The entry into force of PRIIPs on 1 January 2018 has generated worrying issues for AMAFI’s members, manufacturers and distributors alike. The methodology used to draft KIDs (key information documents) in accordance with the regulation frequently leads to overly optimistic and even unrealistic results, both in terms of performance scenarios and the presentation of costs. Besides generating litigation risks with investors that may believe they have received misleading information, the situation is far from ideal for institutions from a business viewpoint. AMAFI is working to disseminate these concerns on a well-argumented basis to the various parties concerned.
In late 2017 the European Commission launched a consultation on the creation of a proportionate regulatory environment to support SME IPOs. AMAFI stressed the importance of removing certain obstacles to the listing of SMEs, stemming primarily from administrative constraints. It also insisted on the importance of letting national markets set the applicable rules in the various areas concerned as opposed to a single European regulation. This often proves counter-productive in an environment where it is particularly useful to take into account what are often significant specificities and differences between the markets in question (AMAFI / 18-12).
This applies in particular to liquidity contracts. In this respect, AMAFI was pleased to note that the Commission appears to be shifting towards the Europe-wide acknowledgement of the usefulness of these contracts. With the practices of Member States differing substantially, AMAFI stressed that liquidity contract regulation must absolutely be left in the hands of national regulators. It would be extremely harmful for French practices – by far the most extensive and oldest in the EU, and which works in a highly satisfactory manner as part of a regulatory framework established jointly by the AMF and market players – to be impacted by a single regulation failing to take stock of the experience and benefits of the existing practices of the French SME market.
In another area, central to the concerns of players dealing in Euro Private Placement transactions, AMAFI applauds the Commission for perceiving the need to exclude these transactions from the regulation on market soundings as provided for in the Market Abuse framework. Applying this regulation makes no sense for transactions in which investors are involved in the negotiation of the terms and conditions of the issue. Given its importance to the development of this market, AMAFI has focused emphatically on this issue in the last few months. As observed in a recent report on private debt placement in the EU, the Commission appears to have fully realised the importance of this issue, one that is not reserved purely to SMEs.
Concerning the definition of SMEs, AMAFI once again argued that the current threshold of €200 million in capital was inappropriate and that it should be raised to at least €1 billion. However, mindful that the diversity of the markets in the Union makes a single approach difficult from a political standpoint, AMAFI proposed giving each Member State, in cooperation with its local growth SME markets, the flexibility to determine the SME threshold, in line with the option provided for in the Prospectus Regulation whereby each country is free to define the prospectus threshold at national level.
Lastly, and while this aspect was curiously absent from the discussions, AMAFI reiterated that financial analysis is vital to enabling SMEs to effectively access market financing
In mid-February the International Organization of Securities Commissions, IOSCO, launched a consultation report proposing policy measures to protect investors of OTC leveraged products (CFDs and binary options). Seven proposals were selected, informed in particular by measures implemented in France as well as the new obligations set out by MiFID II in Europe.
Consistent with the observations submitted to ESMA on the same topic in January 2018 (AMAFI / 18-07), AMAFI endorses IOSCO’s initiative to propose convergent solutions at an international level to protect retail investors. For AMAFI, this international dimension is the only truly effective solution, since the main issue is deterring entities that are not regulated in their home countries from marketing these products abroad to countries where they are unauthorised. Consequently, in addition to its observations on the questions submitted to IOSCO, AMAFI stressed in particular the importance of clearly defining the products affected by these measures to avoid the targeting of financial instruments not affected by the issue (AMAFI / 18-17).
Le 21 novembre dernier l’AMAFI avait mis à disposition de ses adhérents le document de questions-réponses (Q&A) explicitant les modalités d’alimentation et d’interprétation des données renseignées dans l’European MiFID Template - EMT (lien).
Suite à l’entrée en application de MIF 2 et aux problématiques rencontrées lors de la complétude et l’utilisation de l’EMT, les travaux de l’EWG* ont repris et ont aboutis à une mise à jour de ce Q&A. L’AMAFI met donc à disposition de ses adhérents cette version 1.1 (ce document étant par nature évolutif, il pourra de nouveau être mis à jour, l’AMAFI sera impliquée dans ces éventuels travaux). Les modifications réalisées par rapport à la version 1 sont mise en évidence (police jaune), elles concernent principalement la complétude du critère « capacité à subir des pertes ».
