Background

The Commission delegated regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council (the "AIFMD", available here) with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision applies since 22 July 2013 (the "Regulation 231/2013", available here). In particular, Article (11)(d)(iii) of the AIFMD requires that where a depositary delegates safekeeping functions to third parties (custodians), the assets also need to be segregated at the level of the delegate. Article 99 of the Regulation 231/2013 clarifies how this obligation shall be fulfilled.

The Commission delegated regulation (EU) 2016/438 of 17 December 2015 supplementing Directive 2009/65/EC of the European Parliament and of the Council (the "UCITS Directive", available here) with regard to obligations of depositaries applies since 13 October 2016 (the "Regulation 2016/438", available here). In particular, Article 22a(3)(c) of the UCITS Directive requires that where a depositary delegates safekeeping functions to third parties (custodians), the assets also need to be segregated at the level of the delegate. Article 16 of the Regulation 2016/438 details how this obligation shall be fulfilled.

On 20 July 2017, the ESMA published its opinion on asset segregation and application of depositary delegation rules to CSDs (ESMA34-45-277 - the "ESMA Opinion", available here).

On 26 June 2018, based on the ESMA Opinion, the Commission services closed its consultation on the following two draft delegated regulations concerning safekeeping duties of depositaries for AIFs and UCITS (altogether the "Draft DRs"):

• Draft delegated regulation amending the Regulation 231/2013 as regards safekeeping duties of depositaries (Ares(2018)2778659 - the "Draft DR for AIFs", available here); and
• Draft delegated regulation amending the Regulation 2016/438 as regards safekeeping duties of depositaries (Ares(2018)2778673 - the "Draft DR for UCITS", available here).

What's new?

On 12 July 2018, based on the feedback received to the Draft DRs, the European Commission adopted the following two delegated regulations (the "Delegated Regulations"):

• Delegated regulation amending the Regulation 231/2013 as regards safekeeping duties of depositaries (C(2018) 4377 final - the "Delegated Regulation for AIFs", available here); and
• Delegated regulation amending the Regulation 2016/438 as regards safekeeping duties of depositaries (C(2018) 4379 final - the "Delegated Regulation for UCITS", available here).

Compared to the Draft DR, the Delegated Regulations now foreseen that the starting date of application of the final texts should be deferred for 18 months (vs. 6 months) after publication in the OJEU.

What's next?

If the European Parliament and the Council of the EU raise no objections to the Delegated Regulations, the changes to the Regulation 231/2013 and to the Regulation2016/438 should apply as of spring 2020 (available here).

Background

Regulation (EU) 2016/1011 ("BMR", available here) aims at addressing all weaknesses in the provision of benchmarks and ensuring their integrity. It introduces a regime for benchmark administrators that will ensure the adequate governance structure to monitor conflicts of interests and adequate record-keeping. Benchmark regulation entered into force on 1 January 2018.

The purpose of these Q&As is to promote common supervisory approaches and practices in the application of Benchmark regulation. It aims at providing investors and other market participants with clarifications on the applicable requirements.

What's new?

On 17 July 2018, the ESMA updated its Q&As, and two additional questions are covered.

First of all, a new question aims at clarifying whether calculation agents should be considered to be users of benchmarks. Indeed, issuers of securities frequently appoint third parties to perform the calculation of payments related to a financial instrument. In this context, the ESMA considers that calculation agents are not users of benchmarks, as they usually do not set the terms of the financial instrument and do not decide which benchmark is selected for the instrument.

Second of all, another new question clarifies whether a benchmark can be considered as ‘regulated-data benchmark’ if a third party is involved in the process of obtaining the data. Indeed, the provision of regulated-data benchmarks is subject to fewer requirements, provided that the input data comes entirely from sources which are themselves subject to regulation. In this context, the ESMA considers that the benchmark qualifies as ‘regulated-data benchmark’ as long as the administrator has arrangements with the third party service provider that meet the outsourcing requirements detailed in the regulation.

The ESMA updated Q&As is available here.

What's next?

The ESMA will periodically review this Q&As and update it where required.

Background

On 29 March 2017, the United Kingdom notified the European Council of its intention to withdraw from the European Union. The withdrawal will take place either (i) on the date of entry into force of a withdrawal agreement or, failing that, (ii) two years after the notification - 30 March 2019.

In such context, there is no assurance that a transition period will be agreed upon before Brexit takes place on 30 March 2019.

Against this background, the ESMA has been publishing opinions in order to address regulatory and supervisory risks arising from increased requests from financial participants seeking to relocate into the EU27 within a relatively short period of time.

What's new?

On 12 July 2018, the ESMA issued a public statement in order to draw the attention of all financial market participants on the importance to expect a potential lack of agreement (the "Statement").

In particular, the ESMA emphasized the importance to respect the timeline to submit requests for authorization to the National Competent Authorities ("NCAs") and to the ESMA from financial market participants wishing to relocate. The ESMA urged UK-regulated entities to submit their applications as soon as possible to allow the NCAs to process them before 29 March 2019.

The Statement is available here.

What's next?

Some NCAs have already been clear that unless an application is filed in June/July 2018, there is no guarantee that the authorization will be granted before 29 March 2019.

Background

The EMIR Regulation (available here) entered into force on 16 August 2012 and lays down rules on OTC derivatives, Central Counterparties ("CCPs") and Trade repositories ("TRs").

In particular, EMIR introduces the obligation to clear some classes of OTC derivatives in CCPs that have been authorized (for European CCPs) or recognized (for third-country CCPs). In such context, the ESMA should develop and submit to the European Commission for endorsement draft technical standards identifying asset classes subject to the clearing obligation and detailing the date from which the obligation becomes effective.

The ESMA has already issued 5 consultation papers, final reports and feedback statements in order to detail the classes and the implementation calendar for these clearing obligations.

