FUND NEWS

Financial Services / Regulatory and Tax / Issue 122

Developments in December 2014 Investment Fund Regulatoryand Tax developments in selected jurisdictions

Regulatory Content

European Union 3 ESMA issues its final Technical Advice to the

European Commission on MiFID II and MiFIR 6 ESMA issues Consultation Paper on MiFID II/MiFIR 7 PRIIPs published at the Official Journal of the EU 7 ESMA publishes Discussion Paper on Share

Classes of UCITS

Ireland 8 Central Bank Publishes 4th Edition of UCITS Q&A 8 Consultation Paper 86: Consultation on Fund

Management Company Effectiveness – Delegate Oversight

8 Central Bank 90: Consultation on the Supervision of Non-Financial Counterparties under EMIR

8 Central Bank publishes a Feedback Statement on “Risk Appetite – A Discussion Paper”

9 Central Bank publishes the outcome of a thematic review into the provision of costs and charges in investment firms

9 Central Bank issues a letter to industry on customer due diligence requirements for AML purposes

Contents

Switzerland 10 Introduction of a new common code of conduct by

the Swiss Funds & Asset Management Association as a consolidated self-regulatory regime

International 11 CSSF updated FAQ on AIFMD 12 CSSF issues first FAQ on immobilisation of bearer

shares and units

2 / Fund News / Issue 122 / Developments in December 2014

Regulatory News

In its final advice, ESMA revised its proposal that now provides that where inducements are not fully passed on to clients, they may not generally be regarded as designed to enhance the quality of the relevant service to the client if any of the following conditions is applicable:

i. it is not justified by the provision of an additional or higher level of service to the client, proportional to the level of inducements received. Examples are provided in the Technical Advice;

ii. it directly benefits the recipient firm, its shareholders or employees without tangible benefit to the client; or

iii. in relation to an on-going inducement, it is not justified by the provision of an on-going benefit to the client.

Moreover, the services must be provided without bias or distortion as a result of the receipt of the inducement, the quality enhancement must be maintained over time and the investment firm must implement organizational requirements enabling to demonstrate that the payments received effectively enhance the quality of the service to the client (e.g. recording on how the payments received are used).

Minor non-monetary benefits

ESMA advises the European Commission to introduce an exhaustive list of non-monetary benefits that are unlikely to influence the recipient’s behavior in any way that is detrimental to the interests of the client. The final advice also highlights some non-

monetary benefits that should be included in the list.

Disclosure requirements

Investment firms should disclose to the client several information in relation to monetary payments and non-monetary benefits received from or paid to third parties.

Investment Research

Following the large amount of comments received on the consultation in relation to the treatment of investment research, ESMA’s final advice introduces a specific paragraph on investment research further detailing the conditions under which the provision of investment research to an investment firm providing portfolio management is not considered as an inducement: investment research must be received in return for:

– direct payments by the investment firm out of its own resources (which, it is recognized, may be reflected in an increase in fees); or

– payments from a separate research payment account controlled by the investment firm. The research payment account is to be funded by a charge to the client determined and agreed based on a pre-determined research budget. The investment firm is responsible for operating the account and must periodically assess the quality of the research purchased.

2) Independent advice

In this respect, ESMA’s final advice remains in line with the provisions proposed in the Consultation Paper. As

ESMA issues its final Technical Advice to the European Commission on MiFID II and MiFIR

On 19 December 2014, ESMA published the final Technical Advice to the European Commission on level 2 measures for MiFID II and MiFIR. The enhanced regulatory framework aims at ensuring that financial markets are fair, transparent and safe and that invertors’ interests are safeguarded when they are being sold investment products.

MiFID II/MiFIR contain over 100 requirements for ESMA to draft Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS), and to provide Technical Advice to the European Commission in view of the adoption of delegated acts. The main issues covered in the Technical advice are divided into those addressing the structure, transparency and regulation of financial markets, and those aimed at strengthening investor protection.

The topics described here after may have an impact on the investment management industry:

1) The ban on inducements

Enhancement test

Following the ESMA Consultation Paper, the so-called “enhancement test”, which allows investment firms to receive inducements when providing other investment services than independent investment advice and portfolio management, was a key discussion point among the industry. At the time, ESMA was proposing “enhancement criteria” that were extremely strict, almost implementing a full ban of those inducements.

