The International Organization of Securities Commissions published a report outlining a proposed set of good practices on the voluntary termination of investment funds. The decision to terminate an investment fund can have a significant impact on investors, in terms of the costs associated with such an action or the ability of investors to redeem their holdings during the termination process. Therefore, IOSCO’s objective is to develop a set of good practices for the termination of collective investment schemes and other fund structures such as commodity, real estate and hedge funds, which take into account investors’ interests during the termination process. 

Read more.

A Commission Implementing Regulation on Implementing Technical Standards on the standard procedures and forms for national regulators to submit information on penalties imposed under the Undertakings for Collective Investment in Transferable Securities Directive was published in the Official Journal of the European Union. The UCITS Directive requires member states to implement laws imposing administrative sanctions and other administrative measures on individuals and companies that infringe the requirements of the Directive. 

The ITS set out the common procedures and forms for national regulators to report annually to the European Securities and Markets Authority those administrative penalties and measures that they have imposed in accordance with the UCITS Directive in the previous calendar year. The ITS applied from August 15, 2016.

View the ITS.

The European and Securities Markets Authority published its advice to the European Parliament, Council and Commission on the extension of the Alternative Investment Fund Managers Directive passport to non-EU Alternative Investment Fund Managers and Alternative Investment Funds in twelve non-EU countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland, and the United States. ESMA has reviewed whether there are significant obstacles with regard to investor protection, competition, market disruption and the monitoring of systemic risk. 

Read more.

The European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Regulation with regard to Regulatory Technical Standards on the volume cap mechanisms and the provision of information for the purposes of transparency and other calculations. The adopted Regulation specifies general terms with regards to data submissions and reporting to ensure the consistency of data content, quality and format. 

Read more.

The European Securities and Markets Authority published a final report containing draft regulatory technical standards supplementing the Regulation on European Long-Term Investment Funds. The draft RTS set out the criteria to establish the circumstances in which the use of financial derivative instruments solely serves hedging purposes. The criteria are based on those set out in the CESR guidelines on Risk Management and the Calculation of Global Exposure and Counterparty Credit Risk for Undertakings in Collective Transferable Securities on risk measurements. The draft RTS also outlines the circumstances in which the life of an ELTIF is considered sufficient in length.  The “life” should be determined with reference to the individual asset within the ELTIF portfolio which has the longest investment horizon. Additionally, the draft RTS provides criteria for certain elements of the itemized schedule for the orderly disposal of the ELTIF assets, costs disclosure and outlines the facilities available to investors.  ESMA has submitted the additional final draft RTS to the European Commission for endorsement.

View the draft RTS.

The European Commission published a consultation paper on how the cross-border distribution of funds could be improved in the context of the Capital Markets Union. The CMU is intended to mobilize capital in Europe and channel it to companies and infrastructure projects to create jobs and economic expansion. The Commission believes that cross-border investment funds have an important role to play in achieving this aim. The consultation is aimed at stakeholders such as fund managers, investors and consumer representatives; the Commission also welcomes comments from investors to build a fuller picture of the barriers to distribution. 

The Commission welcomes specific examples of barriers and quantitative and financial evidence on the financial impact of the barriers, including the impact of marketing rules, administrative arrangements imposed by host countries and distribution networks. This includes online platforms, regulatory fees and notification procedures and the most pertinent features of the tax environment. Eliminating unjustified barriers would support fund managers to engage in cross-border marketing of their funds, increase competition and choice and reduce costs for investors. The Commission will use information gathered in its assessment to address the barriers, supporting the development of the CMU and increasing choice.  

Responses to the consultation are due by October 2, 2016.

View the Consultation Paper. 

The Financial Conduct Authority published a consultation paper outlining proposed changes to the rules and guidance in the Client Assets sourcebook and the Collective Investment Schemes sourcebook (COLL), following the adoption of the UCITS V (the Undertakings for Collective Investment in Transferable Securities V Level 2 Regulation).   The consultation paper also proposes minor changes to the Senior Management Arrangements Systems and Controls sourcebook (SYSC) and consequential amendments in COLL and the Investment Funds sourcebook (FUND) to reflect certain measures in the Securities Financing Transactions Regulation. The UCITS V Level 2 Regulation sets out additional, detailed requirements for UCITS management companies and depositaries and will apply to UCITS management firms from October 13, 2016. Requirements include, for example, minimum terms in the contract between a management company and depositary, detailed oversight, cash monitoring and safe-keeping requirements for depositories, and requirements for independence between management companies and the depositaries. 

