EUROPE
European Union /ESMA consults on draft RTS on package orders under MiFID II
On 10 November 2016, ESMA published a consultation paper (ESMA/2016/1562) on draft regulatory technical standards (RTS) on the treatment of package orders under Article 9(6) of the Markets in Financial Instruments Regulation (Regulation 600/2014)(MiFIR).
The consultation paper sets out the EU regime for packages for transparency purposes and examines the pre-trade transparency regime for package orders in the EU and USA.
Article 9(6) of MiFIR requires ESMA to draft RTS to establish a process for determining whether there is a liquid market for a package as a whole by assessing whether the package is something with is standardised and traded frequently.
The deadline for comments on the draft RTS is 3 January 2017. ESMA will use the feedback it receives to finalise the standards by 28 February 2017, the date when ESMA is required to submit the RTS to the European Commission.
New ESMA Q&As on application of the UCITS Directive
On 21 November 2016, ESMA published an updated version of its Q&As on the application of the UCITS Directive (2009/65/EC), which has been revised by UCITS V (2014/91/EU)(ESMA/2016/1586).
The Q&A included two new answers regarding how investment limits should be applied where a UCITS wants to invest in an umbrella fund.
In particular, ESMA confirmed that pursuant to Article 56(2)(c) of the UCITS Directive, a UCITS may acquire no more than 25% of units of any single UCITS or any other collective investment undertaking. The limit set out in Article 56(2)(c) should be applied at the level of the individual sub-funds in the UCITS or collective investment undertaking of which the units are to be acquired, to ensure the principle of risk spreading within the investing UCITS. Where an investment company or management company are currently applying a different interpretation of this limit, it must at its earliest convenience, adjust the funds’ portfolio whilst acting with due care, skill and diligence in the best interest of the UCITS and its managers.
Furthermore, ESMA signified that in relation to Article 55(1) of the UCITS Directive, a UCITS may acquire the units of UCITS or other collective investment undertakings referred to in Article 50(1)(e), provided that no more than 10% of its assets are invested in units of a single UCITS of other collective investment undertaking. ESMA confirmed that the limit set out in Article 55(1) applies at the level of the individual sub-funds in the UCITS or collective investment undertaking of which the units are to be acquired. Where an investment company or management company is currently applying a difference in interpretation of this limit, it must at its earliest possible convenience adjust the funds’ portfolios whilst acting with due care, skill and diligence in the best interest of the UCITS it manages.
ESMA updates Q&As on AIFMD
On 16 November 2016, ESMA published an updated version of its Q&As on the application of the Alternative Investment Fund Managers Directive (AIFMD) (2011/61/EU)(ESMA/2016/1576).
The new questions and answers cover the cross-border marketing of the Alternative Investment Funds (AIFs) and material changes to the existing notifications, as well as two questions on the delegation of Alternative Investment Fund Manager (AIFMs) functions to AIFs or third parties.
ESMA confirmed that where an AIF is marketed in a host member state by way of the AIFMD marketing passport pursuant to Article 32 AIFMD, where a new share class of the AIF is set up, this will not constitute a material change notification.
Where an AIFM wishes to notify a material change to a notification made to the competent authorities of its home member state to manage or market an AIF on a cross border basis under Articles 32(7) or 33(6) AIFMD, the AIFM will have to include a full set of documentation which is set out under Articles 32 or 33. AIMFs are asked to highlight any amendment to the original notification letter and accompanying documentation.
In addition, ESMA clarified that where the AIFM does not perform the functions set out in Annex I of the AIFMD, it does not release the AIFM from its responsibility to ensure compliance of the relevant functions with the AIFMD. It will be considered as having been delegated by the AIFM to a third party. As such, the AIFM will be responsible to ensure compliance with the delegation requirements set out in Article 20 of the AIFMD and the principle in Article 5(1) of the Directive. This will apply to all functions referred to in points 1 and 2 of Annex 1 of the AIFMD.
In particular, ESMA confirmed that externally managed AIFs cannot themselves perform the investment management functions set out in point 1 or 2 of Annex I of the AIFMD, as externally managed AIFs are not regulated as AIFM. The performance of functions set out in Annex I of the AIFMD are only permitted to be performed by AIFs which are internally managed pursuant to Article 5(1)(b) of the AIFMD. Where the AIF appoints an external AIFM under Article 5(1)(a), the external AIFM is, through its appointment as AIFM of the AIF, responsible for providing the functions set out in Annex I of the AIFMD. In accordance with Article 20 of the AIFMD, the AIF may delegate to third parties, but the AIF will not be considered as a ‘third party’.
Spain /CNMV publish updated FAQs on AIFs
On 13 October 2016, the CNMV published an updated version of their FAQs in relation to AIFs. The main areas of clarification were as follows:
§ how to justify or understand that non-EU AIFs or AIFs managed by a non-EU manager comply with the following requirements:
o that Spanish law regulates a similar category of AIF; and
o that the AIF is subject to similar rules to the Spanish rules as regards investor protection
§ for AIFs to be marketed to retail clients, Key Investment Information Documents (KIIDs) or similar must be provided
§ clarification on the type and level of information which should be provided to investors prior to subscription to the AIFs and on an ongoing basis.
Portugal /Introduction of new tax regime approved
On 3 November 2016, Decree-Law No 67/2016 approved the regime for the settlement of tax and contributory debts (PERES – Special Programme for the decrease of the debts to State).
This regime will cover the tax debts previously liquidated on 4 November 2016, whose taxable event has happened up until 31 December 2015 and whose legal deadline for recovery expired on 31 May 2016. The contributory debts to social security, whose legal deadline for recovery expired on 31 December 2015, will have access to the new regime if an application is made prior to 20 December 2016.
