The European Securities and Markets Authority has issued fresh updates on October 5 to its Questions and Answers documents containing guidance on and interpretation of the EU’s Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers Directive (AIFMD) regimes. ESMA says the Q&A documents aim to promote common supervisory approaches and practices in the practical application of the various UCITS directives and the AIFMD through responses to questions posed by industry members and regulators themselves.
Reporting on securities financing transactions and total return swaps
The UCITS Q&A deals with areas including master-feeder structures, investment restrictions, UCITS Key Investor Information Documents, guidelines on exchange-traded funds, exchange of information between regulators, risk measurement and OTC derivatives. The latest update concerns periodic reporting by UCITS and AIFs to investors on the use of securities financing transactions (SFTs) and total return swaps under Article 13 of the EU’s 2015 Securities Financing Transaction Regulation.
Article 13 of the regulation requires UCITS management companies, UCITS investment companies and AIFMs to shall inform investors on the use they make of SFTs and total return swaps in annual and half-yearly (for UCITS only) reports. ESMA says this data should be reported based on a snapshot at the end of the reporting period, with the exceptions of data on reuse of collateral and on the return and cost for each type of SFT and total return swaps.
Disclosure of remuneration by AIFM’s portfolio or risk management delegate
The AIFMD Q&A covers remuneration, notification of alternative investment funds and their managers, reporting to national regulators, services covered by MiFID, depositaries, calculation of leverage, delegation, calculation of assets under management, additional own funds, and scope of the authorisation requirement, as well as the impact of the EMIR regulation. The new version also includes the same comments on Securities Financing Transaction Regulation reporting, as well as the application of remuneration disclosure requirements to staff of an entity conducting portfolio or risk management under delegation from an AIFM, and the manner of such disclosure in annual reports.
ESMA says the remuneration-related disclosure requirements under Article 22(2)(e) of the AIFMD also apply to employees of such an entity, and that AIFMs may ensure compliance in one of two ways. Where the delegated entity is subject to regulatory requirements on remuneration disclosure for its staff that are equally as effective as those stipulated under the AIFMD, the AIFM should use the information disclosed by the delegate to meet its obligations under Article 22(e) of the AIFMD and Article 107 of the AIFMD Level 2 Regulation.
In other cases, contractual arrangements should be concluded that enable the AIFM to receive, and disclose in annual reports for the relevant AIFs that it manages, at least information on the total fixed and variable remuneration for the financial year paid by the AIF and/or the AIFM to the identified staff of the delegate, the number of beneficiaries and where relevant, carried interest, that is linked to the delegated portfolio.
The disclosure should be made on a prorated basis for the share of the AIF’s assets that is managed by the delegated entity’s identified staff. In both situations, the disclosure may be provided on an aggregate basis, as a total amount for all delegates of the AIFM in relation to the AIF in question.
Inclusion in annual report
ESMA says the information stipulated in Article 22(2)(e) and (f) of the AIFMD may not be disclosed in the annual report through a link to a document containing the information, but must be included in the annual report itself, although additional information in other documents may be referred to.
ESMA’s Q&A document on application of the UCITS regime may be consulted at https://www.esma.europa.eu/sites/default/files/library/esma34-43-392_qa_ucits_directive.pdf, and the AIFMD Q&A at https://www.esma.europa.eu/sites/default/files/library/esma34-32-352_qa_aifmd.pdf.