SCANNING 7

CACEIS European Regulatory Watch Newsletter

7

2015 January No.7

EUROPE AIFMD - ESMA consultation paper on asset segregation under the AIFMD CSDR - ESMA launches 3 consultations on CSDR implementing measures ELTIFs - Final agreement reached by Council and EU Parliament on the compromise text on European Long- Term Investment Funds EMIR - ESMA to cooperate with Australian regulators on CCPs EMIR - EU Commission endorses ESMA’s draft RTS for central clearing of IRS under EMIR EU PARENT-SUBSIDIARY DIRECTIVE - Introduction of a general anti-abuse rule MiFID II/MiFIR - ESMA publishes final technical advice on MiFID II/MiFIR MiFID II/MiFIR - ESMA consults on draft RTS/ITS under MiFID II/MiFIR PRIIPs - Publication of the PRIIPs Regulation in the Official Journal of the EU UCITS - ESMA submits final technical advice on delegated acts required by the UCITS V Directive

LUXEMBOURG EU SAVINGS DIRECTIVE - Publication of the law to implement the automatic exchange of information on savings income under the current EU Savings Directive MONEY MARKET FUNDS - CSSF implements ESMA’s opinion on CESR money market fund guidelines Update of CSSF Circular 12/552 relating to the central administration, internal governance and risk management SWITZERLAND CORPORATE LAW REFORM - Adaptation to market developments

B ackground

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W hat’s next

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EUROPE AIFMD - ESMA consultation paper on asset segregation under the AIFMD Background The Alternative Investment Fund Managers Di- rective (“AIFMD”) entered into force on 22 July 2013, establishing, inter alia, a harmonised set of rules regulating the provision of depositary bank services to alternative investment funds (“AIFs”). On the basis of ESMA’s technical advice, the European Commission adopted Commission Delegated Regulation (EU) No 231/2013, supple- menting the AIFMD as regards, amongst others, depositaries of AIFs. The depositary provisions - in particular those on the segregation of assets - are a key aspect of the AIFMD framework, aiming at enhancing in- vestors protection.

What’s in there? Seeing merit in further fostering convergence in the application of the AIFMD asset segregation requirements, ESMA decided to consult external stakeholders on a proposal for guidelines. On 1 December 2014, ESMA published a con- sultation paper containing ESMA's proposals for possible guidelines on the AIFMD asset segre- gation requirements, where safekeeping duties have been delegated by the appointed depositary of an AIF to third parties. The guidelines will address the question of whether (or not) there should be separate ac- counts for the AIF assets of each depositary when a delegate holds assets for multiple de- positary clients. There are two alternative options on which ESMA is seeking feedback from the respondents to the con- sultation in question: 1) Option 1: The omnibus account on which AIF as- sets are to be kept by the third-party delegate may only comprise assets of the AIF and assets of other AIFs of the same delegating depositary. Non-AIF as- sets should not be included in the account on which the AIF assets are kept at the level of the delegated third party (and its own delegates). 2) Option 2: Separation of AIF and non-AIF assets is required, but the account on which the AIF assets are kept may include assets from AIFs of different depositaries. What’s next? The consultation runs until 30 January 2015. Stakeholder contributions received will be pub- lished following the close of the consultation. ESMA aims at publishing its final guidelines in the second quarter of 2015. The guidelines will enter into force 2 months after their publication by ESMA. THE CONSULTATION PAPER IS AVAILABLE HERE.

CSDR - ESMA launches

3 consultations on CSDR implementing measures Background Regulation (EU) No 909/2014 of the European Par- liament and of the Council of 23 July 2014 on im- proving securities settlement in the European Union and on central securities depositories (the “CSDR”, available here) was published in the Official Journal of the EU on 28 August 2014 and entered into force on 17 September 2014. The aim of the CSDR is to harmonise certain as- pects of the settlement cycle and settlement disci- pline and to provide a set of common requirements for CSDs operating securities settlement systems across the EU. On 23 June 2014, ESMA received provisional man- dates from the European Commission for technical advice on possible delegated acts concerning CSDs. These mandates were confirmed on 2 October 2014 (the relevant European Commission letter is available here). What’s in there? On 18 December 2014, ESMA launched 3 consul- tations on proposed technical standards, technical advice and guidelines implementing the CSDR. I.Draft technical standards on settlement dis- cipline, CSD requirements and internalised settlement In its first Consultation Paper, ESMA is consulting on draft technical standards on proposed rules covering settlement discipline measures, the au- thorisation, recognition and supervision of CSDs, or- ganisational and prudential requirements for CSDs, access requirements (between a CSD and its par- ticipants, by issuers to CSDs, between CSDs, and

