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CACEIS European Regulatory Watch Newsletter

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2014 September No.3

EUROPE Council released two further compromises on ELTIF Regulation ESMA published 8 th updated Q&A on EMIR implementation ISDA study on Central Clearing in the Equity Derivatives Market ESMA published first registered social entrepreneurship fund manager (EuSEF) Commission published technical standards for the notification of EuSEF Regulation The format of notification of EuVCA European Commission requested ESMA advice on MAR implementing acts MAD/MAR published in the EU Official Journal ESMA announced the creation of the Consultative Working Group for the Market Data Reporting Working Group European Commission requested technical advice on delegated acts concerning MiFID II and MiFIR ESMA's consultation on MiFID reforms MiFID II/MIFIR published in in the EU Official Journal LUXEMBOURG LuxFLAG launched the first European ESG Label Application of CRD IV remuneration rules to management companies

Opinions on Bill 6625 Modification of the statistical data collection for money market and non-money market investment funds SWITZERLAND Rejection of the Lex Koller’s strengthening by the National Council BELGIUM Royal Decree approving the regulations regarding the prohibition of marketing of certain financial products to retail customers Royal Decree setting certain obligations on information during the marketing of financial products to retail customers Royal Decree approving the regulation on technical requirements for a risk’s label Publication of the Law implementing AIFMD on June 17 th Publication of the Law completing AIFMD transposition on June 17 th ITALY Ministry of Economy and Finance launched a public consultation on investment funds TAX Publication of first FATCA FFI list

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EUROPE

port specific information for any managed EU AIFs and each AIF marketed in the Union. In that case, “Union” should be understood as covering the EU Member States + Iceland, Norway and Liech- tenstein as soon as the AIFMD is implemented in these countries. Regarding the classification of information con- tained in the AIFMD technical guidance (ESMA document 2013-1358), ESMA further confirms that: « “Mandatory” information should always be re- ported; « “Optional” information should be reported if the AIFM has information to report (e.g. such infor- mation would not be left to the discretion of the AIFM); « “Conditional” information is linked to other infor- mation (flags) in the reporting template. ESMA further clarifies certain calculation items within the AIFMD reporting. Among the main el- ements are the handling of cash positions for investment strategy allocations, the confirmation that account overdrafts are to be seen as funding sources and the clarification that “excessive lev- erage” should be determined by using a monthly average compared to a monthly calculated NAV. If the NAV is not calculated monthly a single cross- ing of the thresholds within the period is sufficient to be seen as “excessively leveraged”. Other ele- ments have been further clarified by ESMA, in an attempt to provide uniformity ahead of the first reports, which are to be sent to the CSSF by the end of October.

AIFMD - ESMA Q&A Update Background The purpose of the ESMA Q&A is to promote com- mon supervisory approach and practices in order to ensure that the AIFMD is applied in a uniform man- ner across the EU. The previous version of the ESMA Q&A was issued on 25 March 2014. What’s in there? On 27 June and 18 July 2014, ESMA updated its AIF- MD Q&A (ESMA 2014/714) as follows: SECTION 1 - REMUNERATION (NEW QUESTION 5) AIFM should not be able to exclude portfolio man- agers from the scope of “identified staff” only because they are bound by investment limits set out by law or internal guidelines. ESMA further provides some guidance on how to determine whether a portfolio manager could exert material influence on the AIFM’s risk profile and thus qualify as “identified staff”. In that respect the following criteria should be taken into consideration: « Percentage size of the AIF portfolio being man- aged; « Existence of a performance benchmark to be met by the portfolio manager; « Tolerated percentage deviation from the bench- mark; « Daily monitoring of the portfolio manager by the AIFM. SECTION 3 - REPORTING TO COMPETENT AU- THORITIES (NEW QUESTION 19 TO 25) Clarification is provided with respect to the coun- tries covered by the terms “EEA AIFs” and “EEA AIFMs” (i.e. EU Member States + Iceland, Norway, Liechtenstein). According to Article 24-2 AIFMD, AIFMs shall re-

AIFMD - Publication of the Commission Delegated Regulation Background AIFMD entered into force on 22 July 2013.The lev- el 1 Directive ( AVAILABLE HERE ) is supplemented by a level 2 Regulation ( AVAILABLE HERE ). In accordance with Article 4.4 of the AIFMD, the Commission shall adopt regulatory technical standards so as to ensure that uniform rules ap- ply in respect of the types of AIFM covered by the directive. What’s in there? On 24 June 2014, the Commission Delegated Regulation (EU) No 694/2014 of 17 December 2013 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to regulatory technical standards (RTS) determining types of AIFM (the “Commission Del- egated Regulation”) was published in the Official Journal of the European Union. As a reminder, this Commission Delegated Regu- lation sets forth the rules to be applied in order to determine whether an AIFM is managing AIFs of the open-ended or closed-ended form. Such assessment should enable AIFMs to identify the rules applying to their activities in the area of liquidity management and valuation of the AIF assets. What’s next? The Commission Delegated Regulation as pub- lished in the Official Journal of the European Un- ion is AVAILABLE HERE .

