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Research and Statistics
Money Market Funds
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EFAMA’s work in the field of accounting and IFRS concerns mainly replies to consultations or analysis of relevant provisions on transparency and accounting in legislation applicable to asset managers and their products.
The AIFMD (Alternative Investment Fund Managers Directive) establishes harmonised regulatory standards for ‘managers of alternative investment funds” (AIFM). ‘Alternative Investment Fund’ (AIF) is defined as investment fund not already covered by the UCITS Directive. The AIFMD contains provisions regarding the authorization, ongoing operation and transparency of the AIFM. Under specific conditions AIFM benefit from a European passport and will be able to market AIF to institutional investors in all EU Member States or provide management services to AIF domiciled in other Member States.
The AIFMD has entered into force on 21 July 2011. Member States have until 21 July 2013 for national transposition. The AIFMD and the relevant implementing measures will apply to new AIFM as of 21 July 2013 while most existing AIFM have until 21 July 2014 before the application of the provisions.
Work by the European Commission and ESMA on the implementing measures for the AIFMD continues throughout the year 2012.
EFAMA's Annual Reports provide a thorough review of the Association's activities and achievements. They also include a useful list of all members.
Benchmarks and Indices
Integrity and accuracy of benchmarks and indices are critical to the pricing of many financial instruments but also commercial and non-commercial contracts. Hence, they have an important impact on market confidence and the real economy. In response to strong concerns regarding the perceived weaknesses in current arrangements for benchmark rate-setting and the crisis in the EURIBOR and LIBOR systems, the Commission has proposed to include benchmark manipulation activities in the market abuse and criminal sanctions EU legislative framework. In addition to that and following the publication of EBA/ESMA Guidelines and IOSCO Principles on benchmarks in 2013, the EU Commission published on 18 September 2013 its proposal for a Regulation on indices used as benchmarks in financial instruments and financial contracts. The asset management industry welcomed this initiative for a new regulatory framework on benchmarks, as it considers it an important step for restoring market credibility and re-establishing confidence in benchmarks. Asset managers are users of financial indices and benchmarks when managing portfolios on behalf of their clients. Their main goal is to be able to use robust and reliable benchmarks. For that a balanced and proportionate regulatory framework is required that efficiently deals with risks for manipulation and conflicts of interest without unjustifiably hampering investment opportunities or increasing burden and costs for end-investors.
The European Commission presented on 18 February 2015 its Green Paper on building a Capital Markets Union, launching a public consultation, as well as separate consultations on an EU framework for simple, transparent and standardised securitisation, and on the review of the Prospectus Directive.
Developing a Capital Markets Union will build on well-founded principles: a single market for capital, effective levels of investor protection, and a single rulebook for financial services. EFAMA submitted its contribution to the discussion on 13 May 2015.
Corporate Governance plays an important role for EFAMA from two perspectives:
Firstly, most asset managers and funds are set up as companies and as such will be affected directly by any rulemaking on corporate governance. Very detailed provisions on corporate governance already exist for UCITS Management Companies and AIF Managers in the relevant Directives and implementing measures. Future work by the European Commission on Corporate Governance as follow up to the 2 Green Papers on Corporate Governance is also likely to impact asset managers and funds.
Secondly, managing assets for investors, EFAMA members are major investors in other financial institutions which form part of the portfolio holdings. Any corporate governance measures impacting these companies or their shareholders are therefore equally of interest to EFAMA.
Furthermore, EFAMA has reacted to the call of the European Commission for a European wide code of best practice in the field of shareholder engagement for institutional investors by publishing its EFAMA Code for External Governance. The EFAMA Code for External Governance provides six high level principles and best practice recommendations regarding engagement between institutional investors and companies in which they invest significantly. During the years 2011 and 2012 most EFAMA Member associations are reviewing and if necessary modifying their existing national codes to reflect at least the principles in the EFAMA Code for External Governance.
