AMAC Annual Conference, 16 June 2014 Beijing Diaoyutai State Guest House

1. The Development of Regulation on Europe Asset Management Industry and Current Industry SituationPeter De Proft, Director General, EFAMA AMAC Annual Conference, 16 June 2014 Beijing Diaoyutai State Guest House

2. "EFAMA Land" 27 Countries: 23 EU Members, and Liechtenstein Norway Switzerland Turkey 62 CorporateMembers 25 AssociateMembers = Investment Management: EUR 15 trillion of which EUR 9.8 trillion through over 55,000 investmentfunds (end December 2013) AMAC Annual Conference 2014

3. Political Message at EU Level • In the wake of the financial crisis, clear message from the political level: self-regulation is not considered to work, better regulation is necessary to avoid a new crisis (or contain it) • Aim: more efficient monitoring of systemic risks and better investor protection • EU Commissioner Barnier for Internal Market agenda: Implementation of G20 Proposals – challenge is international coordination AMAC Annual Conference 2014

4. Political Message at EU Level • Perception of investment management industry among many policymakers is unclear/ unhelpful: no difference made to investment banking, seen as short-termist speculators etc. • As an industry we need to aim to change this perception by explaining how we connect to the real economy. Efforts need to be based on the impact on end investors and the real economy. • The European Union and its institutions have a critical/negative perception in many Member States. Single European Market is key to our industry, we have to support and defend it. • The European economy is in deep trouble which with the resulting social problems is the main issue for the policymakers for years to come. The investment management industry has to prove it is part of the solution for the financing gap left by banks, and not an additional problem. • The investment management industry must have an increased focus on governance issues. AMAC Annual Conference 2014

5. There is an unprecedented wave of regulatory initiatives affecting the asset management industry Regulatory initiatives at European level Initiatives targeting specifically the European AM industry Initiatives targeting financial institutions, comprising the European AM industry Initiatives not targeting the AM industry but having spill-over effects • UCITS IV • UCITS V • UCITS VI • ETFs • Money Market Funds • AIFMD • Venture Capital Funds • Social Entrepreneurship Funds • Long-term investment funds • PRIPs • MiFID review • ICSD • Shadow banking • EMIR • EU Supervisory structure • Short selling • Financial Transaction Tax • Corporate Governance • Banking Union • Recovery and resolution • Liikanen report • Basel III • Solvency II • IMD review • Revision of IORP • White Paper on pensions • Credit rating agencies • SLD • Audit review • FATCA (US) • Dodd Frank (US) • Volcker Rule (US) • European national initiatives to • Ban inducements (e.g. UK, NL) • Ban complex products (e.g. Belgium) AMAC Annual Conference 2014

6. EFAMA’s “Partners in Dialogue” - Europe EU Commission esp. InternalMarket DG EFAMA EU Parliament esp. Committee on Economic and Monetary Affairs (ECON) EU Council ESMA and itsStakeholder Group Permanent Representations of EU Member States AMAC Annual Conference 2014

7. EFAMA’s International “Partners in Dialogue” FSB/ ESRB AMAC IOSCO US Treasury EFAMA IRS SEC CFTC IIFA National Regulators AMAC Annual Conference 2014

8. The Development of Regulation on Europe Asset Management Industry and Current Industry SituationA Regulatory Update AMAC Annual Conference, 16 June 2014 Beijing Diaoyutai State Guest House

9. Agenda • UCITS V • PRIIPs • MiFID II • Money Market Funds • FSB/IOSCO Consultation on G-SIFI’s • Pension and long-term savings • European Long Term Investment Funds – ELTIFs AMAC Annual Conference 2014

10. UCITS V AMAC Annual Conference 2014

11. UCITS V – Timeline AMAC Annual Conference 2014

12. UCITS V – Remuneration • Categories of staff • Definition of categories of staff subject to remuneration principles broadly in line with AIFMD Level 1 text • ESMA given a specific mandate to issue guidelines on the categories of staff that fall within the scope of the Level 1 definition • Applicability of the remuneration principles to third parties delegates and to advisors? (Recital 2: “(…). These policies and practices should apply, in a proportionate manner, to any third party which takes investment decisions that affect the risk profile of the UCITS because of functions which have been delegated in accordance with Article 13”) AMAC Annual Conference 2014