European Union

Fund News / Issue 122 / Developments in December 2014 / 3

in the consultation, the advice covers the meaning of the “sufficient range of sufficiently diverse financial instruments available on the market” and the requirements for investment firms providing both independent and non-independent advice.

To fulfill the requirement of the sufficient range of sufficiently diverse financial instruments available on the market, ESMA advises that investment firms must define and implement a selection process to assess and compare a sufficient range of financial instruments available on the market and lists the elements that the process should include (e.g. not limited to instruments issued by the investment firm itself or by entities having close links, appropriate proportion of own financial instruments within the amount of instruments considered, etc.). Whenever the comparison is not possible the investment firm cannot claim itself as “independent”.

Investment firms may provide both independent and non-independent advice under certain conditions. They must not present themselves as “independent” for the whole of their services. Clear disclosures to clients must be made on the type of advice provided and controls must be in place to ensure that each type of advice and adviser is kept separate, so that no individual can give both independent and non-independent advice and confusion is avoided for the clients.

3) Appropriateness test – Structured UCITS

Despite comments raised by ESMA’s advice in the consultation regarding the instruments considered as complex, ESMA maintained its position and

recommends to add two additional criteria to the

article 38 of the MiFID implementing directive that will permit to consider a financial instrument as non-complex even though it is not included in the list of the article 25(4)(a). The two criteria are as follows:

– the instrument does not incorporate a clause, condition or trigger that could fundamentally alter the nature or risk of the investment or pay out profile;

– the instrument does not include any explicit or implicit exit charges that have the effect of making the investment illiquid even though technically frequent opportunities to dispose or redeem it would be possible.

Finally, investment firms shall maintain records of the appropriateness assessments they have undertaken including:

– the result of the appropriateness test;

– warnings given to the clients for inappropriate products;

– warnings when the client did not provide sufficient information to undertake the appropriateness assessment; if the client asked to proceed with the investment disregarding the warning and if the investment firm accepted to proceed with the purchase.

4) Product governance

Many respondents to the consultation asked for clarification of key terms,

such as “manufacturer” and “distributor”, on the extent to which the requirements apply to different products, whether they apply when sales are on an execution-only basis and on the secondary markets and how they apply to management companies and investment undertakings subject to UCTS and AIFMD that perform MiFID investment services.

On the whole, ESMA provide that the requirements apply in all instances, but should apply in a way that is appropriate and proportionate to the nature of the product, the service and the target market.

The advice contains detailed obligations for manufacturers and distributors including the following key requirements:

Manufacturers

– maintain procedures and measures to ensure the product design complies with conflicts management rules and does not represent a threat to the orderly functioning or to the stability of financial markets;

– management bodies have effective control over the product governance process;

– the compliance function oversees the development and periodic review of the arrangements and includes information on the products and their distribution strategy in the compliance report

– a written agreement is in place where investment firms collaborate on product development;

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4 / Fund News / Issue 122 / Developments in December 2014

– identify the target market and the type of clients for whom a product is compatible with their needs. They must consider whether the product meets the identified needs, characteristics and objectives of the target market, including in terms of the charging structure;

– conduct scenario analyses to assess when poor investor outcomes could occur and the underlying circumstances;

– ensure information provided to distributors enables them to understand and sell the product properly;

– review products regularly to assess any new potential risks, if it remains consistent with the needs, characteristics and objectives of the target market and if it may be reaching clients that would not be compatible with the product.

Distributors

– product governance obligations for distributors apply to investment firms when deciding the range of products they intend to offer to clients, regardless of who manufactures them;

– in addition to the suitability and appropriateness requirements, ensure that the products and services they intend to offer are compatible with the needs, characteristics and objectives of an identified target market and that the intended distribution strategy is consistent with that identified target market.

Regulatory News

– review regularly the products they distribute and services provided to identify any event that could materially affect investor risk and ensure that the product or service remains consistent with the needs and objectives of the intended target market.

