The revamped MiFID and EUVECA frameworks

I. A more transparent procedure for the prudential assessment of the acquisition of a qualifying holding in an investment firm

Completing the MiFID framework, the Commission Delegated Regulation (EU) 2017/1946 supplementing Directives 2004/39/EC and 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for an exhaustive list of information to be included by proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm was published on 26 October 2017 (the “Delegated Regulation”).

The Delegated Regulation complements the CSSF circular n°17/669 issued on 28 September 2017 (the “Circular”) adopting the ESMA, EBA and EIOPA joint guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector dated 20 December 2016 (the “Guidelines”).

The Circular, the Guidelines and the Delegated Regulation (the “New Regulations”) set new rules for the prudential assessment of a direct or indirect holding in a financial institution which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking.

The New Regulations define a clear and transparent procedure for the prudential assessment by the competent financial authorities and harmonise the conditions under which the proposed acquirer is required to notify its decision.

The Delegated Regulation entered into force on 15 November 2017.

II. A new boost for the venture capital market

On 10 November 2017, the Regulation (EU) 2017/1991 of the European Parliament and of the Council of 25 October 2017 amending Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds was published (the “Regulation”).
The EU had created both investment structures, the EU venture capital and social impact investment funds (the “EuVECA” and the “EuSEF”), in order to foster private investment in SMEs.

As the use of both EuVECA and EuSEF labels has been deemed insufficient, the Regulation aims at a broader fund market acceptance of them.

The main changes can be summarized as follows:

  • An alternative investment fund manager (“AIFM”) should now be allowed to directly manage EuVECA and EuSEF with its AIFM authorisation.
  • The range of eligible undertakings in which EuVECA can invest should be expanded (the definition of qualifying portfolio undertakings should therefore include companies with up to 499 employees not admitted to trading on a regulated market or on a multilateral trading facility, and SMEs listed on SME growth markets).
  • Appropriate and proportionate own funds requirements for EuVECA and EuSEF should be set and based on harmonised criteria:
  • initial capital of EUR 50,000;
  • own funds shall, at all times amount to at least one eighth of the fixed overheads incurred by the manager in the preceding year;
  • where the value of the EuVECA or the EuSEF managed by the manager exceeds EUR 250,000,000, the manager shall provide an additional amount of own funds. That additional amount shall be equal to 0.02 % of the amount by which the total value of the qualifying venture capital funds exceeds EUR 250,000,000.

The Regulation shall apply from 1 March 2018.

By increasing the attractiveness of these structures, the EU could stimulate the venture capital market across Europe and investors in Luxembourg, as a prime investment location, could take advantage of this new opportunity.

In collaboration with:

Marion Chausseray, Trainee, marion.chausseray(at)luther-lawfirm.com