EUROPEAN UNION: ESMA Publishes Updates to AIFMD and UCITS Q&As

Thursday May 25 2017

The European Securities and Markets Authority (ESMA) has published updated questions and answers documents (Q&A) on the application of the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS).

The AIFMD Q&As include three new questions and answers on:

• Reporting to National Competent Authorities (NCAs) on the breakdown between retail and professional investors;

• Notification of AIFMs on the AIFs to be managed, if domiciled in another Member State; and

• Use by an AIF of the exemption for intragroup transactions under Article 4(2) of Regulation (EU) 648/2012 (EMIR), if subject to the clearing obligation of Article 4(1) of EMIR.

The UCITS Q&As include one new question and answer on:

• Application to UCITS of the exemption for intragroup transactions under Article 4(2) of Regulation (EU) 648/2012 (EMIR), if subject to the clearing obligation of Article 4(1) of EMIR.

New AIFMD Q&As

Question 80: How should AIFMs report information on the breakdown between retail and professional investors (questions 119 and 120 of the reporting template for AIF-specific information) when this information is not available?

Answer: When the information is not available, AIFMs should report ‘0’ for questions 119 and 120 and use the assumption boxes to indicate that the information is not available.

Question 4: An AIFM wants to manage AIFs domiciled in another Member State by way of the AIF management passport (Article 33 of AIFMD). In the programme of operations, how does the AIFM have to provide information on the AIFs it intends to manage?

Answer: Where specific AIFs cannot be identified at the time of the notification, the AIFs to be managed may be identified by their investment strategy. In that regard, ESMA sees merit in relying on the investment strategies contained in the reporting template for identification purposes (Annex IV of Commission Delegated Regulation (EU) No 231/2013). Where an AIFM has only been authorised to manage certain types of AIFs, it could also refer to the scope of its authorisation to identify the funds to be managed. Where the AIFM is able to identify specific AIFs, these should be identified in the programme of operations by their name and national identifier (if available).

Information on those funds should also include their investment strategies. In accordance with Article 33(6) of AIFMD, all changes to the programme of operations have to be notified by the AIFM to the competent authorities in its home Member State. This includes changes to the programme of operations in cases where the AIFM intends to manage further AIFs (if specified by name) or types of AIFs (if specified by investment strategy) not previously listed in that document.

Question 2: Where an AIF is subject to the clearing obligation of Article 4(1) of EMIR, can it make use of the exemption for intragroup transactions (Article 4(2) of EMIR)?

Answer: ESMA is of the view that in the case of AIFs the exemption for intragroup transactions should be construed narrowly, and that in most cases it will not be possible for the exemption to be used. An AIF can only make use of the exemption for intragroup transactions if it has been established to form part of the same group (as defined in Article 2(16) of EMIR) as the counterparty to the OTC derivative contract and if it fulfils all the criteria for intragroup transactions set out in Article 3(2)(a)(i)-(iv), (b), or (d) of EMIR. Article 3(2)(a)(iii) of EMIR requires both counterparties to be included in the same consolidation on a full basis. In addition, they have to be subject to appropriate centralised risk evaluation, measurement and control procedures, as well as fulfil other specific requirements set out in Article 3(2) of EMIR.

An exemption to the clearing obligation based on Article 4(2) of EMIR can only be granted after a thorough case-by-case assessment, which will have to take account of whether the AIF has been established to form part of the same group as the counterparty to the OTC derivative contract and whether the AIF fulfils all the criteria set out in Article 3(2)(a), (b), or (d) of EMIR.

Where an AIF is granted an intragroup exemption for the clearing obligation, it follows that the AIF will not be considered a distinct entity and will not be treated separately for other purposes under EMIR either, in particular for the purpose of the bilateral margining thresholds calculation. Therefore, the aggregate month-end average notional amount referred in Article 28(1) of Commission Delegated Regulation (EU) 2016/2251 shall be calculated at the group level (including the relevant AIF).

New UCITS Q&A

Application to UCITS of the exemption for intra-group transactions under EMIR

Question: Where a UCITS is subject to the clearing obligation of Article 4(1) of EMIR, can it make use of the exemption for intragroup transactions (Article 4(2) of EMIR)?

Answer: ESMA is of the view that in the case of UCITS the exemption for intragroup transactions should be construed narrowly, and that in most cases it will not be possible for the exemption to be used. A UCITS can only make use of the exemption for intragroup transactions if it has been established to form part of the same group (as defined in Article 2(16) of EMIR) as the counterparty to the OTC derivative contract and if it fulfils all the criteria for intragroup transactions set out in Article 3(2)(a)(i)-(iv), (b), or (d) of EMIR. Article 3(2)(a)(iii) of EMIR requires both counterparties to be included in the same consolidation on a full basis. In addition, they have to be subject to appropriate centralised risk evaluation, measurement and control procedures, as well as fulfil other specific requirements set out in Article 3(2) of EMIR. An exemption to the clearing obligation based on Article 4(2) of EMIR can only be granted after a thorough case-by-case assessment, which will have to take into account whether the UCITS has been established to form part of the same group as the counterparty to the OTC derivative contract and whether the UCITS fulfils all the criteria set out in Article 3(2)(a), (b), or (d) of EMIR. Where a UCITS is granted an intragroup exemption for the clearing obligation, it follows that the UCITS will not be considered a distinct entity and will not be treated separately for other purposes under EMIR either, in particular for the purpose of the bilateral margining thresholds calculation. Therefore, the aggregate month-end average notional amount referred in Article 28(1) of Commission Delegated Regulation (EU) 2016/2251 shall be calculated at the group level (including the relevant UCITS).

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