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Quarterly overview
Regulatory developments
European Union
Regulatory InsightsSummer 2015
1 Published in August 2015.
Sven Kasper Director EMEA
Regulatory, Industry &
Government Affairs
State Street
ForewordDear Reader,
Welcome to the Summer edition of the State Street Regulatory Insights1 Newsletter, our quarterly overview of important legislative and regulatory developments in Europe.
The last months were again
dominated by escalating
events in Greece. At the time of
writing, following the general
agreement between the Greek
government and the Eurozone,
negotiations on a further bailout
for Greece are ongoing.
While events in Greece are important to the future of the European Union (EU), they have not delayed progress on important legislative and reg-ulatory initiatives. The Latvian EU Presidency secured an agreement amongst the EU institutions on the new Securities Financing Transactions Regulation (SFTR). Good progress was also made on other files such as the Benchmarks Regulation and the EU General Data Protection Regulation. Trialogue negotiations between the European Commission, the European Parliament and the Council have begun. These negotiations are being led by Luxembourg, which officially took over the 6-month rotating EU Presidency in July.
In addition to these negotiations, Luxembourg has set out its priorities for its six-month term. The priorities in the area of financial services include:
• Working towards a Capital Markets Union (CMU)
• Progressing proposals for transparent, simple and high-quality securitisation
• Reviewing requirements under the Prospectus Directive, in order to facilitate access to capital markets for Small and Medium-sized Enterprises (SMEs)
• Advancing negotiations on bank structural reform
• Beginning negotiations for a new legislative proposal on the resolution of market infrastructures.
The program also sets out the Presidency’s intention to conclude negotiations on transparency and exchange of information regarding tax rulings and to make progress on the Common Consolidated Corpo-rate Tax Base (CCCTB) Directive.
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On the regulatory side, things continue to be incredibly busy. Key consultations published over the last months include:
• The European Commission’s review of the European Market Infrastructure Regulation (EMIR)
• The joint consultation issued by the European Supervisory Authorities (the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA)) on the margin requirements for uncleared derivatives
• The long-awaited ESMA consultation on draft guidelines on the Undertaking for Collective Investment in Transferable Securities (UCITS V) remuneration
• EIOPA’s consultation on the creation of a standardised Pan-European Personal Pension product (PEPP)
• The EBA’s consultation on its draft guidelines on limits on exposures to shadow banking entities, which closed on 19 June.
Given the large number of
outstanding Level 2 Implementing
Measures under initiatives such
as the Markets in Financial
Instruments Directive/Regulation
(MiFID II/MiFIR), the Market Abuse
Regulation (MAR) and the Central
Securities Depository (CSD)
Regulation, ESMA announced that
it won’t be able to produce them
before the autumn. This makes
preparing for these regulations
more challenging for the industry.
Finally, we have seen the publication in the UK of the final report of the Fair and Effective Markets Review (FEMR). It sets out 21 recommendations relating to the wholesale Fixed Income, Currency and Commodity (FICC) markets. The recommendations include extending elements of the Senior Managers and Certification Regimes to a wider range of regulated firms active in FICC markets; the introduction of a criminal and civil market abuse regime for spot foreign exchange (FX) markets and the creation of a new FICC Market Standards Board. This is important not only for the markets and firms operating in the UK. We can expect wider ramifications given regulators’ interest in the FEMR globally.
We hope that you find this publica-tion, with its overview of ongoing developments and changes, both helpful and useful.