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SECTION 4 - NOTIFICATION OF AIFMs (NEW SECTION)

registered in the name of the AIF with the issuer itself or its agent, in the name of the AIF or the AIFM acting on behalf of the AIF. SECTION 7- LEVERAGE (NEW SECTION) Debt raised at the level of any financial structure controlled by a private equity AIF so as to finance the acquisition of non-listed companies shall be included in the calculation of the AIF exposure where those structures are controlled by the AIF and specifically set up to directly or indirectly in- crease the exposure at the level of the AIF. How- ever, any debt raised at the level of the non-listed company shall not be included when calculating the AIFM exposure. What’s next? The ESMA Q&A is updated from time to time. AIFMD - Publication of official translations of ESMA’s guidelines on AIFMD reporting obligations Background On 1 October 2014, ESMA published final guidelines on the AIFMD reporting obligations for alternative investment fund managers. These guidelines have been revised once in November 2013, setting out the final principles of the AIFMD reporting to competent national authorities. What’s in there? Competent national authorities now have two months as from the 8 th of August 2014 to notify ESMA whether they comply or intent to comply with the reporting guidelines by implementing them into their respective national supervisory practices. The official translations of the AIFMD reporting guidelines are AVAILABLE HERE . CSDR - Adoption by Council Background The Commission proposal was issued on 7 March 2012. On 18 December 2013, the European Parliament THE Q&A IS AVAILABLE HERE.

(“the Parliament”) and the Council reached an agreement on a Regulation for more stability, effi- ciency and safety of settlement and CSDs. On 26 February 2014, the Permanent Represent- atives Committee, on behalf of the Council of the European Union, confirmed the agreement with the Parliament. The European Parliament adopted the text on 15 April, in accordance with political agreement reached in trilogue. What’s in there? On 23 July, the Council formally adopted the CSDR, the final text of which was published by the Council on 16 July. As a reminder, the CSDR introduces an obligation of dematerialisation for most securities, harmonised settlement periods for most transactions in such securities, settlement discipline measures and com- mon rules for central securities depositories (CSDs). It is an important complement to EMIR in terms of the post-trade environment for securities trading. What’s next? The regulation will enter into force shortly after pub- lication in the OJEU (the publication of the new rules in the OJEU is foreseen for the third quarter of 2014). Council agrees on a general approach on ELTIFs-Regulation Background ELTIFs are EU-AIFs managed by EU authorised AIFMs that do not offer regular redemption before the end of the vehicle’s life and invest in long-term assets. ELTIFs benefit from an EU passport and may be mar- keted to retail investors across the EU. On 26 June 2013, the Commission issued a Proposal for a regulation of the European Parliament and of the Council on European long-term investment funds (“the Regulation” - AVAILABLE HERE ). The Regula- tion shall ensure that uniform requirements apply to the investment and operating conditions of ELTIFs. On 17 April 2014, the European Parliament in plena- ry adopted amendments to the Commission’s pro- posal ( AVAILABLE HERE – a note from the General Secretariat of the Council to the Permanent Repre- sentatives Committee on the outcome of the Parlia- ment’s first reading is AVAILABLE HERE ). On 24 April 2014, the Presidency of the Council issued a first compromise proposal ( AVAILABLE HERE ). THE TEXT OF THE REGULATION AS ADOPTED BY THE COUNCIL IS AVAILABLE HERE.

An EU AIFM should be able to get authorised to manage AIFs in a host Member State (as per the passport principle) even if it has not identified any existing AIF in that Member State. In that case, the notification should include a reference to the type of strategy of the AIFs that the AIFM intends to manage in the host Member State to ensure compliance with the provisions of article 33 (2-b) AIFMD. The competent authorities in a Member State other than the home Member State of the AIFM should accept AIFM passport notifications for the activities of AIFM authorised under article 6 (4) AIFMD (MiFID services). This rule derives from ar- ticle 92 of Directive 2014/65/EU (MiFID II), which modifies the provisions of the AIFMD. Although Mi- FID II should not apply before 3 July 2015, ESMA recommends to Member States to accept passport notifications before that date. SECTION 5 - MIFID SERVICES UNDER ARTICLE 6(4) AIFMD (NEW SECTION) The cash flow monitoring duties of the depositary apply to any cash account opened in accordance with Article 21 (11) AIFMD, but do not apply on a look-through basis to cash accounts opened in the name of companies in which the AIF/AIFM holds investments. It should not be possible for the depositary to del- egate its cash flow reconciliation duties to a third party. In this regard, delegation is only permitted in relation to technical/administrative functions. Within the cash monitoring duties of a depositary, “close of business day” should be determined ac- cording to the jurisdiction where the depositary is established. The obligation to verify that the AIFM/AIF complies with applicable laws and regulations does not re- late to the laws and regulations of entities that do not have any direct relation with the AIF/AIFM’s instructions to the depositary. Derivative contracts, even if they contain a netting clause shall be considered as other assets and are thus subject to ownership verification and record- keeping. The duty of the depositary involves, inter alia, looking at the contract to assess what the AIF/ AIFM is entitled to. Holdings in collective investment undertakings are to be considered as other assets to the extent that, in accordance with national laws, they can only be « Carrying out of the AIFM’s instructions « Safekeeping of “other assets” SECTION 6 - DEPOSITARIES (NEW SECTION) « Cash flow monitoring

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EMIR - ESMA Q&A update Background The Q&A mechanism is a practical convergence tool used to promote common supervisory ap- proaches and practices under Article 29 (2) of Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Author- ity (European Securities and Markets Authority - ESMA), amending Decision no. 716/2009/EC and repealing Commission Decision 2009/77/EC Reg- ulation, 15.12.2010, L331/84. What’s in there? On 23 June and 10 July 2014, ESMA published up- dated versions of the Q&As on the Implementation of Regulation (EU) no. 648/2012 on OTC deriva- tives, central counterparties and trade repositories (EMIR). It provides responses to questions from the general public, market participants and competent authorities in relation to the practical application of EMIR. The updated version of 23 June 2014 includes amendments and modifications of the sections regarding the reporting requirements under EMIR: « Reporting of the collateralisation and the collat- eral, including additional details regarding the valuation of the collateral, the forms of collateral to be reported, the currency for multicurrency collateral portfolios and the approach for collat- eral pools; « Reporting of valuation, including additional de- tails regarding mark-to-market valuation report- ing and valuation in case of delegated reporting; « Reporting of backloaded trades for centrally cleared contracts; « Reporting of empty fields when the field is rele- vant for the type of contract or trade; « Reporting of contracts with no maturity date (e.g. CFDs); « Reporting changes of notional (e.g. partial ter- minations); The updated version of 10 July 2014 includes amendments and modifications of the sections regarding: « The status of entities not established in the Un- ion, specifically the clearing obligation for pen- sion schemes established in third countries; « The segregation and portability requirements for CCPs, specifically clarification of the segregation requirements for non-EU clearing members of EU CCPs. « Reporting of novations.

