Latest regulatory update (PRIIPs, MiFID II, UCITS and AIFMD)
1. PRIIPS: even more to follow?
The waiting game continues for firms on both sides of the channel, facing imminent year-end deadlines.
- In Brussels, the EU institutions continue to scrutinise the adopted PRIIPS-KID specifications, while discussing finalised timing of the legal “quick-fixes” to enable sufficient preparation time.
- Over in London, the Financial Conduct Authority (FCA) are expected shortly to issue a feedback statement, confirming next steps for their proposed UK-PRIIPS KID.
Meanwhile, a reminder of the European Commission (EC) request for the ESA joint committee to deliver a technical assessment to support their PRIIPS level 1 regulation review. A wide range of general surveys are now required, including:
- How the PRIIPs KID is used across the EU
- The usefulness of the comprehension alert (i.e. ‘You are about to purchase a product that is not simple and may be difficult to understand’)
- Total costs of firms to produce, review, update and publish PRIIPs KIDs
- Levels of inaccurate KIDs and mis-selling instances identified by regulators
- Digital media adaption prospects
The ESA report must be evidence-based and is required before 1 May 2022.
Separately, the EC will finalise a wider study of several disclosure regimes (including PRIIPS) later this month.
In short: there could be even more PRIIPS-KID changes to emerge within a matter of months.
Watch this space.
2. MiFID II: ESMA seek additional retail investor protection feedback
Last Friday, ESMA issued a call for evidence on certain aspects of retail investor protection.
Addressed to stakeholders subject to MiFID II and PRIIPS legislation, ESMA seek comments on their recent attempts to align “point-of-sale” disclosure across both regimes.
They also invite latest opinions on extending MiFID II to incorporate:
- Digital disclosures (i.e. their preferred “default” durable medium, ongoing)
- Digital tools & channels (e.g. robo-advisors, online platforms, social media and social finance).
The consultation is open until 2 January 2022; feedback will be used by ESMA to prepare their advice to the EC for necessary adjustments to the current legal framework.
3. UCITS: recent costs developments
The subject of UCITS costs and charges has attracted fresh industry attention.
EFAMA (including Kneip as a member) recently published an interesting Perspective on the costs of UCITS report. One memorable soundbite is that UCITS funds (including professional advice) now cost retail investors far less than their Spotify subscription. Another key finding is that on average, active UCITS managers (covering investment management and product development) retain “only” 41% of the costs paid by retail investors. Distributors and advisors are said to pick up around 38%, with the remainder covering administration, taxes and other expenses.
Funds Europe also reported research by Fitz Partners (who assisted EFAMA in their paper).
This shows that over the past five years, average retail investors in equity fund “clean” share classes (i.e. without distribution costs) have seen their ongoing charges fall by 7% while assets have risen by 86%. Meanwhile, those investing in “bundled” share classes (i.e. including distribution fees) have seen average OGC fall by only 1% while assets have risen by 25%.
Lastly, in Luxembourg the CSSF notified local fund managers they must now make a performance fee declaration for each UCITS product on their e-Desk platform. This is to support ESMA’s guidelines on performance fees that are now applicable for UCITS and certain AIFs.
4. AIFMD II: ELTIF sector in the spotlight
The EC’s long-awaited proposals for a revised Alternative Investment Fund Managers Directive (AIFMD II) currently remain on-track for a mid-November delivery. These will be announced at the same time as their strategy to re-boot the European Long Term Investment Funds (ELTIFs).
ELTIFs are a close-ended type of AIF that were a key part of the Capital Markets Union (CMU) action plan.
Back in 2015, they were originally earmarked to source infrastructure funding of EUR 1.5 – EUR 2 trillion. Following a well-publicised shaky start, ELTIFs have staged a noticeable comeback over the past year.
In Funds Europe, BNP Paribas (LU) recently shared their up-beat assessment of longer-term ELTIF prospects. However, more sceptical opinions were expressed at the recent ALFI Global Distribution conference, including those from Partners Group (who launched the first-ever ELTIF in Luxembourg back in 2016) alongside Waystone.
Across the channel, concerns have also been addressed towards the UK competitor Long-Term Asset Fund (LTAF). Senior personnel at Citi and BBH find the latest LTAF proposals to be “more onerous”, “challenging” and less cost-efficient than the ELTIF; as a result, this may make it “less attractive to asset managers”.
5. CBDF(EU): dust still settling
The full impact of the cross-border distribution of funds (CBDF) legal package continues to materialise.
The CBDF Directive has applied updates to UCITS and AIFMD level 1 legislation on 2 August 2021.
These are the EC’s attempt to “fill in regulatory gaps” and align respective procedures applied by each national competent authority (NCA). These include:
- pre-marketing of funds
- alignment of certain notifications in respect of marketing passported funds
- a process to de-notify marketing of an AIF or UCITS in a host Member State
Since the last update, the overall CBDF picture remains noticeably patchy:
Luxembourg: the CSSF updated their CBSF FAQ document to highlight interim complications with their new initial notification process for new UCITS share classes. Their webpages covering marketing UCITS shares/units and AIFs remain unchanged since early August.
Ireland: unlike the CSSF, the Central Bank (CBI) has not yet made available specific guidance in relation to the ongoing notification of new UCITS share classes; however, their national CBDF provisions refer to the revised level 1 art. 93 (8), with an email address supplied for Passport regime notifications.
France: the AMF has now updated their UCITS Investment Product authorisation procedures.
These now oblige local firms to notify both them and any host NCAs at least one month in advance of any changes to UCITS units / shares to be marketed (again, via email address specified).
Germany: last Friday, BaFin updated guidance notices to reflect marketing of both UCITS/OGAW and AIFs. They also updated their schedule of Fees & charges levied in relation to cross-border activities.
Elsewhere, many other EEA member states (e.g. Austria, Finland, Italy, Norway and Spain) have yet to pass CBDF directive measures into national law (although most managed to produce draft bills ahead of the EC legal deadline). It remains uncertain when these will be officially transposed.
Finally, looking forward: the separate CBDF Regulation remains scheduled to apply from 2 February 2022, incorporating ESMA’s marketing communication guidance alongside their new central database to support the new regime.
As usual, we continue to monitor these evolving areas and will keep you posted of key developments.