iii REGULATORY iNSiGHTS SUMMER 2015
ContentsFeature Article 1Evolving Client Demands Change the Game for Asset Managers 1
Europe 4Derivatives 4UCITS 7CRD IV 9AIFMD: ESMA Advice on Third Country Passport 10European Long-Term Investment Funds 11Securities Financing Transactions Reporting 11Benchmark Regulation 12AMLD IV 13The EU Commission Technical Advice on Contributions to the
Single Resolution Fund 14EU Commission Action Plan on Corporate Taxation 15EIOPA Consultation on a Standardised Pan-European Personal Pension Product 16Bank Structural Reform 17Data Protection 18
Channel islands 19The Companies (Guernsey) Law 2008 (amendment) Ordinance 19ESMA Extends Advice on AIFMD Passports to Guernsey and Jersey 19
Germany 20Amended Fund Categories Directive 20BaFin Administrative Practice Regarding Granting of Loans 20BaFin Consultation 05/2015 21UCITS V 22
ireland 23Fund Management Company Boards 23Hong Kong-Shanghai Stock Connect – Update 27Investor Money Regulations – Update 28Regulation of Lobbying Act 2015 29
italy 31FATCA Legislation – Update from Italian Banking Association Working Group 31AIFMD Legislation applicable to UCITS and Pension Funds – Update 32
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Luxembourg 33Information in relation to Unregulated and Regulated Alternative Investment Funds 33Developments in Automatic Exchange of Tax Information and AML 35CSSF Circular 15/611: Managing the Risks related to the Outsourcing of Systems 36AML: New Form to File Suspicious Transactions Reports 37
United Kingdom 38Fair and Effective Markets Review 38Individual Accountability in the Banking Sector 40PRA Consultation on Contractual Stays in Financial Contracts Governed by
Third Country Law 41
Abbreviations 42
Regulatory Timeline 44
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59%increasing
investment in regulatory
compliance
46%set on expanding
business development
teams
Jörg Ambrosius Executive Vice President
Sector Solution Sales EMEA
State Street
2 State Street 2015 Asset Manager Survey conducted by FT Remark in April and May 2015. Overall, 400 respondents from 23 countries participated, spanning both institutional and retail assets.
Evolving Client Demands Change the Game for Asset Managers
Feature Article
State Street’s new survey of asset
managers2 reveals an industry
focused on delivering robust
growth, following several years
of uncertainty. Nearly nine in 10
respondents see opportunities for
profitable growth, with 46 percent
set on expanding their business
development teams. At the same
time, they are also aware of new
risks such as cybersecurity.
While our survey indicates that con-cerns about regulation have softened over the past 12 months, asset man-agers continue to invest heavily in this area: 59 percent are increasing their investment in regulatory compliance. Arguably the biggest risk for asset managers is that they struggle to adjust to significantly changing inves-tor needs. To justify their optimism, asset managers need to deliver a new “vision for value” for investors.
it’s about value, not just performanceThe way investors measure success is changing. Consistently strong investment performance continues to be paramount. However, investors are also looking for strategies that match their long-term liabilities or more tightly reflect their approach to managing investment risk.
As part of this focus, asset managers are working hard to adapt and create more collaborative and open relation-ships with their clients. Nearly four out of five (79 percent) in our survey say their strategy is being impacted by client demands for increased transpar-ency on how their money is managed.
And, in a further sign that the dynamic between asset managers is changing, fully three-quarters of our survey respondents are spending more time and resources educating the boards of institutional clients on risk issues.
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42%currently preparing to enter a product category for the
first time
36%preparing to enter new markets
68%set to increase investment in
technology
3 State Street 2014 Data and Analytics Survey. This global survey of 400 senior executives at investment firms was conducted by Longitude Research in October and November 2014. The respondents were drawn from 11 countries, with the majority from the US, China, France, Germany and the UK. The full survey sample was split evenly between asset managers and asset owners.
Feature Article
Asset managers reshape product mix
New product development is
another area of focus for asset
managers, as they respond to
investor demand for new types
of investment products and
solutions. Indeed, the majority of
managers see product innovation
as their primary route to growth:
42 percent say they are currently
preparing to enter a product
category for the first time,
compared with 36 percent who are
preparing to enter new markets.
Asset managers are developing new value propositions based on a more customized approach to risk and return that meets clients’ unique needs. This includes a drive toward more multi-asset solutions — a product category that nearly a fifth of asset managers plan to enter for the first time. These solutions place extra pressure on asset managers’ ability to integrate and analyse risk data from multiple sources, encompassing multiple asset classes. This requires modern IT architectures and the highest standards of data governance. It’s an area where asset managers need to make improvements: in another recent State Street survey both asset managers and asset owners cited risk analytics as a major focus for their technology investments, with 68 percent of respondents set to increase their investment in this area in the coming three years.3
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79%expect direct
competition from non-traditional
challengers36%
strongly confident in their ability to understand their
client base
Feature Article
Equipped for transparencyAsset managers are turning to a new breed of performance, risk and com-pliance tools to help achieve greater transparency. Such tools enable more efficient governance and transparency across diverse portfolios, including testing across criteria such as asset mix, benchmarks, quality ratings and leverage restrictions. With strategic deployment of these tools, asset managers can both ensure their port-folios are fully compliant and empower their clients with the granular risk and performance information they demand. That way, they are turning transparency into a source of competitive advantage.