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ELTIFs - Final agreement reached by Council and EU Parliament on the compromise text on European Long-Term Investment Funds Background On 26 June 2013, the Commission issued a Pro- posal for a regulation of the European Parliament and of the Council on European long-term invest- ment funds (“the Regulation”). The Regulation aims at ensuring that uniform requirements apply to the investment and operating conditions of ELTIFs. The main purpose of the proposal is to boost ELTIFs in the real economy. In other terms, the objective of the above-mentioned Regulation is to raise and channel capital towards European long-term investments in the real economy, in line with the European Union objectives of smart, sustainable and inclusive growth. This can be achieved by cre- ating a new form of fund vehicle: the ELTIF. On 17 April 2014, the European Parliament in ple- nary adopted amendments to the Commission’s proposal, following which on 24 April 2014, the Presidency of the Council issued a first compro- mise proposal. The Presidency of the Council sub- sequently issued further compromise proposals on 8 May, 27 May and 4 June 2014 respectively. On 25 June 2014, the Council agreed on a general approach on the latter at the level of COREPER.Thus, the Council Presidency conducted negotiations with the European Parliament and the Commission in or- der to concert on a first reading agreement. What’s in there? On 26 November 2014, a provisional agreement be- tween the EU Council and Parliament was reached, which led to the issue of a final compromise text on 5 December 2014. The majority of amendments to the text outlined in our previous editions of Scanning have been kept. However, several new points have been added. The main changes to the previous compromise version can be summarised as follows: « The European Commission shall prioritise and streamline processes for all applications by ELTIFs for EIB financing. In other terms, the Commission

between CSDs and other market infrastructures), as well as internalised settlement reporting (covering securities transactions settled outside a securities settlement system).

shall streamline the delivery of any opinions or contributions necessary for granting applications that request financing from the EIB which is chan- nelled through ELTIFs; « The possibility to temporarily extend the life of an ELTIF was introduced. This right must however be clearly specified to retail investors, as well as the conditions under which such right may be exercised; « Redemptions before the end of life of ELTIF can take place if certain conditions are fulfilled; « The prospectus should contain a prominent indi- cation of the jurisdictions where the ELTIF is al- lowed to invest; « Investments into other ELTIFs, EuVECAs and Eu- SEFs are permitted up to a maximum of 10% of capital; « Requirements additional to those of Article 22 of the AIFMD in relation to the annual report were added. Please refer to previous editions of Scanning for fur- ther information. What’s next? The EU Council has asked the Permanent Repre- sentatives Committee to approve the final com- promise text. If approved, the text will be sent for adoption to the EU Parliament. The Regulation would then need to be adopted by the Council. The Regulation shall enter into force on the twen- tieth day following its publication in the Official Journal of the European Union. It shall then apply six months after entry into force. EMIR - ESMA to cooperate with Australian regulators on CCPs Background Article 25(2)(c) of EMIR (“European Market Infra- structure Regulation”) requires the establishment of cooperation agreements as a precondition for the European Securities and Markets Authori- ty (“ESMA”) to recognise Central Counterparties (“CCPs”) established in third countries to provide clearing services to clearing members or trading venues established in the European Union. THE FINAL COMPROMISE TEXT IS AVAILABLE HERE.

ESMA’S DRAFT TECHNICAL STANDARDS UNDER THE CSDR ARE AVAILABLE HERE.

II. Draft technical advice on penalties for settle- ment fails and on the substantial importance of a CSD The second Consultation Paper includes draft tech- nical advice on proposed penalties for settlement fails and arrangements to identify CSDs of substan- tial importance for the functioning of the securities markets and the protection of the investors in a host Member State. The proposed level of penalties is based on average borrowing costs for the relevant securities. ESMA’s advice proposes indicators to as- sess the substantial importance based on the core services offered by a CSD. III. Draft guidelines on the access to CCPs or trading venues by CSDs The third Consultation Paper of ESMA’s CSDR pack- age consists of draft guidelines on access to a cen- tral counterparty (CCP) or a trading venue by a CSD. The consultation covers the risks to be taken into account by a CCP or a trading venue when carrying out a comprehensive risk assessment following a request for access by a CSD, as well as when the competent authority of the CCP or the competent authority of the trading venue assesses the reasons for refusal to grant access to a CSD by the CCP or by the trading venue. ESMA’S DRAFT GUIDELINES ON THE ACCESS TO A CCP OR A TRADING VENUE BY A CSD IS AVAILABLE HERE. What’s next? ESMA shall submit its technical advice to the Euro- pean Commission no later than on 18 June 2015, which is the same date as the one fixed for the sub- mission of the CSDR technical standards. ESMA’S DRAFT TECHNICAL ADVICE UNDER THE CSDR IS AVAILABLE HERE.

