC) Regulations 2007, as amended (the Transparency Regulations), Part 2 (Transparency Requirements) of the Central Bank (Investment Market Conduct) Rules 2019 (the IMC Rules) and related legislation - The topics include:

•  Notification of Home Member State
• Publication and Dissemination of Regulated Information 
• Periodic Financial Information 
• Major Shareholdings 
• Filing of regulated information with Central Bank and OAM 
• Third Country Equivalence

On 21 July 2019, the Central Bank (Investment Market Conduct) Rules (S.I. No. 366 of 2019) came into force. The Central Bank (Investment Market Conduct) Rules consolidate all Central Bank imposed primary market requirements into a single statutory instrument and are issued under Part 23 of the Companies Act 2014.

The Central Bank (Investment Market Conduct) Rules repeal the Prospectus Rules, Transparency Rules and Market Abuse Rules previously issued by the Central Bank.

The Central Bank of Ireland has published the outcome of a review of UCITS funds on the subject of closet indexing. The review is the largest data driven thematic review of the funds industry to date. Detailed analysis was carried out on all of the 2,550 Irish authorised UCITS funds classified as actively managed as at March 2018. 

This review has highlighted broader issues around the effectiveness of investor disclosure and the legitimate expectations of investors in respect of the service provided by fund managers. Key findings of the review include: 

• Investors were not always given sufficient or accurate information about the fund’s investment strategy in the Prospectus and KIID that affects their ability to make an informed decision on whether to invest in the fund. 
• Instances of poor governance and controls by Boards. 
• Instances where the fund had a target outperformance against an index that is less than the fee charged to certain share classes in the fund. The result is that even if the UCITS provides a return at the upper end of its projections, investors in these share classes will not realise a positive return against the benchmark, as the fee charged will cancel out any outperformance achieved. 
• In some cases, in the past performance section of the KIID no comparator was included so that investors in these funds were not able to determine whether the fund, irrespective of performance, represented good value relative to its benchmark. 

The Central Bank has published updated guidance on the use of financial indices by UCITS. The guidance amends the certification process initially introduced in October 2018, including providing for circumstances where an index certification is not required.

The purpose of this guidance is to clarify Central Bank requirements where a UCITS intends to use a financial index for investment or efficient portfolio management purposes.  It also clarifies other related areas such as the use of indices composed of ineligible assets and prospectus disclosure requirements.  Finally, it sets out the certification required from the Responsible Person of a UCITS and the process relating to that certification.

The Central Bank recognises that financial markets continually evolve and it is therefore expected that this guidance will be updated as necessary to reflect such developments.

This document, known as the “Market Abuse Guidance”, is issued by the Central Bank of Ireland (the “Central Bank”) under Section 1370 (7) of the Companies Act, 2014. Terms used in this Market Abuse Guidance have the same meaning as in Part 3 ([Market Abuse] of the Central Bank (Investment Market Conduct) Rules.  The guidance assists the users with the following topics:

• Disclosures and Notifications under MAR 
• Disclosure of Inside Information 
• Insider Lists 
• Managers’ Transactions 

On 7 August 2019, the Central Bank of Ireland issued an industry letter regarding the importance of ongoing, effective liquidity management and ensuring compliance with relevant legislation and regulatory obligations for UCITS and AIFs.

The Industry Letter highlights the importance of the execution of an appropriately calibrated liquidity risk management framework by Fund Management Companies for each fund under management, taking into account on an ongoing basis: 

(i) dealing frequency of the fund; 

(ii) the fund’s investment strategy; and 

(iii) the fund’s portfolio composition and investor profile. 

The Central Bank notes that this may involve daily and intra-day monitoring.

On 5 July 2019, the Decree of 7 May 2019 implementing the tax incentives for investments in innovative SMEs and start-ups was published in the "Gazzetta Ufficiale".

Art. 4 of the Decree sets the deductible amount (30%) on investments in innovative SMEs and start-ups. The tax deduction shall be calculated on investments capped at € 1.800.000. 

Investments from 1 January 2017 can be deducted.

On 30 July 2019, Banca d'Italia informs the public that it has adapted the national provisions to the EU framework as regards the costumer due diligence requirements as per Directive (EU) 2015/849.

These shall be applicable as of 1 January 2020.

Consob has published its guidelines for the limits on positions in derivatives on commodities.

These Guidelines may be useful for: 

- the direct participants of clearing and guarantee systems that compensate for themselves or their customers the commodity derivatives, emission allowances and derivative instruments;

- Italian SIMs (securities investment firms) and banks that conclude OTC derivative contracts on goods that are economically equivalent to those traded on trading venues.

These Operational Guidelines intend to offer, following the requests of the operators received during the MiFID II implementation, some detailed operational indications useful for the better implementation of the European legislation, having regard to the specificity of the national institutional and operational framework.