Rules of procedure for ESMA penalties imposed on trade repositories Background On 4 July 2012, the European Parliament and the Council adopted Regulation (EU) no. 648/2012 on OTC derivatives, central counterparties and trade repositories (European Market Infrastructure Regulation or EMIR), which entered into force on 16 August 2012. Article 64 (7) of EMIR empowers the European Com- mission to lay down rules of procedure for the exer- cise of the power to impose fines or periodic penalty payments by the European Securities and Markets Authority (ESMA) upon trade repositories and per- sons involved in trade repositories. On 13 March 2014, the Commission indeed issued a delegated act on this matter, namely Commission Delegated Regulation (EU) no. 667/2014. What’s in there? CommissionDelegatedRegulation (EU) no. 667/2014 supplements EMIR by laying down rules of proce- dure regarding fines and periodic penalty payments to be imposed by ESMA on trade repositories or oth- er persons that are subject to ESMA’s investigation and enforcement proceedings, including rules on the right of defence (e.g. right to be heard, access to the file), limitation periods for the imposition and enforcement of penalties and the collection of fines or periodic penalty payments. CommissionDelegatedRegulation (EU) no. 667/2014 was published in the Official Journal of the EU on 19 June. CommissionDelegatedRegulation (EU) no. 667/2014 entered into force on 22 June 2014. What’s next?

On 8 May 2014, the Presidency of the Council issued a second compromise proposal ( AVAILABLE HERE ). On 27 May 2014 and 4 June 2014, the Council of the EU published two further presidency compromises (10215/14 AVAILABLE HERE and 10583/14 AVAIL- ABLE HERE ). What’s in there? On 25 June 2014, the Permanent Representatives Committee agreed, on behalf of the Council, on a general approach in order to start negotiations with the European Parliament with a view to reaching an agreement at first reading. Compared to the last version issued on 4 June, the main changes to the ELTIF framework are as follows: « ELTIFs will not be allowed to transform themselves into collective investment undertakings which are not covered by the ELTIF Regulation; « Where the lifecycle of an ELTIF that is offered or placed to retail investors exceeds 10 years, the ELTIF manager or distributor will need to is- sue a clear written alert that this product may not be suitable for retail investors who are unable to sustain such a long term and illiquid commitment; « ELTIFs managers directly marketing such vehicles to retail investors will need to be authorised as portfolio managers or investment advisors; « Where the portfolio of a retail client does not ex- ceed EUR 500,000, the ELTIF’s manager will have to ensure that the retail investor does not invest an aggregate amount exceeding 10% of his finan- cial instrument portfolio in ELTIFs, provided that the minimum amount invested in a single ELTIF is € 10,000. What’s next? The Italian presidency has been invited to start nego- tiations with the European Parliament, on the basis of the Council's general approach. The Regulation needs to be adopted by the Parlia- ment and the Council. The Regulation will enter into force 6 months after its adoption.

THE TEXT OF THE REGULATION IS AVAILABLE HERE.

THE COUNCIL COMPROMISE IS AVAILABLE HERE.

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Further explanations about the Recital 20 of EMIR Background The letter of the Commission was issued after the ESMA’s analysis of the frontloading requirement and its request of the Commission’s views on it. It is also important to note that the first authorisation under EMIR of a CCP took place on 18 March 2014. What’s in there? Objective of the Commission with this letter dated 8 July 2104 is to further explain how the frontloading requirement should be used. It is stated in this letter that frontloading can have “negative effects on the functioning of the market, financial stability and systemic risk”. On the basis of the previous statement, the Commission states that the frontloading of OTC derivatives should be avoid- ed when it could lead to the negative factors stated previously. Moreover, the Commission states that the avoidance of those factors could be achieved through the use of the determination of the mini- mum remaining maturities adapted to the specifici- ties of the different classes of OTC derivatives. The Commission further added that the determina- tion of the remaining maturities should be assessed and analysed under the goals pursued by EMIR in general and that, until the RTS is properly put into place, counterparties cannot objectively foresee their frontloading obligation. What’s next? ESMA is expected to submit its RTS to the Commis- sion for adoption in the form of a regulation.

European Commission updates EMIR FAQ Background The European Commission publishes a regularly updated FAQ to address questions relating to Reg- ulation (EU) no. 648/2012 (EMIR). The FAQs are designed to provide clarity on the timing of imple- mentation, the scope of the requirements, and the position of third country CCPs and trade repositories, from the Commission’s perspective. Prior to the update of 10 July 2014, the most recent version was dated 18 December 2013. What’s in there? On the 10 th of July 2014, the European Commission published an updated version of the EMIR FAQ. In the update, the European Commission addresses the question of whether the segregation require- ments apply to non-EU clearing members of EU CCPs providing services to clients, and the response mirrors the response that may be found in the ESMA Q&A published on the same day (CCP Question 8 (i)). What’s next? This document will be continually edited and updat- ed as and when new questions are received. ESMA publishes Consultation Papers on draft RTS on the Clearing Obligation under EMIR Background Under the European Markets Infrastructure Regula- tion (EMIR), ESMA is required to develop regulatory technical standards (RTS) on the clearing obligation for OTC derivatives. With the overarching objective of reducing systemic risk, EMIR introduces the obligation to clear certain classes of OTC derivatives in central clearing houses (CCPs) that have been authorised (European CCPs) or recognised (third-country CCPs) under its frame- work. To ensure that the clearing obligation reduc- es systemic risk, EMIR specifies a process for the identification of the classes of OTC derivatives that should be subject to mandatory clearing. THE DOCUMENT IS AVAILABLE HERE.

