Asset Management Insights – March 2020

Read about the latest developments in the Asset Management industry

March 2020

Welcome to our monthly KPMG Asset Management Insights newsletter, which has been

designed to keep you up to date on topical issues within the Asset Management sector.

1. Central Bank of Ireland addresses importance of diversity in regulated firms

On 5 March 2020 the Central Bank of Ireland’s Deputy Governor, Sharon Donnery, gave the

keynote speech at the Official Monetary and Financial Institutions Forum (OMFIF) Gender

Balance Index 2020 launch. Making the case for the necessity of diversity for businesses,

policymakers and boards, Ms Donnery noted the association between a lack of diversity at

senior levels and some of the problems that contributed to the financial crisis, such as

groupthink, insufficient challenge, poorly assessed risk, and problems with culture. Ms

Donnery also spoke to the evidence that demonstrated how diversity can lead to improved

outcomes in terms of governance, decision-making and productivity, in addition to the quality

of decision making, and enhancing worker productivity.

Ms Donnery noted that in 2017 the Central Bank of Ireland started to publish data on gender

diversity at senior levels in regulated firms, and has committed to publishing this data on an

annual basis. The latest report for 2019, to be published in March, shows that for those firms

subject to the CBI corporate governance code and required to have diversity policies in place,

over one in four applicants to senior roles were made by female candidates, up from one in

six in 2012. However, Ms Donnery also noted the substantial differences in role holders

across sectors, with over one in four senior role holders in the insurance sector being women,

with only one in eight for asset management firms.

This follows a separate speech to the European Financial Forum's 30% Club delivered on 17

February 2020 by the Central Bank of Ireland’s Director General of Financial Conduct,

Derville Rowland. Ms Rowland also addressed the under-representation of women at senior

levels in business, including regulated firms, and cited research indicating that companies in

the top quartile for gender diversity on executive teams were 21% more likely to outperform

on profitability, while companies in the top quartile for ethnic/cultural diversity on executive

teams were 33% more likely to have industry leading profitability.

Ms Rowland emphasised that the need for diversity at senior levels extended beyond gender,

and that the Central Bank expects regulated firms to show more ambition in implementing

change to achieve this through targets and measures, building better pipelines of talent and

identifying and reducing barriers to change in order to improve the diversity of experience,

thought, background and other attributes at senior levels.

The Central Bank considers diversity as a leading indicator of elevated behaviours and

culture risks, and for that reason, intends to keep focus on this issue in the years to come. In

April, the findings of a diversity and inclusion thematic assessment of the insurance industry

will be published, along with best practice guidelines for the wider industry. This follows the

work carried out by the Central Bank in 2018 which resulted in the publication of a report on

the behaviour and culture of Irish retail banks. It also follows calls made by the European

Banking Authority in February to introduce a more balanced composition of management

bodies in institutions, following a benchmarking report revealing that, as of September 2018,

over 40% of institutions had not adopted a diversity policy.

2. Brexit: Central Bank Governor advises businesses to expect and plan for more

friction and divergence

On 12 March 2020, the Central Bank’s Governor, Gabriel Makhlouf, gave a speech at the

European Financial Forum in Dublin. Despite positive growth in the Irish economy in recent

years, Mr Makhlouf noted that significant risks remain, which currently include the

coronavirus and the future trading relationship with the EU. With respect to the latter, Mr

Makhlouf stated that consumers, businesses and regulators should expect and plan for more

frictions and divergence in the years to come.

In managing the challenges on the horizon for the next ten years, Mr Makhlouf announced

the publication of a paper updating the Central Bank’s approach to prudential impact models

under its PRISM framework (see below), and advised that the Central Bank’s review of the

2012 Consumer Protection Code was underway. With respect to the Central Bank’s review

into domestic property funds, announced in December 2019, Mr Makhlouf advised that it will

form a judgement in respect of how well placed this segment of the funds sector is to absorb

adverse shock in the future.