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EU Commission endorses ESMA’s

The European Commission has adopted, under Arti- cle 25(6) of EMIR, Commission Decision 2014/755/ EU, recognising that Australian’s legal and supervi- sory arrangements ensure that Covered CCPs com- ply with legally binding requirements equivalent to those of EMIR, that Covered CCPs are subject to ef- fective supervision and enforcement in Australia on an on-going basis and that Australian’s legal frame- work provides for an effective equivalent system for the recognition of third-country CCPs. What’s in there? ESMA, the Australian Securities and Investments Commission (“ASIC”) and the Reserve Bank of Australia (“RBA”) have concluded a Memorandum of Understanding (“MoU”), establishing cooperation arrangements regarding CCPs that have been es- tablished in Australia and have applied to ESMA for recognition under EMIR. The MoU also gives ESMA the power to monitor the on-going compliance by the Covered CCPs with the recognition conditions. The MoU is effective as of 27 November 2014. The scope of cooperation between the signatories includes: « General issues, including with respect to regulato- ry, supervisory or other developments concerning the Covered CCPs; « Issues relevant to the operations, activities and the services of the Covered CCPs; and Furthermore, the MoU asserts that close cooper- ation is particularly important in the hypothesis in which a Covered CCP (in particular of systemic importance) experiences, or is threatened by, a po- tential financial crisis or other emergency situation. Finally, the MoU clearly states that ESMA does not have, pursuant to the regime under EMIR for recog- nition of third-country CCPs, direct supervision or enforcement powers over the Covered CCPs and that it will rely on the supervision and enforcement capacity of the Australian local authorities. What’s next? Following the establishment of cooperation ar- rangements between ESMA and the Australian reg- ulators under EMIR, ESMA will be able to recognise Australian CCPs having applied for recognition in order to provide clearing services in the European Union. « Any other areas of mutual interest. THE MOU IS AVAILABLE HERE.

« Clarification should be provided on the calculation of the threshold for counterparties falling in cate- gory 2, investment funds in particular. In that con- text, the threshold should be calculated per single fund, as they constitute separate legal entities; « Non-EU intragroup transactions should be exclud- ed from the clearing obligation. Exemption from the clearing obligation for transactions entered into between EU and non-EU counterparties be- longing to the same group should be excluded for a sufficient period of time in order to allow any exemption resulting from equivalence decision mechanism pursuant to Article 13 of EMIR to be adopted. What’s next? ESMA has six (6) weeks to submit an amended draft RTS to the Commission as a formal opinion. The Commission may then further amend or adopt the RTS. EU Parent -Subsidiary Directive- Introduction of a general anti- abuse rule Background Directive 2011/96/EU (the “Parent-Subsidiary Di- rective”) was adopted in November 2011 in or- der to ensure that profits made by cross-border groups are not taxed twice and that such groups are thereby not put at a disadvantage compared to domestic groups. It requires Member States to exempt from taxation profits received by parent companies from their subsidiaries in other Mem- ber States. In November 2013, the European Commission proposed to amend the Parent-Subsidiary Direc- tive with a twofold objective: (1) to tackle hybrid THE LETTER FROM THE COMMISSION AND THE ANNEXED DRAFT RTS CAN BE FOUND HERE.

draft RTS for central clearing of IRS under EMIR Background On 4 July 2012, EMIR was adopted and entered into force on 16 August 2012 (Regulation (EU) No 648/2012). Article 5(2) of the EMIR Regulation (EU) (“Clearing obligation procedure”) requires ESMA to develop and submit to the Commission for endorsement draft regulatory technical standards (RTS), after consultation with stakeholders. On 1 October 2014, ESMA issued its final draft reg- ulatory technical standards (RTS) on the clearing obligation for Interest Rate Swaps (IRS) pursuant to Article 5. What’s in there? On 18 December 2014, the EU Commission en- dorsed the draft RTS in its letter to ESMA. The let- ter, however, also points out certain issues which have raised concern and proposed certain related amendments. « The starting date of the frontloading requirement should be postponed. ESMA initially suggested this requirement should apply as from the official publication date in the Official Journal, however the Commission considers a deferral to be highly beneficial, as it would give counterparties (Catego- ry I and II) ample time to put in place all practical arrangements necessary. The Commission there- fore proposes that the starting date be postponed until two (2) months after the entry into force of the RTS for Category 1 counterparties and until five (5) months for Category 2 counterparties; The amendments proposed by the Commission can be summarised as follows:

ESMA is working closely with other third-country authorities on similar cooperation arrangements.