13. UCITS V – Remuneration (cont’d) • At least 50% of variable remuneration to be paid in units of UCITS or equivalent non-cash instruments • Percentage of variable remuneration to be deferred: at least 40% (or 60% in case of particularly high amount) • Deferral period: to be aligned on holding period recommended to investors (at least 3 years) • Disclosures on remuneration policies: KIID will have to include a statement with cross-reference to a website where details of the remuneration policy are available AMAC Annual Conference 2014

14. UCITS V – Depositaries • Eligible depositaries: consensus on Council’s original text (EFAMA’s preferred option) with addition of National central banks • Re-use of assets by the depositary: additional conditions apply (e.g. in case of securities lending) • Sub-custodian insolvency: depositaries must take all necessary steps to ensure that assets of the UCITS are unavailable for distribution among or realization for the benefit of the third party AMAC Annual Conference 2014

15. UCITS V – Other issues • Administrative vs. criminal sanctions: Member States not required to lay down rules on administrative sanctions for infringements to the directive (already) subject to national criminal law • Interaction between EMIR and UCITS counterparty limits for derivatives: mandate to the Commission (as part of its overall review of the functioning of the UCITS Directive) to review counterparty exposure limits applicable to derivative transactions, taking into account EMIR AMAC Annual Conference 2014

16. UCITS V – implementing measures • The Commission shall adopt delegated acts specifying: • Particulars to be included in the depositary agreement • Conditions for performing the depositary functions, including: • type of instruments included in scope of custody • conditions to exercise custody duties over financial instruments registered with a CSD • Conditions to safekeep financial instruments • Due-diligence duties of the depositary • Segregation obligation • Steps to be taken in case of delegation of custody function to a sub-custodian • Conditions under which financial instruments are considered lost • Definition of external events beyond reasonable control • Conditions for fulfilling the independance requirement AMAC Annual Conference 2014

17. UCITS V – implementing measures • ESMA shall develop draft technical standards to determine the procedures and forms to be used by Member States for submitting information on penalties and other measures imposed • ESMA shall issue guidelines on remuneration principles, including specifications on: • Categories of staff in scope • How different sectoral remuneration principles are to be applied where employees perform services subject to different sectoral remuneration principles AMAC Annual Conference 2014

18. PRIIPs AMAC Annual Conference 2014

19. PRIIPs– Timeline What could we expect going forward? 2014 2015 2016 Trilogue Phase Possible consultation period for the Level 2 implementing measures • Estimated period for: • Consultation for Level II implementing measures • Implementation of the PRIIPs Regulation January Trialogue meeting 15 April PRIIPs adopted in Plenary Autumn Most likely date of entry into force Autumn Most likely publication of the Regulation AMAC Annual Conference 2014

20. Scope – adopted in Plenary on 15 April 2014 Definitions: • 'packaged retail investment product' or ‘PRIP’ means an investment, including instruments issued by SPVs as referred to in Article 14 (26) of the Directive 2009/138/EC Article 4(an) of the Directive 2011/61/EU, where, regardless of the legal form of the investment, the amount repayable to the investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the investor; • "insurance-based investment product" means an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations; Out of scope: • pension products which, under national law, are recognized as having the primary purpose of providing the investor with an income in retirement, and which entitle the investor to certain benefits; • officially recognized occupational pension schemes falling under the scope of Directive 2003/41/EC or Directive 2009/138/EC; • individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider. AMAC Annual Conference 2014

21. “Comprehension Alert” replacing “Complexity Label” • At the beginning of the document, the KID shall contain the following information: "Where applicable, a comprehension alert:"You are about to purchase a product that is not simple and may be difficult to understand." Recital 12a: A product should be regarded as not being simple and difficult to understand especially if it displays one of the following characteristics: • it invests in underlying assets that are not commonly invested in by retail investors; • it uses a number of different mechanisms to calculate the final return of the investment, creating a greater risk of misunderstanding on the part of the retail investor; • the investment's pay-off takes advantage of retail investor's behavioral biases, such as a teaser rate followed by a much higher floating conditional rate, or an iterative formula". AMAC Annual Conference 2014

22. Costs disclosure • “What are the costs?” The costs associated with an investment in the PRIIP, comprising both direct and indirect costs to be borne by the investor, including one-off and recurring costs, presented by means of summary indicators of these costs, and, to ensure comparability, total aggregate costs expressed in monetary and percentage terms, to show the compound effects of the total costs on the investment; Distribution costs The KID shall include a clear indication that advisors, distributors or any other person advising on or selling the PRIIP willprovide information detailing any cost of distribution that is not already included in the costs specified above, so as to enable the retail investor to understand the cumulative effect that these aggregate costs have on the return of the investment. AMAC Annual Conference 2014