What’s next? The ESMA Q&A will be continually edited and up- dated as and when new questions are received.

THE UPDATED ESMA Q&A IS AVAILABLE HERE.

EMIR - Final draft RTS on treatment of clearing members’ exposure to clients Background Under the Capital Requirements Regulation (CRR- Regulation (EU) no. 575/2013), amending the European Markets Infrastructure Regulation (EMIR- Regulation (EU) no. 648/2012), financial in- stitutions acting as clearing members are required to set aside capital against exposures to central counterparties (CCPs) and bilateral exposures for exposures to clients. On 28 February 2014, the European Banking Au- thority (EBA) published the draft regulatory technical standards (RTS) related to the capital requirements for the exposures of the clearing members to their clients. What’s in there? Following a consultation period of ten weeks, the EBA published on 4 July 2014 the final draft reg- ulatory technical standards on the margin periods of risk used for the treatment of clearing members' exposures to clients under Article 304 (5) of the Capital Requirements Regulation (Regulation (EU) no. 575/2013). The draft RTS specify the minimum margin periods of risk (MPOR) that financial institutions acting as clearing members may use as input for the calcu- lation of their capital requirements for exposures to clients. The MPOR are specified in a different manner for different classes of derivatives to be used in both the internal and standardised approaches, therefore covering the full spectrum of derivative types for all counterparty credit risk models. The draft RTS set the MPOR at a level that is equal to whichever is the longer period: the regulatory mini- mum of five days or the liquidation period disclosed by the CCP. What’s next? The RTS still need to be adopted by the European Commission.

THE DOCUMENT IS AVAILABLE HERE.

THE DOCUMENT IS AVAILABLE HERE.

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Calculation of counterparty risk by UCITS for OTC financial derivative transactions subject to clearing obligations Background UCITS may invest in exchange-traded derivatives and OTC derivatives. However, UCITS may only in- vest in OTC derivatives transactions to the extent that their counterparty risk exposure does not ex- ceed 5% of their assets or 10% when the counter- party is a credit institution (cf. Art. 52 of the UCITS Directive). Under EMIR, certain OTC derivative transactions will become subject to clearing obligations. On 19 December 2013, ESMA published a revised version of its Q&A on risk measurement and calcu- lation of global exposure and counterparty risk for UCITS ( ESMA/2013/950 - AVAILABLE HERE) . What’s in there? ESMA issued on 22 July 2014 a discussion paper (ESMA/2014/876) in order to get the stakeholders’ feedback on: « How to calculate the UCITS’counterparty risk expo- sure in OTC transactions that are centrally cleared; and « Whether the same rule should apply to both OTC transactions that are centrally cleared and ex- change-traded derivatives in respect of the calcu- lation of counterparty risk exposure. What’s next? Stakeholders shall provide their feedback to the 18 questions raised by ESMA on the above topics by 22 October 2014.

ECB Opinion on Proposed Money Market Funds Regulation Background

A first discussion paper on the clearing obligation under EMIR was published on 12 July 2013. What’s in there? On 11 July 2014, ESMA published two consultation papers concerning draft regulatory technical stand- ards (RTS) on the clearing obligation of certain class- es of OTC derivatives, incorporating the feedback and comments received from stakeholders respond- ing to the discussion paper of 12 July 2013. The two consultation papers seek stakeholders’ views on draft RTS for the clearing of Interest Rate Swaps (IRS) and Credit Default Swaps (CDS) that ESMA has to develop under the European Markets Infrastructure Regulation (EMIR). Regarding IRS, ESMA’s draft RTS propose the fol- lowing four classes, on a range of currencies and underlying indices, to be subject to central clearing: Regarding CDS, ESMA’s draft RTS proposes Euro- pean untranched Index CDS (for two indices) to be subject to central clearing. ESMA invites responses from the main stakeholders to the specific questions listed in these consultation papers. What’s next? The IRS Consultation Paper is open for feedback until 18 August 2014 and the CDS Consultation Paper un- til 18 September 2014. ESMA will use the answers received to draft its final RTSs on the clearing obliga- tion for IRS and CDS and send them for endorsement to the European Commission. The clearing obligation will take effect following a phased implementation, with the current proposal ranging from six months to three years after the en- try into force of the RTS, depending on the types of counterparties concerned. THE IRS CONSULTATION PAPER IS AVAILABLE HERE. THE CDS CONSULTATION PAPER IS AVAILABLE HERE. « Basis swaps; « Fixed-to-float interest rate swaps; « Forward rate agreements; and « Overnight index swaps.

On 13 November 2013, the European Central Bank (“ECB”) received a request from the Council for an opinion on a proposal for a regulation of the Eu- ropean Parliament and of the Council on money market funds (“the Regulation”). This request took place in the context of the recent wider international effort to develop a regulatory framework for shadow banking entities. What’s in there? On 6 August 2014, the ECB opinion dated 21 May 2014 on a proposal for a regulation on money market funds (2014/C 255/04) was published in the OJEU. NAV BUFFER The Regulation will introduce a net asset value buffer (“NAV buffer”). The ECB considers that the 3% NAV buffer does not take into account the dis- tinctive profiles of money market funds (“MMFs”) and that the Regulation should allow for more flexibility in the means used to maintain the NAV buffer. THE ROLE OF MMFS IN INTERMEDIATION The ECB welcomes the Regulation from a financial stability perspective, whilst raising concerns that the intermediation capacity of MMFs is potentially reduced. In addition, the ECB is of the view that it should be assessed whether the reallocation of funds from MMFs to the banking system is sub- stantial and whether this would in fact impact short-term money markets. INTERNAL RATING SYSTEMS The Regulation proposes that credit rating agen- cies be banned from assigning ratings to MMFs. The ECB notes that internal rating models may yield similar credit assessments to those of rating agencies, meaning that the number of highly-rated issuers would remain limited. OTHER PROVISIONS In addition, the ECB suggests a number of tech- nical amendments to the proposed Regulation, relating in particular to ensuring the appropriate involvement of ESMA in all relevant fields, for ex- ample access to the reports of MMF Managers.

