On 1 October 2013 ESMA issued guidelines regarding the reporting obligations of administrators of investment institutions under the AIFM Directive with regard to national supervisors. This reporting duty is very thorough and comprehensive and has to be taken very seriously by administrators of investment institutions. In this news item the nature of these reporting duties and the accompanying directives issued by ESMA will be examined.
|Reporting duties Article 24 AIFM Directive|
Administrators of investment institutions must give information periodically to their national supervisor(s). On the whole, an administrator must report about:
- the main instruments he used to perform transactions, including the break down into types of financial instruments and other assets, geographic areas and sectors.
- the main categories of assets each investment institution has invested in, including market value, turnover and return during the reporting term.
- the markets he is a member of or he trades in actively.
- the spread within the portfolios of investment institutions stating, among other things, the ten most important positions and the five most important concentrations.
- the actual risk profile of the administered investment institutions and the risk management systems the administrator uses to control the market risk, the liquidity risk, the counterparty risk and other risks.
- the results of the regular obligatory stress tests conducted at least annually, to determine the investment and liquidity risks.
- possible new regulations for the liquidity management of the investment institution.
- the measure of leverage and the way this leverage is financed (if appropriate).
The exact data to be reported are elaborated in a ‘template’ of 25 pages, which forms Attachment IV of Implementing Regulation AIFM.
Administrators who manage investment institutions with a total capital, including possible leverage, of less than 1 billion Euros, and of whom each investment institution has an invested capital of less than 500 million Euros (including leverage), must by principle, report half-yearly. The larger administrators must produce a report every three months.
These reports are to be given to De Nederlandsche Bank (DNB). However, the Autoriteit Financiële Markten (AFM) can also request the administrator to place the information at its disposal. Furthermore, both supervisors have the authority to impose additional reporting duties or to have the manager report more frequently.
The ESMA guidelines issued on 1 October 2013 are primarily aimed at the further standardisation of the periodic reports to be given by the administrators and to better enable the exchange of data between (national) supervisors. The guidelines are formally aimed at the supervisors, but in the end the administrators will deal with the requirements described in the guidelines.
First mandatory report
From the guidelines it appears that administrators who need to report half-yearly have to do this over the periods 1 January until 30 June and from 1 July until 31 December. Furthermore, ESMA indicates that the first period that needs to be reported must start on the first day of the three months following the moment an administrator has been informed he comes under the reporting duty.
Administrators who have to report every three months need to adhere to the calendar. For them the first reporting period also starts on the first day of the three months after they were informed of their reporting duty.
Reporting in case of changes of regime
In the guidelines ESMA elaborates on the consequences for the reporting moments in different situations when the supervision regime of an administrator changes. For example when an administrator who was registered and now gets a licence, or of an administrator who used to manage less than 1 billion Euros, but who now administers more.
Specific types of investment institutions
In the guidelines ESMA briefly discusses the question of how to deal with specific types of investment institutions in the reports. For instance, ESMA indicates that information about different ‘feeders’ of one and the same ‘master’ investment institution needs to be reported separately and cannot be combined. ESMA also indicates that in a fund-of-funds-construction the investments of the underlying investment institution do not have to be looked through. Finally, ESMA points out that for umbrella funds reporting has to be done at the level of each subfund.
Explanation of the expected data content in the reporting template
In the reporting templates given in the guidelines administrators are shown what they need to fill in for certain fields.
- The administrator’s and administered institutions’ identification code to be used in the reporting;
- The codes to be used for the type of market (stock market, OTC, etc) and the stock market where investments of administered investment institutions are traded and the codes to be used when the instruments traded are not traded on a specific market;
- The groupings and codes to be used to indicate which types of (financial) instruments are most invested;
- The basic currency to be used and the way values in foreign currencies have to be calculated into basic currency;
- How to deal with data concerning investment strategies and the breakdown of these;
- The way data about the most important (financial) instruments in which the administered investment institutions have invested needs to be broken down;
- The way the most important exposures and concentrations per asset need to be broken down;
- The way the data to be reported concerning market risks, counterparty risks, liquidity risks and other risks have to be determined and included in the reporting.
ESMA has added three attachments to the guidelines. The first attachment offers an overview of the reporting duties that apply to different kinds of administrators, attachment II is an overview of the codes to be used in the reportings for types of assets, trade strategies and transaction types for instance, and attachment III is an overview of the countries taking part of the several geographic areas to be incorporated in the reporting.
Furthermore, apart from the directives ESMA also published a number of separate documents. These are:
- the consolidated reporting template, including the ESMA requirements;
- a document in which ESMA advises national supervisors which additional information they can ask from the administrators to recognise system risks on time;
- technical IT guidance to implement the reporting duty;
- tables which show how to deal with the reporting duties in the event of a change in status.
Although this news item only gives an image of the main issues from the reporting duties of Article 24 of the AIFM Directive, it is clear that the adequate implementation of this reporting duty requires a serious effort on the part of administrators of investment institutions. Although most administrators do not have to give reports to DNB until they have a licence or until their existing licence is converted into an AIFM licence, they need to start thinking about this well in advance. The first report in particular requires a serious effort from the administrator, since it concerns a new subject and there are many fields to be filled in.
If you want to know more about this subject or about other subjects concerning the AIFM Directive, Charco & Dique can help you. Amongst other things, Charco & Dique can perform a quick scan to evaluate the extent to which your organisation already complies with the requirements of the AIFM Directive, help you organise your compliance and risk management function or prepare and submit the application for an AIFM-licence with you.
For more information on this subject please contact Charco & Dique on: 020-4165403 or e-mail to: firstname.lastname@example.org