Mr Makhlouf also supported the calls of European Central Bank Vice President de Guindos

for the development of a broader macroprudential framework for the non-bank sector to

ensure it can sustain financing of the real economy under different economic conditions and

mitigate pro-cyclical risk-taking, excessive leverage, liquidity, and maturity transformation.

Mr Makhlouf also cited the investment funds industry as being a good example of the

importance of a coordinated national and European approach to supervision in order to ensure

that adequate protections are in place for all EU consumers.

3. Central Bank’s Director of Financial Stability address impact of climate change

measures on the asset management industry

On 28 February 2020, the Central Bank’s Director of Financial Stability, Vasileios Madouros

addressed the annual conference of the Irish Fiscal Advisory Council on how the financial

system can play a key role in the transition to a low-carbon economy and how central banks

are working together to build a climate-resilient financial system.

Mr Madouros referred to the need for investors to understand the carbon footprint of their

investments through a common understanding of what was ‘green’, and referred to the recent

work undertaken at an EU level in the development of a uniform taxonomy on sustainable

activities, and disclosure requirements under the Sustainability Disclosures Regulation.

Mr Madouros advised that central banks, including the Central Bank of Ireland, were shifting

their focus, and will increasingly embed climate-related risk issues into their financial

stability assessments and supervision. This will require increased levels of data from

regulated firms themselves. Consequently, all regulated firms, and in particular asset

management and investment firms, can expect increased focus by the Central Bank in this

area in the coming years.

4. Central Bank gives notice of intention to introduce new pre-approval controlled

functions (PCFs)

On 25 February 2020, the Central Bank published a notice of intention to expand the number

of PCF roles, to include: Chief Information Officer (General)(PCF-49), Head of Material

Business Line (Banking)(PCF-50), and Head of Market Risk(Banking)(PCF-51).

The notice of intention also states that the Central Bank will split the PCF-39 role for UCITS

self-managed investment companies and management companies into six new PCF roles

aligned to the specific managerial functions set out in the Rules and Guidance, specifically:

· PCF-39A – Designated person with responsibility for capital and financial

management;

· PCF-39B – Designated person with responsibility for operational risk;

· PCF-39C – Designated person with responsibility for fund risk management;

· PCF-39D – Designated person with responsibility for investment management;

· PCF-39E – Designated person with responsibility for distribution;

· PCF-39F – Designated person with responsibility for regulatory compliance.

The rationale for splitting these roles is to correspond to the specific managerial functions set

out UCITS Regulations, AIF Rulebook and the Fund Management Companies Guidance. The

Central Bank has advised that persons in situ on the date the amended regulations come into

effect will not be required to seek approval to continue to perform one of these new PCF

roles. However, regulated firms will be required to review their assessment under Section 21

of the Central Bank Reform Act 2010 in respect of persons in situ, and to submit

confirmation of such an assessment to the Central Bank. This process will commence after

the amended Regulations come into effect, and a period of six weeks will be provided to

submit this confirmation.

The Central Bank has invited comments from stakeholders regarding these proposals by 26

March 2020.

5. Central Bank publishes 1st edition of Questions and Answers on the European

Market Infrastructure Regulation (EMIR)

On 21 January 2020, the Central Bank published its first edition of the EMIR Q&As, which

aims to answer queries posed by Irish-regulated firms regarding its application as well as the

Irish Regulations. This first edition provides 10 answers, including on the submission of a

request for intragroup exemptions and in respect of the clearing threshold. It is expected that

this document will be updated regularly in the months ahead.

6. Central Bank publishes details of its revised impact models

In February 2020, the Central Bank published its PRISM Impact Review, providing revised

prudential impact models across various sectors, including asset management. ‘PRISM’ is the

Central Bank’s risk-based supervisory framework introduced in 2011, by which financial

service providers’ prudential risk is determined by assessing the degree of damage that would

be caused to consumers and/or the economy if it were to fail (impact), as well evaluating the

likelihood of it failure due to the materialisation of supervisory risk.

The revised models include new metrics based on historic data to better represent the actual

impact of financial service provider failure. Whereas previously the size of a firm was the key

driver of prudential impact, the proposed new metrics capture various other dimensions, such

as substitutability, connectivity, and the scale and spread of financial service provider failure.