In August 2019, the Italian Commissione Nazionale per le Società e la Borsa (CONSOB) published two operational guides to clarify certain aspects related to systematic internalizers and derivatives. 

The first operational guide on systematic internalizers is aimed at Italian investment firms that fall under the definition of a systematic internalizer as per by Art. 4 (1) (20) MiFID II, and incorporated in Art. 1 § 5-ter of the Consolidated Financial Law (TUF), as well as to third-country companies that carry out systematic internalization activities in Italy through a branch pursuant to Arts. 28 and 29-ter of the TUF. It may be useful to:

• investors;
• investment firms that can fall within the thresholds identified by the regulations for the qualification of this activity;
• investment firms that intend to make use of the possibility of "opt-in" in the regime established by MiFID II even in the event of failure to "capture" the activity carried out in the established thresholds; and 
• market participants who carry out activities incompatible with that of systematic internalization.
• More specifically, the first operational guide concerns the management of the relative obligations:
• the notification of the status of systematic internalizer;
• the conditions of operation;
• the publication of irrevocable quotes relating to equity and equity-like financial instruments and non-equity financial instruments; and 
• the information to be provided to Consob.

The second operational guide provides guidelines for the limits on positions in derivatives on commodities and may be useful for: 

• the direct participants of clearing and guarantee systems that compensate for themselves or their customers the commodity derivatives, emission allowances and derivative instruments; and 
• Italian SIMs (securities investment firms) and banks that conclude OTC derivative contracts on goods that are economically equivalent to those traded on trading venues.

These operational guidelines intend to offer, following the requests of the operators received during the MiFID II implementation, some detailed operational indications useful for the better implementation of the European legislation, having regard to the specificity of the national institutional and operational framework.

On 1 July 2019, the Commission de Surveillance du Secteur Financier (CSSF) issued Circular 19/721 on the dematerialisation of requests to the CSSF. 

The purpose of this circular is to inform stakeholders of the implementation of the eDesk portal which must be used for certain specified requests to the CSSF in accordance with the applicable legal and regulatory provisions. Hence, some requests to the CSSF can from now on only be made via the eDesk portal; for each dematerialised request additional information and guidance are available online. 

As securities or partnership interests issued by Luxembourg-regulated investment funds are likely to qualify as PRIIPs, the CSSF would like to obtain an overview of the impact of Regulation 1286/2014 on Luxembourg-regulated investment funds.

The CSSF therefore requires all SIFs, part II UCIs and SICARs to complete an online assessment available on the eDesk portal as specified in its Circular 19/721 (Dematerialisation of requests to the CSSF) by 31 October at the latest.

On 2 July 2019, the Luxembourg parliament adopted the bill of law no. 7328 (New Prospectus Law), implementing Regulation 2017/1129/EU of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (EU Prospectus Regulation) and repealing the Luxembourg law of 10 June 2005 on prospectuses for securities, as amended (Law of 2005).

The Prospectus Regulation will become fully applicable on 21 July 2019. Although being directly applicable in the Member States, the Prospectus Regulation provides for certain provisions which require transposition into national law, and in this regard, there is also to a certain extent flexibility for the Member States. The New Prospectus Law therefore contains, for example, provisions designating the Luxembourg financial supervisory authority (Commission de Surveillance du Secteur Financier, CSSF) as the competent authority, defining certain exemptions from the obligation to publish a prospectus according to the Prospectus Regulation and, in addition, provisions regarding the national prospectus law regime for offers of securities to the public falling outside the scope of the Prospectus Regulation.

The New Prospectus Law will be applicable as from the same date as the Prospectus Regulation and will replace the Law of 2005. Nevertheless, it should be noted that prospectuses approved by the CSSF in accordance with the Law of 2005 before 21 July 2019 shall continue to be governed by such law until the end of their validity, or until 12 months have elapsed after 21 July 2019, whichever occurs first.

According to the New Prospectus Law, the Luxembourg legislator has decided to make use of the option of exempting offers of securities to the public and determined the maximum possible threshold, i.e. EUR 8 000 000.

The final Law of 16 July 2019 relating to prospectuses for securities has been published on Legilux (Journal Officiel du Grand-Duché de Luxembourg), which just recently adopted by Luxembourg Parliament as draft Law No. 7328. 

Main provisions will be applied from 21 July 2019, except Article 4 (2) (h) of Article 5 (2) (e). ), and Article 6 (2) (a) and (g), which, instead, applied from the date of publication of this Law (18 July 2019).

It should be noted however that prospectuses approved by the CSSF in accordance with the 2005 Law before 21 July 2019 will continue to be governed by such law until the end of their validity, or until 12 months have elapsed after 21 July 2019, whichever occurs first.