Read more.

US Treasury Secretary and chairman of the Financial Stability Oversight Council, Jacob Lew, provided remarks at a meeting of the FSOC regarding the release of the FSOC’s review of the asset management industry. The statement released by the FSOC is not a rulemaking but rather, reflects the assessment of the FSOC on key areas of focus and risk in the asset management industry. Lew highlighted two key findings that are the focus of the statement—liquidity and leverage risk. With respect to liquidity, the FSOC found that financial stability concerns may arise from liquidity and redemption risks in pooled investment vehicles, including mutual funds in particular. The statement includes a number of policy recommendations for mitigating such risks, including the implementation of robust liquidity management practices and disclosures for mutual funds, and clearer guidelines that would limit a fund’s ability to hold assets having limited liquidity. With respect to leverage, Lew’s statement notes that while leverage does not generally appear high in all hedge funds, risk may still be present in these funds. He stated that regulators need to better understand the risks being taken by such funds and to engage in further analysis and information sharing in order to reach conclusions as to whether the use of leverage by private funds presents significant financial stability risk.
 

The European Securities and Markets Authority published an Opinion setting out key principles for a European framework on loan origination by funds. The Opinion is in response to the European Commission's request that ESMA assist in developing points for its forthcoming consultation on an European framework. The potential framework is part of the Commission's Capital Markets Union Action Plan. 

Read more.

The European Securities and Markets Authority published a discussion paper on the recognition of the different share classes offered by Undertakings for Collective Investments in Transferable Securities funds in different EU jurisdictions. ESMA identified in 2014 diverging national practices as to the types of share class permitted under the UCITS Directive. ESMA is seeking stakeholder's views on its proposed framework for UCITS share classes throughout the European Union. In particular, whether and how share classes work under the ESMA principles. The paper describes the nature of the different share classes and establishes common principles which could form the basis of a regulatory framework for all share classes.
 

The Financial Conduct Authority published its thematic review on how firms in the fund management sector meet investors' expectations. The FCA considered whether UK authorized investment funds and segregated mandates were operated in line with investors' expectations as outlined in market material, disclosure material and investment mandates. A sample of 23 funds was reviewed, which were all Undertakings for Collective Instruments in Transferable Securities (UCITS) schemes sold to retail investors. The FCA found that generally fund management firms had taken the right steps to meet investors' expectations and comply with their responsibilities to investors and that firms generally provided adequate information about funds' strategies, characteristics and inherent risks. This provides customers and financial advisers with better opportunities to make informed investment decisions. The review highlights the need for investors to be provided with accessible information on the risks associated with investing; the FCA found that most firms disclosed the key risks associated with their funds. The FCA will be writing to all the firms involved the review to provide individual feedback. Firms that were deemed not to have effectively managed their risks are required by the FCA to make the associated improvements. The FCA noted that it will follow up on the results of the review through its routine supervision.

View the review.

The European Securities and Markets Authority published its final report on Guidelines on the sound remuneration policies under the Units in Collective Undertakings Directive and the Alternative Investment Fund Managers Directive, including the final Remuneration Guidelines under UCITS V and revised Remuneration Guidelines under the AIFMD. ESMA also published a letter addressed to the European Commission, the European Parliament and the Council of the European Union in which ESMA recommends that legislation is required to provide clarity on the application of the proportionality principle to the remuneration requirements under EU laws.  
 

Commission Delegated Regulation with regard to obligations of depositaries was published in the Official Journal of the European Union. The Undertakings for Collective Investment in Transferable Securities (UCITS V) Directive outlines requirements regarding depositaries' duties, delegation arrangements and the liability regime for UCITS assets under custody. The Regulation supplements the obligations set out in UCITS V. It specifies definitions and details of written contracts for the appointment of a depositary including, amongst other things, that the written contract should comprise all necessary details for the appropriate safe-keeping of all UCITS assets by the depositary or a third party delegated with safekeeping functions and for the depositary to properly fulfil its oversight and control functions. The written contract must also provide sufficient detail on the categories of financial instruments in which the UCITS may invest and cover the geographical regions in which the UCITS plans to invest.

View more. 