THE ESMA DISCUSSION PAPER IS AVAILABLE HERE.

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What’s next? The revised Guidelines will apply as from 1 October 2014. However, existing structures benefit from a 12 months grandfathering period for full compliance.

THE REVISED GUIDELINES ARE AVAILABLE HERE.

European Commission

ESMA updates its guidelines on ETFs and other UCITS issues Background

publishes overview/ planning of Level 2 legislative measures in financial services Background N/A What’s in there? On 10 July 2014, the European Commission pub- lished an overview/planning table concerning Level 2 legislative measures in the area of financial ser- vices. The table provides an overview of Level 2 legisla- tive measures, both those in preparation and those adopted. The table has been put together by the Eu- ropean Commission’s Internal Market and Services Directorate General and includes in particular the following directives and regulations:

What’s next? The proposal is scheduled to be reviewed by the ECON Committee of the European Parliament in September 2014.

THE OPINION IS AVAILABLE HERE.

UCITS V Directive finally adopted by Council Background The draft UCITS V Directive has been under legisla- tive review for the past two years. The text amends Directive 2009/65/EC on undertak- ings for collective investment in transferable securi- ties (“UCITS”) as regards remuneration of staff, the regulatory framework applying to UCITS depositaries and the sanctions regime. The Commission proposal was issued on 3 July 2012. On 15 April 2014, the European Parliament adopted its final position. What’s in there? The Directive was adopted by the Council on 23 July 2014. What’s next? The Directive will enter into force 20 days after its publication in the OJEU. Member States will have 18 months to transpose the Directive into national law. Depositories will be giv- en an additional 24 months after that transposition deadline. More details on the content of the UCITS V Directive will be available on the next Scanning publication. THE PRESS RELEASE OF THE COUNCIL IS AVAILABLE HERE. THE TEXT OF THE DIRECTIVE AS ADOPTED BY THE COUNCIL IS AVAILABLE HERE.

On 18 December 2012, ESMA published guidelines on ETFs and other UCITS issues ( THE "GUIDELINES" - AVAILABLE HERE ). The Guidelines applied to UCITS management com- panies and self-managed SICAV as from 18 February 2013. Paragraph 43 e of the Guidelines sets forth the col- lateral diversification criteria to be complied with by UCITS entering into OTC financial derivative transac- tions and efficient portfolio management techniques. What’s in there? On 1 August 2014, ESMA issued a revised version of the Guidelines. Paragraph 43 e of the Guidelines was completed by a new subparagraph laying down the derogative rules under which a UCITS may be fully collateralised in different transferable securities and money mar- ket instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong. In this case, compliance with the following must be ensured: « The UCITS should receive securities from at least 6 different issues; and « Securities from any single issue should not account for more than 30% of the UCITS’ net asset value; « The prospectus must be updated accordingly. Under the provision of the new paragraph 48 of the revised Guidelines, the UCITS annual report must in- clude information on: « The identity of an issuer from whom the UCITS re- ceived a collateral which exceeded 20% of the NAV; « Whether the UCITS has been fully collateralised in securities issued or guaranteed by a Member State.

CRR/CRD IV, MiFID II/MiFIR,

«

«

« UCITS IV/V and AIFMD,

EMIR,

«

« MAD/MAR (Market Abuse),

« Short Selling & CDS,

« Money Market Funds. In each case the information in the table includes:

« Details of the Level 1 legislative acts;

« Details of the Level 2 legislative measures in preparation or adopted;

« The legal instrument in question;

« The year in which the Commission plans to adopt the Level 2 legislative measure or, for published measures, the “COM” or Official Journal of the EU reference; « A link to the relevant Commission policy website. What’s next? The table will be updated on a regular basis.

THE EUROPEAN COMMISSION TABLE IS AVAILABLE HERE.

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LUXEMBOURG

Luxembourg, the Luxembourg Chamber of Notaries and the Luxembourg Conseil d’Etat issued opinions on Bill 6625. The Finance and Budget Committee of the Luxembourg Parliament adopted amendments to Bill 6625 on 3 July 2014, while the Luxembourg Conseil d’Etat issued a complementary opinion on 11 July 2014. Bill 6625 was adopted by the Luxembourg Parlia- ment as the law of 28 July 2014 on the immobilisa- tion of shares and units in bearer form, which was published in the Mémorial on 14 August 2014. What’s in there? The law of 28 July 2014 (the “Law”) contains sev- eral changes to the original Bill 6625, following the recommendations made by the bodies that issued opinions on Bill 6625 as well as the amendments of the Finance and Budget Committee of the Luxem- bourg Parliament, in particular: « Deletion of the exemption regarding bearer shares admitted to trading on a regulated market, as per the amendment of the Finance and Budget Com- mittee. Such shares will therefore also fall within the scope of the Law. « Regarding the ownership and transfer of bearer shares, the Law adopts the wording of the rele- vant parliamentary amendment, as proposed by the Luxembourg Bar and endorsed by the Conseil d’Etat. The wording ensures the proper legal dis- tinction between nominative and bearer shares. « Deletion in the last sub-paragraph of Article 84 of the law of 10 August 1915 of the reference to Article 42 of the same law, in order to avoid the general application of the new Article 42 to bearer shares not falling within the scope of the Law. The change had already been adopted as a parliamen- tary amendment, following the relevant recom- mendation of the Luxembourg Bar. « Addition of a clause in Article 5, 2 b) of the law of 5 August 2005 on financial guarantee contracts, in order to cover the case of the transfer of the possession of pledged bearer shares. The change had already been the object of a parliamentary amendment, following the relevant recommenda- tion of the Luxembourg Bar and the endorsement of the Conseil d’Etat. « As regards the transitional provisions of the Law, the relevant deadlines remain unchanged, as amended by the Luxembourg Government on 28 March 2014, namely: (a) 6 months for the appoint- ment of a professional depositary; (b) 18 months for the deposition of bearer shares; (c) 6 months for the suspension of the rights attached to bearer shares; and (d) 18 months for the cancellation of bearer shares. All deadlines run as from the entry into force of the Law, despite the relevant criticism exercised by the Luxembourg Chamber of Com- merce, the Luxembourg Bar and the Conseil d’Etat.