Although the Prospectus Regulation is directly applicable in the Member States, it provides for certain provisions, which require transposition into national law, and in this regard, New Prospectus Law has introduced the following changes to the existing prospectus regime in Luxembourg:

• The Luxembourg legislator has opted to exempt offers of securities to the public with a total consideration of less than €8,000,000 in the EU over a period of 12 months from the obligation to publish a prospectus in accordance with the Prospectus Regulation. The amount of such total consideration corresponds to the maximum amount that was allowed to be exempted pursuant to the option provided for by the Prospectus Regulation;
• However, in case of an offering of securities to the public with a total consideration of at least €5,000,000, an information note is required. Such an information note will contain brief information about the issuer, the securities, the conditions, and reasons for the offering of the securities. An issuer wishing to make use of this exemption will notify the CSSF prior to making such an offer. No formal approval of the offering and the information note is required;
• Offers of securities to the public falling outside of the scope of the Prospectus Regulation will be made pursuant to the domestic prospectus regime as mentioned in the New Prospectus Law. This domestic prospectus regime is mostly comparable to the simplified prospectus regime currently existing under the 2005 Law;
• The Luxembourg national prospectus law regime is aligned with the exemption mentioned above, which means that a simplified prospectus will have to be drawn up and approved by the CSSF according to the New Prospectus Law in case of an offering of securities to the public with a total consideration of at least €8,000,000. However, in case of an offering of securities to the public with a total consideration of at least €5,000,000 an information note and a notification to the CSSF prior to making an offer to the public is required;
• Following the notion of the voluntary prospectus regime introduced by the Prospectus Regulation, the New Prospectus Law will allow issuers otherwise exempted from the obligation to publish a simplified prospectus to draw up and publish such prospectus on a voluntary basis in accordance with the provisions of the New Prospectus Law. 

BACKGROUND

In 2007, the European Parliament and the European Council adopted the Shareholder Rights Directive (SRD) to ensure a better protection of the exercise of rights of shareholders in listed companies. 

In 2017, the revised Shareholder Rights Directive (Directive (EU) 2017/828 or SRD II) amends the SRD and aims at encouraging long-term engagement of EU listed companies’ shareholders. To achieve this long-term investment objective, the SRD II describes new obligations for EU listed companies, intermediaries, institutional investors, asset managers and proxy advisors. This shall lead to a greater transparency regarding the investment strategy, the directors’ remuneration, the voting process in general meetings and the shareholders themselves.

The dispositions of the SRD II pursue the following five main objectives:

• Ensure that all investors are incentivized to participate in the long run to the life of companies in which they invest in order to make a more long term sustainable EU economy; 
• Ease the identification of the shareholders by calling on intermediaries to communicate information regarding shareholders upon company’s request (name, contact, registration number, number of shares); 
• Improve involvement of shareholders in corporate governance by calling on companies to provide their shareholders with means to vote on general meetings; 
• Encourage transparency in the investment strategy by calling on institutional investors and asset managers to disclose relevant information; and 
• Influence directors’ remuneration by involving the shareholders in the process of establishing, voting and publishing remuneration policies and reports on their implementation.

WHAT'S NEW?

On 20 August 2019, the final law transposing the SRD II into Luxembourgish law and amending the Law of 24 May 2011 on the exercise of certain shareholder rights in general meetings of listed companies was published in the Official Journal of Luxembourg.

Key specificities of the Luxembourgish transposition are:

• Extension of the scope of application: While the law of 24 May 2011 used to apply to companies governed by Luxembourg law whose shares are admitted to trading on a regulated market, its amended version also applies to intermediaries of the investment process, such as institutional investors, asset managers and proxy advisors. The law will apply to listed shares of Luxembourgish incorporated companies, with or without voting rights and beneficiary parts with voting rights. AIFs and cooperatives are excluded from the application of Luxembourgish law. UCITS are excluded to most of the obligations of the law but the requirements on transparency regarding the publication of investment and engagement policies.
• Definition of the shareholder: The shareholder is defined as any natural or legal persons owning shares, from the first share owned. Hence, the person recorded as the owner of the shares in the shareholders register is the deemed owner of the shares.
• Intermediaries can charge fees for the transmission of information: The transmission of information, on shareholders, on general meetings and on the voting process, alongside the chain of stakeholders of the investment process will imply costs of the obliged entities. Conscious of this fact the Luxembourgish Legislator allows the intermediaries to charge fees for the services provided for under Chapter II on identification of shareholders, transmission of information and facilitation of exercise of shareholder rights.

WHAT'S NEXT?

The Law of 1 August 2019 has entered into force on 24 August 2019 and is thus already applicable in Luxembourg. 