What's new?

On 11 July 2018, the ESMA issued a consultation paper on how to deal with intragroup transactions with a third-country group entity (the "Consultation Paper").

Existing delegated regulations (i.e. Commission Delegated Regulation (EU) 2015/2205, Commission Delegated Regulation (EU) 2016/1178 and Commission Delegated Regulation (EU) 2016/592) regarding credit derivative classes and interest rate derivative classes had issued a deferred date of application of the clearing obligation of up to three years.

In a draft of amendments to the 3 RTS, the ESMA suggests postponing the implementation date for two more years and aligning the end date for all these three temporary periods, i.e. to 21 December 2020.

The Consultation Paper is available here.

What's next?

The public consultation on the draft RTS on the clearing obligation runs until 30 August 2018. The ESMA will then review all the responses to the Consultation Paper submitted by the deadline in order to finalise the draft RTS.

Background

The EMIR Regulation (available here) entered into force on 16 August 2012 and lays down rules on OTC derivatives, Central Counterparties ("CCPs") and Trade Repositories ("TRs").

The purpose of this document is to promote common supervisory approaches and practices in the EMIR application. It provides responses to questions asked by the public, market participants and competent authorities in relation to the practical application of EMIR.

What's new?

On 12 July 2018, the ESMA issued an update of its Q&As' document.

First, the amendment to the existing General Q&A n°1 on counterparties identification confirms that a portfolio manager could be a counterparty to a derivative when entering into a derivative on its own account and own behalf.

Second, the existing TR Q&A n°40 on changes in Legal Entity Identifier (LEI) due to mergers and acquisitions is amended to simplify the existing process. The amendments also explain processes TRs should follow in different scenarios where the reports must be updated in relation to the LEI.

Ultimately, a new case for reporting derivatives has also been added to the Part IV of the Q&As which explains the procedure for reporting to TRs in a transaction scenario involving portfolio management companies. The new scenario clarifies the identification of the counterparty when a portfolio manager enters into a derivative contract on behalf of his client, in function of the entity who bears the risk.

The ESMA Q&As' document is available here.

What's next?

The ESMA will periodically review the Q&As document and update it where required.

Background

On 20 January 2016, the Parliament and the Council issued the Directive (EU) 2016/97 on insurance distribution ("IDD", available here) which entered into force on 23 February 2016. Initially planned to be transposed and applied before 23 February 2018, the Council adopted a directive postponing the transposition date of IDD to 1 July 2018 and application date to 1 October 2018.

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

On 11 July 2018, EIOPA published the first set of Questions & Answers (Q&As) providing practical guidance on the application of the IDD and its implementing regulations.

What's new?

Following the technical advice published in February 2017, EIOPA issued on 11 July 2018 two Q&As to clarify some points regarding the Product Oversight and Governance ("POG") arrangements and IBIPs additional regulatory requirements.

• The Q&As for requirements for the POG arrangements is available here; and
• The Q&As on the additional regulatory requirements for IBIPs is available here.

What's next?

While the transposition process is still ongoing in several Member States, EIOPA introduces a possibility to provide further guidance on when the information to be gathered under the suitability assessment would be considered "appropriate to the specific type of product or service".

Background

MiFID II (available here) and MiFIR (available here) encompass rules on governance, products, investor protection and information disclosure. These texts, together with the Commission delegated acts as well as regulatory and implementing technical standards, are applicable since 3 January 2018.

The purpose of this Q&As is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR in relation to investor protection topics. It provides responses to questions posed by the public, market participants and competent authorities in relation to the practical application of MiFID II and MiFIR. The document is aimed at national competent authorities as well as firms and provides clarity on the application of the MiFID II and MiFIR requirements.

What's new?

On 12 July 2018, the ESMA updated its Q&As on the implementation of investor protection topics. The updates relate to inducements and provision of investment services by third country firms.

With regard to the funding of research, the ESMA added a new Q&A that deals with the treatment of potential free trial period of research services when it is offered investment firms providing individual portfolio management or investment advice on an independent basis. The ESMA considers that access to third-party research under a free trial period qualifies as an inducement (a non-monetary benefit) where it is provided in connection with the provision of an investment service or an ancillary service. However, the ESMA is of the view that free trial periods may qualify as non-monetary benefits under certain circumstances and conditions detailed in the Q&As.

With regard to the provision of investment services and activities by third country firms, Article 42 of MiFID II regulates the provision of services by third country firms at the exclusive initiative of the client. In such regime, a third-country firm cannot market new categories of investment products to the client. The new question gives concrete examples of pairs of investment products which should not be considered as belonging to the same category.

The ESMA Q&As is available here.

What's next?

ESMA will continue to develop the Q&As on investor protection topics under MiFID II.

Background

MiFID II (available here) and MiFIR (available here) encompass rules on governance, products, investor protection and information disclosure. These texts, together with the Commission delegated acts as well as regulatory and implementing technical standards, are applicable since 3 January 2018.

The purpose of this Q&As is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR in relation to transparency topics. It provides responses to questions asked by the public, market participants and national competent authorities in relation to the practical application of MiFID II and MiFIR. The document is aimed at national competent authorities and firms and provides clarity on the application of the MiFID II and MiFIR requirements.

Under MiFID II, the systematic internalizer ("SI") regime requires investment firms to assess whether they are SIs for a specific instrument on a quarterly basis and based on data from the previous six months. For each specific instrument/sub-class, an investment firm is required to compare the trading it undertakes on its own account compared to the total volume and number of transactions executed in the European Union. If the investment firm exceeds the relative thresholds, it will be considered to be an SI and will have to fulfil the SI-specific obligations. Besides, the ESMA decided to compute the total volume and number of transactions executed in the EU in order to help market participants as that data is essential for the operation of the SI regime and is not otherwise easily available.

What's new?

