Background

The Directive 2011/61/EU of the European Parliament ("Parliament") and of the Council on alternative investment fund managers applies since 22 July 2013 (the "AIFMD", available here).

As set forth in Article 69(1) of the AIFMD, a review of the AIFMD scope and application was originally intended to be conducted by the European Commission (the "Commission") by 22 July 2017.

In this context, the Commission has contracted an external contractor to carry out a general survey on (i) the functioning of the AIFMD rules, (ii) the experience acquired in applying them, and (iii) the market impacts of the AIFMD (the "Survey"). Between 8 February 2018 and 15 March 2018, the Survey was opened for public consultation.

What's new?

On 10 January 2019, based on the feedback received to the Survey, the Commission released the report on the operation of the AIFMD dated 10 December 2018 (FISMA/2016/105(02)/C – the "Report").

Overall, the Report confirms that current AIFMD rules have significantly contributed to creating a single market for AIFMs by establishing a harmonised regulatory and supervisory framework. Most of the AIFMD provisions are assessed as having achieved their objectives efficiently and effectively; however, the Report highlights the following areas that require further analysis:

• National additional provisions to sub-threshold AIFMs;
• Overlapping and duplicative data reporting requirements to national competent authorities ("NCAs") under AIFMD and with other EU legislation;
• Harmonisation of the calculation methodologies for leverage across AIFMD, UCITS and other relevant EU legislation (after completion of the IOSCO's work on leverage);
• Choice in the valuation rules between internal or external valuation and NCA's interpretation of the extent of the liability of external valuers;
• Coherence of the AIFMD remuneration rules with other legislation or guidelines (especially for AIFMs that are part of corporate groups with interfaces to more than one regulatory regime);
• Certain AIFMD depositary rules are interpreted differently in Member States (e.g. differing national approaches regarding the total look-through provision or cash monitoring duties) and transitional provisions in relation to the domicile of the depositary in Article 61(5) of the AIFMD could be extended;
• Requirements on disclosures to investors pursuant to Article 23 of the AIFMD are excessive in quantity;
• The extent of notifications to NCAs concerning investments in non-listed companies and enterprises is viewed as not useful and overly burdensome; and
• With regards to the AIFMD passporting regime, the Report shows that, based on statistical evidence, the EU management passport is working well; however, the marketing passport is lagging behind and is suffering from the different approaches taken by the NCAs.

The Report is available here.

What's next?

The Report represents the first step in the AIFMD review process.

The Commission will continue its review of the AIFMD and should report to the Parliament and the Council in 2020.

Background

At EU level, investment firms are currently subject to the same prudential rules as credit institutions (i.e. the Capital Requirements Regulation or "CRR", available here, and the Capital Requirements Directive or "CRD IV", available here). CRD IV/CRR rules work since 3 January 2018 in conjunction with the MiFID II (available here) and MiFIR framework (available here), which sets out in particular the conditions for the authorisation of investment firms ("IF").

On 20 December 2017, the European Commission ("Commission") published the following 2 proposals to amend the prudential framework for IF, in order to take account the different business and risks profiles of IF (collectively the "Commission Proposals"):

• Proposal for a regulation of the European Parliament and of the Council on the prudential requirements of IF and amending CRR, MiFIR and the EBA Regulation No 1093/2010 (COM(2017) 790 final – the "Commission Regulation Proposal", available here); and
• Proposal for a directive of the European Parliament and of the Council on the prudential supervision of IF and amending CRD IV and MiFID II (COM(2017) 791 final – the "Commission Directive Proposal", available here).

The Commission Proposals aim to differentiate the prudential regime depending on the size, nature and complexity of IF, as follows:

• The largest IF would remain under the prudential regime of CRR/CRD IV (i.e. these investment firms would be treated and supervised as significant credit institutions); and
• Smaller IF would no longer be subject to CRR/CRD IV rules and hence enjoy a new regime with dedicated prudential and supervisory requirements (in areas such as own account trading where risks of credit institutions and IF are similar, the Proposals introduce a simplified version of some of the current prudential requirements into the new regime).

On 27 September 2018, the ECON Committee of the European Parliament voted at first reading on the following draft reports amending the Commission Proposals (collectively the "Parliament's Reports"):

• Position on the Commission Regulation Proposal (A8-0296/2018 – the "Parliament Draft Regulation", available here); and
• Position on the Commission Directive Proposal (A8-0295/2018 – the "Parliament Draft Directive", available here).

The decision to enter into inter-institutional negotiations was confirmed by the Parliament plenary on 3 October 2018.

What's new?

On 7 January 2019, the Council of the EU adopted its position on the Commission Proposals (the "Council Press Release"), as follows:

• Position on the Commission Regulation Proposal (2017/0359(COD) – the "Council Regulation Proposal"); and
• Position on the Commission Directive Proposal (2017/0358(COD) – the "Council Directive Proposal").