In addition, the European Commission has published the Implementing Regulation (EU) 2018/1212 which lays down the requirements for shareholder identification, transmission of information and facilitation of shareholders rights. This Level 2 act will apply from 3 September 2020.

The Luxembourg Parliament adopted draft Law No. 7349 (the Law) on 11 July 2019. 

Certain aspects of the following EU Regulations have been implemented into Luxembourg by means of the Law:

Regulation (EU) N°345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds (EuVECA Regulation);

Regulation (EU) N°346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds (EuSEF Regulation);

Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (ELTIF Regulation);

Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (MMF Regulation);

Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitization and creating a specific framework for simple, transparent, and standardized securitizations (Securitization Regulation).

Although these Regulations are directly applicable to the Member States, they do enable certain provisions to be regulated on a national level. Therefore, the Law introduces the following:

- Designation of the Commission de Surveillance du Secteur Financier (CSSF) as the competent authority in respect of the EuVECA, EuSEF, ELTIF, and MMF Regulations;

- Granting the supervisory powers and the administrative sanctions to the CSSF that may be applied pursuant to these regulations;

- CSSF is designated as the competent authority pursuant to the Securitization Regulation while the Commissariat aux Assurances (CAA) is designated as the competent authority for ensuring compliance to the rules on risk retention and criteria for credit-granting by sponsors, originators, and securitization special purpose entities.

Furthermore, the law of July 23 2016 relating to reserved alternative investment funds (the RAIF Law) is amended by introduction of this new Law. Precisely, Article 8 is revised to provide that fonds commun de placement may be managed by Luxembourg management companies authorized pursuant to chapters 15, 16 or 18 of the law of 17 December 2010 relating to undertakings for collective investment. Finally, Article 49 of the RAIF Law is amended to allow for the transformation of FCP RAIFs into SICAV RAIFs.

BACKGROUND

Since 2013, the European Parliament and Council have adopted several regulations introducing rules for different types of investment funds and securitizations. Concretely, the legislative framework comprises 

• Regulation (EU) N°345/2013 on European venture capital funds (EuVECA Regulation);
• Regulation (EU) N°346/2013 on European social entrepreneurship funds (EuSEF Regulation);
• Regulation (EU) 2015/760 on European long-term investment funds (ELTIF Regulation);
• Regulation (EU) 2017/1131 on money market funds (MMF Regulation); and 
• Regulation (EU) 2017/2402 laying down a general framework for securitization and creating a specific framework for simple, transparent, and standardized securitizations (Securitization Regulation). 

As EU Regulations, these rules are directly applicable in all EU Member States. However, they provide options so that certain provisions are to be regulated on a national level. 

In this context, the Luxembourg Parliament adopted a new law (Law of 16 July 2019), which implements specific aspects of the above-mentioned regulations in the Luxembourgish legislative framework.

WHAT'S NEW?

The Law of 16 July 2019 on implementing the EuVECA, EuSEF, MMF, ELTIF and Securitization Regulations in Luxembourg introduces the following: 

• Designation of the Commission de Surveillance du Secteur Financier (CSSF) as the competent authority in respect of the EuVECA, EuSEF, ELTIF, and MMF Regulations; 
• Granting both supervisory powers and the power to impose administrative sanctions to the CSSF which may apply those pursuant to these regulations;
• Designation of the CSSF as the competent authority pursuant to the Securitization Regulation;
• At the same time, designation of the Commissariat aux Assurances (CAA) as the competent authority for ensuring compliance to the rules on risk retention and criteria for credit-granting by sponsors, originators, and securitization special purpose entities under the Securitization regulation;
• Amendment of the law of 23 July 2016 relating to reserved alternative investment funds (the RAIF Law): Revision of Article 8 to allow for fonds commun de placement being managed by Luxembourg management companies and amendment of Article 49 to allow for the transformation of FCP RAIFs into SICAV RAIFs.

WHAT'S NEXT?

On 18 July 2019, the Law of 16 July 2019 has been published in the Luxembourgish Official Journal (Legilux). It entered into force on 22 July 2019 and is thus already applicable.  

On 15 July 2019, the Commission de Surveillance du Secteur Financier (CSSF) issued press  19/34 with regard to mandatory notification in the event of the UK leaving the EU without a withdrawal agreement (“hard Brexit”). The press release is addressed to UK firms authorized under CRD, MiFID II, PSD 2 or EMD (UK firms).

The CSSF highlights that UK firms must have the authorization for the provision of regulated services in Luxembourg after a “hard Brexit”. Accordingly, in order to keep serving clients in Luxembourg, UK firms must:

• With regard to new contracts, submit an application for an authorization to the CSSF as soon as possible
• With regard to existing contracts (and contracts concluded after Brexit with “close links” to existing contracts), benefit from a 12-month transitional regime to keep carrying out their activities, with the prerequisite to notify the CSSF of this intention no later than 15 September 2019.

