AIFMD and MiFID II

Impact on Asian Firms

Bovill CISI briefing 17 September

Rebecca Thorpe and Billie-Jo Dixon

Bovill guide to Euro-Speak….

2

MiFID Covers most things investment firms and markets

do, and is NOT anything to do with funds / AIFMD

EU / EEA Europe, basically

Member State Any country in Europe

Third Country Any country NOT in Europe

Third Country Firm An authorised investment firm, located Not in the EU

Branch Passport Can offer services in another country by establishing

a physical presence (and getting authorised)

Service Passport Can offer services in another country without having

to have a physical presence or get authorised. Good

times.

“Full harmonisation

could not be

reached….”

No one in the European countries could agree what

to do

AIFMD

Marketing funds in Europe

Billie-Jo Dixon

A snapshot

Then

- National private

placement rules

Now

- National private

placement rules

- Registration /

authorisation of funds in

each jurisdiction

- Annex IV reporting

- Disclosure requirements

The future?

- Marketing passport

extended to non-EEA

AIFMs?

- NPPRs disappear?

• A broad spectrum:

quick and straightforward > time-consuming and costly

• Cost-benefit analysis

• When marketing isn’t marketing

Tackle one country at a time

One country at a time?

DENMARK Pre-marketing Authorisation

FRANCE Pre-marketing; Authorisation

GERMANY Pre-marketing Authorisation

ITALY Pre-marketing Authorisation

SWEDEN Pre-marketing Authorisation

UK Pre-marketing Registration

Marketing traffic lights

Tread with caution

Three words on reverse solicitation

• ESMA’s one year deadline

• Call for evidence

• July advice

• Jersey and Guernsey are in

• Switzerland soon

• Hong Kong, Singapore and US not there

• Wait for more jurisdictions to join the party?

Will the passport reach Singapore?

• Marketing passport feels like a long way off

• NPPRs aren’t going away any time soon

Got to be in it to win it

Where does this leave Singapore firms?

MiFID II

Preparing for introduction

Rebecca Thorpe

MiFID I

“MIFID is a ground-breaking piece of

legislation. It will transform the landscape for

the trading of securities and introduce much

needed competition and efficiency.

…Last but not least, investors gain in terms

of greater choice and stronger protection.”

EU Commissioner Charlie McCreevy – 2007

MiFID II

"These new rules will improve the way capital

markets function to the benefit of the real

economy. They are a key step towards

establishing a safer, more open and more

responsible financial system."

EU Commissioner Michel Barnier – 2014

Outgrown MiFID I

11

Making markets more robust

12

MiFID II aims to:

make financial markets more robust and

efficient

take account of technological developments

since MiFID I

increase transparency of both equity and

non-equity markets

introduce a stricter framework for commodity

derivatives markets

reinforce supervisory powers

strengthen investor protection.

Understanding the levels of detail

13

Recast MiFID

MiFIR MiFID

II

Level 1 – Framework Legislation

Level 2 – Implementing Measures

Level 2.5 – Technical Standards

Level 3 – Regulatory Convergence

Level 4 – Enforcement of Directive

Delegated and Implementing Acts

Implementing Technical Standards and Regulatory Technical Standards

ESMA issue non-binding guidance on the meaning of the Levels 1 and 2

National regulators comply or explain

Enforcement action by EC for failure to implement/inconsistent implementation

MiFID II timeline

14

2014 2015 2016

Leg

isla

tio

n

Level One entry

into force

2.7.14

National

Transposition

Due 3/7/16

MiFID II

applies

3/1/17

ESMA Level Two

Advice to EC

19/12/14

RTS to EC

Due 03/07/15

ITS to EC

Due 3.1.16

FCA Discussion

Paper

26.3.15

FCA Consultation

Paper

Due 12.15

Level Two

published in OJ

due 3.1.16

you

are

here

What does it mean for Third Country Firms?