The Financial Conduct Authority published good practices for liquidity management for investment management firms. The good practices are an outcome of the FCA's work with the Bank of England to assess the risks of open-ended investment funds investing in the fixed income sector, culminating in a collation of practices which the regulator has seen being used by investment firms to manage liquidity. The FCA hopes that by publishing the good practices, all investment management firms can improve their liquidity management. The good practices cover four areas: (i) good disclosure of liquidity risks to investors; (ii) good processes and tools for liquidity risk management, including continuous re-assessment and updating to keep track with market conditions; (iii) good practices for managing redemptions and costs relating to redemptions, including disclosing those practices to investors; and (iv) thorough preparation for implementation of exceptional liquidity tools and measures such as maintaining a procedure manual for implementation of each tool and testing implementation of tools to ensure that the measures work in practice.

View the good practices.

HM Treasury published the Undertakings for Collective Investment in Transferable Securities Regulations 2016 together with an explanatory memorandum. The Regulations implement the provisions of the European UCITS V Directive and relate to depositaries, remuneration as well as sanctions for breaching the Directive. The Regulations also set out certain requirements for the Financial Conduct Authority relating to information that is provided and reported to the European Securities and Markets Authority. The Regulations include: (i) amendments to the Financial Services and Markets Act 2000, which allows for the disciplinary powers that may be taken under FSMA against authorised persons, approved persons and senior managers, also being exercisable in the case of contravention of these Regulations; (ii) provisions enabling the FCA to exercise powers to cancel an authorised person’s permission to carry on regulated activities in cases where there have been serious breaches of the requirements imposed by the Regulations; and (iii) provisions requiring the FCA to establish procedures for receiving and following up on reports on infringements under the Directive and providing ESMA with aggregated information on all penalties and measures that have been imposed under the Directive, on an annual basis. The Regulations enter into force on March 18, 2016.
 
View the Regulations.
 
View the Explanatory Memorandum.

The European Securities and Markets Authority issued a statement, addressed to investors and fund managers, on some European collective investment funds that may potentially be "closet index tracking funds". Closet indexing can occur when fund managers claim to manage portfolios actively, but in reality, the fund stays close to its benchmark index. Such practices can mislead investors as they may not receive the service or risk/return profile that they expect, whilst possibly paying higher fees than those usually charged for passive management. ESMA carried out research using a sample of around 2,600 funds between 2012 and 2014 and found that 5% to 15% of Undertakings for the Collective Investment of Transferable Securities equity funds could potentially be closet indexers. ESMA recommends that UCITS management companies re-evaluate whether they provide accurate information to investors on the performance objectives of relevant funds so that investors can make informed investment decisions. ESMA has stated that it will take an active role in coordinating further analysis at national level and will assess whether any further steps are necessary to ensure that market participants wholly comply with disclosure obligations.  
 
View ESMA's statement.

The Financial Conduct Authority published a Policy Statement and final rules on the Implementation of the Undertakings for Collective Investment in Transferable Securities Directive V. The Policy Statement sets out final rules, guidance and changes made to the FCA Handbook that affect managers and depositaries of UCITS and Alternative Investment Funds. The Policy Statement also sets out comments on the feedback received to the FCA's Part I consultation on the implementation of UCITS V published in September 2015, including: (i) remuneration principles and requirements applicable to managers, including details on payments of proportions of variable remuneration in non-cash instruments; (ii) the applicable transparency obligations towards investors; and (iii) changes for depositaries including eligibility criteria and capital requirements for firms acting as depositaries of UCITS. The rules and guidance enter into force on March 18, 2016, the date on which the FCA is required to implement the UCITS V Directive. Certain requirements however are subject to transitional provisions. For example, UCITS managers will only have to comply with some of the remuneration requirements after the start of the first full performance period, post-March 18, 2016. Also, non-bank depositaries appointed before March 18, 2016 may continue to provide depositary services to UCITS clients until March 18, 2018, even if they have not yet met all new operational and prudential requirements applicable to them.
 
View the Policy Statement.
 
View the Consultation Paper.

