FinReg Outlook: Clouds on the Horizon?

Compared with 2018, a year fraught with hefty regulations such as MiFID II and GDPR, the 2019 regulatory outlook may seem tame – but that certainly doesn’t mean asset managers should let their guards down.

“There are a number of significant regulatory issues on the horizon that asset managers should be aware of,” Sean Tuffy, Head of Market and Regulatory Intelligence at Citi, told NICSA members during a recent #WebinarWednesday event. “I’m honored to be speaking with a panel of experts who will walk us through some of the key concerns.”

Tuffy moderated the discussion, which featured representatives from Allen & Overy, Baker McKenzie, Clifford Chance, and Loyens & Loeff.

Marc Meyers, Partner at Loyens & Loeff, provided an update on Brexit despite uncertainties.

“Irrespective of continuing political uncertainty in respect to Brexit, ESMA and international regulators are putting the framework in place to avoid, to the extent possible, any disruption in case of a hard Brexit,” he said.

Meyers also noted the increased responsibility placed on Luxembourg professionals in the application and impact of anti-money laundering and counter terrorist financing measures (AML/CFT). In addition, the Fourth AML Directive, which was introduced into Luxembourg law January 30, 2019, entered into force on March 1. However, Meyers said the law will allow six months for compliance.

ESG Initiatives

Emmanuel-Frédéric Henrion, Partner at Clifford Chance, discussed the ongoing environmental, social, and governance (ESG) initiatives in Europe.

“The driver of this initiative is the protection of financial stability in the sense that climate changes generate economic losses, which might put endanger the global economy,” Henrion said. “To achieve the target of the Paris Agreement, around 180 billion euro of additional investments a year are needed. The financial sector has be involved because the public sector cannot invest that amount alone.”

Henrion also noted that in May of last year, the European Commission announced three proposals on financing sustainable growth, including a taxonomy regulation, disclosure regulation, and carbon benchmarks regulation. When completed, these rules are poised to have a significant impact on the industry.

The European Retail Sector

Laurent Fessmann, Partner at Baker McKenzie, spoke about UCITS VI, a European Commission consultation paper covering a range of topics, including depositary passports, money market funds and long-term investments, product rules, and liquidity management.

“It may sound quite strange to mention UCITS VI when the initiative started in July 2012 and never evolved from a consultation paper into a single legislative proposal,” Fessmann said. “UCITS VI does not yet exist, but it is still interesting to spend some time on it since a few topics are still up in the air, such as the depositary passports.”

Around 2014, Fessmann said Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), was focused on ensuring proper implementation of UCITS V, and that many of the pressing issues called for in UCITS VI had been or were in the process of being addressed via other measures.

The depositary passports, Fessmann said, were largely viewed as a timing mismatch with UCITS V. On July 12, 2018, the EC published Delegated Regulation 2016/438 to clarify depositary safekeeping issues. On October 30, 2018, it published Delegated Regulation 2018/1618, which will be applicable as of April 1, 2020.

This delegated regulation is a critical piece of legislation for the UCITS depositaries as it further elaborates on the duties of depositaries with regard to safekeeping and client asset segregation across the whole custody chain down to the central securities depository,” Fessman said.

AIFMD and the Cross Border Directive

Jean-Christian Six, Partner, Allen & Overy, discussed the EU’s recent report on the operations of the Alternative Investment Fund Managers Directive (AIFMD). “The report concludes that the directive suffers from uneven implementation and interpretation across the member states, in particular in the field of marketing and the use of the AIFMD marketing passport,” he said.

He also touched on the EU’s Cross Border Directive, a separate initiative which aims to improve the cross-border distribution of AIFs and UCITS within the EU. The EU has proposed an amendment to the directive to provide clarification on the definition of pre-marketing activity. In The proposed directive will amend AIFMD to clarify procedures for specific member states.

“Under the directive, facilities will have to be put in place to allow local investors to obtain information or place orders with UCITs or the AIFs,” Six said. “But member states will not be allowed anymore to require implementation of physical presence in their territory.”

Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA webinar panel, they do not necessarily reflect the views of NICSA or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.


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