23. Next steps • Due to an extensive legal and linguist review, the Regulation will not be published in the official journal until the autumn. The Regulation could therefore be applicable as of Q3-2016. • ESMA Level II implementing measures/RTS • Article 8 par. 5 • Details of the presentation and the content of each of the elements of information referred to in paragraph 3 (content of the KID) • Methodology underpinning the presentation of the risk and reward indicator • Methodology for calculation of costs, including the specification of summary indicators • Article 10: revision of the KID • Article 12: provision of the KID • Commission delegated acts: • Article 8 par. 4: details of the procedures used to establish whether a PRIIP targets specific environmental or social objectives (EFAMA's Responsible Investment WG will consider this and feedback provided to this WG for inclusion in EFAMA's overall position) AMAC Annual Conference 2014

24. MiFID II AMAC Annual Conference 2014

25. MiFID II – Timeline What could we expect going forward? 2014 2015 2016 Trilogue Phase Revision period by EU Commission Consultation period for Level II Objection period for EU Parliament & Council 14 January Trialogue meeting December ESMA should provide Advice for the Delegated Acts to EU Commission January Target entry into force 15 April MiFID II adopted in Plenary June Most likely date of transposition and publication by Member States June Most likely publication of the Directive/Regulation June EU Commission should adopt the Level II Note: Deadline for responding to the consultations could be set before the end of this summer. AMAC Annual Conference 2014

26. MiFID II – Investor protection What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • Fair, clear and not misleading information (Article 24(2)) • Previously in MiFID I Level 2, Article 27 “Conditions with which information must comply in order to be fair clear and not misleading”, applied only to retail or potential retail clients. • What could ESMA propose? • ESMA considers some amendments to strengthen these conditions both for retail and for professional clients. • Information provided to retail clients should be consistently presented in the same language throughout all forms of information and marketing material that is provided to retail clients • Indication of any relevant risks where potential benefits are referenced => fair and balanced presentation of the trade-off between risks and benefits • Information up to date • Use of font size for indications and explanations of risks or warnings => at least equal to the predominant font size used throughout the document • Simulated future performance => based on performance scenarios in different market conditions AMAC Annual Conference 2014

27. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • Requirements on information addressed to and to beprovided to clients (Article 24(3)) • MiFID II Level 1 requires that when investment advice is provided the firm must indicate to the client: • Whether the advice is provided on an independent basis or not • Whether the advice is based on a broad or restricted analysis of different types of instruments, and in particular whether the range is limited to financial instruments issued or provided by entities having close links • If it will provide the client with the periodic assessment of the suitability of the financial instruments recommended to clients • The banning of the retention of inducements by the firm is one of the features that distinguish independent advice from non-independent advice. Appropriate information about costs and inducements should be provided before the service commences AMAC Annual Conference 2014

28. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • What could ESMA propose? • Independent advice vs. non-independent advice • If it is non-independent and limited due to the limitations imposed by its relationship with third parties or itself. Firms should: • Explain in a clear and concise way why investment advice couldn’t be qualified as independent and the type of boundaries or nature of their restrictions that apply in each case. • Where both types of advice are provided, firms should explain the scope of both services to allow investors to understand them by specifying the type or category of products over which the service will be provided • Explaining the range of products: • A description of the type of the products, the number of products and providers included in each type of product analysed according to the scope of the service and when applicable, how this satisfies the independent advice definition • The basis for the firms analysis in the selection process of the product recommended (e.g. costs, complexity, risk profile etc.) should also be provided • Clear distinction between firms own products or products from linked entities from other products AMAC Annual Conference 2014

29. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • Investmentadvice on independent basis (Article 24(3) and (5)(a)) • Sufficiently large number of financial instruments/investment products available on the market • What could ESMA propose? • An investment firm shall have considered a sufficiently large number of financial instruments/investment product if the selection process consists of all of the following elements: • A diversified selection of financial instruments by type, issuers or product providers which is not limited to financial instruments issued or provided by the advisor itself or by entities having close links with the investment firms; • The amount of financial instruments considered is proportionate to the scope of advice services offered by the independent investment advisor; • The amount of financial instruments considered comprises a substantial part of financial instruments and/or investment products available on the market. • If such a comparison would not be possible because of the business model or the specific scope of the service provided, the advisor will not be allowed to claim itself as “independent”. AMAC Annual Conference 2014

30. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • What could ESMA propose? • If an investment firm chooses to provide both “independent” and “restricted” advice, it should: • In good time, before the provision of its services, disclose in writing information to retail clients whether the advice will be independent or non-independent. The disclosure must clearly explain the different nature of the service; • Not hold itself out as “independent” for its business as a whole. However, a firm may hold itself out as acting independently in respect of its services for which it provides independent advice; • Have adequate organisational requirements and controls in place to ensure that both types of advice services and advisors are clearly separated from each other.. AMAC Annual Conference 2014

31. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • Inducements (Article 24(1), (5)(b) and (6)) • Ban on inducement for independent advice and discretionary portfolio management. • What could ESMA propose? • Independent investment advisors and portfolio managers should return to clients any monetary third party payments received in relation to the services provided to that client as soon as possible after receipt by transferring the monies received to the client money account. However, no specific timeframe should be imposed but as soon as reasonably possible. • Quality enhancement: ESMA could propose to introduce a non-exhaustive list of circumstances and situations that National Competent Authorities may consider in determining whether there is no quality enhancement. • Inducements may not generally be regarded as designed to enhance the quality of the relevant service to the client if: • It covers the costs of activities undertaken by the recipient firm which are essential in its ordinary course of business; • It does not provide for an additional or higher quality service above the regulatory requirements provided to the end client; • It directly benefits the recipient firm, its shareholders or employees without tangible benefit or value to its end user client; or • In relation to an ongoing inducement, it is not related to the provision of an ongoing service to an end user client. AMAC Annual Conference 2014

32. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • Product design • Identification of consumer target market. • What could ESMA propose? • When designing products, the firm shall identify the potential target market for each product and be able to specify the type (s) of client for whose needs, characteristics and objectives the product is compatible. • As part of the process, the firm should identify any groups of investors for whose needs, characteristics and objectives the product is not compatible. AMAC Annual Conference 2014

33. MiFID II – Investor protection (cont’d) What could we expect from ESMA consultation for the Level II? Note: This information is based on a draft consultation paper from ESMA concerning investor protection matters and further changes could be made. • Requirements on information about costs and charges (Article 24(3)) • Aricle 33 of the existing Implementing directive applies to retail clients only. • What could ESMA propose? • Information on costs and associated charges should also be made available to professional clients and eligible counterparties upon their request • No clear indication at this stage – further technical work needs to be undertaken AMAC Annual Conference 2014

34. MiFID II – Capital Markets • Market structure • no OTF for equities, • trading obligation only for shares and derivatives (not for bonds) • proprietary trading allowed on OTF only and restricted to illiquid sovereign debt • restrictive matched principal trading for all bonds & derivatives not subject to the clearing obligation • Trade transparency • for equities: double volume cap mechanism combined with a strict price improvement for the use of the reference price waiver • for non-equities: voice and RFQ waivers kept • HFT • Best execution algorithms are fully exempted of the scope • Specific burdens, stricter than the ones for algorithmic trading are imposed on HFT AMAC Annual Conference 2014

35. Money Market Funds AMAC Annual Conference 2014

36. MMFs: Next steps • Given that the MMF file will now pass onto the next Parliament, it is unlikely that the new ECON committee will debate this file before November/December 2014, given that the composition/chairmanship of the EP groups will need to be agreed. Rapporteurs (and shadows) will also have to be designated. • In the meantime, the SEC proposal on US MMFs, which is expected in the coming months, will influence the direction of the debate going forward. • If the SEC proposes that US prime institutional MMFs should adopt a floating NAV, a number of MEPs would certainly propose to adopt the same solution in Europe. • On the other hand, if the SEC would agree that liquidity fees and gates offer enough safeguard to protect CNAVs, the same solution could also be adopted in Europe. AMAC Annual Conference 2014

37. FSB/IOSCO Consultation on G-SIFI’s AMAC Annual Conference 2014

38. Relevance of the Consultation for our industry • This Consultation Paper is of particular relevance for asset managers and investment funds as it seeks to develop methodologies enabling regulators to identify Financial Institutions, other than Banks or Insurance companies that are of global systemic relevance. • These methodologies would apply to Finance Companies and Market Intermediaries but also to investment Funds provided that they reach certain materiality criteria ($ 100 billion in net AUM for individual investment funds – $ 400-600 billion GNE for hedge funds). • Importantly also, the Consultation Paper does not rule out the possibility that asset managers themselves or ‘families of fund’ might be regarded as systemically important. AMAC Annual Conference 2014