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loan mismatches; and (2) to introduce a general anti-abuse rule.

In May 2014, the Council agreed to split the pro- posal and address the two issues separately. As a first step, the Council adopted in July 2014 pro- visions preventing corporate groups from using hybrid loan arrangements to benefit from double non-taxation under the Directive. What’s in there? On 9 December 2014, the Council of the European Union approved the introduction of a general an- ti-abuse rule (“GAAR”) in the EU Parent-Subsidiary Directive. With this amendment the EU has taken a further significant step towards preventing tax avoidance and aggressive tax planning by corpo- rate groups. The purpose of the GAAR amendment is to prevent the abuse of the Parent-Subsidiary Directive by tax- payers who can otherwise fall within the scope of its application. This is to be done by tackling arrange- ments that are “not genuine” in the sense that they are not put in place for valid commercial reasons which reflect economic reality. The Council has confirmed that Member States will endeavour to inform each other, under the existing EU legal instruments, when information may be useful to another Member State. THE POLITICAL AGREEMENT OF THE COUNCIL ON THE GAAR AMENDMENT TO THE PARENT- SUBSIDIARY DIRECTIVE IS AVAILABLE HERE. What’s next? The Council Directive amending the Parent-Sub- sidiary Directive will be adopted at a forthcoming Council session without further discussion. Member States will have until 31 December 2015 to implement the amending Directive by introduc- ing an anti-abuse rule into their national laws. The same deadline applies to implementation of the amendments to tackle hybrid loan mismatches. Once the GAAR enters into force, by in effect requir- ing any holding company to have “valid commercial reasons which reflect economic reality” for its inclu- sion in any ownership chain, a holding company will have to have real substance. The Council will take into consideration the an- ti-abuse provision in its future work on a possible anti-abuse provision to be included in the Interest and Royalties Directive (Directive 2003/49/EC). 

tation Paper published by ESMA on 22 May 2014 and should be read in conjunction with the latter. The TA is divided in the eight sections: (1) Intro- duction; (2) Investor protection; (3) Transparency; (4) Data publication; (5) Micro-structural issues; (6) Requirements applying on and to trading venues; (7) Commodity derivatives; and (8) Portfolio com- pression. The key points in ESMA’s TA are the following: 1) Product governance obligations for investment firms manufacturing and/or distributing financial instruments and structured deposits, taking into account the nature of the investment product, the investment service and the target market for the product. 2) Requirements for firms to provide retail clients, professional clients and eligible counterparties with detailed information on all costs and charges linked to their investment. Disclosure requirements include cost aggregations, ex-ante and ex-post disclosure and information on the cumulative effect of costs on the return. 3) Clarifications on the circumstances in which the provision of research by third parties to investment firms providing portfolio management (or other in- vestment or ancillary services) to clients should not be regarded as an inducement. 4) Non-exhaustive list of circumstances and situ- ations where inducements do not meet the qual- ity enhancement requirement for the provision of advice. I. Improvement of investor protection

ESMA publishes final technical advice on MiFID II/MiFIR Background Directive 2014/65/EU on markets in financial in- struments (“MiFID II”; available here) and Regula- tion (EU) No 600/2014 on markets in financial in- struments (“MiFIR”; available here) were approved by the European Parliament on 15 April 2014 and by the Council of the EU on 13 May 2014. The two texts were published in the Official Journal of the EU on 12 June 2014 and entered into force on 2 July 2014. MiFID II and MiFIR aim at bringing greater trans- parency and improve the overall functioning of the EU’s financial markets, thus strengthening investor protection. They cover both secondary markets and investor protection issues. On 23 April 2014, ESMA received a formal request (available here) from the European Commission to provide technical advice to assist the Commission on the possible content of the delegated acts re- quired by several provisions of MiFID II and MiFID. What’s in there? On 19 December 2014, ESMA published its final technical advice (“TA”) to the Commission on the implementation of MiFID II and MiFIR through prac- tically applicable rules. The TA follows the structure of the relevant Consul-

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The key points in the Consultation Paper are the following: 1) Increased pre-trade and post-trade transparen- cy requirements for trading venues and investment firms in respect of equity and equity-like financial instruments as well as non-equity instruments; 2) Trading obligation for shares and double volume cap mechanism for shares and equity-like instru- ments (a major change on the framework for trad- ing these instruments in the EU); 3) Provisions aiming at ensuring the non-discrim- inatory access to central counterparties (CCPs), trading venues and benchmarks and thus to in- crease competition in the EU;