In this context, IF that provides "bank-like" services, e.g. dealing on own account or underwriting financial instruments, and whose consolidated assets exceed EUR 15 billion would be subject to CRR/CRD IV. In addition, IF engaged in "bank-like" activities with consolidated assets between EUR 5 and 15 billion could be requested to apply CRR/CRD IV by their supervisory authority, in particular if the firm's size or activities would involve risks to financial stability.

Smaller IF that are not considered systemic would enjoy a lighter regime with dedicated prudential requirements. Overall, these would be different from those applicable to credit institutions, but competent authorities ("CAs") could allow continuing applying banking requirements to certain IF, on a case-by-case basis, to avoid disrupting their business models. A 5-year transitional period is foreseen to give IF sufficient time to adapt to the new regime.

Besides, the Council texts further strengthen the equivalence regime, as set out in the MIFID II/MIFIR framework, that would apply to third country IF. They provide further detail on certain requirements for giving third country IF access to the single market and grants additional powers to the Commission. In particular, in case the activities performed by third country IF are likely to be of systemic importance, the Commission may attach specific to an equivalence decision to ensure that the ESMA and CAs have the necessary tools to prevent regulatory arbitrage and monitor the activities of third country IF.

The Council Press Release is available here.

The Council Regulation Proposal is available here.

The Council Directive Proposal is available here.

What's next?

Trilogue negotiations on the above-mentioned Proposals should start in the coming weeks.

Background

The Regulation (EU) N0 596/2014 of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on market abuse applies since 3 July 2016 ("MAR", available here). MAR empowers the European Commission (the "Commission") to adopt delegated and implementing acts to specify compliance with obligations laid down in MAR ("MAR Implementing and Delegated Acts", available here).

The concept of market abuse typically consists of insider dealing, unlawful disclosure of inside information, and market manipulation. MAR provides a defense against market manipulation if the transaction was legitimate and carried out in accordance with an accepted market practice ("AMP"). Before deciding whether to accept an AMP, a national competent authority ("NCA") should take into account (non-exhaustive) factors described in MAR. In particular, the regime for AMPs is set forth in Article 13 of MAR, together with the Commission Delegated Regulation (EU) 2016/908 supplementing MAR laying down regulatory technical standards on the criteria, the procedure and the requirements for establishing an AMP and the requirements for maintaining it, terminating it or modifying the conditions for its acceptance ("RTS on AMPs", available here).

Before MAR, the regulatory regime for AMPs was set in the Directive 2003/6/EC of the Parliament and the Council on insider dealing and market manipulation ("MAD", available here) and the Commission Directive 2004/72/EC implementing MAD as regards AMPs, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers' transactions and the notification of suspicious transactions ("MAD Implementing Directive", available here).

Article 13(10) of MAR provides that the European Securities and Markets Authority (the "ESMA") shall monitor the application of AMPs and shall submit an annual report to the European Commission (the "Commission") on how they are applied in the markets concerned.

On 25 April 2017, the ESMA published its developed points for consistency and convergence that NCAs should take into account in establishing MAR AMPs on liquidity contracts, namely circumstances entailing an issuer entering an agreement with a financial intermediary entrusted with the task of enhancing the liquidity of the issuer’s financial instruments (ESMA70-145-76 — the "Points for Convergence", available here). The Points for Convergence specify the criteria contained in MAR and aim at granting a uniform and common approach among NCAs, and, consequently, comparable conditions for the AMPs on liquidity contracts throughout the EU. These agreed points are expected to be used as a reference in the assessment of the MAR AMPs on liquidity contracts that NCAs may submit to the ESMA after a domestic consultation and on which the ESMA shall issue an opinion.

What's new?

On 16 January 2019, the ESMA published its annual report dated 18 December 2018 to the Commission on the application of AMPs based on the information received from the relevant NCAs (ESMA70-145-1184 — the "Report").

The Report provides a general description of the legislative framework concerning the adoption of AMPs under MAR, and of the Points for Convergence. It identifies the AMPs which have been established on the basis of MAR and which were still in force when MAR became applicable, and the AMPs which have been established under MAR. The ESMA compares their application. It is noted by the ESMA that NCAs have still been applying AMPs which were established under MAD (more than 2 years after the MAR AMPs regime became applicable) due to lack of an explicit deadline for the adoption of MAR-compliant AMPs.