Where a firm is considered to have a higher impact, this will be reflected in the intensity of

supervision applied.

The Central Bank will write to fund service providers and asset managers during H1 2020 to

inform them of their impact category following this review. As data collected as part of the

review will be required on an ongoing basis, some asset managers and fund service providers

will be requested to submit previously provided data on an ongoing basis.

7. ESMA publishes its annual report and work programme for 2020

On 9 March, ESMA published its joint Annual Report for 2019 and Work Programme for

2020, setting out its main priorities for the coming year, which include:

Credit Rating Agencies: proactively addressing the risk in outstanding credit ratings;

ensuring the quality and robustness of the rating process; monitoring the development

and review of methodologies and the effectiveness of IT systems and controls;

ensuring that credit ratings remain usable for investors; and engaging with CRAs to

address identified concerns regarding the effectiveness of their control environment.

Trade Repositories: focusing on data quality and access by authorities; assessing and

monitoring internal controls in respect of IT processes and software changes; and

reviewing the effectiveness of information security, business continuity and disaster

recovery plans.

Third Country CCP Recognition: setting up new processes corresponding to EMIR

2.2 recognition; reassessing recognition decisions; implementing the monitoring of

Tier 2 CCPs; and monitoring the potential risks TC-CCPs might introduce in the EU

for Tier 1 CCPs.

Third Country CSD Recognition: adopting a new recognition decision regarding the

UK CSD (provided the issuance of a new equivalence decision by the Commission on

the UK’s regulatory framework); monitoring the impact of Brexit on the TC-CSD

regime; and assessing potential recognition applications following the adoption by the

Commission of equivalence decisions.

8. European Commission launches public consultation on MiFIR and MiFID II

On 17 February 2020, the European Commission launched its consultation on MiFID II and

MiFIR. The consultation seeks feedback on the general experience of MiFID II, as well as

potential changes to investor protection rules in order to achieve the right balance between

promoting investor participation, safeguarding investors’ interests, and maintaining the

competitiveness of the EU’s financial services sector. The consultation also canvasses views

on the possible introduction of a new transparency tool that would allow investment

managers, advisors and their clients to have access to “live” asset prices across the EU in a

consolidated format, as well as more technical aspects under the current regulatory regime.

The feedback provided will inform the European co-legislators’ views regarding future

legislative proposals, which the Commission expects to publish in Q3 2020. Irish Funds has

advised that it will be submitting a response to the consultation and will shortly be reaching

out to members for input. The consultation closes on 20 April 2020.

9. ESMA finds continued high risks as financial markets remain highly volatile

On 19 February 2020, the European Securities and Markets Authority (ESMA) published its

first Trends, Risks and Vulnerabilities Report for 2020, identifying continued high risks and a

weaker economic outlook, with markets remaining highly sensitive to geopolitical events.

While the risk outlook is stable, the risks were high, particularly with respect to securities

markets and retail investors.

The report notes that market risk remained high during H2 2019 due to excessive asset

valuations in the context of weaker growth prospects, loose monetary policy and continuing

uncertainties such as those on Brexit and on US-China trade relations. Similarly, credit and

liquidity risk remained high, with continued consumer risks across investment products and

retail investors remaining cautious. ESMA identifies a weaker economic outlook as well as

continuing uncertainty having regard to the potential impact of the coronavirus, global trade

negotiations, as well as Brexit.

10. ESMA responds to Commission consultation on the Benchmark Regulation Review

On 14 February 2020, ESMA published its response to the European Commission’s

consultation on the review of the Benchmark Regulation (BMR), which has been in force

since January 2018 and seeks to increase the robustness and reliability of financial

benchmarks. The Commission’s Consultation Paper considered areas such as critical

benchmarks, the scope of the regulation, authorisation and registration procedures,

supervision of climate-related benchmarks and non-EEA benchmarks.