The European Securities and Markets Authority published a letter from the European Commission, dated December 17, 2015, on ESMA's advice and opinion on the passport under the Alternative Investment Fund Managers Directive. ESMA advised the Commission in July 2015 on the extension of the EU passport under the AIFMD to managers and funds in to Guernsey, Jersey and Switzerland but advised that due to a lack of evidence for Singapore, Hong Kong and the US, it was unable to provide assessments for those jurisdictions. In the letter, the European Commission asks ESMA to provide an assessment for the US, Hong Kong, Singapore, Japan, Canada, Isle of Man, Cayman Islands, Bermuda and Australia by June 30, 2016. In addition, the Commission requests that ESMA provide: (i) a more detailed assessment of the capacity of third country supervisory authorities and their enforcement track record; and (ii) a preliminary assessment of the expected inflow of funds by type and size into the EU from the relevant third countries. The Commission concurs that a further opinion from ESMA on the functioning of the EU passport under the AIFMD and on the operation of the National Private Placement Regime is warranted once the AIFMD has been transposed into all of the Member States. It is noted that such an opinion would be useful ahead of the review of the AIFMD planned for 2017.
 
View the Commission's letter.  

The International Organization for Securities Commissions published a report on the existing tools available to fund managers for liquidity management in collective investment schemes. The report, which covers the frameworks in 26 jurisdictions, provides a global view of the tools available to fund managers, particular in extreme situations, and the funds to which those tools apply, including the availability of tools in particular jurisdictions, their use and effectiveness and any system-wide implications that the tools pose. The report is part of IOSCO's work on the collection of data about asset management activity. IOSCO is considering developing guidance on liquidity risk management that would go beyond its 2013 Principles of Liquidity Risk Management for Collective Investment Schemes, which would include stress testing.

View the report.

View the IOSCO Principles.

The International Organization of Securities Commissions published its third survey on hedge funds. The survey gathers information received from hedge fund managers on trading activities, leverage, funding and the hedge fund market generally, capturing data from around 1,500 funds. The findings of the survey include that: (i) the hedge fund industry is mainly based in the US, is largely US dollar based and principally invested in North American assets; (ii) hedge funds across all jurisdictions with the exception of Japan use financial leverage; and (iii) a large proportion of direct investments are made by institutional investors and the remaining share is led by funds of funds. The survey also states that assets that are managed by hedge funds appear to be growing at a rate of 34% since the last survey was published in 2013 and that the Cayman Islands hold a larger number of new funds and remain the tax domicile of choice. The hedge fund survey assembles data from regulatory returns on hedge fund activities and aims to facilitate IOSCO to gain insight into the global hedge fund industry, encourage global cooperation on the risks arising in the hedge fund sector and creating a forum for the consideration of any potential regulatory requirements where necessary. The study is the only such exercise that is carried out on a global level.
 
View the report.

US Federal Reserve Board Governor, Daniel K. Tarullo, delivered a speech at the Brookings Institution discussing the need to carefully regulate nonbank financial intermediation activities. He emphasized the importance of having a non-uniform, multi-dimensional approach to the regulation of the various forms of nonbank intermediaries, given the “constantly changing and largely unrelated set of intermediation activities pursued by very different types of financial market actors”. He also stated that regulators should identify and assess the specific risks applicable to each particular institution, noting that not all nonbank financial entities or activities pose material threats to financial stability. Although Governor Tarullo noted that the growth of shadow banking in recent years has been modest, he cautioned specifically about the risks to financial stability that could result from heavy reliance on short-term credit providers and the use of “highly volatile funding structures outside of the regulated sector”.
​
View the speech.

UK Regulations amending primary and secondary legislation to give effect to the EU Regulation on European Long-term Investment Funds, known as ELTIFs, was published. ELTIFs are a new type of alternative investment fund managed by authorized Alternative Investment Fund Managers.  The Regulations come into force on December 3, 2015.
 
View the Regulations.

HM Treasury published a consultation paper on the proposed amendments to UK legislation required to implement the Undertakings for Collective Investments in Transferable Securities Directive V. UCITS V must be implemented by March 18, 2016. Whilst UCITS V will primarily be implemented through changes to the Financial Conduct Authority rules, legislative changes are also required. HM Treasury's consultation seeks views on such legislative changes whereas the FCA is consulting separately on the FCA rule changes. HM Treasury will be implementing legislative provisions on national sanction regimes and UCITS depositaries. HM Treasury is seeking views on its approach to the implementation of the depositary provisions, in particular: (i) governance practices such as the eligibility to act as a depositary; (ii) liability for safekeeping of a UCITS fund’s assets; and (iii) the delegation of custody of a UCITS fund’s assets. In relation to sanctions, HM Treasury aim to make minor amendments to the relevant sections already in place in the Financial Services and Markets Act, clarifying that breaches of national legislation transposing UCITS V trigger the FCA’s existing sanctions. Comments are due by December 17, 2015.
 