Furthermore, the ESMA notes that as of the date of the Report, 2 AMPs were established under MAR (in Spain and Portugal) and a few contracts were executed on their basis. The only type of AMP established pursuant to MAR concerns liquidity contracts. As of the date of the Report, few NCAs expressed interest in the establishment of AMPs. In light of this, the ESMA could draw considerations as regards application of the AMPs in the markets concerned and recommend certain actions for specific NCAs. However, the ESMA also noted that the relevant AMPs established under MAR are still quite new and that MAR is still relatively recent for drawing conclusions.

The ESMA considers that the following factors may have played a role as the reasons for which few NCAs decided to establish AMPs under MAR:

• There are tools that facilitate the provision of liquidity other than AMPs (e.g. market making schemes and liquidity schemes by trading venues); and
• Some NCAs, in the presence of liquidity provision schemes, may not want to introduce another one (by establishing an AMP) which, by nature, may involve orders and transactions that without the protection offered could be considered as manipulative.

The Report is available here.

What's next?

The ESMA expects that in the coming years it will have more data to reach 'meaningful' conclusions on the application of the AMPs.

Background

The Directive 2014/65/EU ("MiFID II", available here) and the Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments ("MiFIR", available here) apply since 3 January 2018.

Pursuant to Article 23(1) of MiFIR, investment firms shall ensure that the trades they undertake in shares admitted to trading on regulated markets, or traded on trading venues should take place on regulated markets, multilateral trading facilities ("MTFs") or systematic internalisers, or third-country trading venues assessed by the European Commission (the "Commission") as equivalent in accordance with Article 25(4)(a) of MiFID II. The 4 conditions to be at least fulfilled by such equivalent third-country trading venues are as follows:

• They must be subject to authorisation and to effective supervision and enforcement on an ongoing basis;
• They must have clear and transparent rules regarding admission of securities to trading so that such securities are capable of being traded in a fair, orderly and efficient manner, and are freely negotiable;
• Security issuers must be subject to periodic and ongoing information requirements ensuring a high level of investor protection; and
• The third-country legal and supervisory framework must ensure market transparency and integrity by preventing market abuse in the form of insider dealing and market manipulation.

Against this background, the Commission implementing decision (EU) 2017/2441 on the equivalence of the legal and supervisory framework applicable to stock exchanges in Switzerland in accordance with MiFID II shall expire on 31 December 2018 (the "Decision 2017/2441", available here).

What's new?

On 21 December 2018, the Commission implementing decision (EU) 2018/2047 on the equivalence of the legal and supervisory framework applicable to stock exchanges in Switzerland in accordance with MiFID II was published in the OJEU (the "Decision 2018/2047").

In this context, the stock exchanges "SIX Swiss Exchange AG" and "BX Swiss AG" in Switzerland are considered equivalent to regulated markets as defined in MiFID II.

The Decision 2018/2047 is available here.

What's next?

The Decision 2018/2047 entered into force on 22 December 2018 and applies since 1 January 2019. It shall expire on 30 June 2019.

The Commission should conduct regular reviews of the legal and supervisory arrangements applicable to stock exchanges in Switzerland. Those reviews are without prejudice to the possibility of the Commission to undertake a specific review at any earlier time, where relevant developments make it necessary for the Commission to re-assess the equivalence granted by the Decision 2018/2047.

Further information is also available on the Swiss Financial Market Supervisory Authority ("FINMA's") website here.

Background

The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council of the EU on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II" and "MiFIR", available here and here).

The European Commission (the "Commission") has adopted delegated and implementing acts to specify how competent authorities ("CAs") and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here).

The MiFID II and MiFIR Delegated and Implementing Acts include the Commission Delegated Regulation (EU) 2017/585 supplementing MiFIR with regard to regulatory technical standards for the data standards and formats for financial instrument reference data and technical measures in relation to arrangements to be made by the European Securities and Markets Authority (the "ESMA") and CAs ("RTS 23", available here).

The general public, market participants and CAs can submit to the ESMA questions in relation to the MiFID II and MiFIR regime for commodity derivatives, including the position limits, position reporting, ancillary activity provisions and other aspects. Since 19 December 2016, the ESMA provides answers to those questions by publishing updates to its questions and answers' document on MiFID II and MiFIR commodity derivatives topics (ESMA70-872942901-36 – the "Q&A Document", available here).

On 2 October 2018, the ESMA lastly updated the Q&A Document as follows:

• Adding new Q&A 18 (on page 24) on position limits to clarify the treatment of legacy positions on organised trading facilities;
• Adding new Q&A 22 (on page 39) on position reporting to further specify the types of firms that have to submit weekly position reports; and

Modifying Q&A 3 and Q&A 10 (respectively on pages 25 and 28) and deleted Q&A 13 (on page 29) on the ancillary activity test.

What's new?

On 4 January 2019, the ESMA updated its Q&A Document (ESMA70-872942901-36 – the "Updated Q&A Document"), by adding a new Q&A 1 to new chapter 7 (on page 41) concerning 'other issues'.

