Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

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Claire Cummings

020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com

AIFMD: FCA January deadline The FCA deadline for applications for authorisation or variation of permission for firms currently relying on the transitional period expired this week on 22 January 2014. While the Treasury did makes its own comments in December, the FCA had advised firms to apply by this time on the basis that it may need a full six months to determine the application. In the meantime, firms which have already submitted applications are waiting for up to eight weeks to be assigned a case officer.

UK loses short selling challenge The EU Court of Justice has ruled against the UK’s attempt to limit the authority of the EU to ban short selling. In 2012, the EU passed a law giving ESMA the power to ban short selling if it considers that the practice threatens the stability of the EU financial system. The UK had challenged ESMA’s authority as a restraint on trade and argued that such measures interfered with the efficiency of the markets. The ECJ said the powers were “compatible with EU law” and dismissed the UK’s legal case in its entirety.

EMIR dispute The FCA and the European Commission are at odds over a loophole that allows swap users to leave certain FX derivatives unreported for the purposes of EMIR. In its national implementation of MiFID, the FCA excluded FX forwards, non-deliverable currency forwards and spot transactions for FX and commodities from the definition of a financial instrument. EMIR refers to the definition in MiFID when defining which derivatives need reporting under EMIR. This means that in the UK, these FX transactions are not considered derivatives for EMIR purposes. That said, it appears that UK counterparties will not necessarily take advantage of the loophole, as they do not see anything to gain in not reporting such trades.

LIBOR ICE Benchmark Administration Limited (IBA) has announced that it will take over as the new Libor administrator on 1 February 2014. The IBA recently received FCA approval to act as administrator. IBA takes over from BBA LIBOR Limited, which had been performing the role of interim benchmark administrator for LIBOR since April 2013. The appointment of a new administrator was one of the key recommendations of the Wheatley Review into LIBOR manipulation, which was published in September 2012. Meanwhile, two senior members of Angela Merkel’s party have called for changes to the setting and supervision of Libor, demanding better oversight and a new system for setting rates.

Financial transaction tax The 11 Member States participating in talks on the FTT appear to be considering excluding sovereign bonds, repos, pension fund transactions and now derivatives and securitised debt from the levy. Several of the countries are concerned that the tax could disrupt their debt markets just as the Eurozone is starting to turn the corner. However, the EU’s top tax official has called on Member States not to dilute the proposals, suggesting instead that they could implement the plan more gradually. If bonds and the other asset classes are exempt, the FTT would effectively shrink to become a type of stamp duty on shares.

PRA to consult on remuneration recommendations The UK government has published an uncorrected transcript on oral evidence given to the House of Commons Treasury Committee. Mark Carney, Governor of the BoE announced that the PRA intends to consult in April 2014 on implementing the remuneration recommendations of the Parliamentary Commission on Banking Standards (PCBS). Issues that the PRA will consider will include lengthening the deferral of compensation to more than five years and the claw back of past compensation as well as deferred compensation. The BoE stated that the PRA would consult on a revised Remuneration Code in 2014 to implement the PCBS' recommendations.

EU considers proprietary trading ban Draft plans drawn up by the EU financial services chief suggest that 29 of the largest banks in the EU could face a ‘narrowly’ defined ban on proprietary trading from 2018. Those banks identified by regulators as systematically important at a global level or if they exceeded certain financial thresholds would be caught by the ban. Mr Barnier has pledged to propose bank structure rules before the end of his mandate this year, but senior European Parliament lawmakers have already rejected his approach as too late in the term. Earmarked lenders would be barred from investing in hedge funds or in other entities that sponsor hedge funds to prevent them from circumventing the ban.

BBA urges closer ties with EU The British Bankers Association has recommended the UK to forge closer ties with, and devote more resources to, the EU to influence market reform and benefit the economy. This was stated against the backdrop of the government’s warning that the EU must reform if it wants the UK to remain a member. The BBA said that membership of the EU enhanced Britain’s ability to influence international negotiations and that the single market was a significant factor in London’s success as Europe’s financial centre and therefore of considerable value to the economy.

Cummings

Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com

24January 2014