– the management body has control over the product governance process;

– supply manufacturers with sales information to support manufacturers’ product reviews;

– the compliance function oversees the development and periodic review of the governance arrangements and includes information on the products distributed and services provided in the compliance report;

– when investment products are manufactured by third-country firms or non-MiFID firms, including UCITS management companies and AIFMs, take all reasonable steps to ensure that the level of product information obtained from the manufacturer is of a reliable and adequate standard to ensure that they will be appropriately distributed; and

– where different firms work together in the distribution of a product or service, the final distributor in the chain (i.e. the firm with the direct client relationship) has ultimate responsibility to meet the product governance obligations but the intermediate distributor firm(s) must ensure appropriate information is passed on to the final distributor or vice versa to the

manufacturer, enabling him to obtain the information required to conduct his reviews.

5) Information to the clients on costs and charges

The final advice contains few adjustments compared to the consultation. The final requirements for firms to provide clients with details of all costs and charges related to their investment covers the types of clients in scope of the requirements, required disclosures (ex-ante and ex-post), cost aggregation, the timing of disclosures (ex-ante and ex-post), and information on the cumulative effect of costs on the return. The key elements are presented hereafter

– Clients in scope: in principle, detailed information on costs and associated charges should be made available to retail clients, professional clients and eligible counterparties. Investment firms can however agree a limited application for professional clients except where the services include investment advice or portfolio management, or where the relevant instruments embed a derivative. A limited application is also possible for eligible counterparties except where the financial instruments concerned embed a derivative and the eligible counterparty intends to offer them to its clients.

– Point of sale disclosure: disclosure of aggregated information on the costs related to the financial instrument and the costs related to the service provided apply where the firm recommends or markets financial instruments to clients and

Fund News / Issue 122 / Developments in December 2014 / 5

Regulatory News

when it is required to provide clients with a KIID/KID. Otherwise the client will receive information about the costs and charges relating to the investment and/or ancillary service provided. The Technical Advice provides further guidance on the required disclosures when an investment firm recommends or markets the services provided by another firm.

– post-sale periodic disclosure: annual disclosure about all costs and charges relating to both the financial instrument and investment and ancillary services is required in the same circumstances than those applicable to the point of sale, although no exceptions are foreseen.

– Cumulative effect of costs on the return: obligation to provide its clients at the point of sale with an illustration showing the cumulative effect of costs on return.

As a general comment, ESMA highlights that the rationale for those items of the advice that were already covered in the earlier Consultation Paper and for which no relevant changes have been introduced, has not been further developed in the final report and therefore recommends that the final report be read together with the Consultation Paper.

ESMA’s final Technical Advice is available using the following link

http://www.esma.europa.eu/system/files/2014-1569_final_report_-_es-mas_technical_advice_to_the_com-mission_on_mifid_ii_and_mifir.pdf

and the Consultation Paper can be obtained here.

http://www.esma.europa.eu/system/files/2014-549_-_consultation_pa-per_mifid_ii_-_mifir.pdf

Next steps

The delegated acts should be adopted by the European Commission so that they enter into application by 30 months following the entry into force of MiFID II and MiFIR (by 3 January 2017), taking into account the right of the European Parliament and the Council of the EU to object to a delegated act within 3 months (which can be extended by a further 3 months).

ESMA issues Consultation Paper on MiFID II/MiFIR

On 19 December 2014 the European Securities and Markets Authority (ESMA) issued a Consultation Paper (ESMA/2014/1570), including draft regulatory technical standards (RTS) and implementing technical standards (ITS), concerning Directive 2014/65/EU on Markets in Financial Instruments (MiFID II) and Regulation No 600/2014 on Markets in Financial Instruments

6 / Fund News / Issue 122 / Developments in December 2014

(MiFIR). MiFID II/MIFIR introduce changes to the functioning of secondary markets, including transparency requirements for a broad range of asset classes; the obligation to trade derivatives on trading venues; requirements for algorithmic and high-frequency-trading and new supervisory tools for commodity derivatives.