This update clarified the correct application/population of the field "price multiplier" (field 25 of Table 3 of the Annex of RTS 23) when reporting electricity derivative contracts, in order to mitigate the risk of different contracts receiving the same ISIN. In particular, the ESMA stated that "when reporting an electricity derivative contract, i.e. where Base product (field 35 of Table 3 of the Annex of RTS 23) is equal to "NRGY" and Sub product (Field 36 of Table 3 of the Annex of RTS 23) is equal to "ELEC", a trading venue should report a value in MWh which is equal to the number of relevant hours of delivery during the delivery period, multiplied by the lot size in MW".

The Updated Q&A Document is available here.

What's next?

The ESMA will continue to edit and develop the Q&A Document as and when new questions are received.

Background

The Directive 2014/65/EU and the Regulation (EU) No 600/2014 of the European Parliament and of the Council of the EU on markets in financial instruments apply since 3 January 2018 (respectively "MiFID II" and "MiFIR", available here and here).

The European Commission has adopted delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in MiFID II and MiFIR (the "MiFID II and MiFIR Delegated and Implementing Acts", available here and here).

The general public, market participants and competent authorities can submit to the European Securities and Markets Authority (the "ESMA") questions in relation to the MiFID II and MiFIR transparency topics. Since 3 October 2016, the ESMA provides answers to those questions by publishing updates to its questions and answers' document on MiFID II and MiFIR transparency topics (ESMA70-872942901-35 – the "Q&A Document", available here).

On 14 November 2018, the Q&A Document was lastly updated editing its Parts 2 and 7:

• In Part 2, which includes general Q&A on transparency topics, the ESMA modified Q&A 10 (on pages 24-26) on pre-and post-trade transparency in RFQ systems and added 2 new sub Q&A to Q&A 7 (on pages 22-23) concerning the definition of request-for quote (RFQ) systems; and
• In Part 7, which includes Q&A on systematic internaliser ("SI") regime, the ESMA added a new Q&A 11 (on pages 60-61) concerning obligations applicable to SIs in instruments that are not traded on a trading venue ("Non-TOTV").

What's new?

On 4 January 2019, the ESMA updated its Q&A Document (ESMA70-872942901-35 – the "Updated Q&A Document") as follows:

• In Part 3, which includes Q&A on equity transparency
  • Modified Q&A 3 (on pages 28-29) on the topic of default transparency regime for equity instruments;
  • Added new Q&A 4 (on page 29) concerning publication of request for market data ("RFMD") transactions.
• In Part 4, which includes Q&A on non-equity transparency
  • Added new Q&A 15 (on page 37) providing clarification on the topic of default large in scale ("LIS") and size specific to the instrument ("SSTI") thresholds for bonds.

The Updated Q&A Document is available here.

What's next?

The ESMA will continue to develop the Q&A Document and will review and update it where required.

Background

The Directive 2004/39/EC of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") of 21 April 2004 on markets in financial instruments was valid until 2 January 2018 ("MiFID", available here). It was implemented by the Commission Regulation (EC) No 1287/2006 as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of MiFID ("Regulation 1287/2006", available here).

Article 4(1)(17) of MiFID defined that for purposes of MiFID 'financial instrument' means those instruments specified in Section C of Annex I. Among others, the Sections C6 and C7 of the MiFID Annex I listed the following financial instruments:

• C6 - Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an multilateral trading facility ("MTF");
• C7 - Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in C6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls.

The different approaches to the interpretation of MiFID across EU Member States meant that there was no commonly adopted application of the definition of derivative or derivative contract in the EU for some asset classes.

Having consulted with the public from 29 September 2014 to 5 January 2015 (ESMA/2014/1189 — the "Consultation Paper", available here), on 20 October 2015 the European Securities and Markets Authority (the "ESMA") published guidelines aimed to ensure a common, uniform and consistent application of MiFID in relation to commodity derivatives defined in the Sections C6 and C7 of the MiFID Annex I (ESMA/2015/1341 – the "2015 Guidelines", available here). In particular, they clarified the application of Article 4(1)(17) of MiFID read in conjunction with Sections C6 and C7 of MiFID Annex I, as supplemented by Article 38 of Regulation 1287/2006.

MiFID was repealed by the Directive 2014/65/EU of the Parliament and of the Council on markets in financial instruments ("MiFID II", available here) which applies since 3 January 2018 and is supplemented by the Commission Delegated Regulation (EU) 2017/565 as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of MiFID II (the "Regulation 2017/565", available here).

