The International Organization of Securities Commissions published proposed recommendations and statements of practice on fees and expenses of investment funds. The recommendations and statements of practice are intended to update the 2004 report on International Regulatory Standards on Fees and Expenses which provided a set of international standards of best practice for collective investment schemes and regulators to consider. The proposed recommendations and statements of practice cover issues such as types of permitted fees and expenses, performance-related fees, disclosure of fees and expenses, transaction costs and hard and soft commissions on transactions. The report is aimed at funds whose shares or units may be sold to retail investors and includes open-ended funds, closed-ended funds whose shares are traded in the securities market, unit investment trusts and contractual models. The proposals are open for comment until September 23, 2015. 

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The European Securities and Markets Authority published its opinion on the impact of the European Market Infrastructure Regulation on requirements under the Undertakings for Collective Investment in Transferable Securities Directive for OTC derivative transactions that are centrally cleared. ESMA recommends that the provisions on the counterparty risk limits for OTC derivatives in the UCITS Directive should be amended to take into account the clearing obligation of certain OTC derivatives under EMIR. ESMA’s opinion is that the UCITS Directive should not differentiate between OTC derivatives and exchange traded derivatives. The distinction should rather be between cleared and uncleared derivative transactions which would allow a UCITS to treat ETDs and cleared derivatives transactions with similar counterparty risk characteristics in the same way.

View ESMA’s opinion.

The Regulation on European long-term investment funds was published in the Official Journal of the European Union. The Regulation sets out harmonized rules for the authorization, investment policies and operating conditions of EU alternative investment funds, or parts thereof, that are marketed in the European Union as European long-term investment funds. The Regulation will apply in all EU Member States from December 9, 2015 and Member States are not able to add additional requirements for areas covered by the Regulation.

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The Council of the EU adopted a regulation that would increase the capital available for long-term investment in the EU economy. The new kind of fund vehicle, the European long-term investment fund, known as an ELTIF, is expected to provide investors with stable long term returns. An ELTIF will be subject to additional rules, requiring it, for example, to invest at least 70% of its capital in clearly defined categories of assets. Only alternative investment funds managed by alternative investment fund managers and authorized under the Alternative Investment Fund Managers Directive would be able to market themselves as ELTIFs. The regulation will come into force on the twentieth day following its publication in the Official Journal of the European Union.

View the text of the regulations.

Commission Delegated Regulations on the information to be provided by national regulators to the European Securities and Markets Authority on the passport for EU alternative investment fund managers managing or marketing EU alternative investment funds in the EU were published on March 27, 2015. Under the Alternative Investment Fund Managers Directive, ESMA is required to assess the functioning of the EU passport regime, the operating conditions for AIFs and their managers and the potential impact of an extension of the passport. The Regulations set out the information that national regulators will need to provide to ESMA, including the numbers of EU AIFMs authorized in their jurisdiction, problems relating to coordination between national regulators and cooperation arrangements with non-EU regulators, the effectiveness of the collection and sharing of information for monitoring systemic risk and the national regime for marketing of non-EU AIFs by EU AIFMs.

View the Regulations.

The Volcker Inter-Agency Group posted a new frequently asked question (“FAQ 13”) clarifying the scope of the marketing restriction under the Solely Outside the US (“SOTUS”) covered fund exemption. FAQ 13 adopts the position that the marketing restriction applies only to the activities of a foreign banking entity (including its affiliates) that seeks to rely on the SOTUS covered fund exemption and does not apply to where the foreign banking entity seeks to invest in a covered fund that is sponsored and marketed by a third party. As defined in the FAQ, “third-party covered fund” means a covered fund in which “the foreign banking entity (including its affiliates) does not sponsor, or serve, directly or indirectly, as the investment manager, investment adviser, commodity pool operator or commodity trading advisor to, the covered fund.” This view is consistent with limiting the extraterritorial application of section 13 to foreign banking entities while seeking to ensure that the risks of covered fund investments by foreign banking entities occur and remain solely outside of the United States.

View the Volcker Rule FAQ

The Financial Conduct Authority published a report on asset management firms and the risk of market abuse. The report sets out the findings from the FCA's thematic review on how asset management firms manage the risk of insider dealing, improper disclosure, market manipulation and market abuse. The report found that firms have procedures in place to control such risks, but that further work is required to cover all material risks as comprehensive procedures were found to be in place only in a minority of firms. Only a small number of firms were found to have appropriate controls on post-trade surveillance, and further steps to manage such risks, and the risks of receiving inside information during the investment process, are recommended.

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The European Securities and Markets Authority published its technical advice (dated February 3, 2015) to the European Commission on certain aspects of secondary legislation to be adopted under the EU Regulations on European Social Entrepreneurship Funds and European Venture Capital Funds. The advice covers: (i) the types of goods and services, methods of production for goods and services and financial support representing a social objective; (ii) conflicts of interest of European Social Entrepreneurship and European Venture Capital fund managers; (iii) methods for the measurement
of social impact; and (iv) information that European Social Entrepreneurship fund managers should provide to investors. The European Commission will use the technical advice to develop the required secondary legislation.

View ESMA's advice.