Where stronger data capabilities
can also help asset managers
gain competitive advantage is
in understanding client needs
through data. Asset managers
require better tools to segment
and understand their client base
– only 36 percent are strongly
confident in their ability to do
this currently. Developing better
client analytics capabilities will
help to bring asset managers
closer to their clients.
Competitive forces play their partAs asset managers step up their game and “bring more to the table” for investors, they are conscious of new sources of competition. Almost four out of five asset managers in our survey (79 percent) expect to face direct competition from non-traditional challengers such as technology players like Google, Apple and Alibaba Group in the next three years. Arguably these players are distinguished by their ability to use data and analytics to understand their customers and shape the proposition accordingly — qualities that will be key to future success in asset management.
Growth through differentiation and innovation
In short, the most enterprising asset managers are stepping up their game with innovative and differentiated approaches to justify their optimism and build deeper relationships with investors across the spectrum to capture the anticipated growth opportunities that lie ahead.
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DerivativesEurope
EU Commission public consultation on the implementation of EMiR
In May, the European Commission
launched a public consultation
on the implementation of EMIR.
The review of EMIR is the first
review of the financial legislation
introduced post-crisis and is
likely to set a precedent for
the upcoming reviews of other
pieces of financial legislation.
The consultation covers a
number of areas, including the
access of central counterparties
(CCPs) to central bank liquidity
facilities and the functioning of
supervisory colleges for CCPs.
In addition, the consultation is seeking feedback from market participants on their experiences of implementing central elements of the Regulation.
On trade reporting, the Commission is interested in understanding the experiences of reporting counterpar-ties and trade repositories, as well as national competent authorities (NCAs), in implementing these requirements.
Regarding the over-the-counter (OTC) derivative central clearing require-ments, the Commission is looking for feedback on any difficulties market participants are having with preparing for the clearing obligation.
The consultation paper also seeks views from market actors on pro-visions or definitions within EMIR that pose challenges for EU entities transacting on a cross-border basis. The Commission is also checking if any provisions within EMIR create a disadvantage for EU counterparties over non-EU entities.
The Commission recognises that certain core requirements and proce-dures, provided for under EMIR, are yet to be implemented or completed. In particular, clearing obligations and obligations to exchange collateral in respect of non-cleared OTC derivatives transactions are not in force yet. It is therefore envisaged that the report will focus primarily on those aspects of EMIR which have been implemented.
The consultation closed
on 12 August 2015.
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Europe
Commission extends transitional period for capital requirements for exposures to CCPs
In June, the Commission adopted
an implementing act to extend
the transitional period for capital
requirements for EU banking
groups’ exposures to central
counterparties under the Capital
Requirements Regulation (CRR).
As background, Article 497 (3) of the CRR empowers the European Commis-sion to adopt an implementing act, in order to extend the transitional period for own funds requirements set out in the CRR and the transitional period for reporting the initial margin set out in the EMIR by six months in ‘exceptional circumstances where it is necessary and proportionate to avoid disruption to international financial markets’.
These extensions relate to the delayed equivalence decisions with the US, since the authorisation and recognition processes for existing CCPs serving EU markets (including third country CCPs seeking recognition in the EU) cannot be fully completed. The extension allows for negotiations on equivalence with the US to continue and for capital relief to continue applying as envis-aged for CCPs that have not yet been able to obtain recognition by ESMA.
The transitional period was
due to expire on 15 June 2015
and has now been extended
until 15 December 2015.
Second consultation on risk mitigation techniques for OTC derivatives
In June, the European Supervisory Authorities (ESAs) issued a second consultation paper (CP) on the draft Regulatory Technical Stand-ards (RTS), outlining the margin requirements for non-cleared OTC derivatives under the EMIR.
