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 claire.cummings@cummingslaw.com www.cummingslaw.com

AIFMD allows passporting of MiFID services The FCA has explained that an amendment to the AIFMD will make it explicit that an AIFM's right to passport AIFM services into other Member States will include services that it is authorised to provide in its home Member State under Article 6(4) of the AIFMD i.e. MiFID services, such as investment advice, safekeeping of certain investments and reception and transmission of orders. The AIFMD provides the mechanism to allow this, explaining that the AIFM may request its home state regulator to issue a notification to the relevant host state regulator to that effect. In June 2013, the FCA published a statement explaining that the European Commission did not share its view that a passport exists for MiFID services under the AIFMD. The FCA warns that some Member States may have already implemented into their national law the original view of the EC, in which case it is likely to take them some time to change the law and begin accepting the passporting of MiFID services, but that the Commission's revised view is that a notification for a full-scope UK AIFM to provide MiFID services in another Member State should be accepted by the host Member State regulator.

EMIR The FCA has published two factsheets relating to EMIR. The first factsheet concerns those counterparties needing to comply with EMIR reporting obligations. The FCA carried out a review on reporting obligations and has discussed its findings with counterparties, who are preparing for the start of reporting on 12 February 2014. Most firms will be reporting their derivative contracts from this start date, although there are some concerns surrounding reporting channels and backloading. The second factsheet is for non-financial counterparties (NCPs) calculating the clearing threshold and which are part of a group with entities that are financial counterparties. The factsheet sets out the FCA's findings from an additional review on how NFCs are defining their hedging activity and monitoring their status against the clearing threshold.

ESMA updates EMIR Q&As ESMA has published an updated version of its Q&As on the implementation of EMIR. The updated Q&As clarify, among other things, issues relating to reporting derivatives trades to trade repositories (TRs) (such as how to construct and generate unique trade identifiers (UTI), reporting empty or unavailable fields and the unique product identifier (UPI) taxonomy). Other areas updated relate to OTC derivatives and central counterparty (CCP) requirements. ESMA comments in an accompanying press release that it appreciates that both reporting firms and TRs will need a certain amount of time to properly incorporate the new guidance. The Q&As were originally published in March 2013 and were last updated in December 2013.

FCA reports findings on thematic review The FCA has published a report and related press release setting out the findings of its thematic review into transition management (TM) services in the UK. TM is a service provided by firms, such as investment banks, custody banks, asset managers or specialist firms, to clients to support structural change to asset portfolios, with the aim of managing risk and increasing portfolio returns. In view of concerns about standards across the TM sector, notably in relation to alleged overcharging and a failure to manage conflicts of interest, the FCA carried out the review to explore the size of the sector and the business models operating within it. The FCA also considered levels of oversight, governance and controls at TM providers. In broad terms, the FCA found that TM providers demonstrated the existence of appropriate controls and an understanding of the risks, but that the quality and effectiveness of controls, marketing materials, governance and transparency varied. The FCA will keep firms' conduct under review and continue to apply regulatory sanctions if firms fall short of its

requirements.

FCA reminder on best execution The FCA has published issue 45 of Market Watch, which, among other things includes a reminder to firms of their duties under the FCA rules. Specifically, the FCA is concerned that brokers in certain markets, including regulated contract for differences (CFD) and spread-bet firms and those offering rolling spot forex CFD, may be failing to recognise that their activities fall within the scope of the best execution rules. The FCA's thematic work also indicates that there are some aspects of EU and UK guidance that are not currently embedded in firms' assessment of best execution. In response, the FCA lists a number of points about the scope of best execution, and reliance and price transparency.

CRD IV The FCA has published the letter it has sent to FCA-authorised firms regarding providing regulatory data using the harmonised European reporting standards known as COREP and FINREP. This change in reporting has come about as a result of implementation in the UK of the CRR under CRD IV. COREP came into effect on 1 January 2014 and FINREP comes into effect on 1 July 2014. The FCA will use the information firms provide under COREP to effectively supervise against the CRR. The letter has been sent to identify to what extent firms are prepared for the collection of the required data and submission in the correct format of COREP. The FCA will use survey responses to refine its plans for the final stages of implementation, including ensuring further communications and directions are appropriate and that it is able to adequately supervise firms during the change in reporting.

CRA III implementation EMIR is consulting on the implementation of the CRA III Regulation and the consultation paper sets out draft RTS on a number of matters, including the following: (i) disclosure requirements for structured-finance instruments (SFIs); (ii) the European Rating Platform (ERP), a central website which will contain up to date information on ratings and outlooks issued by CRAs; and (iii) the periodic reporting of fees charged by CRAs for the purpose of on-going supervision by ESMA. Responses to the consultation are invited by 11 April 2014 and ESMA must submit the draft RTS to the European Commission for endorsement by 21 June 2014.

FSB on risk management practices The Financial Stability Board has made available the responses it has received to its November 2013 consultation on risk culture. The FSB published two papers to help supervisors to strengthen risk management practices at financial institutions. The first set out principles for an effective risk appetite framework, aiming to enhance the supervision of systemically important financial institutions, and the second set out guidance on supervisory interaction, designed to help supervisors to assess the risk culture at financial institutions. The consultation period ended in January 2014.

ESMA 2014 regulatory work programme EMIR has published its 2014 regulatory work programme, which provides a detailed breakdown of the individual workstreams outlined in ESMA's 2014 work programme. The regulatory work programme covers various areas including the following initiatives: MiFID II, the CRA III Regulation, the CSD Regulation, which is the proposed Regulation on improving securities settlement and regulating central securities depositories, and the proposed Market Abuse Regulation (MAR).

ECON report on financial services legislation The European Parliament's Committee on Economic and Monetary Affairs (ECON) has published an informal report on enhancing the coherence of EU financial services legislation. The report sets out the conclusions ECON has drawn from its May 2013 consultation on ways to further enhance the coherence of EU financial services legislation and contains a number of steps that ECON intends to take as a result of the consultation. In its introduction to the consultation last year, ECON explained that, given the transition to a single financial services rule book across the EU, it was increasingly important that legislation fits together seamlessly. The report was adopted by ECON on 30 January 2014.

RUNNING SHORTS Cummings Law is on the run! Dominique White is running the Brighton Marathon on 6 April for Get Kids Going! – a National charity which gives disabled children and young people the wonderful opportunity of participating in

sport. Training is going well albeit a bit damp. Although Dominique has a minor neck injury, she has the stamina, but is now working on improving her speed.

Claire, Jonathan, Adrian and Alice will be taking part in the JP Morgan Corporate Challenge around Battersea Park in July – watch this space for further details!

Cummings

Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327

www.cummingslaw.com

14 February 2014