Article 4(1)(2) of MiFID II defines 'investment services and activities' as any of the services and activities listed in Section A (on investment services and activities) of its Annex I relating to any of the instruments listed in Section C (on financial instruments) of its Annex I. Sections C6 and C7 of the MiFID II Annex I include the following financial instruments:

• C6 - Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled; and
• C7 - Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in Section C6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments.

What's new?

On 21 December 2018, the ESMA published its guidelines on the application of Sections C6 and C7 of Annex I of MiFID II with purpose to amend the 2015 Guidelines (ESMA-70-156-869 — the "2018 Guidelines").

Pursuant to the application of MiFID II and Regulation 2017/565, the 2018 Guidelines update the 2015 Guidelines to adapt them to the new MiFID II regulatory framework without changing the substance.

The 2018 Guidelines state the way the ESMA considers the application of definitions contained in Sections C6 and C7 of Annex I to MiFID II. In particular, the 2018 Guidelines clarify that Article 4(1)(2) of MiFID II is to be read in conjunction with Sections C6 and C7 of Annex I to MiFID II and Article 7 of the Regulation 2017/565.

The 2018 Guidelines are available here.

What's next?

Within 2 months of the date of publication of the 2018 Guidelines on ESMA’s website in all EU official languages, competent authorities must notify the ESMA whether they intend to comply with the 2018 Guidelines.

Background

On 23rd January 2019, the Belgian Financial Services and Markets Authority (FSMA) published on its website a communication dated 22/01/2019 (FSMA_2019_02) on the procedure for Belgian UCIs to request an attestation from the FSMA (“UCI attestation”) for foreign Authorities. This communication applies to Belgian UCITS, AIF, public starter funds and “Pricaf”, which must follow the procedure to request the mentioned attestation. This procedure does not concern the attestation requested by Belgian UCIs, which wish to market their units in foreign European countries, as referred in the FSMA Circular dated 14 February 2013 (FSMA_2013_04).

What's new?

The communication explains the procedure to follow for requesting a UCI attestation. The FSMA may provide two forms of attestation: a standard one, containing legal information of the UCI (denomination, legal form, statutory address, etc.), or a special one, containing further information specifically requested by the UCI (the list of registered sub-funds of the UCI, for example). The attestation is always in English language.

What's next?

All Belgian UCIs concerned by this communication shall now follow this procedure to request an attestation from the FSMA.

Background

Pursuant to Article 115 of the Luxembourg law of 17 December 2010 (the "UCI Law", available here) and Article 32 of the Luxembourg law of 12 July 2013 ("AIFM Law", available here), the free provision of services on a cross-border basis requires the CSSF authorisation before starting activities.

Similarly, pursuant to Article 114 of the UCI Law (transposing Article 17 of Directive 2009/65/EC, "UCITS Directive", available here) and Article 32 of the AIFM Law (transposing Article 33 of Directive 2011/61/EU or "AIFMD", available here), the creation of a branch requires CSSF authorisation before launching.

What's new?

On 14 January 2019, in order to standardise the said authorisation processes, the CSSF released 2 notification forms intended to management companies authorised under Chapter 15 of the UCI Law or AIFMs authorised in accordance with Article 5 of the AIFM Law, both referred to as "Manager" (the "Communiqué").

In particular, these forms have to be completed by Managers, or their authorised representatives, that wish to notify the CSSF of the Manager’s intention to:

• Provide services under the freedom to provide services pursuant to Article 18 of the UCITS Directive only, or respectively pursuant to Article 33 of the AIFMD only;
• Provide services under the freedom to provide services pursuant to Article 18 of the UCITS Directive and pursuant to Article 33 of the AIFMD;
• Establish a branch under freedom of establishment pursuant to Article 17 of the UCITS Directive only, or respectively pursuant to Article 33 of the AIFMD only; or
• Establish a branch under freedom of establishment pursuant to Article 17 of the UCITS Directive and pursuant to Article 33 of the AIFMD.

Besides, the CSSF stresses that Managers who want to notify changes should amend their initial notification by highlighting the changes.

The Communiqué is available here.

The form for any notification regarding the free provision of services and amendments to the information included in such a notification is available here.

The form for any notification regarding branch establishment and amendments to the information included in such a notification is available here.

What's next?

The CSSF advises that a submitted notification file can be handled only once it is complete, i.e. that all of the requested information in the tabs is provided and all of the necessary documents attached. Hence, any incomplete notification file will lead to delays in launching or completing the examination phase.

The notification letter shall be signed by an authorised signatory of the Manager or a third person empowered by a written mandate to act on behalf of the notifying Manager. The signatory shall state his/her full name and capacity, and shall ensure the confirmation is dated (with reference to tab 6).

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). In particular, Article 30 of 4AMLD provides for the creation of a register of beneficial owners ("BO register") in each Member State.