Credit Rating Agencies
Credit Rating Agencies (CRAs) are major players in today’s financial markets, with ratings having a direct impact on the actions of investors, borrowers, issuers and governments. Despite the adoption of European legislation on CRAs in 2009 and 2010 (as part of EU’s response to the G20 commitments at the November 2008 Washington Summit), recent developments in the context of the sovereign debt crisis has lead the European Commission to put forward, in November 2011, a new legislative proposal to toughen that framework and address the perceived weaknesses of the recently adopted EU regulation. A political agreement was reached on 3 December 2012 on amending the Regulation on CRAs and bringing important changes in their regulatory landscape such as set dates for publishing rates on sovereign debt, capping of the agencies’ shareholdings, the agencies’ liability vis-à-vis their ratings and the prevention of over- or mechanistic reliance to credit ratings. As to the last point and the requirement for AIFMs and UCITS managers to not solely or mechanistically rely on external credit ratings for assessing the creditworthiness of their assets, ESMA along with the other two ESAs have published a number of guidelines and technical standards as to how the non-over-reliance principle is to be perceived. EFAMA stresses that existing risk management rules in UCITS and AIFMD already require this type of sound risk management procedures when assessing the counterparty, credit etc. risk of each investment. For that reason, sound risk managements procedures are already market practice or regulatory requirement in different jurisdictions and standard practice followed by all of EFAMA members.
Crisis Management – Recovery and Resolution frameworks
The recent financial crisis and the emergency interventions taken by the governments to stabilize banks, have highlighted the need for an EU framework for crisis management in the banking sector. In that context the European Commission has adopted on 6 June 2012 a legislative proposal for bank recovery and resolution. The proposal is part of the Banking Union proposals along with the revision of capital requirements directive (CRD IV), the legislative proposal for Depositor Guarantee Schemes and the Single Supervisory Mechanism for all credit institutions in the Euro Area. It sets the necessary schemes and powers to prevent and minimize the risks and costs from bank failures across the EU. As a next step the Commission launched a consultation on a possible framework for the recovery and resolution of financial institutions other than banks – such as CCPs, CSDs, insurance companies, but also asset managers and investment funds - with the aim to examine the systemic relevance of other types of financial entities and the need to extend crisis management schemes. The consultation closed in December 2012 and the Commission’s further actions are expected by the end of first semester 2013.
In response to the 2008 crisis and the G20 commitment to better regulate the use of derivative instruments, the European Commission proposed a Regulation on OTC derivatives, central counterparties and trade repositories, better known as EMIR (European Market Infrastructure Regulation).
EMIR has been adopted on 9 February 2012 and the European Securities Market Authorities (ESMA) is working on implementing measures, which must be finalised by 30 September 2012.
The major goals of this Regulation are two-fold:
(i) mitigating aspects of market and counterparty risks by extending the role of CCPs; and
(ii) improving transparency and regulatory supervision of OTC derivatives.
The European Long-Term Investment Fund is an investment vehicle designed for investors who want to put money into companies and projects for the long term. In its Proposal for a regulation published in 26 June 2013, the European Commission presented this new investment fund framework in order to allow all types of investors, professional and individuals, to invest long-term in European non-listed companies and in long-term assets such as real estate and infrastructure projects. EFAMA welcomed the initiative for a new EU investment brand, as indeed there is currently an equity gap to fill in in the field of financing long-term investments and there is a changing landscape due to severe cuts in public spending and the on-going regulatory reforms to banking capital structures. Asset managers have a primary role to play through their long-term experience in maximizing the pooling and diversification of capital and managing collective investment schemes. What is necessary for the new product to gain the confidence of investors and companies, is a flexible structure that can fully meet the different needs of such a wide range of investors and eligible assets, both of which are welcome. In that respect, EFAMA has made a number of recommendations to ensure that ELTIFs will succeed in attracting all types of investors and will therefore deliver the policy aim of increasing investment and financing for growth.
Created in the early nineties, Exchange-Traded Funds (ETFs) have enjoyed during the last decade, and particularly over the last five years, an increased popularity with investors (because of their perceived benefits in terms of flexibility and cost-efficiency) making them one of the “success stories” in the asset management industry. In Europe, the vast majority of ETFs are created as UCITS and therefore subject to a robust regulatory framework. However, the rapid growth in the ETF markets, underpinned by strong innovation, recently started to attract the attention of a number of international and EU financial supervisory bodies (such as the Financial Stability Board, IOSCO and the European Securities and Markets Authority) that decided to put these products under scrutiny with a view to identifying their potential vulnerabilities and the systemic risk they might create, as well as the actions that may be needed to address them.
European Fund Classification
The European Fund Classification (EFC) is a new pan-European classification of investment funds which has been developed by the European Fund Categorization Forum (EFCF) – a working group of EFAMA. The aim is to make available a classification structure that all industry stakeholders can rely on, thereby further enhancing the integrity of investment funds. The short-term aim is to classify and regularly monitor every investment fund available for sale in multiple jurisdictions but the longer-term aim is to have complete coverage of UCITS.
