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Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry. Listen to this week's Legal Shorts on CLTV by going to http://vimeo.com/cummingslaw
If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.
Claire Cummings
020 7585 1406
[email protected] www.cummingslaw.com
IFMD: AIFM full-scope applications
The FCA has amended its updated AIFMD webpage to clarify the timeframe for deferred determination of AIFM full-scope applications. The FCA updated its webpage on 11 October to clarify the timeframe for full-scope applications for authorisation or VoPs for AIFMs. It has now revised the wording regarding deferral requests by removing the following wording from the update: "A deferral request, made during the transitional period, should not extend beyond six months from the submission of the complete application". The wording has been replaced with an explanation that applicants "seeking to defer determination beyond the 3 month statutory time limit may request an authorisation date as late as 21 July 2014 (even if that date is more than 6 months after the date of submitting a completed application)". The remainder of the updated webpage remains unchanged from that reported in last week’s Legal Shorts.
AIFMD: MoU table published
ESMA has published a table showing the state of play of AIFMD MoUs signed by EU national supervisors with non-EU regulators worldwide. The AIFMD MoUs are co-operation agreements that allow the exchange of information between EU and non-EU supervisors, enabling non-EU fund managers to market alternative funds within the EU. According to the table,
the FCA has entered into MoUs with all non-EU regulators listed in the table.
HM Treasury financial services review
HM Treasury has published a call for evidence on the balance of competences between the UK and the EU on financial services and the free movement of capital. Competence in this context means everything deriving from EU law that affects what happens in the UK. The review is broken down into a series of reports on specific areas of EU competence and HM Treasury is leading the review of financial services and the free movement of capital. The call for evidence focuses on key themes including the approach to harmonisation of financial services rules, institutional integration and the shift towards regional supervision, the challenges in the policy-making process, and the deepening of markets as a result of EU legislation on the free movement of capital. The call for evidence runs until 17 January 2014.
FCA: CRD IV bonus cap
In its second consultation paper (CP13/12) published last week, the FCA sets out, amongst other things, its proposed approach to implementation of the bonus cap. The proposed FCA guidance creates, in practice, a presumption that all FCA prudentially regulated investment firms will be able to disapply the bonus cap. The FCA consultation does state that the FCA will reserve power to apply the bonus cap to the more significant investment firms, on the basis of individual guidance, and that the FCA may require firms to provide justification for their disapplication of the bonus cap. CP13/12 does not, however, deal with how the bonus cap will apply in practice, so many of the key outstanding issues remain unresolved. The cap is being implemented in the UK against the backdrop of the UK’s legal challenge against the bonus cap and will be implemented pending the outcome.
CRD IV
The European Banking Authority has updated its webpage regarding responses it has received to its July consultation on draft RTS on the definition of materiality thresholds for specific risk in the trading book. The draft RTS set out criteria for assessing when the specific risk of debt instruments in the trading book (considered both at a solo and a consolidated level) is sufficiently material to trigger an evaluation by the competent authority. After an evaluation, competent authorities will be able to determine whether they should encourage banks to enhance their internal assessment capacity and increase the use of internal models for capital calculations. Responses include those received from ISDA and the
Association for Financial Markets in Europe (AFME). The EBA is expected to submit the draft RTS to the European Commission for endorsement by 1 January 2014.
EMIR ESMA is consulting on procedural rules for the exercise of its power to impose fines and periodic penalty payments on trade repositories. The consultation paper sets out ESMA's preferred options for the rules, which include the following: (i) a reasonable time limit for written submissions; (ii) procedures regarding access to files by the persons subject to investigation, and the protection of confidential information affecting third parties; (iii) documents to be submitted; (iv) limitation periods for the imposition or enforcement of penalties; and (v) methods for collecting fines or periodic penalty payments. ESMA considers that a panel or committee should be appointed to carry out particular steps of the procedure, considering this to achieve a more effective process. Comments are invited by 15 November 2013. ESMA has also updated its Q&As on the implementation of EMIR, which were last updated in August 2013.
