In February, the European Securities and Markets Authority (Esma) moved to address some of the inconsistencies between the Ucits Directive and the Alternative Investment Fund Managers Directive (AIFMD) through its 2017 Supervisory Convergence Work Programme.
The programme forms part of a broader shift in Esma’s focus from building the single rulebook, towards ensuring harmonisation of supervision across the EU. Esma intends to continue to devote increasing resources to supervisory convergence.
In particular, Esma wishes to develop common approaches to the delegation of collective portfolio management and depositary functions under the Ucits Directive and AIFMD. This includes promoting a common understanding of so-called ‘substance’ requirements for Ucits management companies and alternative investment fund managers (AIFMs).
In addition, Esma intends to follow up its earlier consultation on asset segregation under AIFMD and to develop a common procedure for the operation of the powers to impose leverage limits. Esma will seek to gain a better understanding of supervisory actions in relation to liquidity management tools and also proposes to develop common practices on fees and expenses of investment funds, depending on available resources.
The move follows Esma’s call in January for certain product intervention powers under the MiFID II legislative package to be made available under the Ucits Directive and AIFMD. Esma highlighted the lack of clarity around the exclusion of Ucits management companies and AIFMs, which can carry out certain MiFID activities, from the scope of the intervention powers.
The powers, which will be exercisable from January 3, 2018, will allow Esma and national competent authorities (NCAs) to ban the sale of certain products that they believe are unsuitable for retail investors.
Esma considers that the extension of those powers to cover Ucits management companies and AIFMs would address the risk of regulatory arbitrage between MiFID firms and fund management companies, and ensure that there is a ‘common toolkit’ across entities and instruments and contribute to a level playing field.
In its response to the European Commission’s Green Paper on Retail Financial Services, Esma has already drawn the attention of the Commission to assess certain inconsistencies between the Ucits, AIFMD and MiFID II frameworks with a view to achieving greater harmony in this area, among others.
The areas of focus for the asset management sector form part of a broader package of priorities for convergence in the 2017 work programme. These are aimed at continuing some of the work started in 2016, and include:
• Ensuring the sound, efficient and consistent implementation of key new EU legislation by preparing for the MiFID II Directive (and MiFIR, the Markets in Financial Instruments Regulation), and applying the Market Abuse Regulation (including the finalisation of the underlying IT infrastructure).
• Improving data quality through focusing on NCAs’ efforts to prepare for and to enforce compliance with various reporting requirements under EU legislation such as the MiFID II Directive and MiFIR, the European Markets Infrastructure Regulation and AIFMD.
• Ensuring adequate investor protection in the context of cross-border provision of services.
• Ensuring effective convergence in the supervision of EU central counterparties.
Esma will continue to monitor the implementation of these activities and may readjust priorities depending on developments as the year ahead unfolds.
Jamie Gray, senior associate, and Imogen Garner, partner, at Norton Rose Fulbright
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