The key proposals stemming from ESMA’s draft RTS/ITS cover inter alia the following issues:

• increased trade transparency for non-equity instruments, in particular bonds, derivatives, structured finance products and emission allowances;

• a trading obligation for shares and a double volume cap mechanism for shares and equity-like instruments, introducing a major change to the framework for trading these instruments in the Union;

• an obligation to trade derivatives on MiFID venues (regulated markets, multilateral (MTFs) or organized trading facilities (OTFs)) only, in line with G20 requirements;

• newly introduced position limits and reporting requirements for commodity derivatives;

• technical standards for indirect clearing;

• a liquid market definition for non-equity like financial instruments;

• rules governing high frequency trading, imposing a strict set of organizational requirements on investment firms and trading venues;

Regulatory News

• provisions regulating access to central counterparties (CCPs), trading venues and benchmarks, designed to increase competition in the Union; and

• requirements for a consolidated tape of trading data, including rules for tape providers, reporting, publication and sales of data

Stakeholders may comment on ESMA’s draft RTS/ITS, which were already previously consulted upon, until 2 March 2015. In addition, ESMA will hold an open hearing in Paris on 19 February 2015. ESMA is expected to finalize the RTS by mid-2015 and its ITS by January 2016, which will become applicable from 3 January 2017.

The complete Consultation Paper, including Annex B outlining the legal texts, is available at the following web link.

http://www.esma.europa.eu/consul-tation/Consultation-MiFID-IIMiFIR

PRIIPs published at the Official Journal of the EU

Almost 8 months after the plenary vote of the Regulation on key information documents for Packaged Retail and Insurance-based Investment Products (PRIIPs) at the European Parliament, the text has been published on 9 December 2014 in the Official Journal of the EU (OJEU). It will enter into force on 30 December 2014 and will apply from 31 December 2016. As outlined in our article of November 2014, a Discussion Paper has been issued by the ESAs on 17 November 2014 to gather stakeholders’ views on

the KID’s content and presentation rules, the way the KID shall be reviewed, revised and republished, the meaning of “provision in good time” of the KID in the context of the Regulation and provide the EU Commission with Regulatory Technical Standards for the preparation of the Commission Delegated Regulation for implementation.

The final text of PRIIPs is available via the following link.

http://eur-lex.europa.eu/legal-con-tent/EN/TXT/PDF/?uri=OJ:L:2014:352:FULL&from=EN

ESMA publishes Discussion Paper on Share Classes of UCITS

Having identified diverging practices on permitted types of share classes across the EU Member States, ESMA has published a Discussion Paper on 23 December 2014 to gather views from the industry on the use of UCITS’ share classes. In this document, ESMA specifies its understanding of a share class. It further provides a list of principles it has identified to assess the legality of share classes. Examples of share classes that would or would not comply with these principles illustrate ESMA’s reasoning.

The deadline to submit answers is 27 March 2015.

The Discussion Paper and its questions are available via the following link.

http://www.esma.europa.eu/system/files/2014-1577_dp_on_share_class-es_for_publication.pdf

Fund News / Issue 122 / Developments in December 2014 / 7

for funds, which was reported on in Fund News Issue 119 in September 2014.

The consultation closed on 12 December 2014. The Central Bank is reviewing the 45 responses it received and has stated that it will conduct related research over the first half of 2015, so it may be some time before the final outcome of the consultation is known.

A copy of the consultation paper is available at the following link;

http://www.centralbank.ie/regula-tion/marketsupdate/Pages/Central-BankConsultationPapersofInterest.aspx

Central Bank 90: Consultation on the Supervision of Non-Financial Counterparties under EMIR

The Central Bank issued a consultation paper on 4 December 2014 on the supervision of Non-Financial Counterparties (NFCs) under EMIR, in which it set out its proposed supervisory framework. This consultation closes on 30 January 2015.

As reported in October’s Fund News Issue 120, the proposed approach is to categorise NFCs depending on size and to tailor the approach accordingly;

• Large/Complex NFCs (above EMIR’s clearing threshold levels) – the Central Bank will engage directly with these counterparties and they will be supervised, similarly to financial counterparties, on a risk basis.

• Medium Sized NFCs (above certain exemption thresholds but beneath the clearing threshold in EMIR) – the proposed supervisory approach is for the counterparty to submit an EMIR Regulatory Return (ERR). The ERR will need to be independently assessed by a third party prior to submission. It will need to be submitted annually but the NFC will be able to choose the submission date. The proposed format of the ERR is set out in the consultation paper.

• Small NFCs (below certain exemption thresholds) – the Central Bank is proposing to conduct thematic inspections of EMIR and it has flagged that it may require a tailored version of the ERR which will not be subject to third party assessment.