In its response, ESMA focused on the cessation of critical benchmarks, parity between EU

and third-country benchmarks, and transparency. In order to enhance the critical benchmarks

framework, ESMA proposes that:

competent authorities be able to request an administrator to change its methodology

so that it continues to be representative of the underlying market over time;

the process of suspension or withdrawal of authorisation or registration of an

administrator be clarified as it is currently unclear whether a competent authority has

the power to withdraw or suspend the authorisation or registration of an administrator

in respect of one or more benchmarks, or whether the authorisation or registration

could be obtained at benchmark or administrator level; and

the assessment by competent authorities of the cessation procedures of the

administrator be clarified, suggesting that competent authorities be able to review

cessation plans using a risk-based approach;

ESMA has also provided views in relation to ensuring the existence of a level playing field

between EU and third country benchmarks, and proposes that different alternative approaches

be taken when defining the scope of the BMR, following a risk-based approach through the

exclusion of non-significant benchmarks. ESMA also suggests that in order to increase

transparency of benchmark users, the list of both EU and third country benchmarks should be

included in its register, together with an appropriate identification of their identity..

11. ESMA Chair addresses 4th Annual Fintech Conference

On 3 March 2020, ESMA Chair Steven Maijoor delivered the keynote address at the 4th

annual Fintech Conference in Brussels. Mr Maijoor addressed attendees on the benefits and

risks of BigTech (i.e. larger technology companies) in finance, distributed ledger technology,

global stablecoins and the need for a coordinated approach by regulators to innovation and

digital finance.

In particular, Mr Maijoor stated that BigTechs in finance may bring benefits such as

efficiency gains and personalised services, but also risks, such as the facilitation of price

discrimination, and concentration risk within the markets that may be disadvantageous to

consumers. Mr Maijoor advocated for close cooperation and coordination among regulators

at a European and international level.

Interested participants in the market should pay close attention to the outcome of the

European Commission’s consultation on an EU framework for crypto-assets (closing on 19

March), which highlights the risks of these products to investor protection, and the challenges

in applying existing rules to those crypto-assets that qualify as financial instruments or e-

money. See also the ESMA Advice on Initial Coin Offerings and Crypto-Assets, as well as

the European Banking Authority’s Advice to the European Commission on Crypto-Assets,

both of which were issued in January 2019.

12. ESMA advises Commission on C6 energy derivatives

On 2 March 2020, ESMA published a report on C6 energy derivatives and related obligations

under EMIR. Such derivatives have relevance for those firms trading energy derivative

contracts on coal and coil, as well as for national competent authorities. The report assesses

the adequacy of mandating C6 energy derivative contracts to be subject to certain EMIR

obligations from which they enjoy a temporary exemption. In particular, the report refers to

EMIR requirements in respect of:

the clearing obligation;

exchange of collateral; and

including such contracts in the calculating counterparties’ positions against clearing

thresholds.

The report also investigates the uses of such contracts by non-financial counterparties (NFCs)

and the potential benefits of reducing counterparty and systemic risks.

13. ESMA makes available the results of the annual transparency calculations for

equity and equity-like instruments

On 28 February 2020, ESMA has begun to make available the annual transparency

calculations for equity and equity-like instruments, pursuant to MiFID II/MiFIR transparency

requirements. Market participants are invited to monitor the release of these calculations on a

daily basis for newly traded instruments.

These calculations are based on the data provided to the Financial Instruments Transparency

System (FITRS) by trading venues and arranged publication arrangements (APAs) in relation

to the calendar year 2019. The calculations will be applicable from 1 April 2020 until 31

March 2021, however until then, the 2019 annual transparency calculations continue to apply.

14. ESMA and the European Commission confirm that non-EU Alternative Investment

Funds will not be subject to the reporting obligation under the Securities Financing

Transaction Regulation

On 10 February 2020, the International Securities Lending Association (ISLA) reported that

following the submission of a letter by the Alternative Investment Management Association

(AIMA), responses were received from both the European Commission and ESMA, which

confirmed that non-EU AIFs were not subject to the reporting obligations under Article 4(1)

of the SFTR, even if the AIFM is authorised or registered in accordance with the AIFM

Directive (Directive 2011/61/EU), except in respect of SFTs concluded in the course of the

operations of a branch in the Union of the Non-EU AIF.

