Duff & Phelps’ Compliance and Regulatory Consulting practice rounds up the news for asset managers from the French financial regulator Autorité des marchés financiers (AMF) during the first quarter of 2020.
2020 Priorities for the Supervision of the AMF
At the beginning of the year, Robert Ophèle, Chairman of the AMF, presented the regulator's priorities for action and supervision for 2020.
The AMF intends to focus on various topics, such as:
- New French and European retirement savings schemes and the development of employee savings schemes;
- Risk analysis and strengthening AML FT schemes within Europe;
- Preparing for post-Brexit, with the aim of defining future relations between Europe and the UK and to develop different ways to strengthen the 27-member financial markets;
- The transition towards sustainable finance with quality and comparability of extra-financial information of listed companies, approaches in asset management and monitoring of stakeholders' climate commitments; and
- The competitiveness of European digital marketplaces.
The AMF has developed a new tool to detect fraudulent websites based on artificial intelligence. Reporting data on securities financing transactions will be incorporated into ICY, the surveillance tool developed by the AMF.
For portfolio management companies, the following themes relate to supervision priorities for 2020:
- The delegation of permanent control;
- Liquidity risk management;
- The granting of loans;
- Cyber security; and
- The fight against money laundering and the financing of terrorism.
Finally, for those involved in marketing, the priorities will be as follows:
- Product governance in the MiFID II framework;
- Implementing requirements for matching investment services or products to the client's profile as defined by MiFID II; and
- Supervising the investment adviser.
AMF Working Paper on Building a European Digital Strategy in Financial Services
The AMF published its working paper called “Building a European Digital Strategy in Financial Services.”
The working paper describes more concrete and granular proposals on the technical aspects of the European regulations regarding the development of a European digital strategy for financial services and serves as a basis for discussion with other European market regulators.
In this document, the AMF encourages the European Commission to develop a digital strategy enabling the industry to innovate in a secure environment. The AMF proposes that the strategy be based on the following points:
- Enabling the issuance and exchange of financial instruments on blockchain by removing existing legal barriers and creating an interbank stable settlement coin
- Developing a European framework for digital assets that do not fall under the definition of financial instruments
- Encouraging experimentation with new projects to foster innovation
- Managing the risks identified in the relationship between cloud providers and financial institutions in order to take full advantage of the use of artificial intelligence in the financial sector
Association Française de la Gestion financière (AFG)’s 2020 Recommendations on Corporate Governance
The AFG published its 2020 edition of the Corporate Governance Recommendations for General Meetings and Boards of Directors of listed companies.
The main changes in the 2020 edition relate to the following points:
- The board of directors must examine and take a position on any resolution adapted at the previous general meeting with more than 20% opposition from minority shareholders.
- The board of directors must be involved in the choice of a hierarchy of risks presented as having an impact on the company.
- Issuers must systematically send confirmation to investors at each general meeting that their votes have been included in the calculation of voting results.
- Communication to shareholders, specifically in which meetings of the board of directors and committees are held, and the information relating to how individual directors are attending (whether by phone or physically).
- Resolutions relating to the granting of options will have to be accompanied by information on the number of beneficiaries envisaged for these plans.
- The chairman of the audit committee and of the remuneration committee must be independent.
Integration of Specialized Financing Vehicles (OFS) into the AMF doctrine
The AMF has updated its doctrine on OFS,. This category of FIA is not subject to prior approval but only to a declaration. Its specific features include the ability to invest in all asset classes, issue debt securities and acquire debt securities via assignment deeds.
When the OFS is likely to be a monetary fund, it must apply for approval.
Regarding fees, disclosure has been specified in the standard prospectus plan. In addition, the outperformance fees must be disclosed in the prospectus, in particular a maximum rate for sharing the outperformance when the effective rate is indicated.
Firms have a year from the publication date to make documents compliant.
Report on the AMF's Actions on the Complexity of Structured Products
The AMF published the results of its study on the complexity of structured products. In 2010, a paper was published to reduce the complexity of structured products offered to the public in France and better integrate the complexity of the underlying indices. A study was carried out, and it has had a positive impact.
While the study had a positive impact, it caused an increase in the number of scenarios included in the formula for calculating a structured product's return. In France, it was found that the underlying indices considered to be the most complex were the least used, whereas newly created indices were used more. This is because structured products perform poorly compared to investments in equities or bonds, and the most complex products perform the worst.
The AMF remains vigilant about the marketing issues surrounding structured products. It provided guidance on how to prepare marketing documents and continues to monitor the complexity of the market for structured products.
Sustainable Finance: A First Doctrine in of Investor Information
The AMF wishes to clarify the level of communication that should be provided to investors about sustainable finance.
To protect investors who are showing a growing interest in responsible, sustainable and ethical finance, it is important to adopt a proportionate approach to the presentation of non-financial criteria.
Assets management firms that wish to organize the marketing of their collective investment schemes must consider that environmental, social and governance criteria will have to comply with a minimum set of requirements, as set out below:
- Ensuring that measurable objectives for taking extra financial criteria into account are included in regulatory documentation (KID, prospectus); and
- These objectives should make it possible to differentiate the approaches and justify a significant commitment of the actor in the implementation of the investment policy.
The timetable provides for immediate application for new funds and a deadline of November 30, 2020 for the KID of existing funds and March 10, 2021 for their prospectuses.
The AMF Sanctions Committee fined a credit institution operating as an investment services provider for €500,000. The bank was convicted on the grounds of failing to comply with the obligations relating to the prompt confirmation of uncleared OTC derivatives transactions, failing to comply with the obligation to report transactions to the trade repository and the compliance mechanism put in place to comply with the obligations under the EMIR regulation.
The AMF Sanctions Committee imposed financial penalties against two companies.
The first company was accused of carrying out five capital increases through the issue of shares admitted to trading on Euronext without preparing a prospectus subject to prior approval by the AMF. The company was found guilty of failing to comply with the rules governing the admission of securities to trading on a regulated market.
The second company was fined for failing to mention in its investment recommendations the existence of business ties between it and the first company, even though these ties were likely to result in a significant conflict of interest. This legal entity was found guilty of failing to comply with Article 329-5 of the AMF General Regulation.
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