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

FCA response on high-frequency trading

The FCA has responded to the letter of the House of Lords Economic Affairs Committee on high-frequency trading. In its letter, the Committee asked for the FCA's views on whether predatory trading strategies are an issue in the UK equity market and, if so, how best to tackle it. Points of interest in Mr Wheatley's response include: (i) differences in market structures between the UK and US markets mean that the opportunities for different types of predatory practices are fewer in UK markets; (ii) MiFID, in requiring firms to assess best execution, reduces the predictability of order routing in the UK market; (iii) information asymmetry i.e. cost or availability of the fastest connections may be a barrier to entry that can impact firms receiving information at the same time; (iv) the need to ensure surveillance tools keep pace with market developments; and (v) increased transparency and disclosure can play a role, along with other measures, in mitigating the risks of HFT activity. The strict requirements being introduced following the MiFID review will introduce a wide range of new requirements for HFT activity.

IOSCO consultation on non-centrally cleared OTC derivatives

IOSCO is consulting on risk mitigation standards for non-centrally cleared OTC derivatives (CR06/2014). The consultation proposes nine standards covering the following areas: scope of coverage, trading relationship documentation, trade confirmation, valuation with counterparties, reconciliation, portfolio compression, dispute resolution, implementation and cross-border transactions. The standards are intended to complement the margin requirements developed by the BCBS and IOSCO in September 2013 and the proposed risk mitigation standards are expected to increase financial stability and facilitate the management of counterparty credit and other risks. They are also intended to promote legal certainty and facilitate timely dispute resolution. Comments are invited by 17 October 2014.

ESMA revised CRA Regulation advice

ESMA has revised its technical advice to the European Commission on the development of an EU creditworthiness assessment for sovereign debt, originally published in July 2014. An accompanying summary explains that the technical advice has been revised to reflect an amended figure in table 1 (outstanding sovereign ratings in the EU by CRA) and two re-classifications of solicitation status in table 2.

FRC reviews revised UK Corporate Governance Code

The Financial Reporting Council published a feedback statement following its consultation on changes to the UK Corporate Governance Code. The FRC has only made minor changes to the version set out in its consultation relating to remuneration and general meetings and has adopted, without further amendment, its proposed changes to Section C (risk management and going concern). Companies will therefore be required to include a viability statement in the annual report and specify the period covered by this statement. The FRC has also published its guidance on risk management and internal control and related financial and business reporting and revised auditing standards (ISA 260, 570 and 700). The revised Code, guidance and auditing standards will apply to financial years beginning on or after 1 October 2014.

Michel Barnier speech on market regulations published

The European Commission has published a speech by Michel Barnier on the challenge of implementing market regulations consistently at the global level. Points of interest include the following: (i) global regulators must co-operate, trust and rely on each other for efficient financial markets to sustain growth and jobs; (ii) the EU legislative framework to implement the G20 commitments is broadly in place and the next step is to deliver on implementation. The rules must be applied in a consistent and coherent way, particularly for the EU and the US, as these markets are so closely interlinked; (iii) trading and clearing of derivatives have been made more secure and transparent, but there is still work to do to deal with the structure of the biggest banks; and (iv) work on shadow banking must continue in a spirit of co-operation and convergence. The speech also noted that the Commission engages extensively in multilateral talks, but that it could have an even greater impact if co-ordination was improved within the EU.

Commission consulting on review of Small Business Act

The European Commission is consulting on ideas as to how the Small Business Act for Europe (SBA) should be revised to continue a strong European policy to support small and medium-sized enterprises (SMEs) and entrepreneurs during the years 2015-20. Among the new initiatives are: (i) strengthening the venture capital market in Europe, with the aim of attracting private institutional investors back to the market; and (ii) facilitating the revival of European securitisation markets through appropriate legislation. The consultation will close on 15 December 2014.

FSB publishes report on long-term investment finance

The Financial Stability Board has published a further update on its work on financial regulatory factors affecting the supply of long-term investment finance. The report describes the FSB's further monitoring work, which includes input from FSB members, practitioners in long-term finance from the private sector and FSB regional consultative groups on any specific regulatory reform areas that may have had unintended consequences on the provision of long-term finance. The report states that the FSB's monitoring continues to find little tangible evidence or data to suggest that global reforms have had adverse consequences on the provision of long-term finance.

NCA publishes SAR guidance

The National Crime Agency has published guidance for firms on the circumstances when a case relating to a suspicious activity report (SAR) may be closed. Persons in the regulated sector are required under Part 7 of the Proceeds of Crime Act 2002 to submit a SAR in respect of information that comes to them, in the course of their business, if they know or suspect or have reasonable grounds for suspecting that a person is engaged in, or attempting, money laundering or terrorist financing. From 1 October 2014, SARs requesting consent that are missing the reason for suspicion or fail to identify the nature of the criminal property may be closed without further engagement from the UK Financial Intelligence Unit. Currently, the UKFIU may contact the reporter to obtain the missing information. The change in process is intended to reduce the turnaround of consent requests.

EBA updates CRD IV Q&As

The European Banking Authority has updated its Q&As webpage relating to the CRD IV package of reforms. There are nine new answers to questions, which include the following topics: calculation of foreign exchange position for non-FX derivatives denominated in foreign currency; recognition of credit derivatives for protection buyer; determining the exposure value for regular way securities transactions; significant risk transfer applicable to leverage ratio computation; and choice of method for commodities risk when an entity has two different business lines.

Cummings

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

www.cummingslaw.com

19 September 2014