15. EBA issues consultation paper on customer due diligence and risk factors to be

considered when assessing money laundering and terrorist financing risk

On 5 February 2020, the European Banking Authority issued a consultation paper on

customer due diligence and risk factors to be considered when assessing money laundering

and terrorist financing (ML/TF) risk. The consultation follows the guidelines issued by the

European Supervisory Authorities (ESAs) on risk factors and simplified and enhanced

customer due diligence, which set out factors firms should consider when assessing the

ML/TF risk associated with a business relationship or occasional transactions. However,

since the issuance of those guidelines, new risks have emerged, as well as the introduction of

the 5th Anti-Money Laundering Directive. In addition, the ESAs joint opinion on ML/TF risk

in 2019 highlighted several concerns regarding identification and assessment of business-

wide risk and the application of customer due diligence measures.

The consultation paper reflects proposals for the updated guidelines, and are divided into two

parts. While the first part reflects generic guidelines for all firms, Title II is sector-specific,

and includes guidelines for investment firms (Guideline 15) and investment funds providers

(Guideline 16).

Responses to the consultation should be provided by 5 May 2020.

16. ESMA updates Q&As

Prospectus Regulation

On 18 February, ESMA published two new Q&As on the Prospectus Regulation providing

clarification on two issues. In particular:

A13.3: ESMA clarifies the application of Article 7(7)(4) of the PR and states that the

page limit for summaries relating to several securities may only extend to a maximum

of nine sides of A4 paper. In the case of a key information document (KID), the

length of a summary can be extended by three pages for each additional security.

A13.4: With respect to the length of summaries in circumstances where there is more

than one guarantor, ESMA states that the text of Article 7(7) means the summary may

be extended by only one additional side of A4-sized paper per guarantor. However,

ESMA expects that summaries with more than one guarantor be kept as short as

possible, and that any additional pages only be used to include information relating to

the guarantors.

MiFIR and MiFID II Investor Protection

On 18 February, ESMA published six new Q&As on the implementation of investor

protection and intermediaries topics under MiFIR/MiFID, and included answers on MiFID

practices for firms selling instruments that are subject to the BRRD resolution regime. In

particular:

Answer 1: ESMA states that as of 28 December 2020, all sales of subordinated

eligible liabilities (SELs) issued on or after that date to retail clients must be subject to

the performance by the seller of a suitability test, independently of the type of

investment service provided to sell the SELs (including self- placement). However,

prior to that date, the suitability test is required only when investment advice or

portfolio management are provided, unless where Member States have chosen to

apply Article 44a of the BRRD 2 to liabilities issued before 28 December 2020.

Answer 2: ESMA states that Article 44a of BRRD 2 will apply independently of any

marketing or active offering by the seller of the subordinated eligible liabilities, and

whether the transaction has been initiated by the client or the firm.

Answer 3: ESMA states that firms must perform a suitability test in accordance with

Article 25(2) of MiFID II, and therefore must comply with the relevant MiFID II

requirements on the collection of information from clients.

Answer 4 relates to the calculation of the 10% threshold under Article 44a of BRRD

2 and provides that the seller should add up the values of all SELs present in the

client’s portfolio, regardless of their issuance date.

Answer 5 provides that where a transaction relating to subordinated eligible liabilities

is deemed unsuitable by the firm but the retail client wishes to proceed, the client is

not permitted to proceed with the transaction.

Answer 6 provides that in monitoring compliance of client portfolios with the 10%

threshold under Article 44a of BRRD 2, the seller is only required to perform the 10%

test upon the purchase of a SEL issued as of 28 December 2020; other transactions or

events do not trigger the obligation under Article 44a(2).