passport under the minimum conditions of Article 45 of the AIFM law (transparency requirements and existence of cooperation arrangements); - Non-EU AIFMs must inform the CSSF prior to any marketing activity by filling out an information form available for download on the CSSF web- site; - Non-EU AIFMs must comply with the reporting requirements of Article 24 of the AIFMD only as regards AIFs marketed in Luxembourg; - Private placement in Luxembourg will be permit- ted until 22 July 2014. Non-EU AIFMs marketing AIFs in Luxembourg under the existing private placement regime will have to send the relevant information form to the CSSF if they intend to continue marketing AIFs in Luxembourg. « Question 19: Instead of listing the non-EU regu- lators with which the CSSF has signed a Memo- randum of Understanding (MoU), question 19 now makes reference to the list published on the ESMA website containing the AIFMD MoUs signed be- tween EU and non-EU supervisory authorities. What’s next? The CSSF FAQ on AIFMs is updated on a regular basis. THE TEXT OF THE UPDATED FAQ IS AVAILABLE HERE. Publication of the law of 28 July 2014 on the immobilisation of bearer shares Background Bill 6625 was introduced on 4 October 2013 follow- ing FATF’s recommendations. It seeks to amend the law of 10 August 1915 by laying down rules regard- ing the immobilisation of bearer shares. In particu- lar, it will give an end to the free transfer of bearer shares by delivery of certificate and will require (i) the immobilisation of bearer shares by a profession- al depositary and (ii) the identification of the bearer shares holder. Bill 6625 covers both shares to be issued after the entry into force of the law and bearer shares already in circulation. Amongst others, bearer shares issued or to be is- sued by investment funds (SICAV or FCP) fall within the scope of Bill 6625. Bill 6625 was amended by the Luxembourg Govern- ment on 28 March 2014. The Luxembourg Chamber of Commerce, the Conseil de l’Ordre du Barreau de

CSSF updates AIFM FAQ Background The Frequently Asked Questions (FAQ) document of the CSSF provides guidance on the implementation of the AIFMD in Luxembourg. What’s in there? The new version of the FAQ issued on 18 July 2014 contains updated versions of questions 14 and 19 (previously 17) as well as two new questions (17 and 18): « Question 14: The CSSF clarifies that non-EU AIFMs will have to report to the CSSF only where they market AIFs in Luxembourg (as long as the pass- port regime is not available). « Question 17 (new): The CSSF specifies the regu- latory texts to be taken into consideration for the purpose of assessing the initial capital and own funds requirements applicable to (1) a Chapter 15 Management Company holding an AIFM li- cense, and (2) an AIFM not holding a Chapter 15 Management Company license. Furthermore, the CSSF clarifies the risks that must be covered by an AIFM via additional own funds or a professional indemnity insurance. In master-feeder structures, professional liability risks must be covered at both master and feeder level. « Question 18 (new): The CSSF clarifies the situ- ation regarding non-EU AIFMs marketing AIFs in Luxembourg without a passport. The main points of the CSSF’s guidance are the following: - Non-EU AIFMs are allowed to market AIFs to professional investors in Luxembourg without a

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What’s next? The law of 28 July 2014 entered into force on 18 August 2014. THE FINAL TEXT OF THE LAW, AS PUBLISHED IN THE MÉMORIAL ON 14 AUGUST 2014, IS AVAILABLE HERE (ONLY AVAILABLE IN FRENCH). CSSF Circular clarifying new complaints handling policy rules Background The CSSF regulation 13-02 (“the Regulation”) was published on 28 October 2013. The Regulation aims at facilitating the settlement of customer complaints against professionals subject to the prudential su- pervision of the CSSF (“Professionals”) by avoiding judicial procedures. Sections 1 and 3 of the Regulation regarding the out- of-court resolution of complaints filed with the CSSF entered into force on 1 January 2014. Section 2 of the Regulation lays down the obliga- tions of Professionals (i.e. any natural or legal person falling under the prudential supervision of the CSSF) in relation to the internal processing of claims submitted to them and has entered into force on 1 July 2014. Circular 14/589 specifies the obligations provided for in section 2 of the Regulation. What’s in there? COMPLAINT HANDLING PROCEDURES Professionals must put into place a complaint management policy. That policy must take into consideration all potential aspects of complaint treatment, providing information on the reasona- ble and prompt procedures and shall be set out in a written document. Each envisaged procedure