The CP includes an amended
version of the draft RTS that
were originally published in
April 2014, where most of the
operational issues arising from
the implementation of the
margining framework, as identified
by stakeholders during the
first consultation period, have
been resolved. The consultation
document builds on the proposals
outlined in the first CP and the
ESAs are now seeking feedback
on a narrow set of topics.
The draft RTS prescribes the regulatory amount of initial and variation margin that counterparties should exchange for those OTC derivative transactions that will not be subject to central clearing, as well as the methodologies for their calculation. In addition, the RTS outline the criteria for the eligible collateral and establish the criteria to ensure that such collateral is sufficiently diversified and not subject to wrong-way risk.
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Europe
The ESAs have reviewed or clarified several aspects of the original draft RTS, including:
• Exchange of margins with third-country entities
• Treatment of non-financial counterparties
• Treatment of covered bonds swaps
• Timing of margin exchanges
• Concentration limits for sovereign debt securities
• Requirements on trading documentation
• Minimum credit quality of collateral
• Initial margin models
• Haircuts for FX mismatch
• Treatment of cash collateral for initial margin
• Reviewed criteria on intragroup exemptions.
Furthermore, the RTS include a revised phase-in for initial margin requirements and a new phase-in for variation margins, in line with the amendments of the standards issued by the Basel Committee on Banking Supervision (BCBS) and the Inter-national Organization of Securities Commissions (IOSCO) in March 2015.
The consultation closed for comments on 10 July 2015.
6 REGULATORY iNSiGHTS SUMMER 2015
Europe
UCITSConsultation on proposed guidelines on remuneration
In July, ESMA published a
consultation on proposed
guidelines on remuneration under
the UCITS V and a revision of
existing remuneration guidelines
under the Alternative Investment
Fund Managers Directive (AIFMD).
The proposed guidelines focus on governance of remuneration, propor-tionality, risk alignment and disclosure. The draft guidelines are based on those already issued under AIFMD and include areas such as definition of performance fess, management companies as part of a group and payments in instru-ments. The consultation also proposes a revision of the AIFMD remuneration guidelines by clarifying that in a group context, non-alternative investment fund manager (AIFM) sectoral prudential supervisors of group entities may deem certain staff of an AIFM in that group to be identified staff for the purposes of their sectoral remuneration rules.
Once finalised, the guidelines will apply to UCITS management companies and national competent authorities. Com-ments on the consultation are due by 23 October and ESMA intends to publish the revised guidelines by Q1 2016.
Opinion on the impact of EMiR clearing obligations of certain types of OTC financial derivative transactions on the UCiTS framework
On 22 May, ESMA published an
opinion on the impact of EMIR
clearing obligations of certain
types of OTC financial derivative
transactions on the UCITS
framework. The opinion follows
the discussion paper on the
calculation of counterparty risk by
UCITS for OTC financial derivative
transactions, subject to clearing
obligations published last year.
The UCITS Directive allows UCITS to invest in both exchange-traded derivatives (ETDs) and in OTC deriva-tive transactions. Only investments in OTC derivative transactions are subject to counterparty risk exposure limits in the UCITS Directive. The guidelines on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS recommend that the initial margin posted to and the variation margin receivable from a broker relating to ETDs, which are not protected by client money rules or other similar arrangements, should also be taken into account for the calcula-tion of counterparty risk. Under EMIR, certain OTC derivative transactions will become subject to clearing obligations.
7 REGULATORY iNSiGHTS SUMMER 2015
Europe
Last summer, ESMA sought stake-holders’ views on how the limits on counterparty risk in OTC derivative transactions that are centrally cleared should be calculated by UCITS and whether the same rules for both OTC transactions that are centrally cleared and ETDs should be applied by UCITS.
ESMA is of the view that the provisions in the UCITS Directive on the coun-terparty risk limits for OTC derivative transactions should be amended to take into account the clearing obliga-tion for certain types of OTC financial derivative transactions under EMIR. ESMA believes that the UCITS Directive should no longer distinguish between OTC financial derivative transactions and ETDs. The distinction should be made instead between cleared financial derivative transactions and non-cleared financial derivative transactions.
