September 2023
Welcome to our monthly KPMG Asset Management Insights newsletter, which has been designed to keep you up to date on topical issues within the Asset Management sector.
Contents
Central Bank of Ireland updates
- Guidance: CAR
- Consultation on Macroprudential Policy in respect of Investment Funds
- ‘Dear CEO’ Letter on Trading Venue Compliance with Requirements under MAR
ESA updates
- CoEU: Amendments to AIFMD and UCITS
- OJEU: Investment Firms Directive
- ESMA: Results of CSA on MiFID II
- ESMA: Sustainability Risks
- Regulatory Technical Standards
- ESMA’s Reports for Further Consideration
Industry and other updates
- The European Systemic Risk Board compliance report
- The Financial Stability Board consultation report
- The International Organization of Securities Commissions consultation report
- The Financial Stability Board press release
- The Committee on Payments and Market Infrastructures & the International Organization of Securities Commissions report
Central Bank of Ireland updates
Guidance: CAR
On the 12th of July, the Central Bank of Ireland (CBI) published guidance for investment firms and credit institutions to assist industry in interpreting the revised Client Asset Requirements (CAR). Firms should familiarise themselves with the guidance on the revised CARs as they will be applicable to investment firms from 1 July 2023 and credit institutions from 1 January 2024.
Consultation on Macroprudential Policy in respect of Investment Funds
On 18th of July, the CBI released a Discussion Paper (PDF, 1,179 KB) in relation to the potential approach to the development and implementation of a macroprudential framework for the investment funds sector. The CBI is seeking views on numerous issues, which include:
- Systemic risks
- The current regulatory framework
- The objectives and principles of macroprudential policy
- The design of macroprudential tools
- Considerations for operationalising this framework.
Any new regulations from the CBI would complement the existing investor protection perspective and the CBI plans to seek international co-ordination for a comprehensive approach to the new framework. The CBI is looking for stakeholders’ feedback, with written responses being accepted till the 15th of November 2023.
Trading Venue Compliance with Requirements under MAR
On the 26th of July, the CBI has published a ‘Dear CEO’ Letter (PDF, 214 KB) based on its 2022 Market Abuse Thematic Review focused on assessing measures established and implemented by Trading Venues to ensure that they meet their obligations to prevent, monitor, detect, identify and report to the CBI potential or actual instances of market abuse under the Market Abuse Regulation (MAR). Through the review, the CBI has identified issues under the following themes:
- Governance, MI reporting and training were not robust enough to ensure effective governance and oversight from the Board, senior management and internal control functions.
- Gaps were identified in prevention, detection and assurance functions within Trading Venues related to a lack of real-time surveillance, under-resourced surveillance functions, and deficiencies in the procedures for closing alerts and calibrating alerts.
- Suspicious Transaction Order Reports (STORs) sent to the CBI by Trading Venues have decreased substantially since 2018 while the overall quantity of transactions has rose significantly, pointing to a lack of focus on STORs from Compliance Officers, absence of internal deadlines for timely STOR submission and lack of clarity on the principle of confidentiality in STOR policies.
The CBI expects Chairpersons to take responsibility for the findings of this letter and ensure that it is discussed, minuted and actioned. CBI also requires Trading Venues to commence an analysis of their trade surveillance arrangements to meet all legal obligations under MAR.
EU updates
CoEU: Amendments to AIFMD and UCITS
On the 20th of July, The Council of the EU (CoEU) published a press release that it has reached political agreement with the European Parliament (EP) on the proposed Directive amending the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Consensus has been reached on the following:
- Further integration of asset management markets within the EU and modernisation of the regulatory framework.
- Greater availability of liquidity management tools, with new requirements for fund managers to provide for the initiation of these instruments.
- New EU framework for funds originating loans, with additional requirements aimed at minimising risks to financial stability and increasing investor protection.
- Enhance the rules for delegation by investment managers to third parties.
- Strengthen investor protection framework by identifying undue costs and preventing funds from using misleading names.
The political agreement is subject to the approval of the CoEU and EP before it is headed for the formal adoption process of the final text.