On 12 July 2018, the ESMA updated its Q&As on transparency topics. In particular, the ESMA updated its action plan for SI regime calculations ahead of their publication on 1 August 2018.

The ESMA was required to amend its original action plan as data completeness for the various asset classes had not reached adequate levels when ESMA conducted its completeness analyses. The updated implementation schedule means ESMA will publish the necessary EU wide data, for the first time by:

• 1 August 2018 - covering a period from 3 January 2018 to 30 June 2018 for equity, equity-like and bond instruments. Investment firms will then have to perform their first assessment and, where appropriate, comply with the SI obligations by 1 September 2018.
• 1 February 2019 - covering a period from 1 July 2018 to 31 December 2018 for ETCs, ETNs, SFPs, securitised derivatives, emission allowances and derivatives. SIs will have to comply with the obligations from 1 March 2019.

The ESMA will publish results only if trading venues have submitted data for at least 95% of all trading days and will not trigger publication if the quality of the data received for an instrument is not considered to be sufficient. The data publications will also incorporate OTC trading to the extent it has been reported to the ESMA.

The ESMA updated Q&As are available here.

What's next?

Following this, the ESMA publications will be updated on a quarterly basis in respect of a rolling six months assessment period and investment firms are expected to self-assess and comply after a reduced two-week period.

Background

The Regulation (EU) 2017/2402 of the European Parliament and of the Council laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised ("STS") securitisation entered into force on 17 January 2018 and shall apply as from 1 January 2019 (the "STS Securitisation Regulation", available here).

The MMF Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds ("MMF") entered into force on 20 July 2017 and shall apply from 21 July 2018 (the "MMF Regulation", available here).

On 13 November 2017, the ESMA published its final report on technical advice, draft implementing technical standards and guidelines under the MMF Regulation (ESMA34-49-103 - the "ESMA Technical Advice", available here).

On 10 April 2018, based on the ESMA Technical Advice, the European Commission published its draft delegated regulation amending and supplementing the MMF Regulation with regard to STS securitisations and asset-backed commercial papers ("ABCPs"), requirements for assets received as part of reverse repurchase agreements and credit quality assessment methodologies (C(2018) 2080 final - the "MMF Draft Delegated Regulation", available here).

The MMF Draft Delegated Regulation consists of the following 3 chapters:

• Criteria for establishing a STS securitisation or ABCPs (pursuant to Article 15(7) of the MMF Regulation);
• Quantitative and qualitative credit quality requirements for assets received as part of reverse repurchase agreements (pursuant to Article 15(7) of the MMF Regulation); and
• Credit quality assessment criteria (pursuant to Article 22 of the MMF Regulation).

What's new?

On 13 July 2018, the MMF Draft Delegated Regulation was published in the OJEU (the "DR 2018/990").

The DR 2018/990 is available here.

What's next?

The DR 2018/990 will enter into force on 2 August 2018.

The DR 2018/990 shall apply as from 21 July 2018, with the exception of its Article 1 (concerning cross-references to the STS Securitisation Regulation) which shall apply as from 1 January 2019.

Background

The Regulation (EU) No 1286/2014 on key information documents ("KIDs") for packaged retail and insurance-based investment products applies since 1 January 2018 (the "PRIIPs Regulation", available here).

The PRIIPs Regulation lays down uniform rules on the format and content of the KID to be drawn up by PRIIPs manufacturers, and on the provision of the KID to retail investors in order for them to better understand and compare the key features and risks of these products.

In December 2017, the European Fund and Asset Management Association ("EFAMA") issued a statement alerting that the PRIIPs Regulation will confuse and mislead investors, especially in relation to performance and transaction costs (the "Statement", available here).

What's new?

On 28 June 2018, following up on the Statement, EFAMA issued an evidence paper focusing on "misleading transaction costs" and "misleading performance scenarios" in the context of the PRIIPs Regulation (the "Evidence Paper").

In particular, the Evidence Paper is based on "real-life examples by corporate EFAMA members" (e.g. negative transaction cost disclosure in the PRIIP KIDs, or the availability of market prices at the time of order ("arrival prices") is not expected to solve the over- and underestimation of transaction costs caused by the arrive price methodology, or substantial differences between "arrival price" and spread ("new PRIIPs") methodology).

The Evidence Paper is available here.

What's next?

EFAMA urges "EU policy makers to support investors by working urgently with the industry and relevant stakeholders to rectify the serious issues highlighted" in the Evidence Paper.

Background

The Regulation (EU) No 1286/2014 on key information documents ("KIDs") for packaged retail and insurance-based investment products ("PRIIPs") applies since 1 January 2018 (the "PRIIPs Regulation", available here). The PRIIPs Regulation lays down uniform rules on the format and content of the KID for PRIIPs to be drawn up by PRIIPs manufacturers, and on the provision of the KID to retail investors in order for them to better understand and compare the key features and risks.

On 2 May 2017, the Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing the PRIIPs Regulation entered into force (the "Delegated Regulation 2017/653", available here). The Delegated Regulation 2017/653 applies since 1 January 2018.

On 18 August 2017, the European Supervisory Authorities ("ESAs") issued flow diagrams explaining the risk and reward calculations required to prepare the PRIIPs’ KID (JC 2017 49 - the "Diagrams v1", available here).

On 21 November 2017, the ESAs last updated their set of questions & answers in relation to the PRIIPs' KID (JC 2017 49 - the "Q&A v3", available here).

What's new?

On 20 July 2018, the ESAs issued further guidance on the implementation of the PRIIPs’ KID, namely:

• The fourth update of their Q&As’ document (JC 2017 49 - the "Q&A v4", available here); and
• The second update of their Diagrams’ document (JC 2017 49 - the "Diagrams v2", available here).