The consultation paper is available at the following link;

http://www.centralbank.ie/regula-tion/marketsupdate/Pages/Central-BankConsultationPapersofInterest.aspx

Central Bank publishes a Feedback Statement on “Risk Appetite – A Discussion Paper”

As reported in Fund News Issue 116 in June, the Central Bank published a discussion paper with a view to generating debate with stakeholders on risk appetite, its linkage with organisational strategy and its importance for financial institutions. The discussion paper considered the main concepts of, and theories of, risk appetite and its place within Risk

Regulatory News

Central Bank Publishes 4th Edition of UCITS Q&A

On the 17 December 2014, the Central Bank published a fourth edition of the UCITS Q&A. Question ID 1007, on collateral diversification for money market funds, was amended and a new question ID 1012 in relation to UCITS ETFs was included.

In terms of collateral diversification for money market funds, authorised before 18 February 2013, the Central Bank clarified that these funds do not have to comply with the limit set out in ESMA’s Guidelines on ETFs and other UCITS issues, which is that the maximum collateral exposure to a given issuer cannot be greater than 20% of the fund’s NAV. This requirement is currently under review by the Central Bank.

In a new question, the Central Bank clarified that UCITS ETFs must provide details of the identities and quantities of the fund’s holdings on a daily basis and that the arrangements for providing this information must be disclosed in the fund’s prospectus.

Please see the following link for details;

http://www.centralbank.ie/regula-tion/industry-sectors/funds/ucits/Pages/default.aspx

Consultation Paper 86: Consultation on Fund Management Company Effectiveness – Delegate Oversight

The Central Bank issued a consultation paper on 19 September 2014 on corporate governance arrangements

Ireland

8 / Fund News / Issue 122 / Developments in December 2014

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Appetite Frameworks and provided some suggestions as to what a risk appetite statement might contain.

The Central Bank received 18 responses to the discussion paper. In general, respondents agreed with the Central Bank’s summary of the main concepts of risk appetite and with the Central Bank’s contention that the concepts of risk appetite and risk culture are intrinsically linked. There was also a general consensus that the risk appetite of a firm is linked to the nature, scale and complexity of the firms operations. The Central Bank acknowledged this and confirmed that there is no intention to issue prescriptive guidance in relation to the preparation and content of risk appetite statements. There was support for the Central Bank proposal to facilitate a forum on good practices with respect to the preparation and monitoring of risk appetite statements.

Please see the following link for details;

http://www.centralbank.ie/press-area/press-releases/Pages/Feedback-StatementonRiskAppetiteDiscus-sionPaper.aspx

Central Bank publishes the outcome of a thematic review into the provision of costs and charges in investment firms

The main finding arising from this thematic review is that the Central Bank identified weaknesses in how investment firms provide information on costs and charges to consumers. These firms are subject to disclosure requirements regarding costs and

charges, under MIFID or the local Consumer Protection Code, depending on the firm’s authorisation.

The main issues identified include:

– Weaknesses in the presentation and content of information provided to clients on costs and charges prior to the provision of services;

– Failure to provide information prior to the provision of services, instead providing it after the provision of services in some cases; and

– Failure to provide information in the format required such as a durable medium or a website, where allowable.

The Central Bank also identified a number of unfair contract terms where firms had unreasonably sought to limit their liability to clients.

The following link contains further detail on these themed inspections;

http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankidentifiesweak-nessesinhowinvestmentfirmsprovi-deinformationoncostsandchargesto-consumers.aspx

Central Bank issues a letter to industry on customer due diligence requirements for AML purposes.

The Central Bank issued a letter to industry highlighting certain specific provisions of AML legislation regarding customer due diligence requirements (CDD). The following points were highlighted;

• CDD must be carried out where a designated person has reasonable grounds to doubt the veracity or adequacy of documents or information previously obtained for CDD purposes. A risk based approach cannot be used in these circumstances;

• Designated persons must establish policies and procedures to ensure that documents and information relating to customers are kept up to date; and

• CDD records must be kept during the course of the business relationship and for a period of not less than 5 years after the business relationship has ceased.