View the consultation paper.
 
View the proposed legislation.

The US Securities and Exchange Commission published a report of private fund industry statistics and trends. The SEC aggregated and anonymized data private fund advisors have submitted to the SEC on Form ADV and Form PF. The report, which the SEC intends to update periodically, reflects information reported from the first calendar quarter of 2013 through the fourth calendar quarter of 2014. Among other things, the report includes statistics about the distribution of borrowings, an analysis of hedge fund gross notional exposure to net asset value, information regarding beneficial ownership and a comparison of average hedge fund investor and hedge fund portfolio liquidity.

View the report.

The European Commission launched a consultation into the review of the European Venture Capital Funds Regulation and the European Social Entrepreneurships Funds Regulation as part of its Capital Markets Union initiative. The Commission is seeking views on steps that could be taken to improve the take-up of EuVECA and EuSEF funds through amendments to the two Regulations. Proposals include: (i) allowing managers authorized under the Alternative Investment Fund Managers Directive to be able to offer EuVECA and EuSEF funds to clients; (ii) exempting managers of EuVECA and EuSEF funds from authorization under AIFMD once they exceed the EUR500 million threshold; (iii) reducing the minimum subscription threshold for non-professional investors to attract more private investors; (iv) harmonization of registration requirements, including related costs; (v) extending the EuVECA and EuSEF Regulations to third country managers; (vi) extending the range of eligible assets that a EuVECA fund can invest in; and (vii) harmonizing requirements for the marketing of funds and fees for cross-border notifications. The consultation closes on January 6, 2016.

View the consultation paper.

The European Securities and Markets Authority published a final report on draft Implementing Technical Standards on the procedures and forms for submitting information on penalties and measures under the UCITS V Directive. The draft ITS have been submitted to the European Commission for endorsement. National regulators will be required to provide ESMA with aggregated information on an annual basis of all penalties and measures that they have imposed on individuals and companies for breaches under UCITS V. Measures and penalties disclosed by national regulators to the general public must also be reported to ESMA simultaneously. The draft ITS include the relevant form that is to be submitted to ESMA. Member States must implement UCITS V into national law by March 18, 2016.

View ESMA's final report.

The US Securities and Exchange Commission adopted amendments pursuant to Section 939A of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act to SEC rule 2a-7, related to the removal of credit rating references in the rule. Rule 2a-7 is the principal rule that governs money market funds and the form that money market funds use to report information to the SEC each month about their portfolio holdings.
 
The amendments to rule 2a-7 would eliminate provisions which currently require money market funds to invest only in securities that have received one of the two highest short-term credit ratings or, if they are not rated, securities that are of comparable quality. In addition, under the amended rule, money market funds would also no longer be required to invest at least 97 percent of their assets in securities that have received the highest short-term credit rating. Instead, the amended rule would limit money market funds to investing in a security only if the fund determines that the security presents minimal credit risks after analyzing certain prescribed factors, which factors are discussed in more detail in the adopting release.
 
The SEC adopted additional amendments to rule 2a-7 that would subject additional securities to issuer diversification provisions in the money market fund rule by eliminating a current exclusion for securities subject to a guarantee issued by a non-controlled person.
 
View the SEC press release here. 

View the final rule here. 
 

The Financial Conduct Authority issued a consultation paper on the implementation of the Undertaking for Collective Investment in Transferable Securities V Directive and other changes to the FCA Handbook that affect investment funds. The consultation deals with three sets of proposals for the regulation of authorized investment funds and seeks views on: (i) the rules and guidance that will give effect to the most recent changes made to the UCITS V Directive; (ii) changes that are to be made to the Handbook to ensure that these work well in conjunction with the European Long Term Investment Funds Regulation, a new kind of fund vehicle which aims to contribute to financing the sustainable growth of the EU’s economy through targeting long term investment, which becomes applicable on December 9, 2015; and (iii) other changes to the Handbook relating to authorized investment funds, including clarification for some of the FCA’s reporting requirements and ambiguities to certain rules, so that the Handbook is kept up to date generally. The FCA is required to transpose the most recent changes to the UCITS V Directive by March 18, 2016. Comments are due by November 9, 2015 for Part I of the consultation, October 5, 2015 for Part II and December 7, 2015 for Part III.