In this context, the Q&A v4 indicates that a "PRIIP KID manufacturer must publish a KID on the public section of its website (on page 5), introduces a new Section entitled "PRIIPs with a recommended holding period ("RHP") of less than a year" (on page 23), and updates Part V of the Section dedicated to the methodology for the calculation of costs (on page 43, in case the moderate scenario shows a total loss of capital or even a negative return).

Moreover, the Diagrams v2 details Part 5.b) on performance calculations for "Category 3 PRIIPs" for the stress scenario with calculation examples (from page 29 to 36).

What's next?

The ESAs will continue to assess whether further guidance on PRIIPs KID is needed, especially based on additional questions received.

In a letter addressed to the European Commission (the "Commission"), the ESAs urged the Commission to provide detailed public guidance as a matter of urgency on which types of products, and especially bonds, fall within the scope of the PRIIPs Regulation (JC 2018 21 - the "Letter", available here). To support this, the ESAs included an analysis on the application of the scope to some of the main types or features of bonds (on page 4 of the Letter).

Background

The Prospectus Regulation (available here) is a pillar of the Capital Markets Union ("CMU") initiative and sets out the disclosure regime applicable to the prospectus to be published when securities are offered to the public or listed on a regulated market. The new Prospectus Regulation entered into force in June 2017 and will be fully applicable by 21 July 2019.

Under such regulation, the ESMA was required to issue draft Regulatory Technical Standards ("RTS") by 21 July 2018. In such context, the ESMA published a Consultation Paper on 15 December 2017.

What's new?

On 17 July 2018, the ESMA issued the final report of its consultation, thus publishing the final versions of its RTS.

This document covers six key topics:

• Key financial information to be provided in the summary: the draft RTS specify the content and format of presentation of the key financial information in the prospectus summary;
• Data and machine readability: the draft RTS specify the data necessary for the classification of prospectuses and the practical arrangements to ensure that such data is machine readable;
• Advertisements: the draft RTS specify the provisions applicable to the dissemination of advertisements and establish procedures regarding the cooperation between the competent authorities of the home Member State and the ones of the host Member State where the advertisements are disseminated;
• Supplements: the RTS specify under which circumstances a significant new factor, material mistake or material inaccuracy would trigger the requirement to publish supplements to a prospectus;
• Publications: the draft RTS carry over the provisions related to the publication of the prospectus of the existing Level 2 provisions which have not been transferred into Level 1 or become obsolete;
• Notification portal: The draft RTS specify the way the notification portal used for passporting prospectuses will be working.

The ESMA draft RTS are available here.

What's next?

The draft RTS have been sent to the European Commission for endorsement.

Background

The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing applies since 26 June 2017 (the "4AMLD", available here).

According to Article 31(1) of 4AMLD, EU Member States shall require that trustees of any express trust governed under their law obtain and hold adequate, accurate and up-to-date information on beneficial ownership regarding the trust.

On 6 December 2017, the Luxembourg Minister of Justice submitted the bill 7216 establishing a register of "express" trusts and transposing Article 31 of 4AMLD to the Luxembourg Parliament (the "Bill 7216", available here only in French).

On 18 February 2018, the Luxembourg law of 13 February 2018, which is based on the adopted "Bill 7128" (available here only in French) and transposes mostly certain provisions of 4AMLD, entered into force (the "4AMLD Transposition Law", available here only in French).

On 19 June 2018, the Directive (EU) 2018/843 amending 4AMLD was published in the OJEU (the "5AMLD", available here). In particular, Article 1(16) of 5AMLD modifies Article 31 of 4AMLD. 5AMLD shall enter into force on 9 July 2018.

What's new?

On 29 June 2018, the President of the Luxembourg Parliament sent an explanatory letter to the President of the Luxembourg Council of State in relation to the Bill 7216 (the "Letter").

In particular, the Letter explains the rationale behind the split of the Bill 7216 into the following two bills:

• "Bill 7216A" relates to the information to be obtained and kept by trustees and transposes Article 31 of 4AMLD; whereas
• "Bill 7216B" establishes a register of "express" trusts and transposes Article 31 of 4AMLD. Noteworthy is here that 5AMLD makes substantial amendments to 4AMLD concerning the scope and operational provisions of the central register. Article 1(45) of 5AMLD provides that registers mentioned under Article 31 of 4AMLD shall be set up by 10 March 2020 (and hence postpones the transposition deadline foreseen in 4AMLD).

The Letter is available here (only in French).

The Bill 7216A is available here (only in French).

The Bill 7216B is available here (only in French).

What's next?

In the Letter, the President of the Luxembourg Council of State is urged to consider the Bill 7216A, so that it may be adopted by the Luxembourg Parliament and published in July 2018 (if possible).
5AMLD will apply as from 10 January 2020. Luxembourg will have to set up registers referred to in Article 31 of 4AMLD (as amended by the 5AMLD) via the Bill 7216B by 10 March 2020.

Background

On 20 April 2018, pursuant to the "ESAs’ Risk-Based Supervision Guidelines" (available here) and the international "FATF Recommendations" (available here), the CSSF informed professionals under its supervision that it would henceforth conduct an annual survey collecting standardised key information concerning money laundering and terrorist financing ("ML/TF") risks (the "Press Release 18/15", available here).

To this end, the CSSF has elaborated new sector specific questionnaires supporting on the one hand, the identification of ML/FT risk factors most notably related to clients, countries and geographical areas, delivery or distribution channels, products and services of supervised entities and, on the other hand, the measures put in place to mitigate these risks (the "Questionnaires", available here).

The Questionnaires are dedicated to credit institutions, investment fund managers, payment institutions, electronic money institutions, investment firms and specialised professionals of the financial sector.

What's new?

On 22 June 2018, the CSSF has issued a FAQ providing some guidance on specific sections of the Questionnaires (the "FAQ").

The FAQ is available here.

What's next?

The FAQ will be updated by the CSSF on an ongoing basis.