Please find a copy of the letter under Correspondence with Industry at the following link;

http://www.centralbank.ie/regula-tion/processes/anti-money-launder-ing/Pages/legislation.aspx

Fund News / Issue 122 / Developments in December 2014 / 9

Introduction of a new common code of conduct by the Swiss Funds & Asset Management Association as a consolidated self-regulatory regime

On 1 January 2015, the new code of conduct of the Swiss Funds & Asset Management Association (SFAMA) will enter into effect. The consolidated code is recognized by the Swiss Financial Market Supervisory Authority (FINMA) as a minimal standard. A transitional period of one year for the required implementation will be granted.

Switzerland

Adaptation to the changing regulatory environment

The new SFAMA code of conduct results in a simplification of the existing self-regulatory regime: it consolidates both SFAMA codes of conduct issued in 2009 for the Swiss Fund Industry and for Asset Managers of Collective Investment Schemes as a consequence of the recently changed national regulatory environment.

The partial revision of the Collective Investments Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) in 2013 substantially enhanced the due diligence and information requirements for licensees and their agents. New CISA/CISO provisions have been implemented to improve the dealing with conflicts of interest, the pricing transparency (duty

to disclose all charges/fees as well as compensation for distribution) and the functional/hierarchical separation of control systems for example.

SFAMA aims for a significant contribution in the area of investor protection as well as legal certainty for the fund industry. The new self-regulatory instrument consequently mirrors the latest regulatory developments. Moreover, the new code obliges institutions in scope to adhere to a salary and remuneration policy that follows the principle of proportionality and is appropriate to the company’s own size and risk profile.

The affected licensees and their agents will have to reflect if they need to take necessary organizational measures to be in compliance with the extended SFAMA code of conduct

Regulatory News

10 / Fund News / Issue 122 / Developments in December 2014

CSSF updated FAQ on AIFMD

On 29 December 2014, the Commission de Surveillance du Secteur Financier (CSSF) issued updated Frequently Asked Questions (version 8) concerning the Luxembourg Law of 12 July 2013 implementing the Alternative Investment Fund Managers Directive (AIFMD) with a focus on the reporting start dates for AIFMs that were granted authorization between the 1st October 2014 and the 31 December 2014, the marketing by EU AIFMs of non-EU AIFs to professional investors in Luxembourg without a passport and the notification process to the CSSF of the acquisition of major holdings and control of non-listed companies. The FAQ’s clarify the following points:

• AIFMs established before 22 July 2014 and having been granted their

Luxembourg

authorization between the 1st October 2014 and the 31 December 2014 are required to submit the first AIFMD reports covering the period from 1st October 2014 to 31 December 2014 at the latest until 31 January 2015 (15 February 2015 at latest where the AIF is a fund of funds) independent of their reporting frequency.

• Authorized EU AIFMs, which intend to market shares or units of (i) one or more non-EU AIF(s) it manages, or (ii) one or more EU feeder AIF(s) whose master AIF is not an EU AIF or whose master AIF is not managed by an authorized EU AIFM, are allowed to market these non-EU AIFs to professional investors in Luxembourg without a passport as

long as they fulfill the requirements under article 37 of the Law of 2013.

• Articles 37 requires that:

– AIFMs have appointed and notified to the CSSF all “Depo Lite Service” providers, which carry out the duties of cash-monitoring, oversight functions and safekeeping of assets under the AIFMD. It is further specified that cash-monitoring and oversight duties may only be performed by a maximum of one entity per duty, and that the safekeeping duty may be carried out by more than one entity. The Law of 2013 imposes no restrictions with respect to the location of the appointed entity (ies).

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Fund News / Issue 122 / Developments in December 2014 / 11

– AIFMs must inform the CSSF prior to any marketing activity as well as if they wish to stop marketing a non-EU AIF (an information form for the marketing in Luxembourg of non-EU AIFs is available on the CSSF website).

– The third-country competent authority has signed appropriate cooperation arrangements with the CSSF and the third country is not listed as non-cooperative country and territory by FATF

– EU AIFMs, which marketed non-EU AIFs to professional investors in Luxembourg under the existing Luxembourg placement regime before 22 July 2013, will have to send an information form available on the CSSF website to the Luxembourg regulator if they intend to continue to market their non-EU AIFs in Luxembourg.