The Directive (EU) 2018/843 ("5AMLD", available here), which entered into force on 9 July 2018 and will apply from 10 January 2020, opens the access to this information to the public at large as it has removed the need to demonstrate a legitimate interest to access to the information filed with the BO register.

On 6 December 2017, the Luxembourg Government filed the bill 7217 to introduce a BO register in compliance with 4AMLD in Luxembourg law (the "Bill 7217", available here only in French). The initial Bill 7217 was amended in July 2018 to comply with 5AMLD, which opens the access to the register to the public at large.

What's new?

On 15 January 2019, based on the amended Bill 7217, the Law of 13 January 2019 establishing a BO register ("Registre des bénéficiaires effectifs" or "RBE" in French) was published in the Luxembourg Memorial A15 (the "Law").

As a reminder, the key topics specified in the Law are described below:

• Which entities need to disclose? The registration obligation will apply to all legal forms registered in the trade register, including mutual funds, with the exception of listed companies on equivalent stock exchanges that will only have to disclose the market on which they are listed. There will be a separate register for trusts and similar legal arrangements with their specific BO definition (this provision is still under discussion at Parliament level, cf. Draft Bill n°7216B, available here only in French);
• Which information needs to be disclosed?
  • The directors or other persons who may represent the entity must gather and store at the head office accurate and up-to-date information on the BOs and ensure that at least one BO is registered.
  • The BO is a natural person who ultimately owns or controls a legal entity. This can be through the direct or indirect ownership of more than 25% of the shares or voting rights, or when the natural person can otherwise exercise authority over the management. Where after having exhausted all possible means and provided there is no grounds for suspicion it is not possible to identify a BO the Senior managers are to be considered as BO;
  • The BO register contains first and last names, date and place of birth, nationality, country of residence, exact private or business address details, the national identification number and the nature and extent of the interest of the BO. The BO register will be accessible to the public at large (except address and national identification number). A limitation of access to public information may be granted in exceptional circumstances (e.g. risk of fraud, kidnapping, blackmail, extortion, juvenile or legally disabled BO, etc.). The Law does not give any indication on how those circumstances should be justified.
  • Entities arguing exceptional circumstances should submit a substantiated request to the BO register for stopping the public disclosure. From that moment on, access to the BO information would be blocked for a 3-year period (maximum), period which could be renewed through a new request. The blocking will be lifted if the request is not granted. Entities and their BO can challenge the decision of the BO register in court within 15 days;
  • According to the Law, personal data must be processed in accordance with European data protection legislation, but it is not yet clear how this relates to the General Data Protection Regulation ("GDPR") and the case law of the Court of Justice of the EU in this area. The information are kept for 5 years after the date of deletion from the Commercial and Corporate Register following the dissolution of the entity; and
  • The BO register will be managed by the Luxembourg Business Register.
• Fines? Failure to comply with the registration obligation will incur a fine of between EUR 1'250 and 1' 250 000 imputable to the entity or the BO himself if he has failed to provide the requested information.

The Law is available here (only in French).

What's next?

The Law will enter into force on 1 March 2019.

After the entry into force of the Law, existing entities will have six months to identify and register their BOs. For new entities, a registration period of 1 month after the establishment applies, likewise in case of modification.

Upcoming Grand Ducal Regulation(s) will detail procedures, terms and conditions, costs and required documentation for registering the BO.

Background

The Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms applies since 1 January 2014 ("CRD IV", available here).

According to Article 136(1) of CRD IV, each Member State ("MS") shall designate a public authority or body responsible for the setting the countercyclical buffer rate for that MS. Article 136(2) set forth that each designated authority shall calculate for every quarter a buffer guide as a reference to guide its exercise of judgement in setting the countercyclical buffer rate.

Article 59-7 of the Luxembourg Law of 5 April 1993 on the financial sector (the "Law" as amended, available here) provides that the CSSF shall be the designated authority for setting the countercyclical buffer rates applicable in Luxembourg. Where acting pursuant to Article 59-7 of the Law, the CSSF shall take the decisions after consultation with the Banque Centrale du Luxembourg and by taking into account the recommendations of the Comité du Risque Systémique ("CRS").

On 10 December 2018, the CRS released its recommendation concerning the determination of the countercyclical buffer rate for Q1 2019 (the "Recommendation", available here only in French).

What's new?

On 31 December 2018, based most notably on the Recommendation, the CSSF Regulation N°18-07 on the setting of the countercyclical buffer rate for Q1 2019 was published in the Luxembourg Memorial A1200 (the "Regulation 18-07").

Article 1 of the Regulation 18-07 provides that the countercyclical buffer rate applicable to relevant exposures in Luxembourg is set at the level of 0.25% for Q1 2019.

The Regulation 18-07 is available here (only in French).

What's next?