Background

The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing applies since 26 June 2017 ("4AMLD", available here).

On 18 February 2018, the Luxembourg Law of 13 January 2018 resulting from the adopted Bill 7128 (available here in French only) and mostly transposing 4AMLD provisions entered into force (the "4AMLD Transposition Law", available here only in French).

Further, in order to transpose Articles 30 and 31 of 4AMLD, the Luxembourg Government submitted the following bills to the Luxembourg Parliament for adoption on 6 December 2017:

• The bill 7216 establishing a register of "express" trusts ("Bill 7216", available here only in French); and
• The bill 7217 relating to the register of information on beneficial owners of companies and other legal entities (i.e. "REBECO" or "Registre des bénéficiaires effectifs") and their obligations in relation to their beneficial owner(s) ("Bill 7217", available here only in French).

On 26 April 2018, five Luxembourg judicial authorities opinions in relation to the Bill 7217 were transmitted to the Luxembourg Parliament (7217/08 – the "Opinions", available here). In particular, the Opinions comment the provisions of the Bill 7217 concerning (i) the access (and consequences resulting from access) to the REBECO for the judicial authorities, (ii) the information contained in the REBECO, and (iii) criminal law provisions (mostly Articles 23 to 25 of the Bill 7217).

On 9 July 2018, the Directive (EU) 2018/843 of the Parliament and of the Council amending 4AMLD entered into force ("5AMLD", available here). The main changes introduced by 5AMLD involve: (i) broadening access to information on beneficial ownership ("BO"), improving transparency in the ownership of companies and trusts; (ii) addressing risks linked to prepaid cards and virtual currencies; (iii) cooperation between FIUs; and (iv) improved checks on transactions involving high-risk 3rd countries.

What's new?

On 10 July 2018, the Luxembourg Government submitted an updated version of the Bill 7217 to the Luxembourg Parliament (N° 7217/09 – the "Updated Bill 7217"). The objective of such amendments is to implement 5AMLD provisions relating to access to information on BO. In this context, the main evolution is the opening to the public of the access to the REBECO, without having to justify a legitimate interest (i.e. amendment 5 to the Bill 7217).

The Updated Bill 7217, including a tracked changes version, is available here (only in French).

What's next?

The Bill 7217 is still under discussion at the Luxembourg Parliament.

On 18 July 2018, the Financial Action Task Force ("FATF") published its report on the concealment of BO (available here).

5AMLD will apply as from 10 January 2020.

Background

The Regulation (EU) 648/2012 dealing with over-the-counter ("OTC") derivatives, central counterparties ("CCPs") and trade repositories ("TRs") applies since 16 August 2012 ("EMIR", available here).

Pursuant to Article 9(1) of EMIR, counterparties and CCPs shall ensure that the details of any derivative contract they have concluded and of any modification or termination of the contract are reported to a TR, no later than the working day following the conclusion, modification or termination of the contract.

Since 1 November 2017, the following 2 Commission delegated regulations have applied (altogether the "Delegated Regulations"):

• Commission delegated regulation (EU) 2017/104 supplementing EMIR with regard to regulatory technical standards on the minimum details of the data to be reported to TRs (the "RTS 2017/104", available here); and
• Commission delegated regulation (EU) 2017/105 laying down implementing technical standards on the format and frequency of trade reports to TRs according to EMIR (the "ITS 2017/105", available here).

On 1 March 2018, the ESMA updated its validation rules for the reports submitted under the Delegated Regulations (the "Validation Rules", available here).

At Luxembourg level, Article 1(2) of the law of 15 March 2016 on OTC derivatives, CCPs and TRs (available here) designates the CSSF and the Commissariat aux Assurances ("CAA") as the competent authorities to ensure that the financial counterparties subject to their supervision comply with the provisions of Title II of EMIR.

What's new?

On 13 July 2018, based mostly on the Delegated Regulations and the Validation Rules, the CSSF issued the press release 18/23 concerning EMIR reporting (the "Press Release 18/23").

In this context, the CSSF reminds market participants, falling under the scope of EMIR, of the following aspects:

• Trade rejections (e.g., a rejection does not postpone any duties with regards to timely reporting of derivative transactions);
• Double-sided transaction reconciliations (the CSSF stresses here the importance of reporting a common Unique Trade Identifier ("UTI") for each transaction by both counterparties); and
• Content of the reporting (e.g. inconsistent information in fields with regards to publicly available identifiers of instruments, benchmarks, stakeholders shall be an indicator for insufficient and inadequate processes and potential non-compliance with regards to EMIR reporting duties).

On 10 July 2018, the CAA issued a similar communication in relation to EMIR reporting (the "CAA Note").

The Press Release 18/23 is available here.

The CAA Note is available here (only in French).

What's next?

The CSSF indicates that it will increase its focus on the review of reported transactions to TRs.

The CAA expects all undertakings falling in scope of EMIR to identify themselves with the CAA before 31 July 2018, and to indicate which obligations apply to them based on current derivatives being held or envisaged to be held in the near future. The CAA also requests to be provided with the name and details of contacts persons responsible for EMIR matters including on reporting obligations.

Background

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

On 12 September 2017, the Luxembourg Minister for Communications and Media (the "Luxembourg Government") submitted the bill 7184 entitled the ‘Law dd/mm/yyyy establishing the National Commission for Data Protection and the general data protection regime’ to the Luxembourg Parliament (the "Bill 7184", available here only in French).

On 6 March 2018, the Luxembourg Commission for Higher Education, Research, Media, Communications and Space (the "Luxembourg Commission") adopted one amendment to the Bill 7184 (the "Document 7184/09", available here only in French).

On 8 March 2018, the Luxembourg Government adopted a set of 35 amendments to the Bill 7184 and published the corresponding consolidated version of the Bill 7184 (the "Document 7184/10", available here only in French).