On 29 July 2019, the Commission de Surveillance du Secteur Financier (CSSF) issued a press release to announce the deadline for the PRIIPs assessment for credit institutions and investment firms. 

The CSSF would like to understand the impact of Regulation 1286/2014 on credit institutions and investment firms incorporated under Luxembourg law and on Luxembourg branches of credit institutions and investment firms having their registered office in an EU country or a third country, as some financial products manufactured, sold or advised by these entities are likely to qualify as PRIIPs. The CSSF therefore requires all of the concerned entities to complete an online assessment available on the eDesk portal as specified in Circular CSSF 19/725 - Dematerialisation of requests to the CSSF. The online assessment must be completed by 30 November 2019 at the latest and must cover PRIIPs that were manufactured, sold or advised between 1 January 2018 (date of application of Regulation 1286/2014) and 30 June 2019.

On 29 August 2019, the Luxembourg Business Registers (LBR) announced that the deadline for entities to file the relevant information on their beneficial owners to the Register of Beneficial Owners is postponed from 31 August 2019 to 30 November 2019. Registrations made until that date will remain free of charge.

BACKGROUND

On 8 August 2019, Draft Law 7467 transposing certain provisions of the fifth Anti-Money Laundering Directive (AMLD V) was presented to the Luxembourg Chamber of Deputies.

The Draft Law was approved by the Council of Luxembourg in the government meeting held on 26 July 2019, where the Council announced that the transposition of AMLD V is one of the government's priorities.

The purpose of this Draft Law is to make necessary adaptations in the amended Law of 12 November 2004 on the fight against money laundering and the financing of terrorism, as well as other laws transposing the main provisions of AMLD V at national level.

WHAT'S NEW?

With the objective to transpose certain provisions of AMLD V into the Law of 12 November 2004, as amended, and by taking into account the level of precision of the Financial Action Task Force (FATF) Recommendations, the Draft Law focuses mainly on the following elements: 

1) The prevention of risks associated with the use of virtual currencies:
AMLD V extends the scope of Directive (EU) 2015/849 (AMLD IV) so as to include service providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers. Hence, for the purposes of anti-money laundering and countering the financing of terrorism, competent authorities should be able, through obliged entities, to monitor the use of virtual currencies. The amendments also intend to limit the use of prepaid cards. 

2) Strengthening and harmonization of the treatment of the “high-risk third countries”:
The Draft Law, in line with AMLD V requirements, aims to strengthen and harmonize the treatment of third countries identified as “high-risk countries” by the European Commission. Therefore, when dealing with such high-risk cases where business relationships or transactions exist, the Draft Law requires obliged entities to apply enhanced due diligence measures to manage and mitigate those risks. Furthermore, the Draft Law requires obliged entities to apply additional mitigating measures regarding high-risk third countries by taking into account recommendations expressed by the FATF, especially in cases where these recommendations are not the subject of equivalent provisions in the EU Directives. 

3) Strengthening the means of the supervisory authorities to cooperate with their counterparties:
The Draft Law introduces further harmonization of the role of different supervisory authorities and self-regulatory bodies, whose powers are currently only partly harmonized and aligned. Considering the importance of cross-border activities in Luxembourg, the Draft Law aims to strengthen the international cooperation between supervised authorities by proposing a legal framework in accordance with the principles established by the AMLD V and the FATF Recommendations in this regard. The purpose is to align the professional obligations and the powers of the competent authorities.

WHAT'S NEXT?

The draft law now will be debated in the Luxembourg parliament. The deadline for transposition of the AMLD V is 10 January 2020.

On 29 August 2019, the Commission de Surveillance du Secteur Financier (CSSF) issued a communication to supervised entities, stressing the relevance of assessing money laundering and terrorist financing risks in the prudential supervision. 

The communication is addressed to credit institutions, CRR investment firms, payment institutions and e-money institutions, including Luxembourg branches of regulated entities having their head office in the EEA or in a third country, as well as the other professionals of the financial sector (supervised entities).  

It aims to inform supervised entities that, in accordance with past practice and evolving future best practice, the CSSF will continue as a prudential supervisor to act upon money laundering and terrorist financing (ML/TF) risks that may have an impact on an institution’s safety and soundness. To this end, CSSF will use any information obtained in its capacities as national prudential as well as anti-money laundering and counter-terrorism financing (AML/CFT) supervisor or through cooperation with foreign AML/CFT and prudential supervisors.