What’s next? The complaint handling policy should be at least published on the website of the Professional. For the period running from 1 July 2014 until 31 De- cember 2014, Professionals will need to report to the CSSF not later than the 1 st of March each year. How- ever, UCITS management companies may provide such report up to one month following the general meeting approving the annual financial statements. Entry into force of CSSF Regulation 13-02 on complaints handling policy Background The CSSF regulation 13-02 (the “Regulation”) was published on 28 October 2013. As a reminder, the Regulation aims at facilitating the settlement of customer complaints against profes- sionals by avoiding judicial procedures. It sets forth, amongst others, the rules applying to the admissibil- ity of claims presented to the CSSF and the running of the procedure. The CSSF took the opportunity to clarify the obligations of professionals (i.e. any natural or legal person falling under the prudential supervision of the CSSF) in relation to the internal processing of claims submitted to them. The first section of the Regulation regarding the out- of-court resolution of complaints filed with the CSSF entered into force on 1 January 2014. What’s in there? Section 2 of the Regulation regarding the provisions applicable to professionals entered into force on 1 July 2014. Therefore, each professional shall es- tablish a complaints management policy including the following information:

must be laid down in the policy. Professionals must make sure that each complaint is being registered electronically and saved. Complaints must be treated in a reasonable time, depending on their subject matter and the nature of com- plaint. No complaint shall remain unanswered. The complaint handling measures as provided for in Articles 15 and 16 of the Regulation are not ex- haustive. Professionals may implement different or additional complaint handling channels, depend- ing on the amount of complaints they face and the complexity of requests, such as call centres and hotlines. RESPONSIBILITIES OF THE BOARD OF DIREC- TORS (SPECIFICATIONS REGARDING ART. 15 OF THE REGULATION) The conducting officers are responsible for the policy and procedures regarding complaint han- dling. The conducting officer responsible for such function (the “Responsible Person”) shall allocate the human resources and the technology required for the proper implementation of the complaint management policy and procedures. He shall also undertake regular controls of these mechanisms in relation to the tasks performed by the compli- ance and the audit department. The Professional’s internal procedure must ensure that the complaint handling data is being provided to the Responsible Person, making sure that the rele- vant communication channels are in place. The data must provide details on the respective complaint subject, the correcting measures taken so far and the effect of these measures. COMMUNICATION TO THE CSSF Under Article 16 of the Regulation, Professionals must communicate to the CSSF, on an annual basis, a table including the number of complaints registered by the Professional, classified by complaint types, as well as a summary report of the complaints and the relevant measures that have been taken to handle them. Sim- ple enquiries for solely informational or explanatory purposes are to be excluded from the report. A sam- ple table is now included in Circular 14/589.

« Details of how to complain;

« The procedure followed by the professional to han- dle the complaint.

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that it sets forth the minimum content of Depositar- ies application files and of the depositary agreement. However, the Depositaries organisation rules are at the core of the Circular and are more extensively described in the high level mapping below. Readers should in particular focus on the topics below, which have been raised as the key elements of the Circular by the CSSF. 1.) SEGREGATION OF UCITS’ FINANCIAL ASSETS As under the AIFMD, particular attention shall be paid to the compliance with the principle of segre- gation of financial assets throughout the custody chain. Such principle will apply to Depositaries with specific provisions for the sub-custodian slightly de- viating from what is already in place under AIFMD. However, the Depositary shall be provided annually with confirmation regarding the compliance with the Circular’s segregation rules by any appointed sub-custodians. The Circular defines the conditions for the delegation of the Depositaries' safe-keeping duties to a third party. In line with the AIFMD, delegation and sub-del- egation should be (i) justified by an objective reason (this is a recommendation of the Circular, only) and (ii) subject to strict requirements in relation to the suitability of the sub-custodians. This process shall be documented in a dedicated procedure. In addi- tion, a contingency plan shall foresee any relevant measures to be taken in case of sub-custodian in- solvency. Sub-Custodians must annually confirm to the Depositary that they apply in turn equivalent due diligence measures when delegating any safe-keep- ing functions. It must be noted that the Circular provides a detailed approach and criteria for the due diligence proce- dures to be implemented. Finally, transfer agents are subject to specific rules and, in general, are not to be considered as "sub-custodians". As a rule, Depositaries must act in an independent manner and may not provide any service to a UCITS where this could give rise to conflicts of interest. It derives therefrom that neither the portfolio nor the risk management functions may be delegated to the Depositary or any sub-custodian. However, subject to CSSF prior approval, Depositaries may provide risk management support services to the UCITS or its management company. 4.) CASH FLOW MONITORING The Depositary will be responsible for the proper monitoring of the UCITS' cash in- and out-flows, 2.) INITIAL AND ONGOING DUE DILIGENCE OVER SUB-CUSTODIANS 3.) IDENTIFICATION, MANAGEMENT, PREVENTION OF CONFLICTS OF INTEREST

and in particular, for ensuring that any cash of the UCITS is correctly booked.The CSSF expects Depos- itaries to establish appropriate procedures so as to reconciliate every cash movement and detect those inconsistent with the UCITS’ operations. 5.) COLLATERAL MANAGEMENT Since the Circular clarifies that assets provided or received by the UCITS as collateral are in scope of the Depositary’s custody duties, the latter must be able to assess whether or not such assets are the property of the UCITS. For this, the Depositary must take into account the regulatory and contractual fea- tures of the transaction. UCITS must ensure that the Depositary is provided with all information neces- sary for this assessment. If the UCITS lends its secu- rities, the Depositary shall ensure that the collateral is received/restituted in a timely manner and that it adequately covers the transaction. Moreover, the Depositary shall ensure that any collateral received by the UCITS does not conflict with the provisions of CSSF Circular 13/559. No collateral agent or manag- er can be used for collateral transactions unless an agreement is entered into between the UCITS, the Depositary and such collateral agent/manager. What’s next? Depositaries, UCITS and/or their management com- panies must be fully ready on 31 December 2015 at the latest, subject to a longer transition period, which would run under the UCITS V Directive. At this date, the provisions of chapter E of IML circular 91/75 will not apply anymore to Depositaries (however, they will still apply to depositaries of SIFs, SICARs and Part II funds which are not subject to the law of 12 July 2013 on AIFMs).