View the consultation.
 

The European Securities and Markets Authority published a consultation paper on draft Regulatory Technical Standards for European Long-Term Investment Fund Regulation. An ELTIF is a new kind of fund vehicle which aims to contribute to financing the sustainable growth of the European Union's economy through targeting long-term investment.  To achieve this aim, ELTIFs are subject to various rules concerning the types of assets in which they can invest. For example, an ELTIF should invest at least 70% of its capital in “eligible investment assets” (which are generally illiquid).  ELTIFs are EU AIFs managed by authorized AIFMs and are therefore additionally subject to the AIFMD rules. The draft RTS aim to determine amongst other things: (i) the characteristics of the facilities made available to retail investors such as those for making subscriptions, payments to unit or shareholders, or repurchasing or redeeming units or shares; (ii) given that an ELTIF may not use financial derivative instruments except where it solely serves the purpose of hedging risks inherent to other investments of an ELTIF, the criteria for establishing the circumstances in which financial derivative instruments solely serve hedging purposes; and (iii) the circumstances in which the life of an ELTIF is considered to be sufficient in length. ELTIFs are expected to increase the volume of non-bank finance for companies investing in the European Union.

View the consultation paper.

The European Securities and Markets Authority published its Advice to the European Commission, Parliament and Council on the potential extension of the EU passport to non-EU countries under the Alternative Investment Fund Managers Directive. It also published its Opinion on the functioning of the EU passport under the AIFMD and on the operation of the National Private Placement Regime. Under current rules, non-EU Alternative Investment Fund Managers and EU AIFMs of non-EU Alternative Investment Funds are only able to market their funds into member states when permitted by the relevant NPPR. ESMA has now assessed six non-EU jurisdictions: Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the US. ESMA's Advice states that there are no obstacles for extending the passport to Guernsey and Jersey AIFs and AIFMs. The same applies to Switzerland, pending certain amendments to the Swiss Federal Act on Stock Exchanges and Securities Trading. ESMA states that there is currently a lack of evidence for an appropriate assessment to be made in respect of Hong Kong, Singapore and the US, though it will complete its assessment of these jurisdictions as soon as possible. An assessment of other jurisdictions will also be undertaken. ESMA's Opinion states that some issues have been identified related to the use of the EU passport, including divergent approaches to marketing rules. The Opinion concludes that there is insufficient evidence to show that either the passport or NPPR have raised any major issues in the functioning and implementation of the AIFMD framework. ESMA recommends that a further Opinion on the functioning of the passport and the NPPR is prepared after a longer period of implementation has elapsed in all Member States.

View the Opinion and Advice.

The European Securities and Markets Authority published proposed guidelines on sound remuneration policies under the Undertakings for the Collective Investment of Transferable Securities Directive, known as UCITS V. A minor revision of the guidelines on sound remuneration policies under the Alternative Investment Fund Managers Directive, known as AIFMD, is also proposed. The proposed UCITS V guidelines are based on the Guidelines on sound remuneration practices developed under AIFMD. ESMA intends to publish a final report and guidelines in Q1 2016 ahead of the implementation deadline for the UCITS V Directive of March 18, 2016. The consultation is open until October 23, 2015.

View the consultation paper.

The UK Government published proposals to amend the Limited Partnership Act 1907 as it applies to funds. The aim of the proposals is to remove unnecessary legal complexity and administrative burdens so as to ensure that the UK limited partnership remains the market standard for European private equity and venture capital funds and other private funds. The proposals include: (i) for private fund vehicles that are limited partnerships to be designated as private fund limited partnerships upon registration; (ii) adding a non-exhaustive list of activities that a limited partner of a private fund limited partnership may carry out without being considered to take part in the management of the business; (iii) removing the requirement for limited partners in private funds to make capital contributions; (iv) allowing the partners in a private fund to agree who should wind up the limited partnership and removing the requirement to obtain a court order; and (v) removing the requirement for certain details to be provided when a private fund is established as a limited partnership. The consultation is open until October 5, 2015.

View the consultation.

View the draft amendment instrument.

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. 

View the report.

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.

View the Regulation.

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.

View the report.

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.