• Every Luxembourg authorized AIFM and every non-EU AIFM marketing AIFs to professional investors in Luxembourg without a passport is concerned by the notification to the CSSF of the acquisition of major holdings and control of non-listed companies. The time until notification shall be given varies per scenario and is further elaborated on in the FAQ. Notification to the CSSF is not required where the non-listed companies are (i) small and medium-sized enterprises or (ii) special purpose vehicles. Luxembourg AIFMs must comply with these rules as of the day they become authorized and non-EU AIFMs as of the day they start marketing AIFs to professional

investors in Luxembourg without passport. The CSSF has provided a specific form for the notification of major holdings and control of non-listed companies on its website.

The full text of the CSSF FAQ on AIFMD is available at the following web link.

http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf

CSSF issues first FAQ on immobilisation of bearer shares and units

On 30 December 2014, the Commission de Surveillance du Secteur Financier (CSSF) published its 1st version of a Frequently Asked Questions (FAQ) for Luxembourg investment funds (UCITS, part II, SIF, SICAR under the form of an S.A, S.C.A or FCP) on the Law of 28 July 2014 regarding immobilisation of bearer shares and units.

This law entered into force on 18 August 2014 and obliges:

• investment funds that are impacted by the 2014 Law to appoint a depositary and;

• each holder of bearer shares or units to deposit those with such depositary.

The board of directors, or, if applicable, the management board of the investment fund has to appoint the depositary, which may be any service provider of such investment fund (e.g. registrar, transfer agent or depositary bank) established in Luxembourg.

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12 / Fund News / Issue 122 / Developments in December 2014

The CSSF requires each fund which has issued bearer shares or units to inform their shareholders on the implications and deadlines of the 2014 Law, as well as on the identity of the depositary, in an adequate manner. The prospectus of the investment fund has to be amended. The FAQ also lists other possible means to inform the investors, including notices, website of the fund or its management company, information circulated through the distribution chain.

While bearer shares and units, issued after the entry into force of the 2014 Law, have to be deposited with a depositary immediately upon issuance, bearer shares and units, issued before the entry into force of the 2014 Law face the following deadlines:

• UCITS, UCIs, SIFs and SICARs which have been incorporated under the form of an S.A., S.C.A. or FCP and still have bearer shares in issue must appoint a depositary by 18 February 2015, in addition the voting rights linked to the bearer shares or units will be suspended on that day (18 February 2015) and payment of distributions by the entities will be deferred.

• UCITS, UCIs, SIFs and SICARs which have been incorporated under the form of an S.A., S.C.A. or FCP have to cancel the bearer shares and units which have not been deposited with the appointed depositary at the latest on 18 February 2016. Following such cancellation, the cash equivalent of such cancelled shares or units, or, absent such cash equivalent, other assets of equivalent value, are deposited with the Luxembourg Caisse de consignation.

• Shareholders, which hold bearer shares or units have until the 18 February 2016 to deposit their bearer shares or units with the appointed depositary to avoid the cancellation.

The FAQ additionally specifies that the depositary may hold bearer shares or units for an entity acting as a nominee provided this entity is subject to professional obligations concerning the fight against money laundering and terrorist financing.

The 2014 Law further spells out specific criminal sanctions for the management board of investment funds that are impacted by the 2014 Law and for Depositaries in case of non-compliance with the provisions of the Law.

The full text of CSSF FAQ on bearer shares is available at the following link.

http://www.cssf.lu/fileadmin/files/Metier_OPC/FAQ/FAQ_Law__28_July_2014_v1.pdf

Regulatory News

Fund News / Issue 122 / Developments in December 2014 / 13

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Swiss FinancialServices Newsletter: Special Edition Banking

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Swiss FinancialServices Newsletter: Special Edition Investment Management

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Lars SchlichtingPartner, LegalT: +41 58 249 32 59 E: lschlichting@kpmg.com

Astrid KellerPartnerT: +41 58 249 28 82 E: astridkeller@kpmg.com

Dominik RüttimannPartnerT: +41 58 249 20 56 E: druettimann@kpmg.com

Pierre ZächPartnerT: +41 58 249 64 12 E: pzach@kpmg.com

Pascal SprengerDirector, LegalT: +41 58 249 42 23 E: psprenger@kpmg.com

Grégoire WincklerPartner, TaxT: +41 58 249 34 95 E: gwinckler@kpmg.com

Jean-Luc EparsPartner, LegalT: +41 58 249 37 49 E: jepars@kpmg.com

Contacts

kpmg.ch