39. EFAMA reply to the Consultation • EFAMA welcomes recognition of the specificities of the business model of asset managers and investment funds • Because of their agency business model, asset managers are not a source of systemic risk. We therefore welcome the fact that the consultation puts the focus on investment funds as a more meaningful unit of analysis rather than on asset managers themselves. • Regulated investment funds, such as UCITS or AIFs in Europe, should not be considered systemically important. • Size alone is not an appropriate criterion to assess the systemic relevance of investment funds. A better indicator would be the scale of activities of a fund (which is a reflection of its size and level of leverage). More work to be done on how to calibrate and articulate these size and leverage factors in the most effective manner • Level playing field: materiality thresholds – once defined at a global level – should be applied in the same manner in all. AMAC Annual Conference 2014

40. Pension & Long-Term Savings AMAC Annual Conference 2014

41. EIOPA workflow on PPP • The Task Force on Personal Pensions (TFPP) was established in January 2013 to provide input to the Commission’s policymaking with regards to personal pension products (PPP). • As a first step, the task force published an interim report in February 2014 to the Commission, identifying issues involved in developing prudential and consumer protection frameworks for cross-border personal pension provision and outlining options for dealing with them. The report also considered a possible structure and content of common EU rules in this area. • On 15 April 2014 EIOPA organized a public event on Personal Pensions in Slovakia, with the participation of Peter De Proft.The event aimed to discuss opportunities for creating a single market for personal pensions in the European Union. • EIOPA expects to receive a detailed Call for Advice from the Commission before of after summer. AMAC Annual Conference 2014

42. European Long-Term Investment Funds (ELTIFs) Key Elements of the Commission’s Proposal dated of 26 June 2013 AMAC Annual Conference 2014

43. ELTIFs – General Provisions • Regulation – no scope for ‘gold-plating’ • ELTIF framework builds on AIFMD: • Only EU AIFs are eligible for authorisation as ELTIF • ELTIF to be managed only by EU AIFM • ELTIF and its manager must comply at all times with AIFMD requirements • Use of ELTIF Label protected AMAC Annual Conference 2014

44. ELTIFs – Eligible assets • ELTIF shall only invest in the following two categories of assets: • Eligible investment assets (as defined by Art 9 of draft ELTIF regulation) • UCITS eligible assets (article 50.1 of Directive 2009/65) AMAC Annual Conference 2014

45. ELTIFs – Diversification rules • At least 70% of capital to be invested in eligible long-term assets • Max. 10% exposure to any single qualifying portfolio undertaking (possible derogation to 20% if sum of positions > 10% does not exceed 40% in total) • Max. 10% investment in any single ELTIF, EuVECA or EuSEF (aggregate value of investments in these products = max 20% of capital) • Max. 5% investment in other eligible assets issued by a single body • Max. 5% global exposure stemming from OTC derivatives or reverse repo agreements AMAC Annual Conference 2014

46. ELTIFs – Other rules re. portfolio composition • The Draft regulation also contains additional rules on: • Concentration limits (similar to UCITS) • Borrowing of cash (max. 30% and only for specific purposes) • Application in time of portfolio composition and diversification rules AMAC Annual Conference 2014

47. ELTIFs – Redemption policy • No possibility for investors to ask for redemption of their shares before the end of life of the ELTIF (closed funds) • Life of ELTIF to be sufficient in length to cover life-cycle of each individual assets of the ELTIF, measured according to illiquidity profile and economic life-cycle of the asset and the stated long-term investment objective of the ELTIF AMAC Annual Conference 2014

48. The Development of Regulation on Europe Asset Management Industry and Current Industry SituationRecent developments in the European Investment Fund Industry – industry data AMAC Annual Conference, 16 June 2014 Beijing Diaoyutai State Guest House

49. Trends over the past 10 years 4% growth recorded in Q1 2014 9% increase in net assets in 2013 Total investment fund assets increased 110% over past 10 years and 64% since end 2008 AMAC Annual Conference 2014

50. Trends in the UCITS Market in 2013 Equity funds were the big winner in 2013 as net assets grew 21% during the year. Bond funds recorded a modest increase (5%). Money market funds continue to suffer in a low interest rate environment. AMAC Annual Conference 2014