Such policy shall also give the opportunity to the complainant to raise the complaint up to the level of the management of the professional and provide the contact details of such person. Internal delegation is only authorised where the CSSF has been notified of any arrangement to that effect. Finally, the Regulation sets forth the rules regarding the communication of information to the complain- ant and to the CSSF. What’s next? The complaint handling policy should be at least published on the website of the professional. CSSF provides extensive guidance on the depositary role Background The purpose of CSSF Circular 14/587 (the “Circular”) is to update the rules applicable to depositaries of Luxembourg UCITS (the “Depositaries”) on the basis of the existing rules under the Law of 17 December 2010 relating to undertakings for collective invest- ment (the "2010 Law") as well as the provisions set- out by the UCITS V directive (“UCITS V”). The new rules are to a large extent inspired by the alternative investment fund manager directive (“AIFMD”), the new European benchmark in this regard. Within the wider context of anticipating future European devel- opments, the Circular also seeks to anticipate the changes deriving from UCITS V. As is currently the case under AIFMD, the Circular places Depositaries as the central figure of UCITS structures, but also de- fines more distinct roles and responsibilities for the Management Company. What’s in there? The Circular provides extensive guidance on the sa- lient features of the Depositary role. A true novelty is THE REGULATION IS AVAILABLE HERE.

CSSF CIRCULAR 14/587 IS AVAILABLE HERE.

CSSF circular laying down its administrative

practice regarding material changes to open-ended UCIs Background UCI investors must receive all necessary information to be able to make an informed judgment of the proposed investments (cf. Art. 151 of the law of 2010). Under an established CSSF supervisory practice, in-

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BELGIUM FSMA’s communication

vestors in open-ended UCIs must be notified of any material change to a UCI’s features and benefit from a 30-day period to exit the vehicle or to ask for the conversion of their holdings, both free of charge. What’s in there? Circular CSSF 14/591 dated 22 July 2014 aims to explicitly lay down the above administrative practice and to provide further clarification on the process to be followed: « The UCI must first provide the CSSF with expla- nations on the contemplated change as well as an assessment of its impact on the investors. The CSSF must receive this information well in advance before the relevant change becomes effective; « Based on the information received, the CSSF will determine whether or not the contemplated changes are material and need to be notified to the investors; « Should this be the case, the notification period cannot be less than one month long before the contemplated changes enter into force. During such period, investors must be granted the right to exit the UCI free of charge. On an optional basis, the UCI may also offer the free conversion of the investors’ holdings; « However, upon a duly supported derogation re- quest, the CSSF may agree not to impose such a notification period or to impose a notification peri- od without the possibility for the investors to exit the UCI or to convert their holdings. What’s next? THE CSSF CIRCULAR ENTERED INTO FORCE ON 22 JULY 2014 AND IS AVAILABLE HERE. CNC recommendation on "Accounting concept for Investment Company" Background Article 30 of the law of 19 December 2002 governing the trade and companies register and the accounting and annual accounts of undertakings (the "Account- ing Law") foresees that investments companies have to derogate from the general Accounting Law by drawing up their annual accounts in accord- ance with the rules laid down in the laws relating to undertakings for collective investment (law of 17 December 2010) or to specialised investment

funds (law of 13 February 2007). According to the same article, an investment com- pany has to be understood as a company for which “(…) the exclusive object is to invest their funds in various transferable securities, real estate or other assets with the sole purpose of spreading the invest- ment risks and giving their shareholders the benefit of the results of the management of their assets”. In such context, one can wonder if this concept of investment company as described in article 30 of the Accounting Law has to be limited to the sole under- taking for collective investment and to specialised investment fund or if it can be extended to other reg- ulated or unregulated investment vehicles, such as other regulated investment vehicles (e.g. SICARs) or unregulated investment vehicles such as alternative investment funds (AIFs). What’s in there? The Luxembourg "Commission des Normes Compt- ables" ("CNC") has recently issued its recommenda- tion 02/2014 on "Accounting concept for Investment Company". In its recommendation 02/2014, the CNC emphasises that a restrictive approach should be given to this accounting concept of investment com- pany (such as described in article 30 of the Account- ing Law) and limits it solely to the following regulated investment companies: « UCITS Part I (Undertaking for Collective Investment in Transferable Securities) and UCI Part II governed by the amended law of 17 December 2010 relating to undertakings for collective investment; and « Specialized Investment Funds governed by the amended law of 13 February 2007. As a consequence, the other investment vehicles should not be allowed to apply such exemption de- fined by the article 30 of the Accounting Law; and should therefore follow the general accounting rules, i.e. should establish their annual accounts under the eCDF forms and proceed to their filing through the eCDF platform (with when applicable, the trial bal- ance to be filed under the Standard Chart of Account format).

dated June 23th, 2014 regarding the implementation of the Law on Alternative Investments Funds and their Managers Background Law on Alternative Investment Funds and their Man- agers transposing the Alternative Investment Fund Managers Directive (AIFMD) has been published on April 19 th , 2014. What’s in there? The Belgian Financial Services and Markets Author- ity’s (FSMA) communication aims at informing the actors of the sector of the coming into force of the above-mentioned law, at describing the scope of application as well as at explaining the legal conse- quences related to this entry into force. The commu- nication is linked with a Q&A paper about the entry into force of the same law. What’s next?

THE FSMA’S COMMUNICATION IS AVAILABLE HERE.

THE CNC RECOMMENDATION IS AVAILABLE HERE (IN FRENCH ONLY).

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