knowledge 11 October 2017 |

ESMA and Central Bank of Ireland Revise AIFMD/UCITS Q&A

ESMA has revised each of its Q&A on the Application of the AIFMD and on the Application of the UCITS Directive to include a new Q&A on disclosure requirements under the Securities Financing Transactions Regulation 2015/2365 (“SFTR”).  The revised AIFMD Q&A also contains two new Q&As on the application of the remuneration-related disclosure requirements under Article 22(2)(e) of the AIFMD to the staff of an alternative investment manager’s (“AIFM’s”) delegate.

For its part, the Central Bank has updated each of its AIFMD and UCITS Q&A with a new Q&A on the need for non-Irish fund management company to maintain a designated email address for Central Bank correspondence.

The Securities Financing Transactions Regulation (SFTR)

The SFTR requires UCITS management companies, UCITS investment companies and AIFMs to inform investors on the use that a UCITS or an alternative investment fund ("AIF") makes of securities financing transactions and total return swaps in the annual reports of the UCITS and AIFs that they manage . In the case of UCITS management companies and investment companies, this information must also be provided in the UCITS’ half-yearly reports. The information on SFTs and total return swaps must include the data provided for in Section A of the Annex to the SFTR (“Section A”).

Sections XIII and VII of the AIFMD and UCITS Q&A, respectively, contain a new Q&A 2 on periodic reporting under Article 13 of the SFTR.  According to the Q&A, for the most part, the data set out in Section A should be reported as a snapshot taken at the end of the reporting period rather than as aggregate data with respect to the whole of the reporting period.  The updated Q&As contains a table which specifies whether an item should be reported as a snapshot or as aggregate data for each of the items listed in Section A. 

UCITS Management Companies, UCITS investment companies and AIFMs should consult the revised Q&A when preparing the relevant disclosures  of the UCITS and AIFs they manage for the purpose of Article 13 of the SFTR.

AIFMD Remuneration-related Disclosures

AIFMD imposes detailed remuneration requirements on AIFMs, including specific requirements which apply to “Identified Staff”, namely those staff members whose professional activities have a material impact on the relevant AIFM or of the AIFs that it manages.

These requirements are further detailed in ESMA’s Guidelines on sound remuneration policies under the AIFMD (“Guidelines”). By way of reminder, the Guidelines provide that when delegating portfolio management or risk management activities, an AIFM should ensure that:

• the delegate is subject to regulatory requirements on remuneration that are equally as effective as those applicable under the Guidelines; or
• appropriate contractual arrangements are put in place between the AIFM and the delegate in order to ensure that there is no circumvention of the remuneration rules set out in the Guidelines.

In addition to the above, AIFMD also requires each AIFM to make certain remuneration-related disclosures in its annual report.  In particular, according to Article 22(2)(e) of AIFMD, the annual report must contain “the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the AIFM to its staff, and number of beneficiaries, and, where relevant, carried interest paid by the AIF.”

Article 22(2)(f) states that the annual report must also set out the aggregate amount of remuneration broken down by senior management and members of staff of the AIFM that are Identified Staff.

The updated AIFMD Q&A

ESMA has updated Section 1 of its Q&A on the Application of the AIFMD to include two new Q&A on remuneration related disclosures, Q&A 6 and Q&A 7.

Q&A 6

According to Q&A 6, where a delegate is subject to regulatory requirements on remuneration that are equally as effective as those applicable under the Guidelines, an AIFM should use the information disclosed by the delegate for the purpose of fulfilling its disclosure requirements under Article 22(2)(e). 

Otherwise the AIFM must put in place appropriate contractual arrangements with the relevant delegate to ensure that the AIFM receives the remuneration-related information that it requires to fulfil its disclosure requirements and that it can disclosure this information in the annual report for the relevant AIFs that it manages.

The AIFM must at least receive from its delegate information on the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the AIF and/or the AIFM to the Identified Staff of the delegate – and number of beneficiaries, and, where relevant, carried interest – which is linked to the delegated portfolio.

According to the updated Q&A, disclosure should be done on a pro-rata basis for the part of the AIF’s assets which are managed by the Identified Staff within the delegate.

Moreover, the AIFM may provide the disclosure on an aggregate basis, ie, by means of a total amount for all the delegates of the AIFM in relation to the relevant AIF.

Q&A 7

According to Q&A 7, the information mentioned under Article 22(2)(e) and (f) of the AIFMD must be included in the annual report and it cannot be provided by the way of a link to the document where the relevant information is available. This does not prevent the annual report from referencing other documents where additional information may be found.

Designated Email Address

The Central Bank has published the twenty-sixth edition of the AIFMD Q&A and the twentieth edition of the UCITS Q&A. Each of the Q&A contains a new question relating to the maintenance of a designated email address by a non-Irish fund management company for regulatory correspondence in respect of Irish authorised AIFs/UCITS.

According to the AIFMD Q&A, a non-Irish fund management company must set up either individual email addresses for each Irish authorised AIF or a single email address for all Irish authorised AIFs under management by the non-Irish fund management company. The UCITS Q&A set out the same requirements in respect of Irish authorised UCITS. In each case, the designated email address(es) must be communicated to CP86email@centralbank.ie. by 10 November 2017.

 You may access ESMA’s revised AIFMD Q&A here and the revised UCITS Q&A here.

You may access the Central Banks revised AIFMD Q&A here and revised UCITS Q&A here.