The payment of tax and social security debts may be paid in full or in instalments and will have different consequences in each instance.
In the case of payments by instalments of tax debts, the access to this programme does not rely on the need to provide warranties and, in both cases, allows the tax payer to have its tax status regularised.
Slovenia /New substantial shareholding disclosure form
Secondary legislation has entered into force in Slovenia implementing aspects of the Transparency Directive Amending Directive (2013/501/EU)(TDA). Counsel are currently updating the TDA questionnaire to reflect the new legislation.
This secondary legislation contains a new disclosure form for making substantial shareholding notifications. The new P-DEL form will replace the previous P-DEL and P-OPC forms. The new form is being modelled on ESMA’s standard notification form. The new form is currently only available in Slovenian.
UK OVERSEAS TERRITORIES
Guernsey /Guernsey launches the Private Investment Funds (PIF) regime
Guernsey has introduced a Private Investment Funds (PIF) regime which will provide fund managers with greater flexibility and simplicity.
The PIF can be either closed or open-ended and should contain no more than 50 legal or natural persons holding economic interest in the fund.
The PIF operates with a close relationship between the fund managers and the investors meaning it dispenses with the formalities requiring the fund to have a prospectus. The lack of prospectus allows the fund to save on time when launching and on initial and ongoing costs.
An agent of the PIF may act for a wider group of stakeholders, such as a discretionary investment manager or trustee or manager of an occupational pension scheme, the agent can be considered as one investor. While the PIF imposes a limit on the number of investors in the fund, there have been no limits imposed on the number of investors whom the PIF might be marketed to, a feature absent from other regimes.
The PIF follows the launch of Guernsey’s Manager Led Product (MLP), a regime developed in light of the AIFMD, which places the regulatory burden on the fund manager as opposed to the fund.
AMERICAS
Chile /Chilean pension funds are given authorisation to invest in alternative investments
On 26 October 2016, Law N. 20.956 (the Law) was passed in Chile with the aim of improving the productivity of the Chilean economy.
The Law will revise D.L. 3.500, the law which created and regulates the pension fund system in Chile. This revision will enable pension funds to invest in alternative assets such as infrastructure, real estate, private debt and private equity. The Law will also increase the maximum amount a Chilean pension fund can hold in a local investment fund.
The definitions of specific investments and the conditions thereunder are yet to be defined by additional regulation from the Pensions Superintendence (Superintendencia de Pensiones).
Moreover, the Law permits the Central Bank of Chile and Securities and Insurance Superintendence (Superintendencia de Valores y Seguros), the opportunity to increase the maximum investment that Chilean insurance companies can hold in foreign assets.
The new Law is expected to come into force between 1 November 2017 and 1 May 2018.
The CCR introduce a new application form
The CCR (Comisión Clasificadora de Riesgo), the entity in charge of the approval of foreign mutual funds for the investment of Chilean pension funds, has released a new application form.
The new application form includes a new Appendix 3-C, along with a series of amendments, which aim to clarify the CCRs criteria which were previously not addressed. For instance, entities with management of a fund that should be included in each of the specific appendices, how to inform the presence of a third party management company and the fact that the Unemployment Fund Manager can also request the approval and maintenance of foreign funds to the CCR.
The previous version of the application form will still be accepted until the end of 2016.
The Chilean securities regulator (SVS) streamlines the process to register UCITS and retail funds from other jurisdictions
Following an increased interest from foreign fund managers to register UCITS for public offer in Chile, the Chilean securities regulator (SVS) has simplified the process of registering UCITS and retail funds from foreign jurisdictions.
UCITS can now be distributed via Chilean brokers, dealers or life insurers to their client base providing they have been registered with the SVS. The SVS will rely heavily of the regulation and supervision of the home state regulator in the case of UCITS and may approve an application for public offer in as little as 30 days.
The SVS will not require a specific addendum or annex to be prepared in relation to the Chilean market. No special Chilean marketing documents will need to be prepared other than providing disclaimers in relation to the funds being subject to laws of another country or to the primary regulator being the home state regulator. The SVS does not require the prospectus to be translated into Spanish, however, it is advisable if the UCITS aims to target retail investors that a Spanish translation is prepared.
Additionally, there is no need to appoint a local agent or a local transfer agent. A power of attorney will be necessary and is usually granted to local counsel to carry out the process of making different filings directly to the SVS. The SVS license fees to register UCITS publically will be approximately USD 1,000, regardless of the number of funds, provided the application for each fund is made simultaneously. Notary expenses will be approximately USD 250.
Chile relaxes restrictions for pension funds to invest in private equity
In accordance with Bill No 10.661 (the Bill), which was sent to Chilean congress in May 2016, Chilean pension funds are now able to invest directly in private equity and public works concessions. The Bill has currently been approved by both the Chamber of Deputies and the Senate. It is currently in its final formalities before being enacted.
The Bill allows pension funds to direct invest in private equity funds without using a feeder fund structure. The Bill also provides a range of 5%-15% within which the pension regulator can determine the aggregate investment limit in the alternative assets.
New anti-trust statute introduced in Chile
The Chilean congress approved a new competition bill, Bill No 9950-03 (the Bill), in July 2016, which contains several regulatory changes in relation to merger control.
The Bill removes the voluntary filing system with a system in which filing will be mandatory where transactions exceed certain thresholds. The new Bill will also allow the antitrust prosecutor, the FNE (Fiscalía Nacional Económica), to investigate transactions which are not notified. For those transactions which are not notified prior to completion of the merger, a significant fine shall be imposed, approximately USD 16,000 per day of the delay.