Article Post on 07 September 2017

ESMA updates its Q&As on the applications of the UCITS and AIFM directives

_On 11 July 2017, the European Securities and Markets Authority (ESMA) updated its Q&As on the application of the UCITS Directive (UCITS Q&A) and the AIFM Directive (AIFMD Q&A).

 

UCITS Q&aA

ESMA has added to the general section of the UCITS Q&A a question on issuer concentration with respect to index-tracking UCITS. ESMA confirms that the 40% limit set out in Article 52(2) of the UCITS Directive does not apply to index-tracking UCITS which comply with the requirements set out in Article 53 of the UCITS Directive.

ESMA also added a new section to the UCITS Q&A on the independence of management boards and supervisory functions. As a reminder, Chapter 4 of the Commission Delegated Regulation (EU) 2016/438 of 17 December 2015 supplementing Directive 2009/65/EC of the European Parliament and of the Council with regard to obligations of depositaries (Regulation) provides for such independence requirements. The question is whether a person who served in the management body or supervisory body of an entity within a group or was otherwise employed by such an entity fulfils the independence requirement under the aforementioned article 24 in the event that this person has ceased to have any function within the entity. ESMA is of the opinion that such a person should be deemed to fulfil the independence requirement only after an appropriate cooling-off period following the termination of that person’s function with the relevant entity. ESMA does not indicate how long the cooling-off period should be, but only that, among others, it should be proportionate to the length of the employment with the entity in question. Interestingly enough, the CSSF had indicated in the latest update to its frequently asked questions on the laws and regulations governing undertakings for collective investment in transferable securities (please see our article The CSSF updates its UCITS and AIFMD FAQs)  that a cooling-off period of 12 months should be respected for a person to be considered as an independent member if that person was previously involved with, or linked to, either the UCITS Management Company (or the self-managed SICAV) or the depositary (or any other entity within the group to which such they belong).

 

AIFMD Q&A

The first additional question relates to how alternative investment fund managers (AIFMs) should convert the total value of the assets under management into Euro, the currency that must be used for reporting purposes. ESMA indicated that the AIFMs should divide the rounded values calculated in the base currency of the alternative investment funds (AIFs) by the corresponding rate of one unit of the base currency in Euro. AIFMs should report the rounded values in Euro and the base currency and the value of the exchange rate used for the conversion.

The second question relates to how an AIF should measure its exposure in relation to a loan purchased in the secondary market. As the notional value of the loan may overestimate the risk exposure, ESMA is of the opinion that the AIF should report the loan value that was used to calculate its net asset value (NAV).

Finally, ESMA confirmed, with respect to consolidated reporting, that AIFMs should report the NAV in the base currency of the AIF.

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