LIBOR re-fixing BBA LIBOR Ltd (BBALL) and the Interim LIBOR Oversight Committee (ILOC) have published a joint consultation paper on the proposed introduction of intraday re-fixing for LIBOR. Re-fixing allows the administrator of a financial benchmark to take account of late submissions or calculation errors that it may have been notified to it after the initial fixing of the daily rate. In the case of intraday re-fixing, the re-fixed value is published several hours later that same day. The consultation paper analyses what LIBOR re-fixing would entail and seeks views on its introduction. The consultation closes on 30 November 2013. Meanwhile, the CEO of ISDA has said that moving away from LIBOR as a benchmark in OTC derivatives transactions would be difficult because of pervasiveness of the rate and a lack of better alternatives.
FATF summary
FATF has published a summary of its plenary meeting held in Paris from 16 to 18 October 2013. At the meeting, among other things, FATF published the following documents as part of the FATF's ongoing work to identify jurisdictions that may pose a risk to the international financial system: (i) a public statement on jurisdictions with strategic anti-money laundering (AML) and combating the financing of terrorism (CFT) deficiencies; and (ii) a document listing those jurisdictions with strategic AML/CFT deficiencies for which an action plan has been developed with FATF. It also approved
and published a best practices paper on the use of the FATF recommendations to combat corruption, which aims to provide policy makers and practitioners with guidance and best practices on how AML/CFT measures can be used to combat corruption.
IOSCO second hedge fund survey
IOSCO has published the findings of its second hedge fund survey, which provides an overview of the hedge fund industry as of September 2012. The report covers: (i) qualifying funds, noting that hedge fund managers and advisers are predominately located in the US and the UK; (ii) investment strategy, and the report indicates that the single most represented strategy among active funds is equity-oriented, with macro-oriented and multi-strategy funds also being significant; (iii) use of leverage and market exposure; and (iv) liquidity risk, where the survey suggests that under current market conditions, few funds actually need to restrict investor liquidity. IOSCO will continue to promote the collection of comparable hedge fund data among regulators with the aim of creating an internationally consistent approach. Data collection for the next survey will begin in September 2014.
Review of fiduciary duties of investment firms
The Law Commission has published a consultation paper on fiduciary duties of investment intermediaries. The Law Commission is of the view that the law of fiduciary duties that applies to trustees, investment managers, brokers and custodians is flexible but uncertain. The Law Commission does not think that it is desirable to reform the fiduciary law by statute, because this could create new uncertainties and have unintended consequences, but that one possibility is to extend the right to sue for breach of FCA rules. Discussions have emphasised the centrality of FCA regulation and the Law Commission does suggest that some issues can only be addressed through FCA regulation. In particular, the consultation asks if there is a need to review the regulation of investment consultants and custodians. The consultation closes on 22 January 2014.
GUEST SHORTS
This week Gary Pitts, managing partner of Tetractys Partners LLP, a compliance and corporate governance consultancy, updates us on the FCA’s enforcement powers, as follows: “On 15th October, Policy Statement 13/9 of the Financial Conduct Authority took effect. This gives the FCA the power to publish warning notices issued after this date to firms and individuals that they are the subject of
enforcement action, before the enforcement action has concluded and any sanctions decided. While this aligns the practices of the regulatory regime with the criminal and civil regimes, it raises the stakes for firms that could previously rely on anonymity until the merits of the enforcement action had been finally determined. While the FCA states in PS 13/9 that it has the discretion, rather than a duty, to publish, the new section 6.7E (1) states that the FCA “expects normally to consider it appropriate to publish.” The Rules set a high bar for firms and individuals to demonstrate that publication is “unfair” and there is a lot of room for FCA discretion. For managers and their key personnel, this makes proper handling of such issues with key investors and fund boards critical to preventing the early exit of key assets, leading perhaps to the closure of the manager itself, even if ultimately the manager is exonerated.” If you would like to discuss the above or any other compliance matters, please contact Gary on +44 (0) 7795 830 636 or [email protected] or visit Tetractys Partners LLP’s LinkedIn page.
We have taken great care to ensure the accuracy of this version of Legal Shorts. However, Legal Shorts is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
25 October 2013