15

Branches

16

These requirements sit in the Directive, optional on Member

States

• Applies if a Third Country firm provides services to Retail

and / or Elective (opted up) Professional clients

• Triggers an authorisation requirement and significant

conditions imposed on Firms

• If Member State does not opt in, respective national

requirements apply instead (note: this applies for the UK)

Branches (retail and opted up professional)

17

Branch authorisation may

only be given by the Member

State’s regulator if:

Example: Singaporean Firm establishing

new Branch in Member State post Jan 2017

Firm authorised in own country in

respect of relevant services

Check: map MAS authorisation to

MiFID proposed services

Consideration given to FATF

recommendations

Results of FATF visit to Singapore

Nov / Dec 2015?

Co-operation arrangements exist Will MAS agreements with EU

member states be updated?

Sufficient capital Presumably. Not defined in MiFID.

Governance requirements of

MiFID II and the CRD IV met

Check: undertake governance

review

A tax sharing agreements exist Check: agreements in place

Firm belongs to an EU investor

compensation scheme

Application to be made

Branch Compliance

18

A long list of requirements under both the Directive and

Regulation will apply, once your branch is authorised

• Organisational requirements

• Conduct of business requirements

• Pre- and post- trade transparency

• Transaction reporting

Requirements will relate to all customers of the branch (not

just retail)

Passporting

19

These requirements sit in the Regulation (MiFIR) and so MUST

be implemented in Member States

• Applies if a Third Country firm provides services to Eligible

Counterparties and / or Per se Professional clients

• No need for a branch

• Not subject to supervision of an EU local regulator

• ONLY where such a firm is registered with ESMA

• ESMA will only register a Third Country firm when the

Commission has made a favourable equivalence decision

about that Third Country

Passport (Per se professional and ECPs)

20

ESMA will only register Third

Country Firms if:

Example: Singaporean Firm providing

cross border (passporting) services in to

a Member State post Jan 2017

Firm is authorised and subject to

effective supervision and

enforcement ensuring a full

compliance with the requirements

applicable in that third country

This has been a contentious

requirement – and may be

difficult for some to meet in

practice?

Prudential and business conduct

requirements in home third

country are equivalent to MiFID II

and CRD IV

See equivalence below

Co-operation arrangements exist Will MAS agreements with EU

member states be updated?

?

Equivalence

21

The prudential and business conduct framework of a third

country may be considered equivalent if their firms are:

• Subject to authorisation, effective supervision and enforcement

• Subject to sufficient capital requirements

• Bound by organisational requirements / internal controls

• Governed by conduct of business rules

• Preventing market abuse and enabling Market Transparency

Equivalence: European Commission assesses

Singapore Government regulatory framework

Co-operation Agreements: between ESMA and

MAS

Different approach for different client types

Targeting Retail or Elective Professional?

Set up branch if member state has adopted this approach

OR

use the national rules of relevant member state instead

Targeting Per se Professional or ECPs?

Can passport (no branch required)

(can set up a branch if you desire, in which case national rules of relevant member state apply)

22

Putting these ideas together…

23

If you wish to passport into other member states from your

established MiFID authorised branch in the EU….

• You can passport into other countries (under MiFIR) without the

need for a presence and separate authorisation in each state,

BUT

• Applies ONLY to wholesale clients (Eligible Counterparties

and / or Per se Professional clients)

• For retail and / or elective professional clients, you will have

to apply for separate authorisation in each member state OR

comply with the local regime

Reverse solicitation

24

• Warning! Not a ‘back door’ route for avoiding authorisation

• Very narrow

• Client must initiate at own exclusive initiative

• Does not entitle the firm to market to that client

Opportunities / benefits?

25

“third country firms should see this as a positive step forward as it

reduces divergences across Member States and therefore the legal

and regulatory costs for third-country operators” EU Commission

• Third country firms can enjoy the right to ‘passport’ in the

same way that EU firms can* (*conditions apply)

• If passporting under MiFIR, can be guaranteed of the same

requirements being applied in each and every member state:

the benefits of MAXIMUM HARMONISATION

Questions?

26

Questions: What is in MiFID II?

27

MiFID (Directive)

Scope – Exemptions and Definitions

Authorisation

Corporate Governance

Conflicts of Interest

Inducements and Commissions

Client Categorisation

Product Governance

Best Execution

Algorithmic Trading

Passporting

Third Country Firms – Branch

MiFIR (Regulation)

Third Country Firms – Cross Border

Pre and Post Trade Transparency

Trading Obligations

Consolidated Tape

Transaction Reporting

Product Intervention