European Social Entrepreneurship Funds
The European Social Entrepreneurship Funds were introduced as a new fund category next to UCITS and AIFs by a proposal of a regulation issued by the European Commission in December 2011. Through this new fund vehicle, the Commission seeks to facilitate the financing needs of social businesses.
European Venture Capital Funds
The European Venture Capital Funds were introduced as a new fund category next to UCITS and AIFs by a proposal of a regulation issued by the European Commission in December 2011. Through this new fund vehicle, the Commission seeks to facilitate the financing needs of SMEs.
The Foreign Account Tax Compliance Act (FATCA) is a law enacted on 2010 by the U.S. with the purposes to combat tax evasion by U.S. person holding investments in accounts at financial institutions (banks/ investment vehicles) outside the U.S. FATCA will requires all non-U.S. financial institutions (FFIs), including investment funds, either to identify and disclose their U.S. account holders or to become subject to a new 30% U.S. withholding tax on both direct and indirect payments of U.S. source interest, dividends and other passive income; and also gross proceeds from the sale of any asset that could give rise to such income.
A proposal for a financial transaction tax (FTT) has been put forward by the European Commission on 28 September 2011 to ensure that the financial sector makes a fair contribution to public finances and for the benefit of citizens, enterprises and Member States.
Fund Processing Passport
The Fund Processing Passport (FPP) is a short, single, fully harmonized document containing all the key “operational” information that fund promoters should provide on their investment funds, at class level, in order to facilitate their trading. The information covered includes ISIN code, contact details, subscriptions/redemptions rules, settlement details, cut off times, etc.
The FPP has been drawn up from the viewpoint of all relevant professional players involved in the operational aspects of investment funds distribution: investor intermediaries, distributors, distribution platforms, and fund management companies and their service providers (transfer agents/registrars, fund accounting agents, trustees, custodians, portfolio managers).
To provide access to all existing FPPs, EFAMA opened a Portal on its website in June 2010 accessible via the Home page of this website. The Portal includes a search engine that allows searching FPPs according to the following criteria: ISIN, Fund name, Umbrella name, Management company, Last revision, and FPP Providers. The results include a list of links to websites where the FPP providers keep the “golden copies” of their FPPs.
Fund Processing Standardization
EFAMA established in 2003 the Fund Processing Standardization Group (FPSG) with the aim of developing recommendations for improving efficiency in the cross-border processing of fund units and shares. The FPSG is made up of expert practitioners representing the European investment funds industry, i.e. fund management companies, custodians, transfer agents, fund processing hubs and existing standard setting organizations.
The FPSG published its first set of recommendations in February 2005. A new report was published on 24 March 2011, consolidating the recommendations published in 2005 and updated in 2008, and extending the recommendations in two key areas, i.e. Transfers and Corporate Actions.
Investor Compensation Scheme Directive
Since 1997, the Investor Compensation Scheme Directive (97/9 EC) has protected investors who use investment services in Europe by providing compensation in cases where an investment firm is unable to return assets belonging to an investor (for example as a result of a fraud or negligence). Ten years after its entry into force, the EU Commission decided to review the Directive in order to fix a number of issues relating to the coverage and funding of schemes and delays in obtaining compensation. The legislative proposal of the Commission, published on 12 July 2010, is currently examined in Council and European Parliament. It aims at harmonizing the ICSD with MiFID definitions, clarifying and expanding the scope of coverage of the ICSD, increasing the level of compensation for investors, harmonizing the mechanisms of funding of the national schemes and put in place a (last-resort) borrowing mechanism among national schemes.
EFAMA strongly believes that more needs to be done to improve levels of investor information and education. This is a vast and challenging topic that ideally should be jointly addressed by all stakeholders in the financial service industry, including bankers and insurers, investor associations, national associations, as well as European and other international bodies
The Directive on the activities and supervision of institutions for occupational retirement provision (IORP Directive 2003/41/EC) is considered to be a milestone for the internal market for workplace pensions. It is the first EU law regarding occupational pensions to acknowledge that labour and social law requirements can be delivered by private institutions operating according to single market rules for financial services.
The Commission has started a review process of the IORP Directive. Given the importance of pension in asset management, EFAMA is following this process very closely, to ensure that a revised IORP framework does not undermine the important role pension funds play as long-term investors.