OJEU: Investment Firms Directive
On 1st of September, the Official Journal of the European Union (OJEU) published Commission Delegated Regulation supplementing the Investment Firms Directive (IFD), with regard to regulatory technical standards (RTS) on Pillar 2. The supplementing RTS aim to clarify how National Competent Authorities (NCAs) should measure the following risks and set out a number of indicative qualitative metrics that should support the NCAs throughout the process:
- Risks of disorderly wind-down.
- Risks not covered or not fully covered by K-factor requirements.
- Risks not covered or not fully covered by own funds requirements.
The Delegated Regulation will enter into force 20 days after its publication in the OJEU, on 20 September 2023.
ESMA: Results of CSA on MiFID II
On the 6th of July, ESMA published a statement setting out the results of the 2022 common supervisory action (CSA) (PDF, 161 KB) and mystery shopping exercise on requirements for information on costs and charges under the MiFID II Directive. ESMA concluded that, although the CSA exercise revealed an adequate level of compliance with most elements of the MiFID II requirements, there were certain shortcomings and a lack of convergence in some areas. In particular, the ESMA CSA identified the following:
- There were shortcomings in the way that firms were disclosing costs and charges under MiFID II, e.g. costs were not always shown as a percentage, a variation in allocation of costs between service and product costs, differing practices and sometimes lack of disclosure of inducements, and implicit costs were not always shown.
- In most cases, mystery shoppers were provided with some information about costs and charges before provision of the investment service.
ESMA will focus on developing new Q&As and a possible standardised EU format for the provision of information about costs and charges. NCAs will undertake follow-up actions on individual cases to ensure that regulatory breaches are remedied.
ESMA: Sustainability Risks
On the 6th of July, the European Securities and Markets Authority (ESMA) published a press release launching a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on sustainability-related disclosures and the incorporation of sustainability risks in the investment fund sector. The main objectives of the CSA are to:
- Assess if market participants comply in practice with pertinent rules and standards.
- Gather information on the prevalence of greenwashing risks in the sector.
- Identify what supervisory and regulatory involvement will be necessary in the future.
The CSA will run until Q3 2024. ESMA intends to improve the quality of ESG disclosures by asset managers. It also highlights that that its findings on greenwashing risks at entity and product level will inform its final report on greenwashing, yet to be released.
Regulatory Technical Standards
Firms should be aware of the following drafts/recently adopted regulatory technical standards (RTS):
- ESMA’s final report (PDF, 724 KB), which includes draft RTS, following a review under MiFID II Directive relating to the provision of investment services across the EU.
- ESMA’s final report (PDF, 1,548 KB) on amendments to RTS, which include requirements for central counterparties (CCPs) that aim to limit the procyclicality of margin requirements under EMIR.
- EBA’s final report (PDF, 1,498 KB) on RTS on initial margin model validation (IMMV) under EMIR.
- EC’s Delegated Regulation (PDF, 237 KB) extending the transitional period laid down for third-country benchmarks under the Benchmarks Regulation (BMR).
ESMA’s Reports for Further Consideration
- ESMA’s second report (PDF, 1,373 KB) on marketing requirements and marketing communications under the Regulation on the cross-border distribution of collective investment undertakings.
- ESMA’s report on suspicious transaction and order reports (STORs). The report comprises date from 2021 and 2022 and provides an overview on how STORs function across different jurisdictions.
- ESMA’s annual report (PDF, 587 KB) on penalties and measures issued under the UCITS Directive and its annual report on penalties and measures issued under AIFMD.
Industry and Other Updates
- The European Systemic Risk Board (ESRB) has published a compliance report (PDF, 653 KB)on its recommendation relating to liquidity and leverage risks in investment funds.
- The Financial Stability Board (FSB) has published a consultation report (PDF, 2.1 MB) on addressing structural vulnerabilities from liquidity mismatch in open-ended funds (OEF).
- The International Organization of Securities Commissions (IOSCO) has published a consultation report (PDF, 482 KB) on anti-dilution liquidity management tools (LMTs).
- The Financial Stability Board (FSB) has published a press release reflecting on the LIBOR transition and setting out some key messages for firms relating to post transition.
- The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published a report on current central counterparty (CCP) (PDF, 443 KB) practices to address non-default losses (NDLs).
Contact us for more
For further information on the issues mentioned above, or any related issues, please contact Jorge Fernandez Revilla, Head of Asset Management.