Implementation of CRA Regulation

On 17 February, ESMA published a new Q&A on steps to be taken by a Credit Ratings

Agency in order to ensure a sufficient level of quality and transparency in the periodic review

of credit ratings under Article 8(5) of the Regulation. ESMA advises that the CRA should

ensure:

sufficient experience and seniority of the staff members who perform and approve the

outcome of the periodic review;

that sufficient controls are in place regarding the staff members conducting and

approving the periodic reviews, including safeguards to protect the independence of

credit ratings from conflicts of interest.

all available and relevant information, and any changes in macroeconomic or financial

market conditions are taken into account.

the rated entity or related third party be contacted during the conduct, or prior to the

outcome of the periodic review to inform it of any material developments.

upon completion of the review, that the CRA should systematically and publicly

disclose on its website the relevant details.

Central Securities Depositories Regulation (CSDR)

On 17 February, ESMA updated its Q&As on the implementation of the CSDR. The seven

new Q&As clarify the implementation of the settlement discipline regime, in particular:

the costs of the penalty mechanism that are charged to participants by a CSD should

not be allocated on the basis of the number or value of penalties applied to

participants;

with respect to the settlement instructions sent by CCPs (which can stem from various

actions), there is no obligation under CSDR for CSDs to provide for a field to be

populated with the “place of trading” of the transactions, but a CSD can provide such

a field for it to be populated, and a CSD’s responsibility in respect of collection of

information for the purpose of monitoring settlement fails is limited to the information

included by the participant in the settlement instruction.

in respect of the buy-in process, the length of the extension period should be

determined based on the liquidity classification of the relevant financial instrument as

of the intended settlement date of the transaction.

17. European Commission launches public consultation on the review of the Non-

Financial Reporting Directive

On 20 March 2020, the European Commission launched its public consultation on the review

of the Non-Financial Reporting Directive (NFRD), which requires certain large companies to

include a non-financial statement as part of their annual public reporting obligations. The

primary focus of the consultation is to gather views on potential reforms to the Directive, in

particular with respect to the Commission’s commitment to strengthen sustainable investment

in Europe.

The deadline for submissions is 14 May 2020.

18. ESMA updates AIFMD Memoranda of Understanding

On 20 February 2020, ESMA published an updated list of MoUs signed by the EU

authorities.

19. European Reporting Lab publishes first report on climate-related reporting

On 26 February 2020, the European Reporting Lab published a summary of how to improve

climate-related reporting. Among the key messages were:

climate-related reporting was improving, but still remains a challenge given the data

and model-intensive analysis required;

there is room for improvement for climate-related financial disclosures, with some

companies viewing it as an opportunity to perform genuine analysis and report on

their resilience to climate-change risks;

while companies were generally good at reporting on climate-related policies in place,

they are less good at reporting how they either monitor or perform against their

policies and manage risks, and could include in their reporting metrics that are

directly linked to their climate-related targets.

The report also notes that despite a general improvement in the quality of climate-related

disclosures, companies were still at the start of what may be a long journey to improve

reporting. While some are already more advanced in their journey and their awareness and

reporting of climate risks and opportunities, others have only made limited progress in

developing a comprehensive climate-reporting strategy.

20. European Systemic Risk Board identifies shortcomings of the current AIFMD

framework

In a letter dated 3 February 2020, the ESRB wrote to the European Commission providing

information on shortcomings on the AIFMD framework, having regard to the Commission’s

plans to report to the EU co-legislators on the application and scope of the Directive in early

2020. The letter notes the current size of the EU AIF market (€5.8tn NAV), and advises that

increased financial intermediation by investment funds may create vulnerabilities leading to

financial stability risks, in particular relating to liquidity risks, high leverage and pro-cyclical

risk taking.

The ESRB notes that there are some areas in which the reporting framework for the AIFMD

could be improved, and the ESRB provides its detailed consideration of: (i) the suitability of

the reporting framework for monitoring systemic risk; (ii) the need to operationalise existing

macroprudential policy instruments, and (iii) the ongoing development of the

macroprudential policy framework beyond banking in general and for investment funds in

particular.