As part of its response to the 2008 financial crisis,the European Commission decided to review the Markets in Financial Instruments Directive (MiFID I), which came into force in 2007.
The MiFID II review, published by the Commission in October 2011 and currently examined in Council and European Parliament consists of a directive (MiFID) and a regulation (MiFIR) aiming at increasing the transparency and the resilience of European financial markets. It essentially covers the following subjects (i) the authorization and organisation aspects for investment services providers; and (ii) investor protection rules; and (iii) the authorization and organisation for trading venues and (iv) the definition of legislative and ruling powers. MiFIR covers (i) the disclosure of data trading activity to public; and (ii) the disclosure of transactions to regulators; and (iii) the clearing of derivatives on trading venues; and (iv) the open access to trading venues and clearing services providers; and (v) refine regulatory actions and powers.
Money Market Funds
The global financial crisis has highlighted the need to make the financial system more robust, stable and transparent. In this perspective, the difficulties experienced by a small number of money market funds in Europe and the United States raised concerns about the risk characteristics of money market funds. These concerns led EFAMA and IMMFA to work on a European definition of money market funds, which was published in July 2009. This work has led CESR to publish an official common definition of money market funds in May 2010.
The crisis has also convinced the G20, the Financial Stability Board (FSB) and the European Commission to review the current regulation of money market funds to reduce their susceptibility to runs. EFAMA is participating actively to the consultations organized by the authorities to assess the strengths and weaknesses of current regulatory requirements.
EFAMA strongly supports the European Commission, Parliament and Council in their efforts to strengthen the European market for pensions and optimize the efficiency and cost-effectiveness of pension saving in Europe. This section of the website is primarily devoted to the initiatives that will be taken as a follow-up to the European Commission’s White Paper on Pensions, whereas the specific contributions of EFAMA regarding the review of the IORP Directive are brought together under the topic “IORP”.
Financial products are sold to retail investors in the EU under different legal wrappers/forms and through different sales channels. The European Commission is seeking ways to provide the same investor protection to these retail investors independently of the legal form of the product or the sales channel. The European Commission is pursuing this aim through the PRIPs Initiative, the Packaged Retail Investment Products Initiative. With PRIPs, the European Commission seeks greater harmonization regarding mandatory disclosure and selling practices. PRIPs has been split into two parts, the part regarding mandatory disclosure and the part regarding selling practices.
For mandatory disclosure, the publication of a Commission proposal is expected for early July 2012. The proposal will most likely provide that investment products shall be sold accompanied by a key information document (KID) which provides retail investors with short, clear and comparable information written in accordance with a common standard; this will allow them to better understand the risk and costs associated with an investment decision and compare different investment products.
For selling practices, proposals stemming from the PRIPs initiative have been included into the revision of the MiFID Directive and will be included in the revision of the IMD Directive.
The Proposal for a Regulation on the Prospectus published for securities offered to the public or admitted to trading on a regulated market is part of the EU CMU action plan. Its main objective is to simplify rules for particular entities seeking to raise money, such as SMEs, frequent issuers and already listed companies. The Prospectuses hold a relevance for asset managers in terms of taking knowledge of and assessing the specific and material risks factors pertaining to the issuer and its securities. The need to find the right balance between the simplification of requirements for issuers and ensuring that investors will maintain their level of knowledge on the risk factors, is one of the key points that will determine the efficacy of this legislation.
Recent years have seen a growing interest in Socially Responsible Investment (SRI) and in Environmental, Social and Governance Issues (ESG). Responsible Investment (“RI”) has become an important feature of the investment management industry. The term “Responsible Investment” or “RI” is preferred by EFAMA Members over the more commonly used SRI because RI indicates that the responsibility of investment managers goes beyond being socially responsible to encompass environmental responsibility as well as governance.
It is EFAMA’ s view that RI cannot be captured by a single regime, but a variety of approaches need to be allowed for. Taking this into account, EFAMA has issued its EFAMA Report on Responsible Investment to describe recent developments in RI throughout Europe, to establish EFAMA’s position in relation to RI and finally to suggest next actions going forward.
EFAMA has also prepared European industry guidance regarding transparency in reporting on RI to investors both in the pre- and post-investment phases in its EFAMA Guidance on RI information in the KIID & Post Investment Disclosure. This industry guidance applies to those investment products that are promoted as RI. In the pre-investment phase, the Key Investor Information Document (KIID) and other issuing documents such as the prospectus for a fund should indicate that the investment policy follows certain RI standards. The same approach should also be applied to all Packaged Retail Investment Products (PRIPs) where relevant.