5) Organisational requirements for firms providing investment advice on an independent basis (e.g. sufficient range of sufficiently diverse financial in- struments available on the market). 6) Specification of powers for ESMA and the nation- al competent authorities with regard to the prohibi- tion or restriction of the marketing and distribution of financial instruments. 1) Pre-trade transparency requirements for sys- tematic internalisers in non-equity instruments, in particular bonds, derivatives, structured finance products and emission allowances. 2) Specification of the quantitative elements of the definition of a systemic internaliser by reference to numerical thresholds. 3) Strict set of organisational requirements for in- vestment firms and trading venues as regards algo- rithmic and high frequency trading. II. Changes to the functioning of secondary markets

ESMA consults on draft RTS/ITS under MiFID II/MiFIR Background MiFID II and MiFIR were approved by the Euro- pean Parliament on 15 April 2014 and by the Council of the EU on 13 May 2014. The two texts were published in the Official Journal of the EU on 12 June 2014 and entered into force on 2 July 2014. MiFID II and MiFIR aim at bringing greater trans- parency and improve the overall functioning of the EU financial markets, thus strengthening investor protection. They cover both secondary markets and investor protection issues. On 22 May 2014, ESMA published a Discussion Paper on MiFID II/MiFIR ( AVAILABLE HERE ) in or- der to get stakeholder views on the draft regula- tory technical standards (RTS) and implementing technical standards (ITS) that ESMA is required to submit to the European Commission under MiFID II/MiFIR. What’s in there? On 19 December 2014, ESMA launched a pub- lic consultation on draft RTS and ITS for the implementation of MiFID II and MiFIR through practically applicable rules. The consultation is of interest to all stakeholders involved in the se- curities markets. ESMA’s Consultation Paper follows the structure of the Discussion Paper published in May 2014 and is divided into 9 main sections: (1) Introduc- tion; (2) Investor Protection; (3) Transparency; (4) Microstructural issues; (5) Data publication and access; (6) Requirements applying on and to trading venues; (7) Commodity derivatives; (8) Market data reporting; and (9) Post-trading issues.

4) Introduction of position limits and relevant report- ing requirements as regards commodity derivatives;

5) Obligation to trade derivatives in MiFID venues only (i.e. regulated markets, multilateral trading fa- cilities or organised trading facilities).

ESMA’S CONSULTATION PAPER ON DRAFT RTS/ ITS UNDER MIFID II/MIFIR IS AVAILABLE HERE.

What’s next? The consultation will run from 19 December 2014 to 2 March 2015. On 19 February 2015, ESMA will hold an open hearing on the issues set out in the Consultation Paper. On the basis of the input received during the con- sultation, ESMA will finalise its draft RTS and ITS, which will be submitted to the European Commis- sion for endorsement (the RTS by mid-2015 and the ITS by January 2016). The Commission will use ESMA’s draft RTS/ITS in order to adopt the delegated acts required by MiFID II and MiFIR. MiFID II, MiFIR and their implementing measures will be applicable as from 3 January 2017.  PRIIPs - Publication of the PRIIPs Regulation in the Official Journal of the EU Background On 10 November 2014, the EU Council published a press release explaining the objectives and the content of the Regulation (EU) No 1286/2014 of

4) Introduction of position limits and reporting re- quirements as regards commodity derivatives.

5) Obligation to trade derivatives on MiFID venues only (i.e. on regulated markets, multilateral trading facilities or organised trading facilities). 6) Requirements for a consolidated tape of trading data, including rules on tape providers, reporting, publication and sales of data.

THE TEXT OF ESMA’S FINAL TECHNICAL ADVICE TO THE COMMISSION IS AVAILABLE HERE.

What’s next? The Commission will use ESMA’s final technical ad- vice to adopt the delegated acts required by MiFID II and MiFIR. MiFID II, MiFIR and their implementing measures will be applicable as from 3 January 2017.