On 30 March 2018, based mostly on the Document 7184/09 and the Document 7184/10, the Luxembourg Conseil d’État (the "CE") issued its opinion on the Bill 7184 (N° CE: 52.422 - the "CE Opinion", available here only in French).

On 14 May 2018, the Luxembourg Government published 2 other amendments (the "Government Amendments") to the Bill 7184 (the "Document 7184/22", available here only in French), as follows:

• Revamping of the Article 71 of the Bill 7184 to reassert its intention to provide for more specific rules to ensure the protection of the rights and freedoms in respect of the processing of employees’ personal data in the employment context; and
• Introduction of the new Article 78b of the Bill 7184 to clarify that the relevant article of the Luxembourg Labour Code will only apply for new processing of data in the employment context after the entry into force of the present law. However, the Luxembourg Government notes that "all systems that have been put in place ("tout dispositif en place") shall be compliant with the GDPR provisions as from 25 May 2018.

On 19 May 2018, the Luxembourg Commission published another set of 47 amendments to the Bill 7184 ("Parliament Amendments") and the corresponding consolidated version of the Bill 7184 (the "Document 7184/23", available here only in French).

What's new?

On 26 June 2018, based mostly on the Document 7184/22 and the Document 7184/23, the CE issued an additional Opinion on the Bill 7184 (N° CE: 52.422 - the "Additional CE Opinion").

In this context, the CE expressed further formal objections to the Government Amendments and to Parliament Amendments 1, 5, 12, 40 and 41.

The Additional CE Opinion is available here (only in French).

Further information on the Bill 7184 is available here (only in French).

What's next?

The Bill 7184 is still under discussion at the Luxembourg Parliament. On 5 July 2018, taking into account the CE Additional Opinion, the Luxembourg Commission published another set of 7 amendments to the Bill 7184 (the "Document 7184/31", available here only in French).

Background

On 22 December 2017, the Grand-Ducal regulation of 21 December 2017 relating to the fees to be levied by the CSSF was published in the Memorial A N° 1121 (the "2017 Regulation", available here in English and here in French). The 2017 Regulation applies since 1 January 2018.

On 23 April 2018, the Luxembourg law of 17 April 2018 implementing certain provisions of the Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds ("BMR", available here) entered into force (the "BMR Law", available here only in French).

On 4 June 2018, the Luxembourg law of 30 May 2018 on markets in financial instruments entered into force (the "MiFID II Law", available here only in French).

What's new?

On 4 July 2018, the Grand-Ducal Regulation of 2 July 2018 amending the 2017 Regulation in relation to certain provisions of the MiFID II Law and BMR was published in the Luxembourg Memorial A N° 547 (the "2018 Regulation").

The main amendments introduced by the 2018 Regulation are described below:

MiFID II related CSSF fees

• An annual lump sum of EUR 150,000 for the supervision of each organised trading facility ("OTF") in Luxembourg shall be paid by its operator; where an OTF is operated by a market operator, a credit institution or an investment firm already operating an OTF in Luxembourg, the annual lump sum amounts to EUR 100,000;
• An annual lump sum of EUR 40,000 shall be paid by each professional of the financial sector ("PFS") for the status of investment firm operating an OTF in Luxembourg;
• An annual lump sum of EUR 50,000 shall be paid by each PFS for the new status of "prestataire de services de communication de données" or "PSCD" (i.e. encompassing approved publication arrangement ("APA"), approved reporting mechanism ("ARM") and consolidated tape provider ("CTP"); and
• An annual lump sum of EUR 4,000 shall be paid by each investment firm covered by the Investor Compensation Scheme Luxembourg for the status of investment firm operating an OTF in Luxembourg.

BMR related CSSF fees

1. Authorisation, registration, or recognition of administrators

• A single lump sum of EUR 15,000 shall be paid for the examination of each authorisation request by a new administrator pursuant to Article 34(1)(a) of BMR;
• A single lump sum of EUR 15,000 shall be paid for the examination of each registration request by a new administrator pursuant to Article 34(1)(b) and (c) of BMR;
• A single lump sum of EUR 15000 shall be paid for the examination of each recognition request by a new administrator located in a third country pursuant to Article 32 of BMR;
• An annual lump sum of EUR 400,000 shall be paid by each administrator of one critical benchmark within the meaning of Article 20 of BMR (an additional annual lump sum of EUR 200,000 for every additional critical benchmark);
• An annual lump sum of EUR 120,000 shall be paid by each Luxembourg administrator not previously mentioned and by each recognised third-country administrator of at least one significant benchmark within the meaning of Article 24 of BMR;
• An annual lump sum of EUR 50,000 shall be paid by each Luxembourg administrator or third-country administrator of only non-significant benchmarks within the meaning of Article 26 of BMR;
• Additional annul lump sums ranging from EUR 10,000 to EUR 100,000 shall be paid by each administrator providing a certain number of non-critical benchmarks (depending on 5 specific thresholds);

2. Endorsement of benchmarks

• A single lump sum of EUR 10,000 shall be paid by an administrator located in Luxembourg and authorised or registered under Article 34 of BMR, or by any other supervised entity located in Luxembourg, applying for the endorsement of the first benchmark provided by a third-country administrator pursuant to Article 33 of BMR (an additional single lump sum of EUR 500 is foreseen for the endorsement of further benchmarks);
• An annual lump sum of EUR 60,000 shall be paid by such administrator located in Luxembourg and authorised or registered under Article 34 of BMR, or by such other supervised entity located in Luxembourg, when they apply for the endorsement of at least one significant benchmark (an additional annual lump sum of EUR 10,000 for the endorsement of further significant benchmarks provided by the same third-country administrator); and
• An annual lump sum of EUR 20,000 shall be paid by such administrator located in Luxembourg and authorised or registered under Article 34 of BMR, or by such other supervised entity located in Luxembourg, when they apply for the endorsement of one or several benchmarks provided by a third-country administrator, whose benchmarks are all non-significant (an additional annual lump sum of EUR 1,000 should be paid for the endorsement of non-significant benchmarks above a threshold of 20 provided by the same third-country administrator).

