ESMA Publishes Final Report And Q&A On Revision Of Guidelines ETFs And Other UCITS Issues

Final Report on Revision of Guidelines ETFs and other UCITS issues | Reference 2014/294 

Reasons for publication

In December 2012, ESMA published the guidelines on ETFs and other UCITS issues (ESMA/2012/832) (hereafter the guidelines). Since the entry into force of the guidelines on 18 February 2013, ESMA has been asked by stakeholders on numerous occasions to reconsider its position on the requirements on collateral diversification (paragraph 43(e) of the guidelines) on the basis that they have a significant adverse impact on UCITS’s collateral management policies. Stakeholders drew particular attention to the consequences for money market funds that place cash into reverse repurchase agreements.

On 20 December 2013, ESMA published a consultation paper (ESMA/2013/1974) in which the Authority set out proposed amendments to paragraph 43(e) of the guidelines.

Contents

Annex I of this final report sets out ESMA’s position on collateral management by UCITS. The guidelines in Annex I modify the rules on collateral diversification in paragraph 43(e) of the existing guidelines and introduce some further consequential changes.

Next steps

The guidelines in Annex I of this report will be translated into the official EU languages and published on the ESMA website. The publication of the translations will trigger a two-month period during which NCAs must notify ESMA whether they comply or intend to comply with the guidelines.

Q&A on guidelines on ETFs and other UCITS issues | Reference 2014/295 

I. Background

1. The revised Undertakings for Collective Investment in Transferable Securities (UCITS) Directive puts in place a comprehensive framework for the regulation of harmonised investment funds within Europe. The extensive requirements with which UCITS must comply are designed to ensure that these products can be sold on a cross-border basis. The Directive of 2009 also introduced a management company passport.
2. The UCITS framework is made up of the following EU legislation:

2a. Directive 2009/65/EC, which was adopted in 2009. It is a ‘framework’ Level 1 Directive which has been supplemented by technical implementing measures.

2b. Directive 2007/16/EC¹; Directive 2010/43/EU²; Regulation No 583/2010³; Directive 2010/42/EU⁴; and Regulation No 584/2010⁵.

1. ESMA is required to play an active role in building a common supervisory culture by promoting com-mon supervisory approaches and practices. In this regard, the Authority develops Q&As as and when appropriate to elaborate on the provisions of certain EU legislation or ESMA guidelines.

II. Purpose

1. The purpose of this document is to promote common supervisory approaches and practices in the application of the UCITS Directive and its implementing measures, with a specific focus on the guide-lines on ETFs and other UCITS issues (ESMA/2012/832). It does this by providing responses to ques-tions posed by the general public and competent authorities in relation to the practical application of those guidelines.
2. The content of this document is aimed at competent authorities under UCITS to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. However, the answers are also intended to help UCITS management companies by providing clarity as to the content of the UCITS rules, rather than creating an extra layer of requirements.

III. Status

1. The Q&A mechanism is a practical convergence tool used to promote common supervisory approaches and practices under Article 29(2) of the ESMA Regulation.⁶
2. Therefore, due to the nature of Q&As, formal consultation on the draft answers is considered unneces-sary. However, even if they are not formally consulted on, ESMA may check them with representatives of ESMA’s Securities and Markets Stakeholder Group, the relevant Standing Committees’ Consultative Working Group or, where specific expertise is needed, with other external parties.
3. ESMA will review these questions and answers on a regular basis to identify if, in a certain area, there is a need to convert some of the material into ESMA guidelines. In such cases, the procedures foreseen under Article 16 of the ESMA Regulation will be followed.

IV. Questions and answers

1. This document is intended to be continually edited and updated as and when new questions are re-ceived. The date each question was last amended is included after each question for ease of reference.
2. Questions on the practical application of the guidelines on ETFs and other UCITS issues may be sent to the following email address at ESMA: ETF@esma.europa.eu

¹ COMMISSION DIRECTIVE 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions.

² COMMISSION DIRECTIVE 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company.

³ COMMISSION REGULATION (EU) No 583/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website.

⁴ COMMISSION DIRECTIVE 2010/42/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards certain provisions concerning fund mergers, master-feeder structures and notification procedure.

⁵ COMMISSION REGULATION (EU) No 584/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards the form and content of the standard notification letter and UCITS attestation, the use of electronic communication between competent authorities for the purpose of notification, and procedures for on-the-spot verifications and investigations and the exchange of information between competent authorities.

⁶ Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC Regulation, 15.12.2010, L331/84.