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UCITS - ESMA submits final technical advice on delegated acts required by the UCITS V Directive

In particular, ESMA clarifies the concept of ‘inde- pendent legal advice’, which may be sought by the third party and the depositary in their effort to assess to what extent the applicable non-EU insol- vency law recognises the segregation of the UCITS’s assets from the assets of the third party and the depositary. According to ESMA, legal advice is con- sidered to be independent if received from an indi- vidual or legal person not affiliated to the third party or the depositary, as the case may be. Furthermore, ESMA saw merit in inserting a new paragraph setting out the duty of the investment company or the management company on behalf of the UCITS to immediately notify their competent authorities and consider all appropriate measures in relation to the UCITS’s assets (including their dis- posal), where the segregation of the UCITS assets in the event of insolvency of the third party is no longer recognised by the applicable non-EU insol- vency law or where the applicable legal conditions are no longer fulfilled (on receipt of such information by the depositary). Finally, ESMA clarifies in a new paragraph that, where the third party sub-delegates safekeeping, contractual arrangements shall be put in place to ensure that the provisions applying to the third party apply mutatis mutandis to the sub-delegate. II. Advice on the independence requirement With regard to the independence requirement, ESMA identifies two types of link between the management company/investment company and the depositary that may jeopardise their in- dependence: (1) common management/supervi- sion; and (2) cross-shareholdings. This approach remains unchanged in ESMA’s final advice. Moreover, ESMA clarifies that the presence of any of the identified links would be sufficient to jeopardise independence. Common management/supervision ESMA does not deviate from its original proposal in the Consultation Paper in this regard. It confirms, in particular, the maximum number of members of the supervisory body of the management company/ investment company that may be members of the management body, supervisory body or employees of the depositary: one third (1/3). The same rule (maximum 1/3) applies to the members of the su- pervisory body of the depositary. As regards the definition of ‘management body’, ESMA states that the relevant definition is provided in Article 2(1)(s) of the UCITS Directive and that even non-executive members may exercise influence that may jeopardise independence.

the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (“PRIIPs”), which forms part of a package of measures that have been adopted in order to boost consumer trust in financial markets and in- surance products in particular. The regulation requires key information documents for PRIIPs to be produced, and which have to be compliant with the stipulated format and content requirements in order to maximise understanding of the information and therefore aim at increasing security for retail investors. What’s in there? On 9 December 2014, the Regulation was published in the Official Journal of the European Union (“OJ”). The Regulation lays down uniform rules on the for- mat and content of the key information document to be drawn up by PRIIP manufacturers and on the provision of the key information document to retail investors in order to enable retail investors to un- derstand and compare the key features and risks of the PRIIPs.

Background Directive 2014/91/EC (the “UCITS V Directive”) was published in the Official Journal of the EU on 28 Au- gust 2014 and entered into force on 17 September 2014. On 3 July 2014, the European Commission man- dated ESMA to provide technical advice on the content of two of the delegated acts on depositaries required by the UCITS V Directive. Following the Commission's request and in order to collect feedback from all interested stakeholders, ESMA published a Consultation Paper on 26 Sep- tember 2014 ( AVAILABLE HERE ), including draft technical advice on those delegated acts. The consultation closed on 24 October 2014. What’s in there? On 28 November 2014, ESMA published its Final Report containing ESMA’s final technical advice to the European Commission on the basis of the stake- holder feedback collected. The technical advice provided covers the following two topics: (I) Advice on the insolvency protection of UCITS as- sets when delegating safekeeping (Articles 22a(3) (e) and 26b(e) of the UCITS V Directive); (II) Advice on the independence requirement (Arti- cles 25(2) and 26(b)(h) of the UCITS V Directive). I. Advice on the insolvency protection of UCITS assets when delegating safekeeping The basic principle enshrined in the UCITS V Di- rective as regards the delegation of safekeeping is that, in the event of insolvency of the third-party delegate, assets of a UCITS held in custody must be unavailable for distribution among or realisation for the benefit of creditors of the third party. ESMA’s final technical advice lays down a set of du- ties for both the third party and the depositary and includes only minor changes to the original Consul- tation Paper.

THE TEXT OF THE REGULATION IS AVAILABLE HERE.

Please refer to previous editions of Scanning for fur- ther information. What’s next? The Regulation shall enter into force on the twen- tieth day following that of its publication in the OJ.

It shall apply as from 31 December 2016.

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LUXEMBOURG EU Savings Directive - Publication of the law to implement the automatic exchange of information on savings income under the current EU Savings Directive Background On 27 November 2014, the Luxembourg Parliament voted the law making the automatic exchange of in- formation for interest payments within the EU man- datory as from 1 January 2015 (within the frame of the EU Savings Directive or “EUSD”). Currently, when there is a Luxembourg paying agent, account holders can opt for either the ex- change of information or the application of with- holding tax (WHT) at a rate of 35% on interest income covered by the EUSD. The tax withheld is then transferred anonymously by the Luxembourg paying agent to the Luxembourg tax authorities, which then transfer the tax to the tax authorities of the country of residence of the investors. During a European Council meeting held on 20 March 2014, the Luxembourg government committed to make the automatic exchange of information mandatory for all account holders and therefore to terminate the option to apply an optional WHT instead. What’s in there? On 27 November 2014, the law of 25 November 2014 was published in the Official journal of Lux- embourg (“Mémorial”). According to the law, as from 1 January 2015, Luxembourg will apply the automatic exchange of information on interest payments made by a paying agent established in Luxembourg to individuals res- ident in another EU Member State. The paying agent shall then report the following information regarding the beneficial owner of the payment: « Identity and residence of the beneficial owner;

