Duff & Phelps’ Compliance and Regulatory Consulting practice provides update for asset managers from the French financial regulator Autorité des marchés financiers (AMF) and Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) during the second quarter of 2020.
Fintech Action Plan – The AMF's Response
On April 7, the European Commission launched a public consultation on the development of a European framework for crypto markets.
The AMF supports the growth of crypto assets, notably with the creation of an "interbank settlement asset" recognized as a central bank currency. This currency would authorize and enable blockchain settlement mechanisms.
Among the AMF's various proposals is the harmonization of the concept of financial instruments to avoid divergences between EU countries. Read the full article here.
The AMF Assesses the AIFM Reporting Systems as Part of its SPOT Inspections.
On April 24, the AMF published a summary of its SPOT inspections carried out in 2019 on the AIFM reporting system. As part of these controls, the AMF wanted to ensure the quality of the data transmitted and verify the procedures relating to AIFM reporting, the quality and completeness of the data transmitted, the methodologies for calculating leverage, the management of liquidity and the conduct of stress tests, as well as the information given to investors on leverage and liquidity.
The AMF found that the number of reports submitted to the AMF were broadly in line with the number of reports expected, although some of the data was incomplete. The audited entities had specific procedures, but in some cases, they were not sufficiently operational or detailed. The liquidity risk management system was comprehensive and operational in most cases; however, the asset liquidity criteria was not sufficiently justified, and the stress tests carried out by the management companies were not adequately operational.
The AMF also pointed out that AIFM reporting should be integrated into the daily management process and internal management tools rather than be considered as an administrative exercise to be conducted independently.
The AMF Published a Behavioral Study on Retail Investors on the Stock Market During COVID-19
On April 27, the AMF published a behavioral study of retail investors and their stock market activity during COVID-19 that caused high volatility on the equity markets.
To ensure the stability of the financial markets during the pandemic, the AMF based its study on the transaction reporting of French financial institutions and their foreign branches:
- Between February 24 and April 3, more than 150,000 new investors invested in stocks in the SBF120 index.
- The profile of these 150,000 new investors were significantly different from regular investors in terms of both age (up to 15 years younger) and amounts invested (lower than what is usually invested).
Managed Accounts The AMF Implements its SPOT Controls Assessing Client Information
On April 30, the AMF published a summary of its SPOT controls undertaken to confirm its compliance with the new MiFID II (Markets in Financial Instruments Directive) provisions on portfolio management for third parties.
As part of its review of five investment firms between 2018-2019, the AMF focused on the compliance of client questionnaires, the content of periodic management statements, information provided to clients on ex-ante and ex-post fees, the warning system in the event of a decline in portfolio value of more than 10%, and information on the rules for collecting any retrocessions of commissions
The AMF noted that despite efforts made by investment firms to comply with MiFID II, the allocated resources were not deemed sufficient to ensure the effective implementation of the new requirements. Particular attention was drawn to the following deficiencies: assessing clients' risk tolerance, providing early warnings of portfolio write-downs and providing information on fees. Read the full article here.
Based on this observation, the AMF identified the following areas for improvement and development:
- Enhance and revise customer knowledge questionnaires and all contractual documentation
- Improve the content and reliability of periodic management statements
- Improve the content of ex-ante and ex-post cost information
- Improve the timelines and content of information provided to clients in the event of a decline in the value of their portfolio
- Improve information on whether or not commissions are being passed on and if so, whether they are being returned to clients
Money Laundering and Terrorist Financing – Threats and Risks in Times of COVID-19
On June 19, the AMF draws attention to the recent developments in money laundering and terrorist financing risk in the context of the global health crisis, in particular the report published by the Financial Action Task Force (FATF) and TRACFIN.
The FATF report on COVID-19 related Anti-Money Laundering (AML)/Financing of Terrorism (FT) risks and policy responses describes the fraudulent activities that have already come to light, as well as the crisis-related factors that increase AML/FT risks such as a rise in remote transactions and financial instability.
The identified risks and the subsequent analysis were based on various reports published since the beginning of the health crisis. In addition to offences related to trade in sanitary equipment, TRACFIN highlights the increase of fraud relating to calls for donations and fraud by misappropriation of the state-guaranteed loan scheme. For real estate transactions, TRACFIN warns about substitution clauses and financial terms (valuation of the property and credit conditions).
Updating the System for Verifying the Minimum Level of Market Knowledge
On June 26, following the update of 2010-09 instruction on professional certification, which came into force on January 1, 2020, the AMF updated its position 2009-29 Q&A on how to assess the minimum level of market knowledge for participants. It sets out the operating rules for the common bases of the exam, the changes to the organization of the exam and changes to the themes it covers in light of regulatory developments and innovations in the financial world.
Read the full list of changes that apply from July 1, 2020 here.
AML/CFT Supervision of the Mutual Fund Industry During the COVID-19 Crisis
On April 1, the FAFT President issued a public statement highlighting the new challenges that the pandemic imposes on professionals and regulators together with the relevant measures to combat money laundering and illicit financing. The Commission de Surveillance du Secteur Financier (CSSF) published CSSF Circular 20/740 to provide Luxembourg professionals with information specific to their activities and to guide them in complying with their professional AML/CFT (Combating the Financing of Terrorism) obligations during the crisis.
The CSSF has implemented several measures to ensure that it meets the operational challenges relating to AML/CFT supervision during this period.
Financial Services Compliance and Regulation
End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.