With regard to CSSF supervisory processes, concerns about ML/TF, including concerns stemming from ML/TF risks associated with individual institutions, will be considered in particular, but not solely, in the following areas:

i. at authorization, the extent to which the applicant’s business model, the proposed risk management systems and controls, and the suitability of its shareholders or members (whether direct or indirect) and of its management body, senior management and key function holders give rise to ML/TF risks;

ii. as part of ongoing supervision, the assessment of acquisitions of qualifying holdings and the fit and proper assessment of the management body;

iii. in the context of prudential supervision (as exercised for instance through the CSSF’s supervisory review and evaluation process (SREP)), as part of the review of risks, business models, credit operations, governance and internal risk management; and

iv. in the context of taking any administrative measures, imposing sanctions or proceeding to a withdrawal of authorization process, thus ensuring that AML/CFT-related weaknesses with a prudential impact are taken into account in applying prudential supervisory measures and powers to alleviate prudential concerns.

Supervised entities are reminded to give at all times due consideration to ML/TF risks and ensure that their governance and risk management arrangements are appropriate and enable them to identify, assess and manage all risks to which they are (or may be) exposed. Supervised entities should also ensure that the members of their management body and senior management are and remain of sufficiently good repute and possess sufficient knowledge, skills and experience to perform their duties and to prevent ML/TF.

BACKGROUND

The Directive (EU) 2018/822, commonly referred to as DAC 6, reflects the elements of Action 12 of the OECD BEPS project on the mandatory disclosure of potentially aggressive tax planning. It represents the fifth amendment to Directive 2011/16/EU on administrative cooperation in the field of taxation. 

DAC 6 introduces an obligation to disclose to the tax authorities information on cross-border arrangements that meet certain criteria. It also regulates the subsequent exchange of the information by and between tax administrations of EU member states on a regular basis.

The purpose of DAC 6 is to allow EU member states to react more rapidly to potentially aggressive tax arrangements and to address potential loopholes through conducting appropriate risk assessments and tax audits, or involving legislative reforms aimed at closing such loopholes.

WHAT'S NEW?

On 8 August, Draft Law N° 7465 which shall implement DAC 6 in Luxembourg was introduced to the Luxembourgish government. The draft law follows the text of DAC 6 by introducing the same definitions, hallmarks and retaining its scope of application covering cross-border arrangements as well as taxes covered by the amended 2011 Directive on administrative cooperation in the field of taxation as transposed under Luxembourg law.

Key elements of the draft law concern, among others, its scope of application, persons who would have to report, reporting deadlines, content of the reporting and the potential penalty amounts to be imposed on intermediaries and taxpayers that do not comply with the transparency measures.

Arrangements that need to be reported according to the draft law comprise all cross-border arrangements as well as arrangements that meet at least one of the “hallmarks” listed in the draft law. Hallmarks thereby refer to the characteristics of an arrangement which was identified as potentially indicative of aggressive tax planning.

Intermediaries (e.g. tax consultants or service providers such as banks, auditors, PSF, accountants) who design or provide, directly or indirectly, assistance with respect to reportable arrangements are supposed to report their service arrangements. The taxpayer is also supposed to report if there are no intermediaries who are obliged to report. Also, some intermediaries are exempted from the reporting obligation (for example lawyers). . 

In line with the fines applicable under FATCA2  and CRS3 laws, the draft law introduces penalties of up to EUR 250 000 for Intermediaries and taxpayers concerned who do not comply with their obligations to report or notify the Luxembourg tax authorities. The concerned intermediary or taxpayer may appeal against a fine.

WHAT'S NEXT?

The draft law now will be debated in the Luxembourg parliament, opined upon by the professional chambers and the Council of State, and possibly amended. A final vote is expected by the end of 2019 to comply with the deadline for EU Member States which have until 31 December 2019 to transpose the measures in DAC 6 into their domestic laws, and must apply those provisions from 1 July 2020. Reportable arrangements, which were initiated between 25 June 2018 and 30 June 2020, must be reported before 31 August 2020.

On 8 August 2019, the Luxembourg Government released the draft law n°7466 before the Luxembourg Chambre des députés setting out draft legislation that will implement the EU Anti Tax Avoidance Directive regarding hybrid mismatches with third countries (ATAD 2) as Luxembourg domestic law. EU Member States have until 31 December 2019 to transpose most of the measures in ATAD 2 into their domestic laws, and must apply those provisions from 1 January 2020.

The Draft Law generally follows the text of ATAD 2 rather closely, adapting it mainly to integrate with the structure and terminology used in the Luxembourg Income Tax Law (LITL).

As anticipated by ATAD 2, the Draft Law will in general apply as from the tax years starting as from 1 January 2020, with the additional “reverse hybrid” measures that comprise Article 9a of ATAD 2 applying from the 2022 tax year.