Cross-shareholdings In view of the criticism expressed against the re- quirement of structural independence between the management company/investment company and the depositary, ESMA opts for functional independ- ence (option 2) in its final advice, considering that structural independence might imply important re- structuring and other costs for the industry in many European jurisdictions. On the basis of suggestions made during the consultation, ESMA saw merit in introducing two additional arrangements to be put in place in or- der to safeguard functional independence: (1) the management company/investment company shall demonstrate to its competent authority that it is satisfied that the appointment of the depositary is in the sole interests of the UCITS and the investors of the UCITS, in particular by comparing the relative merits of appointing the depositary versus another depositary which is not linked to the management company/investment company; (2) the link between the management company/investment company and the depositary shall be disclosed to investors. The requirement to have some independent mem- bers within the management body/supervisory function has been kept in ESMA’s final advice. As regards their number, ESMA opted for the possibil- ity to choose between one third or two members, whichever is the lesser. Moreover, in its final advice ESMA provides a definition of the notion of an ‘inde- pendent director’. Finally, ESMA recognises that while the obligation to ‘act independently’ may be fulfilled through a series of measures ensuring functional independence be- tween the parties, it is also possible to achieve this outcome through the structural independence of the parties (i.e. in line with option 1). ESMA’S FINAL TECHNICAL ADVICE IS AVAILABLE HERE. What’s next? On the basis of the technical advice provided by ESMA, the European Commission will adopt the del- egated acts required by the UCITS V Directive.

« Account number of the beneficial owner or, where there is none, identification of the debt claim giv- ing rise to the interest; « otal amount of the interest payment or similar income. Paying agents will have to disclose this information by March 20 of the year following the year in which the payment of interest has been made. If commu- nication is late or inaccurate, the paying agent may incur a maximum administrative penalty of 0.5% of the amount that should have been communicated. The Luxembourg tax authorities then automatically transmit that information to the competent authority of the Member State where the recipient is estab- lished. Communication should be done at least once a year and no later than 30 June following the end of the calendar year. The first information exchange will take place in early 2016 with respect to interest payments made in 2015. Money Market Funds - CSSF implements ESMA’s opinion on CESR money market fund guidelines Background On 22 August 2014, ESMA published an opinion (the “Opinion”) on the CESR guidelines on a common definition of European money market funds (the “Guidelines”). The Guidelines were adopted in May 2010 in response to the 2008 crisis, when the mar- ket events highlighted the need for better co-ordi- nation in relation to and an improved understanding of the categorisation of money market funds. In accordance with Article 5(b)(1) of EU Regulation N° 1060/2009 (as modified by the EU Regulation N° 462/2013 on 21 May 2013), whereby the Eu- ropean Supervisory Authorities (the “ESA’s”) are empowered to review and remove, if necessary, all references to credit ratings in guidelines and recommendations when they may lead to a sole or mechanistic reliance on these credit ratings, ESMA issued the Opinion stating that the Guidelines do THE PUBLISHED LAW IS AVAILABLE HERE. The law of 25 November 2014 entered into force on 1 January 2015.

« Name and address of the paying agent;

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What’s in there?

have the potential to trigger such a reliance. As a result, the Opinion modifies certain provisions of the Guidelines with respect to the assessment of the credit quality of money market instruments and explains how national competent authorities should apply the modifications.

and the Basel Committee on Banking Supervision (“BSBS”). The circular came into force on 1 July 2013, with the exception of certain provisions which only ap- plied from 1 January 2014. What’s in there? On 24 November 2014, the CSSF issued an amend- ing circular (Circular 14/597) updating certain parts of the 12/552 Circular. A new chapter, Chapter 6, was added to Part III (“Specific requirements concerning risk manage- ment”) of the Circular. This chapter addresses the Recommendation of the European Systemic Risk Board (the “ESRB”) on funding credit institutions (ESRB/2012/2), and implements the B recommen- dation, which provides for the establishment of a general framework for risk management of asset encumbrance. Furthermore, some clarifications were made to points 72 and 182 of the Circular. These consist in only a minor wording change for the former point, and a material change concerning the outsourcing of a material activity by an institution in the latter point. According to the amendment, the institution outsourcing a material activity needs to obtain prior authorisation from the CSSF and must use a Lux- embourgish credit institution or a PFS support. The amendments made to the CSSF Circular 12/552 entered into force with effect from 31 De- cember 2014. SWITZERLAND Corporate Law Reform - Adaptation to market developments Background On 28 November 2014 the Swiss Federal Council presented a preliminary draft of the corporate law reform and started the consultation procedure. The aim is to improve the corporate law and adapt it to the reality of the market, particularly by imple- menting measures in the Swiss Law against ex- cessive remunerations, and provisions making the commodities sector more transparent. THE CSSF CIRCULAR 14/597 IS AVAILABLE HERE.