The 2018 Regulation is available here (only in French).

What's next?

The 2018 Regulation entered into force on 8 July 2018.

Background

The Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds ("MMFs") entered into force on 20 July 2017 and shall apply as from 21 July 2018 (the "MMF Regulation", available here). Transitional provisions are foreseen for existing UCITS and AIFs in Article 44 of the MMF Regulation.

On 21 March 2018, the ESMA published the official translations of its guidelines on stress tests scenarios under Article 28 of the MMF Regulation, which shall apply as from 21 July 2018 (ESMA34-49-115 - the "ESMA Guidelines", available here). The ESMA Guidelines establish common reference parameters for the stress test scenarios to be included in MMF's stress tests by national competent authorities ("NCAs") and managers of MMFs, taking into account the following factors:

• Hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF;
• Hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events;
• Hypothetical movements of the interest rates and exchange rates;
• Hypothetical levels of redemption;
• Hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and
• Hypothetical macro systemic shocks affecting the economy as a whole.

What's new?

On 20 July 2018, the CSSF published its circular 18/696 endorsing the ESMA Guidelines (the "Circular 18/696").

In this context, the Circular 18/696 is addressed to all MMFs subject to CSSF's supervision and Luxembourg managers of MMFs, as well as to those involved in the operation and control of these entities. The CSSF reminds that, in accordance with Article 28(7) of the MMF Regulation, the ESMA Guidelines will be updated at least every year taking into account the latest market developments. In particular, the Section 4.8 of the ESMA Guidelines will be updated so that managers of MMFs have the information needed to fill in the corresponding fields in the reporting template to be sent to NCAs pursuant to Article 37 of the MMF Regulation.

The Circular 18/696 is available here (only in French).

What's next?

The Circular 18/696 entered into force on 21 July 2018.

On 20 July 2018, the ESMA sent a letter to the European Commission (the "Commission") on the implementation of the MMF Regulation (ESMA34-49-128, available here). The ESMA would see merit that the Commission makes its interpretation of the relevant provisions of the MMF Regulation (especially in relation to the reverse distribution mechanism, often referred to as "share cancellation") clear to the public through means of communication deemed most appropriate.

Background

The Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market entered into force on 20 July 2017 and will apply as from 21 July 2019 (the "Prospectus Regulation", available here).

In particular, the Prospectus Regulation will repeal the Directive 2003/71/EC (the "Prospectus Directive", available here), which was transposed in Luxembourg by the amended law of 10 July 2005 on prospectuses for securities (the "2005 Law", available here).

What's new?

On 29 June 2018, the Luxembourg Finance Minister submitted the bill 7328 implementing certain provisions of the Prospectus Regulation into a new law entitled "the law of […] on prospectuses for securities" and repealing the 2005 Law to the Luxembourg Parliament (the "Bill 7328").

In this context, the Bill 7328 is divided into the following five parts:

• Part 1 - General provisions (Articles 1 to 3);
• Part 2 - Provisions implementing the Prospectus Regulation (Articles 4 to 15);
• Part 3 - Offers to the public and admissions to trading on a regulated market of securities not covered by the Prospectus Regulation (Articles 16 to 60);
• Part 4 - Admission of securities to trading on a Luxembourg market not set out in the list of regulated markets published by the ESMA (Article 61); and
• Part 5 - Final provisions (Articles 62 to 65).

With regards to Part 2, the Bill 7328 designates the Luxembourg Commission de Surveillance du Secteur Financier ("CSSF") as the competent authority for carrying out the duties under the Prospectus Regulation, and defines the CSSF’s powers and penalties applicable to infringements of the relevant provisions (e.g. for legal persons, the CSSF can impose administrative fines of up to EUR 5 million or 3% of its total annual turnover). Noteworthy is that Article 4 of the Bill 7328 exempts offers of securities to the public from the obligation to publish a prospectus (as an option set out in Article 3(2) of the Prospectus Regulation), provided that (i) such offers are not subject to notification in accordance with Article 25 of the Prospectus Regulation and (ii) the total consideration of each such offer in the EU is less than a monetary amount calculated over a period of 12 months which shall not exceed EUR 8 million. However, in order to ensure investor protection, an information note shall be provided to the public when the total consideration of the offer is above EUR 5 million.

Taking into account the requirements, details and terminological adaptations introduced by the Prospectus Regulation, Part 3 of the Bill 7328 provides, in the interests of simplification, investor protection and legal certainty, certain adjustments in relation to the existing provisions of the 2005 Law. In particular, a smaller scope of application (especially in Article 17) and the introduction of new rules to ensure easy access to the prospectus and supplements (e.g. on a dedicated section of the concerned website, as introduced in Articles 29(4) and (5) and 51(4) and (5)) should be noted.

The Bill 7328 is available here (only in French).

What's next?

The Luxembourg Conference of Presidents will order the referral of the Bill 7328 to a parliamentary committee for discussion.

As indicated in part V of the Bill 7328, the 2005 Law will be repealed by the final text of the ''the law of […] on prospectuses for securities'' on the day of its publication in the Luxembourg Memorial A. Such law shall enter into force on 21 July 2019, with the exception of its anticipated Article 4 that will enter into force on the publication date. A transitional period of up to 12 months after 21 July 2019 is foreseen for approved prospectuses under the 2005 Law.

Background

Articles 12-1 to 12-12 of the Luxembourg Law of 5 April 1993 on the financial sector, as amended (the "LSF", available here), contain specific provisions relating to banks issuing covered bonds.