21. Publication of Interim Report on Capital Markets Union

On 20 February 2020, the High Level Forum on Capital Markets Union published its interim

report on the way forward for CMU. The report addresses the effects of measures taken to

date, in addition to the remaining challenges ahead. The High Level Forum recommends

strong and immediate political support and coordination across all EU institutions to push

reforms forward, noting that the window of opportunity is closing as other jurisdictions

assume a greater role in global markets. The final report will be published in May 2020.

22. EFAMA publishes monthly investment fund industry factsheet and yearly data

On 25 February 2020, the European Fund and Asset Management Association (EFAMA) has

today published its latest monthly Investment Fund Industry Fact Sheet for December 2019

data and its 2019 overview of net sales data of UCITS and AIFs. EFAMA notes that 2019

ended as a good year for the European investment fund industry, with net sales of UCITS and

AIFs in December totalling €70bn, bringing total net assets to €17.7tn. Net sales of UCITS

and AIFs were €531 billion in 2019 (€221 billion in 2018), with UCITS net sales reaching

€386bn (€115 billion in 2018).

23. EFAMA responds to EIOPA Consultation on Pan-European Pension Product (PEPP)

Level 2 measures

On 6 March 2020, EFAMA responded to the EIOPA consultation on PEPP Level 2 measures,

which sets out EIOPA’s current approach to the regulation of key aspects of PEPP. EFAMA

advised that it strongly supported the creation of a highly transparent and cost-effective

PEPP, however considered that this would only be successful if it were possible for potential

providers to develop a viable business case for it. In this regard, EFAMA considered that the

EIOPA proposal to include the cost of advice in the 1% fee cap would make it extremely

difficult to achieve this objective. EFAMA also considered that the inclusion of transaction

costs in the fee cap would limit the number of portfolio transactions, with the consequent risk

of missed opportunities to make gains or limit losses, which would be detrimental to PEPP

savers, and unnecessarily complicate the investment process.

EFAMA also advised that it supported the EIOPA proposals concerning risk mitigation

techniques, in particular that PEPP providers ensure investment strategy makes it possible to

recoup the capital at the start of the decumulation phase with a certain probability, and that

probability thresholds should be set by EIOPA taking account of the low returns

environment. EFAMA further advocated that PEPP documentation should be designed for

digital delivery and subject to rigorous customer testing.

24. Key Dates

UCITS - Compliance with Central Bank’s “Dear CEO” Letter

Fund managers should keep in mind the deadline of 31 March 2020 for necessary updates to

Prospectuses and KIIDs following the Central Bank’s “Dear CEO” letter issued on 18 July

2019. Further to the key findings identified, the Central Bank of Ireland required Boards of

UCITS and their managers to ensure the following when considering the accuracy and

content of its Prospectus and KIID, with any necessary updates to be submitted to the Central

Bank by 31 March 2020:

1. Compliance with the applicable legislative requirements and guidance, including

ESMA Q&As;

2. Consistency of marketing material and information contained in the Prospectus and

KIID;

3. Disclosure of benchmark constraints in the KIID and Prospectus (where applicable);

4. Disclosure in KIID and Prospectus of performance targets under which the fund is

managed (where applicable).

ESMA Consultation on Draft Technical Standards on the Provision of Investment

Services and Activities in the EU by Third-Country Firms under MiFID II and MiFIR

On 31 January 2020, ESMA published a consultation paper on the draft technical standards

on the provision of investment services and activities in the EU by third country firms under

MiFID II / MiFIR. The consultation paper arises following the introduction of changes to

MiFIR and MiFID II for third country firms under the Investment Firms Regulation

(Regulation (EU) No. 2019/2033) (IFR). These include new annual reporting requirements

from third-country firms to ESMA, and the power to request data relating to all orders and

transactions in the EU for a period of 5 years.

The proposed standards relate to the information that would be required by third countries if

seeking to provide investment services within the EU, and the information to be reported

annually by such firms to ESMA. This will of course be of some relevance to UK firms post-

Brexit.

The deadline for submissions is 31 March 2020. ESMA expects to publish the draft

technical standards and submit its final report to the European Commission in Q3 2020.