On 1 August 2019, the Commission de Surveillance du Secteur Financier (CSSF) published Circular 19/728 related to the European Benchmarks Regulation (BMR). The purpose of this circular is to transpose the “Guidelines on non-significant benchmarks under the Benchmarks Regulation” (Ref. ESMA70-145-1209), published on 19 June 2019 by the ESMA, into Luxembourg regulation.

These guidelines apply to competent authorities designated under BMR, administrators as defined in Article 3(1)(6) BMR and to supervised contributors as defined in Article 3(1)(10) BMR, in relation to the provision of non-significant benchmarks and the contribution to non-significant benchmarks and relate to: 

• procedures and characteristics of the oversight function (Article 5 BMR); 
• input data (Article 11 BMR); 
• transparency of methodology (Article 13 BMR), and;
• governance and control requirements for supervised contributors (Article 16 BMR).

On 2 July 2019, the Autoriteit Financiële Markten (AFM) informed the public that the Minister of Justice and Security and the Minister of Finance have presented a common plan of action to prevent money laundering through the Dutch financial system and to track down and prosecute criminals and those who facilitate them. The AFM is positive about the package of additional measures. 

Together with De Nederlandsche Bank (DNB), the AFM highlights the importance that the action plan devotes attention to the capacity of regulators. Also, given the cross-border nature of money laundering and terrorist financing, an international approach is desirable. The plans to increase the effectiveness of the approach at European level with a European AML / CFT supervisor can count on support from the AFM. The AFM works with the Ministry of Finance and DNB to bring this to the attention in Europe.

On 6 August 2019, a Covenant between several private and public parties which establishes a Dutch Terrorism Financing (TF) Task Force was published in the Government Gazette of the Kingdom of the Netherlands. 

The TF Task Force is aimed at enabling cooperation between the Covenant Partners for the purpose of preventing and combating the financing of terrorism, also in the interest of protecting the integrity of the financial sector. 

Relevant Information shall be shared between the Covenant Partners within the TF Task Force. Yet, the information is shared and further processed solely for the purpose of identifying Terrorist Financing, to detect and counteract it and in this way to make an essential contribution to the optimal fulfillment of one of the tasks of Public Parties on the one hand and of the Private Parties on the other hand (in the context of their social involvement). The information may contain personal data, which may only be shared within the legal framework and for the purposes stated in the Covenant.

On 6 August 2019, the Dutch Financial Markets Department published an advice it had sent to the King on a proposal for a law amending the Financial Supervision Act as regards the automated access by banks and other payment service providers for identifying data via a central electronic system (Banking Data Reference Portal). 

The proposal regulates the organization of a Banking Data Reference portal (BDRP). The BDRP constitutes a technical link that makes it possible for affiliated banks and payment service providers to provide in an automated way identifying information at the request or after a claim from government agencies. The police, the Special Investigation Services, the Public Prosecution Service, the Financial Intelligence Unit and the Tax Authorities require this data from clients of banks and other payment service providers for the performance of their statutory duties. These government agencies have the legal authority to demand or request identifying information from banks and payment service providers. 

So far, this data provision is done manually, which no longer fits to the international standards of payment transactions that are fast, digital and cross-border.

The advice by the Council of State explains further how the BDRP should best be implemented, with particular focus on: 

• Safeguards against unnecessary data provision; 
• Security risks for data systems for banks and government agencies; 
• Implementation of other components of the European access obligation; and 
• Costs of the BDRP.

On 2 July 2019, the Swiss Law from 21 June 2019 on the implementation of recommendations by the Global Forum on Transparency and Exchange of Information for Tax Purposes was published in the Swiss Official Journal. 

The law is a response to international pressure to increase transparency around taxation and should eliminate anonymous shares in private companies. The reform foresees that bearer shares will be converted into registered shares within 18 months. Exceptions are allowed for listed companies. With this step, Switzerland aims at limiting the risk of of being blacklisted by the Organisation of Economic Cooperation and Development (OECD).

On 13 August 2019, the draft law amending the law on anti-money laundering (AML) and combating the financing of terrorism (CFT) was published in the Schweizer Bundesblatt (Swiss Official Journal). It comprises amendments to the existing AML law from 10 October 1997 and was published together with an explanatory report from the Swiss Federal Council. 

The Swiss Federal representatives (Bundesversammlung) have approved the draft law, which will now be subject to the optional referendum and enter into force at a date to be selected by the Federal Council. 

The draft law is intended to implement several important recommendations from the Financial Action Task Force (FATF)'s fourth report on Switzerland, increase the legal security in Switzerland and strengthen the Swiss financial market place.

On 14 August 2019, the Swiss Federal Council issued a press release, stating that it has been informed of the consultations of the Economic Affairs and Taxation Committees of both chambers on the report on the implementation of the review mechanism for standard-compliant implementation of the automatic exchange of financial account information (AEOI). 