Pour information, l’EMT est également en cours de modification, l’AMAFI communiquera la version 2 de ce fichier dès qu’elle aura été validée par l’EWG.
* L’European Working Group (EWG) est un groupe de travail qui rassemble un panel d’acteurs financiers en Europe (gestionnaires d’actifs, banques, assureurs et entreprises d’investissement) à travers la participation d’associations professionnelles et de grandes institutions financières nationales et européennes. Son objectif est de définir des formats d’échange de données standardisés, à l’échelle la plus large possible, pour répondre aux contraintes réglementaires européennes.
The International Organization of Securities Commissions (IOSCO) held its 2018 annual conference in Budapest at the start of May. Alongside the public discussions, bilateral meetings between the finance industry and regulators were also organised, as they are each year, by the ICSA and the new chairs of IOSCO's standing committees.
Key areas of concern for regulators addressed at these meetings included fintechs and regtechs, cryptocurrencies, artificial intelligence, ETFs, passive investment strategies, outsourcing, liquidity during periods of stress, and sustainable finance
In mid-February, IOSCO published proposed measures on conflicts of interest identified in equity initial public offerings (equity IPOs) and secondary equity offerings. Eight measures were put forward, informed in particular by the new provisions set out by MiFID II in Europe.
AMAFI expressed support for IOSCO's initiative, which proposes common solutions at the international level (AMAFI / 18-20) to address the risks linked to the potential conflicts of interest that can arise during the production and dissemination of primary research and in the process of allocating securities and pricing transactions. AMAFI also stressed that most of the measures proposed by IOSCO do not pose real difficulties insofar as they are already part of French or European rules or applied under best market practices. It nevertheless requested clarification, particularly on the proposal to ban analysts from taking part in pitches. AMAFI called for the meaning of pitches to be precisely defined and stressed that issuers need to be able to hold discussions with analysts in order to understand the market context as well as the assessment made by investors of their shares. AMAFI also underlined the need for a more nuanced approach to the question of pressure on connected analysts (meaning those from establishments providing advisory for or managing the IPO) raised in IOSCO's document. In AMAFI's view, the possibility that analysts' opinions might be biased by such pressure is offset by the need for analysts and their employers to maintain their credibility and reputation.
The International Council of Securities Associations (ICSA), which has been chaired by Pierre de Lauzun since May 2017, met with the Financial Stability Board (FSB) in early May of this year. As an international forum comprising G20 banking and market supervisors along with the international financial institutions, the FSB is the best placed institution today to provide impetus for market reforms.
The FSB continues to focus squarely on assessing the reforms that have been set in train, particularly in the areas of financing for infrastructures and SMEs/mid-tier firms, and OTC derivatives. However, the meeting also broached many other topics, including the governance and remuneration framework for financial institutions, data collection, the transition from LIBOR to other, less risky rates, cryptoassets, the resolution and interdependence of central counterparties, and green finance. A series of reports and consultations is due to be published over the course of the summer
PRIIPs has been in application for a number of months now, and it has become apparent that the method used to prepare key information documents (KIDs), as required by European regulations, is leading fairly often to unrealistic or misleading results, particularly regarding performance scenarios (see AMAFI Newsletter No. 134). This situation is extremely concerning for firms that find themselves facing regulatory risk as well as commercial and reputational risk. Since the same concerns are being voiced in Germany, after consultation with Deutsche Derivate Verband (DDV), the body that represents German structured product manufacturers, a joint AMAFI-DDV letter was sent to the European Commission. The aim was not only to sound the alert about these outcomes, which are totally at odds with the objectives pursued by PRIIPs, but also to propose solutions. The document is available at www.amafi.fr
Selling restrictions
In early April, AMAFI published suggested language for selling restrictions, in French and English (AMAFI / 18-21 FR and EN). The aim is to enable issuers of products which are exclusively issued for subscription by non-retail investors but listed on a regulated market to show that these products are not intended for retail investors. As a result, and in accordance with the response provided by the European supervisory authorities in the Q&A on KIDs, these products may be excluded from the obligation to draw up a KID.