The Regulation 18-07 entered into force on 1 January 2019.

Pursuant to Article 59-7 of the Law, the said buffer rate will apply from 1 January 2020.

Background

On 23 August 2018, the CSSF Circular 18/698 concerning the (i) authorisation and organisation of Investment Fund Managers ("IFMs") incorporated under Luxembourg law and (ii) specific provisions on the fight against money laundering and terrorist financing applicable to IFMs and entities carrying out the activity of registrar agent, entered into force (the "Circular 18/698", available here only in French).

Pursuant to point 107 of the Circular 18/698, the IFM shall submit to the CSSF on an annual basis, for each member of its management body/governing body ("MB/GB") and for each of its conducting officers ("COs"), the updated table listing the professional activities and mandates performed, as referred to in point 105 of the Circular 18/698. This statement must be communicated to the CSSF within 5 months after the closing of the IFM's financial year.

What's new?

On 3 January 2019, the CSSF published a communiqué concerning the publication of the Excel form (the "Form") on the authorisation and organisation of IFMs, as referred to in points 105 and 107 of the Circular 18/698 (the "Communiqué").

In particular, the CSSF informs the persons concerned that the Form to use in order to list the professional activities and mandates performed by the members of the MB/GB and by the COs of IFMs is available on the CSSF website.

The Communiqué is available here.

The Form is available here.

What's next?

The CSSF highlights that the Form must henceforth be used for the purposes of applying the above-mentioned points.

Background

The Hong Kong Securities and Futures Commission ("SFC") has already entered into 4 Memoranda of Understanding ("MoU") on Mutual Recognition of Funds ("MRF") with the following national competent authorities:

• MRF with the China Securities Regulatory Commission ("CSRC") on 22 May 2015 (available here);
• with the Swiss Financial Market Supervisory Authority ("FINMA") on 2 December 2016 (available here);
• MRF with the French Autorité des Marchés Financiers ("AMF") on 10 July 2017 (available here); and
• MRF with the UK Financial Conduct Authority ("FCA") on 8 October 2018 (available here).

In general, funds that are seeking the Luxembourg CSSF's authorisation or have received CSSF's authorisation for offering, marketing and distribution in Luxembourg to retail investors have to comply with Article 100(1) of the Luxembourg UCI Law of 17 December 2010 (available here), Article 45 of the AIFM Law of 12 July 2013 (available here), and other CSSF's requirements as appropriate.

What's new?

On 15 January 2019, the CSSF and the SFC signed a MoU on MRF, which will allow eligible Hong Kong public funds and Luxembourg UCITS funds to be distributed in each other’s market through a streamlined process (PR 19/04 – the "CSSF Press Release").

In particular, the fund types of the "Luxembourg Covered Funds" (respectively of the "Hong Kong Covered Funds") must be either (i) a general equity fund, bond fund or mixed fund, or (ii) a feeder fund where the underlying fund falls within one of the funds under (i) above, and complies with the listed "CSSF Streamlining Requirements" (respectively the requirements of the "SFC Circular").

The structure of the CSSF Streamlining Requirements is as follows:

• General principles;
• Marketing authorisation conditions applicable to Hong Kong Covered Funds;
  • Eligibility requirements applicable to Hong Kong Covered Funds;
  • Eligibility requirements applicable to "Hong Kong Covered Management Companies";
  • Trustee/custodian;
  • Luxembourg paying agent; and
  • Marketing rules, offering documents, ongoing disclosure, advertisements/marketing materials and language.
• Application process; and
  • Application documents;
  • Authorisation process; and
  • Fee payment to the CSSF.
  • Ongoing requirements applicable to Hong Kong Covered Funds.
  • Reporting obligation;
  • Changes to Hong Kong Covered Funds;
  • Breach;
  • Termination of marketing / Withdrawal of authorisation; and
  • Termination of a Hong Kong Covered Fund.

The MoU also establishes a framework for exchange of information, regular dialogue as well as regulatory cooperation in relation to the cross-border offering of eligible Hong Kong public funds and Luxembourg UCITS funds.

The CSSF Press Release is available here.

The CSSF Streamlining Requirements are available here.

The SFC Circular is available here.

For further information, the Annexes to the SFC Circular are available here, and the SFC FAQ on the Luxembourg-Hong Kong MRF is available here.

In addition, Luxembourg funds that are eligible for SFC authorisation or have received SFC authorisation under the MRF are denoted as “Luxembourg Covered Funds” while Luxembourg management companies that are eligible to manage Luxembourg Covered Funds are denoted as “Luxembourg Covered Management Companies”. MRF will allow eligible Hong Kong public funds and Luxembourg UCITS funds to be distributed in each other’s market through a streamlined process.