The Federal Council announced that, based on the positive feedback from the committees, Switzerland will exchange financial account information with the 33 reviewed partner countries for the first time in September 2019.

On 19 August 2019, an amendment from 28 June 2019 to the Regulation on Financial Market Infrastructures and Market Behavior in Securities and Derivatives Trading (Financial Market Infrastructure Regulation, FinfraV) was published in the Swiss Official Journal. 

The amendment rules that the accounting obligation for pension funds and investment foundations does not apply to derivatives transactions used for the reduction of risk. This regulation enters into force on 31 August 2019 and is applicable until 30 September 2020.

The European Repo and Collateral Committee  publishes a memorandum outlining recommendations for repo market best practice to address the transition from EONIA to €STR.

The ERCC has agreed on the following recommended best practice to be followed from October 1 2019:

• The Interbank market should transact purely on a fixed-rate basis and should no longer use floating rate repo.
• In the case of non-interbank transactions, where firms agree to transact on a floating-rate basis (using EONIA or €STR), best practice will be to apply the fixing of the penultimate accrual date of the transaction to the final (repurchase) date.
• Any claim should be made immediately (ideally on the repurchase date, once the final fixing is known), and any reimbursement should be made on the business day following the repurchase date.
• Where parties transact on a floating basis, using the crystallization methodology, this will create discrepancies between the repurchase price calculated and settled by the parties and the repurchase price that would have applied had it been possible to instruct after the final fixing. In this instance, the disadvantaged party can elect to claim the differential from the advantaged party, so long as the differential is equal to or greater than an agreed threshold per transaction.

On 14 August 2019, the International Swaps and Derivatives Association (ISDA) published a letter that it wrote to the European Commission and the European Securities and Markets Authority in support of an urgent request by the Chair of the EU Risk-free Rate Working Group for a statement clarifying that amendments to existing transactions for benchmark reform purposes would not have the effect of imposing margin or clearing obligations under the European Markets Infrastructure Regulation (EMIR).  

The letter emphasizes the importance of ensuring the clarification applies to benchmarks generally and flags that future transition initiatives may require additional regulatory assistance in the form of guidance or legislative instruments.

On 15 August 2019, the International Accounting Standards Board (IASB) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—IBOR reform—to its work plan, whereby: 

- Phase one of the project focuses on financial reporting issues in the period before the current interest rate benchmark is replaced with an alternative rate; and 

- Phase two focuses on potential issues that might affect financial reporting once the existing rate is replaced with an alternative rate.

The FATF publishes its updated Recommendations June 2019.

It added an Interpretive Note to Recommendation 15 that sets out the application of the FATF Standards to virtual asset activities and service providers.

On 5 July 2019, the Financial Action Task Force (FATF) has published a guidance on terrorist financing risk assessments. 

This guidance aims to assist practitioners, and particularly those in lower capacity countries, in assessing terrorist financing risk at the jurisdiction level by providing good approaches, relevant information sources and practical examples based on country experience.

This report builds on the 2013 FATF guidance on national money laundering and terrorist financing risk assessments, and draws on inputs from over 35 jurisdictions from across the FATF Global Network on their extensive experience and lessons learnt in assessing terrorist financing risk. Recognizing that there is no one-size-fits all approach when assessing terrorist financing risk, this guidance provides relevant information sources and considerations for different country contexts.

The report addresses: 

• Key considerations when determining the relevant scope and governance of a terrorist financing risk assessment, and practical examples to overcome information sharing challenges related to terrorism and its financing. 
• Examples of information sources when identifying terrorist financing threats and vulnerabilities, and considerations for specific country contexts (e.g. financial and trade centres, lower capacity jurisdictions, jurisdictions bordering a conflict zone etc.). 
• Relevant information sources for practitioners when identifying cross-border terrorist financing risks but also terrorist financing risks within the banking and money or value transfer sectors, and facing those non-profit organisations that fall within the FATF definition. 
• Good approaches for maintaining an up-to-date assessment of risk, and areas for further focus going forward.

On 27 June 2019, the Financial Action Task Force (FATF) published its report to the G20 Leaders' Summit, which will take place in Osaka, Japan on 28-29 June 2019. 

The report sets out FATF's ongoing and future work to fight money laundering and terrorist financing in the following areas: 

• Strengthening the institutional basis, governance and capacity of FATF; 
• FATF’s Work Programme on Virtual Assets; 
• Countering the Financing of Terrorism; 
• Countering the Financing of Proliferation of Weapons of Mass Destruction; 
• Improving Transparency and the Availability of Beneficial Ownership Information; 
• Financial Technologies, Regulatory Technologies: Digital Identity; and 
• De-risking by Banks.