The main proposals are: 1. Implementation of the Ordinance against Exces- sive Compensation in Public Companies into the Swiss Code of Obligations with certain more severe rules, e.g., an exclusion of prospective say-on-pay votes (i.e. budget votes) meaning the shareholders are to vote on variable compensation only after the annuals accounts become available; 2. A target gender quota of 30% for the board of directors and the executive committee of publicly listed companies based on a «comply or explain» approach. In case those companies do not achieve the target quota after a transition period of five years, they must explain in the compensation re- port the reasons for the underrepresentation and the actions undertaken to promote diversity in their corporate bodies; 3. An obligation for major companies in the ex- ploitation of natural resources industry to disclose payments made to public authorities: in accordance with the EU Directives 2013/34 and 2013/50 con- cerning transparency obligations for companies ex- ploiting natural resources, the draft requires those companies to disclose payments exceeding CHF 120,000. 4. Numerous changes in «traditional» corporate law, such as the permissibility of a share capital denominated in foreign currency, a minimum par value below one cent, a «capital band» to give com- panies more flexibility to increase and reduce their share capital within an upper and lower limit, clar- ification of the requirements for distributions out of the capital reserves and interim dividends, and the enhancement of shareholders’ rights; What’s next? The consultation period runs until 15 March 2015. The date of enactment is still uncertain and not to be expected before 2017.

The Opinion is available here.

What’s in there? On 2 December 2014, the Commission de Surveil- lance du Secteur Financier (the “CSSF”) published Circular 14/598 (the “Circular”) in order to imple- ment the amendments to the Guidelines into Lux- embourg law. Circular 14/598 accordingly implements the follow- ing into Luxembourg law: « Paragraph 4 of Box 2 of the Opinion, concerning short-term money market fund; « Paragraph 2 of Box 3, concerning money market funds; The above paragraphs specify that management companies (or self-managed investment compa- nies) must undertake their own documented as- sessment allowing them to determine if the money market instrument is of high quality. Update of CSSF Circular 12/552 relating to the central administration, internal governance and risk management Background CSSF Circular 12/552 relating to the central admin- istration, internal governance and risk management (“the Circular”), issued on 11 December 2012, rep- resented a first step towards a consolidated rule- book on internal governance in the broad sense, and aligned the existing circulars and guidelines published by the European Banking Authority (EBA) THE CSSF CIRCULAR IS AVAILABLE HERE. The Circular enters into force with immediate effect.

Scanning - January 2015 - page 9

Scanning This publication is produced by Legal and Compliance teams of CACEIS with the kind support of Communication teams and Group Business Development Support teams.

Editors Gaëlle Kerboeuf, Group General Counsel @ Marie-Andrée Bonnet, Compliance and Regulatory Watch Manager (France) @ Permanent Editorial Committee Gaëlle Kerboeuf, Group General Counsel Marie-Andrée Bonnet, Compliance and Regulatory Watch Manager (France) Chantal Slim, Head of Legal (CACEIS Bank France) Eliane Meziani-Landez, Head of Fund Structuring (France) Emilie Zaracki (Legal Officer) Ana Vazquez, Head of Fund Structuring and Domicile (Luxembourg) Véronique Bastin, Head of Compliance (Luxembourg) Stefan Ullrich, Head of Legal (Germany) Costanza Bucci, Legal and Compliance Manager (Italy) Mireille Mol, Legal and Compliance Manager (Netherlands) Laura Guzzi, Legal Manager (Belgium) Helen Martin, Head of Legal (Ireland) Sarah Perrier, Head of Legal and Compliance (Switzerland) Philippe Naudé, Marketing and Communication Specialist (France) Arianna Arzeni, Head of Group Business Development Support

Design Sylvie Revest-Debeuré, CACEIS, Communications

Photos credit Yves Maisonneuve, Yves Collinet, CACEIS, Fotolia

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