On 20 December 2016, the EBA published its recommendations on harmonisation of covered bonds frameworks in the EU (EBA-Op-2016-23 - the "Recommendations", available here).

On 12 January 2018, the Luxembourg Minister of Finance submitted the bill 7232 concerning banks issuing covered bonds and modifying the LSF to the Luxembourg Parliament (the "Bill 7232", available here only in French). In particular, the Bill 7232 (i) introduces a new category of "green" covered bonds (i.e. covered bonds in relation to renewable energy or "lettres de gage portant sur les énergies renouvelables") in Article 12-1 (h) of the LSF, and (ii) implements certain Recommendations (e.g. best practices 8-A&B on scope and frequency of disclosure of covered bonds) into Luxembourg legislation.

On 5 June 2018, the Luxembourg Finance and Budget Commission published its final report on the Bill 7232 (available here only in French). Further legislative steps on the adopted Bill 7232 are available here.

What's new?

On 26 June 2018, based on the adopted Bill 7232, the law on green covered bonds was published in the Luxembourg Memorial A521 (the "Law").

The Law is available here (only in French).

What's next?

The Law will enter into force on 30 June 2018.

Background

In December 2017, the CSSF published its guidelines on UCITS risk reporting (the "Guidelines", available here). The reporting scope of the Guidelines encompassed all Luxembourg domiciled UCITS authorised by the CSSF as at 31 December 2017, given that UCITS liquidated during the second half of 2017 were out of scope. In the Guidelines, the CSSF asked management companies and self-managed investment companies to verify, prior to the submission of their half-yearly risk report, that they covered all UCITS included in the CSSF list (that was later issued on 15 January 2018).

In this context, the reporting file, which contains the following two separate Excel sheets, was due to be sent to the CSSF by 15 February 2018:

• The first sheet entitled "UCITS risk data" refers to risk information at the sub-fund level of the UCITS; and
• The second sheet entitled "Contact details" aims at collecting contact details at the level of the management company or self-managed investment company, in order to enable the CSSF, amongst other, to the send the circular letter for UCITS risk reporting by e-mail (in addition to the posted letter) to all addresses.

What's new?

On 26 June 2018, the CSSF updated its Guidelines (the "Updated Guidelines").

Besides some further explanation provided in the part C "VaR limits and back testing" of the section III "Global exposure and leverage", the CSSF draws the attention of management companies and self-managed investment company that the updated list for UCITS risk reporting as at 30 June 2018 will only be available as from 15 July 2018.

The Updated Guidelines are available here and the updated Excel sheets are available here.

What's next?

Pursuant to the Updated Guidelines, the next deadline for UCITS risk reporting will be 15 August 2018.

Background

On 20th July 2018, the Law on investment instruments offered to public or admitted to trading of a regulated market, adopted on 11th July 2018, has been published on the Belgian official gazette. This law complements the Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “Prospectus Regulation”), repealing the law dated 16th June 2006, and modifies the law of 1st April 2007 on takeover bids. The law also contributes to the application of the Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds and brings some modifications to the current Belgian financial law.

What's new?

In keeping with the prior Belgian legislation, the new law not only applies to publicly offered securities as provided by the Prospectus Regulation, but to all kind of investment instruments offered to public. Since the Prospectus Regulation covers the main part of the regime, the law mainly fixes transitional measures or brings complements, establishing for instance the threshold of the offering related to the Prospectus’ issue. When the offering exceeds €5.000.000 or €8.000.000, or in case investment instruments are admitted to trading on a regulated market, the issue of a prospectus is mandatory. In case of lesser offering, the fund must issue an information note instead, which content does not require the FSMA approval.

Background

Pursuant to Regulation 68(1)(e) of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, a UCITS is permitted to invest in non-UCITS funds which meet certain conditions (“Target Funds”). One of the conditions is that not more than 10% of the assets of the Target Funds can “according to their trust deed, deed of constitution or articles, be invested in aggregate in units of other UCITS or other collective investment undertakings.”

Previous Central Bank guidance did not insist on such investor protections being imposed by the laws applicable to the Target Fund, or expressly stated in the Target Fund’s constitutional or offering documentation, provided the UCITS was satisfied that the Target Fund was operating in practice in a manner which complied with such requirements.

What's new?

The updated Q&A confirms that for a UCITS to comply with Regulation 68(1)(e), the Target Fund must either:

1. be subject to equivalent requirements in its jurisdiction of domicile; or
2. include equivalent requirements in its constitutional document or offering document - a statement of the intended investment approach is not sufficient for this purpose.

What's next?

The Central Bank has stated that UCITS should comply with the update as soon as possible taking into account the best interests of the investors and in any event no later than 5 October 2018.

In light of the Central Bank’s clarification, it is advisable that UCITS managers review current investments in Target Funds to ensure that the fund documentation complies with either (1) or (2) above.

Similarly, non-UCITS managers whose investor base includes Irish UCITS should carry out a review of their funds to ensure they remain eligible for investment by Irish UCITS funds.

Background

The OECD has developed the Common Reporting Standard ("CRS") as a global reporting standard to achieve a comprehensive and multilateral automatic exchange of information ("AEoI") framework which impacts a wide variety of financial and non-financial institutions.

CRS imposes obligations on Financial Institutions to collect information to establish their customers’ country of tax residence and to report account holder information to their local tax authorities who will then exchange this information with the tax authorities of countries where the account holder is resident.

What's new?

On 5 July 2018, the OECD published the updated list of bilateral exchange relationships established under CRS. In total, the international legal network for the automatic exchange of information under CRS now covers over 90 jurisdictions, including Luxembourg. There are now already over 3200 bilateral exchange relationships activated.

The news of the OECD is available here. The full list of automatic exchange relationships that are currently activated under CRS is available here.

What's next?

It is expected that the list of bilateral exchange relationships will expand within the next months to more than 100 countries.