December Regulatory Updates covering PRIIPs, Solvency II, European Market Infrastructure Regulation and additional reporting requirements under Irish Domiciled UCITS Funds.

1. REGULATORY UPDATES – DECEMBER 2015
PRIIPS / SOLVENCY II / EMIR / IRISH DOMICILED UCITS

2. 1. PRIIPS
1.1 Close-up on PRIIPs KID cost disclosure requirements
Draft regulatory technical standards for the PRIIPs KID were issued by the European Supervisory Authorities
(ESAs) in November. One key area that the asset management, banking and insurance industries are now
focusing on is the extended level of cost disclosure required within the PRIIPs KID. Cost disclosure for the PRIIPs
KID can be broken down into the following categories:
One-off and recurring costs
One-off costs include entry and exit costs. Entry costs are comprised of distribution fees, marketing costs and
subscription fees, amongst others. Recurring costs include portfolio transaction costs for the year. In addition, the
cost of acquiring or disposing of units in AIFs or, in respect of insurance products, the cost part of biometric risk
premiums, for example, are considered recurring costs.
Incidental costs and the summary cost indicator (reduction in yield)
Examples of incidental costs include performance related fees payable to the management company or investment
adviser. The ESAs have also introduced a summary cost indicator disclosed as a “reduction in yield” which displays
the impact total costs will have on what a retail investor will get back from the investment.
Costs should also be categorised according to the structure they follow. Costs in the regulatory technical standards
are broken out and analysed across fund products, non-fund products (structured products and derivatives) and
insurance based investment products.
Cost disclosure will bring about some new challenges for the relevant industries to contend with. Key questions
these industries should be considering now include: How will these costs be captured? How can we evaluate the
cost disclosure requirements in both a timely and accurate manner? How can we do this in a repetitive manner by
way of introducing automation to the process? How will potential changes in investment strategies affect cost
disclosure? Information gathering should involve robust processes to ensure full adherence to the PRIIPs KID
regulation.
A link to the update on PRIIPs KID draft regulatory technical standards can be found here.
2. SOLVENCY II
2.1 Less than one month to go before the Solvency II go-live date
The European Insurance industry, worth almost €8.4 trillion in value, will be counting down the days to the
Solvency II go-live date. As the time ticks down to the final deadline of 1 January 2016, the Prudential Regulation
Authority (PRA) has been busy approving internal models for some of the major insurance companies in the UK.
The internal models will allow these insurance firms to use their own methods to calculate the solvency capital
requirements the insurance firms must hold, in order to adhere to the Solvency II regulation.
Those insurance firms not utilising an internal model will, in turn, have to refer to the standard formula referenced in
the Solvency II regulation to calculate their capital requirements. The PRA will continue to closely monitor the
insurance industry in the UK throughout 2016, to ensure that capital requirements are met.

3. 3. European Market Infrastructure Regulation
3.1 New rules for interest rate swaps to take affect from June 2016
The European Market Infrastructure Regulation (EMIR) is the new European regulation on over-the-counter (OTC)
derivatives, central counterparties and trade repositories. The regulation is designed to increase the stability of the
OTC derivative markets throughout the EU member states and will require anyone who has entered into a
derivative contract to report and risk manage their derivative positions. The European Securities and Markets
Authority (ESMA) have issued a press release on December 2nd announcing that firms will have to centrally clear
certain classes of interest rate swaps starting from 21 June 2016.
The incoming clearing obligation will cover the following classes of OTC interest rate derivatives denominated in
the G4 currencies (EUR, GBP, JPY and USD):
 fixed-to-float interest rate swaps (also known as plain
vanilla);
 float-to-float swaps (also known as basis swaps);
 forward rate agreements; and
 overnight index swaps.
Steven Maijoor, ESMA Chair, said: “EMIR is a key component of the EU’s regulatory reform package in response
to the financial crisis affecting many elements of OTC derivatives markets. While its implementation is still
underway we recommend a number of changes, based on our experiences, to improve and streamline the
regulatory and supervisory framework and to ensure that the objectives of stability and investor protection are met.”
A link to the ESMA press release on EMIR can be found here.
4. Central Bank of Ireland - UCITS Rulebook Update
4.1 Extension of financial reporting requirements for management companies and depositaries
Last month the Central Bank of Ireland (CBI) released a new rules-based framework covering Irish-Domiciled
UCITS funds. Gerry Cross, Director of Policy and Risk, said: “The publication of the Central Bank UCITS
Regulations marks a significant milestone for the Central Bank. It is the first time that we have issued investment
fund rules in the form of Central Bank regulations. This will assist
investment fund providers by bringing additional clarity and certainty to the
rules applied by the Central Bank.”
One particular addition to the CBI UCITS framework is the extension of the
financial reporting requirements for UCITS funds. Currently UCITS
management companies and depositaries are required to submit half-yearly
management accounts covering the first six months of the financial year as
well as audited annual accounts.
There is now an additional requirement to produce a second set of half
yearly unaudited financial statements for the final six months of the financial
reporting period. During a recent consultation on UCITS issued by the CBI,
“We recommend a number of changes, based
on our experiences, to improve and streamline
the regulatory and supervisory framework and
to ensure that the objectives of stability and
investor protection are met.”
- Steven Maijoor, ESMA Chair
There is now an additional
requirement to produce a
second set of half yearly
unaudited financial statements
for the final six months of the
financial reporting period.

4. respondents were opposed to this additional financial reporting requirement, citing the increase in time and cost to
produce this additional semi-annual report. The CBI, however, has decided to press ahead with the requirement.
The main aim of the new requirement is to aid the Central Bank’s supervision of UCITS management companies
and depositaries by way of earlier receipt of accounting information.
A link to the Central Bank UCITS Regulations can be found here.
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For further information on European regulations, please contact our Regulatory Solutions Manager:
Patricia Myles, Tel +44 203 047 6562, Email: patricia.myles@rrd.com
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__________________________________________________________________________________________________________________
LONDON
John McCann
Tel +44 203 047 6187
john.p.mccann@rrd.com
DUBLIN
Robert McNamara
Tel +353 1 818 9971
robert.mcnamara@rrd.com
This regulatory update is for general information purposes only and RR Donnelley does not provide financial advice.