Today’s business environment requires investment firms to make sure sound risk principles and oversight mechanisms are in place. Besides fostering a risk awareness culture, risk governance is an important component of effective risk management as it ensures that fundamental risk principles result in the creation of elementary checks and balances.
EFAMA is committed to work closely with regulators on the continuous improvement of the risk management framework for investment funds and to foster the development of best practices within the investment management industry.
Savings Tax Directive
The savings tax Directive was adopted in June 2003 (applicable since 1 July 2005) in order to ensure the proper operation of the internal market and tackle the problem of tax evasion in respect of income from interest on capital. The Directive applies to interest paid to individuals resident in an EU Member State other than the one where the interest is paid.
Shadow Banking has been identified as one of the last remaining regulatory issues in the quest for more resilient financial markets. Largely parallel efforts are currently underway at both the G20 and the EU level to enhance the supervisory and regulatory framework on shadow banking. Any future regulation clearly requires a workable definition of shadow banking. Moreover, regulation will need to be targeted, risk-based and take duly into account the different risk profile between the different possible shadow banking entities and activities. In the area of asset management, the potential regulation sectors identified by the European Commission’s Green Paper on Shadow Banking: Exchange Traded Funds and Money Market Funds.
As part of the answers to face the problems caused by the 2008 crisis, several member states adopted emergency measures to restrict or ban short selling in some or all securities in order to counter a downward spiral in the prices of shares that could create systemic risks. In order to ensure an unified answer to those measures, The European Commission proposed a regulation on short selling and certain aspects of credit default swaps which introduces common EU transparency requirements and harmonises the powers that regulators may use in exceptional situations where there is a serious threat to financial stability.
This regulation pursues the following objectives:
• providing a common regulatory framework for dealing with short selling; and
• acknowleging the role of short selling in ensuring the proper functioning of financial markets, in particular in providing liquidity and contributing to efficient pricing.
Solvency II is the most comprehensive regulation ever imposed on the insurance industry across Europe. The essence of the Directive is to require insurers to provide transparency over their risk and the levels of capital held to cover that risk. Solvency II represents an important challenge for the European asset management industry and EFAMA has been proactive towards the promotion of a new relation between insurers and asset managers, in particular in regard to Solvency II data requirements.
The European Supervisory Authorities contribute to developing the Single Rulebook for financial regulation, solving cross-border problems, and promoting supervisory convergence. In March 2017, the European Commission launched a public consultation on the operations of the ESAs focusing on: (1) tasks and powers; (2) governance; (3) supervisory architecture; and (4) funding. EFAMA will continue to engage actively in this debate to ensure the EU’s financial supervisory architecture works towards a successful Capital Markets Union for the benefit of European investors.
Tax: other tax-related issues
This section contains general issues noted by EFAMA in relation to taxation matters, at home or abroad
UCITS (Undertakings for Collective Investment in Transferable Securities) refers to a set of European Union Directives establishing a harmonized legal framework for the creation, management and marketing of collective investment schemes in the EU (and EEA) Member States, with a strong focus on investors’ protection and product regulation. This harmonized framework enables UCITS funds once registered in one Member State to be freely marketed across the European Union.
Since it was first adopted in 1985 the UCITS Directive has been modified several times to take into account developments in financial markets. The latest version of the UCITS Directive (2009/65/EC), also known as UCITS IV, was adopted in 2009 and entered into force on 1 July 2011.
After a round of consultations in 2009 and 2010 the Commission is expected to publish in July 2012 a new revision of the Directive (UCITS V) focusing on a clarification of the UCITS depositary duties and liabilities, a review of remuneration practices with the objective to align the interests of UCITS managers on the long-term interests of investors as well as an harmonization and strengthening of sanctioning regimes.
The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the Community. The essential piece of EU VAT legislation since 1 January 2007 has been Directive 2006/112/EC.
The “Volcker Rule”, named after former US Federal Reserve Chairman Paul Volcker, is a specific section of the U.S. Dodd-Frank Act which will come into force on 21 July 2012 (subject to a two-year period for the industry to comply with the Rule). The objective of the Rule essentially consists in prohibiting “banking entities” from engaging in proprietary trading and from owning or investing in hedge funds or private equity funds. The wide scope of the Volcker Rule captures European banking groups which have operations in the U.S. and therefore could have significant impacts on the operations of many European asset managers owned by those banking groups.
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