MRF operates on the principles that, in respect of a Luxembourg Covered Fund that has been authorised by the CSSF and is seeking or has received authorisation for offering to the public in Hong Kong:

a) the Luxembourg Covered Fund shall meet the eligibility requirements in accordance with this circular and comply with all of the applicable requirements set out in this circular (see below);

b) the Luxembourg Covered Fund shall remain authorised by the CSSF and be allowed to be offered, marketed and distributed to the retail investors in Luxembourg;

c) the Luxembourg Covered Fund shall operate and be managed in accordance with the relevant laws and regulations in Luxembourg and its constitutive documents;

d) the sale and distribution of the Luxembourg Covered Fund in Hong Kong shall comply with the applicable laws and regulations in Hong Kong;

e) where relevant, the Luxembourg Covered Fund and the Luxembourg Covered Management Company shall comply with the additional rules released by the SFC governing the authorisation, post-authorisation and ongoing compliance in the context of the offering, marketing and distribution of the Luxembourg Covered Fund to the public in Hong Kong;

f) the Luxembourg Covered Management Company of the Luxembourg Covered Fund shall ensure investors in both Luxembourg and Hong Kong receive fair treatment, including in respect of investor protection, exercise of rights, compensation and disclosure of information; and

g) ongoing disclosure of information on the Luxembourg Covered Fund shall be made available to investors in Luxembourg and Hong Kong at the same time (so far as is reasonably practicable given the different time zones of the jurisdictions).

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Supplementary document: Annex A - B

Frequently Asked Questions (FAQs) on Luxembourg-Hong Kong Mutual Recognition of Funds.

https://www.sfc.hk/web/EN/faqs/publicly-offered-investment-product/luxembourg-hong-kong-mutual-recognition-of-funds.html

What's next?

If a Hong Kong Covered Fund complies with the relevant Hong Kong laws and regulations and the conditions described in the CSSF Streamlining Requirements, it will enjoy a streamlined process of authorisation for offering, marketing and distribution in Luxembourg to retail investors.

The CSSF and the SFC may consider extending the MRF to include other types of funds in future in accordance with the MoU.

Background

On 04 January 2019, the Securities and Futures Commission (SFC) issued a revamped Business and Risk Management Questionnaire (BRMQ)1. Licensed corporations and associated entities are required to complete and electronically submit the new BRMQ to the SFC for financial years ending on or after 31 March 2019.

What's new?

The new BRMQ should be completed within four months after the end of each financial year and submitted electronically through WINGS, the SFC’s new online portal introduced below. For financial years ending before 31 March 2019, licensed corporations and associated entities should continue to complete the existing BRMQ and submit it in paper form2.

What's next?

New BRMQ
Analysing the BRMQ is part of the SFC’s risk-based supervision which tracks market demographics and monitors current trends and emerging issues. The new BRMQ aims to collect more information about the business operations of licensed corporations and associated entities as well as the specific measures adopted, including controls, policies and procedures, to ensure sound risk management and that business is conducted in a proper manner. This information will enable the SFC to carry out supervision of licensed corporations and associated entities more effectively.
The new electronic BRMQ contains new features including automated skip logic, which directs respondents to the questions applicable to them. A “pre-population” function is also available to automatically fill in some of the answers submitted electronically for the previous financial year.

WINGS – the new online portal
The SFC also launched a new online portal, WINGS, as a common platform for making electronic submissions to the SFC, including the new BRMQ. All functions and submission services available on the existing SFC Online Portal and other SFC systems will be migrated to WINGS in phases.

1 The electronic BRMQ is available here for licensed corporations and here for associated entities.
2 The paper form can be downloaded from the SFC’s website.

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Background

On 12 December 2018, the Securities and Futures Commission published a circular to remind licensed corporations of the effective dates of the new requirements under the Securities and Futures (Financial Resources) (Amendment) Rules 2018.

What's new?

The Securities and Futures (Financial Resources) (Amendment) Rules 2018 were enacted on 12 December 2018 and some amendments which relate to the exclusion of certain lease liabilities from licensed corporations’ (LCs) liquid capital calculations came into operation on 1 January 2019. The first return for which LCs will be required to report their liquid capital calculations in accordance with these amendments is for the position ended 31 January 2019.

What's next?

Form 2 of the financial return is revised to enable LCs to report excluded lease liabilities. On 25 January 2019, the Securities and Futures Commission published a Gazette notice (Annex) to specify the electronic form of the revised financial return, which is published on the following website. With effect from 1 February 2019, this form supersedes all previous versions and shall be used for a return required to be submitted under section 56 of the Securities and Futures (Financial Resources) Rules.

https://www.sfc.hk/web/EN/forms/intermediaries/financial-returns.html

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Supplementary document: Annex