ESMA’s opinion is addressed to the EU institutions. Its objective is to amend the UCITS Directive to make it more compatible with the clearing obligation under EMIR, which has had a significant impact on the calculation of counter-party risk of cleared OTC financial derivative transactions by UCITS.
However, it is unlikely that the Commission will reopen the UCITS Directive for now. Instead, it is likely that it will take this into account during the overall review of UCITS Directives.
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CRD IVEurope
The EU Commission has launched a consultation on the impact the Capital Requirements Regula-tion (CRR) and Directive (CRD IV) have had on bank lending.
The CRD IV package introduced new capital requirements for banks and the legislation contains a review clause which mandates the Commission to review how the new requirements have impacted on bank lending. The consul-tation looks at to what extent the CRR and CRD IV have affected the level of capital held by banks and whether the new requirements are proportionate to the risks they were intended to address. In addition, the consultation seeks to address what impact the rules are having on lending to SMEs and whether some of the rules could be simplified or differentiated by risk or size without compromising their objectives of financial soundness and stability.
The Commission intends to
publish a feedback report based
on the responses it receives to the
consultation later in 2015 and its
final report in 2016. Comments
are due by 7 October 2015.
9 REGULATORY iNSiGHTS SUMMER 2015
Europe
AIFMD: ESMA Advice on Third Country PassportOn 30 July, ESMA published its
advice in relation to the application
of the AIFMD passport to non-EU
Alternative Investment Fund
Managers (AIFMs), and Alternative
Investment Funds (AIFs),
together with its opinion on the
functioning of the passport for EU
AIFMs and the national private
placement regimes (NPPRs).
ESMA advice is based on a country-by-country assessment of six jurisdictions – Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the US. Of these six jurisdictions, only Guernsey and Jersey are deemed compliant enough to be granted an AIFMD passport, while Switzerland could also be included provided that it enacts pending legislative amend-ments. However, no definitive view has been taken on the other three jurisdictions, due to concerns related to competition, regulatory issues, and a lack of sufficient evidence to properly assess the relevant criteria. Therefore, ESMA suggests that the European Parliament, Commission and Council wait to extend the AIFMD passport through a delegated act until ESMA has delivered positive advice on a sufficient number of non-EU juris-dictions to avoid market distortions.
ESMA’s opinion on the functioning of the EU AIFMD passport and NPPRs concludes that a definitive assessment is difficult given the short period of time since the implementation of the AIFMD in the different Member States and recommends a further opinion after a longer period. However, the opinion already emphasises several issues regarding divergent approaches on marketing rules and varying inter-pretations of marketing and material changes, on which ESMA recommends greater definition convergence.
The Commission now has three months to decide whether to delay or to adopt a delegated act on the extension of the AIFMD passport, i.e. until 30 October. ESMA will finalise the assessments of Hong Kong, Singapore, and the US as soon as practicable and will assess further groups of non-EU jurisdictions it considers should be included in the extension of the passport.
10 REGULATORY iNSiGHTS SUMMER 2015
Europe
European Long-Term Investment FundsThe Regulation on European Long-Term Investment Funds (ELTIFs) has been published in the Official Journal (OJ). The purpose of the Regulation is to stimulate long-term investment in areas such as infrastructure. Only EU AIFs, managed by AIFMs and authorised in accordance with the AIFMD will be eligible to market themselves as ELTIFs. ELTIFs will be
subject to additional rules requiring them, amongst others, to invest at least 70 percent of their capital in categories of eligible assets.
The Regulation entered into force
on 8 June and will apply from
9 December 2015.
Securities Financing Transactions ReportingA political agreement on the proposal for a regulation on reporting and transparency of Securities Financing Transactions (SFTs) has been reached.
On 29 January 2014, the European
Commission issued the proposal
which will apply to counterparties
to securities financing transactions
– both financial and non-financial.
The proposed regulation has three key elements:
• Highly granular and frequent reporting of SFTs to trade repositories
• Enhanced disclosure to fund investors of the use of SFTs
• Rules on re-hypothecation, increasing the disclosure to clients and counterparties.
The Parliament’s plenary session is scheduled to vote on the proposed regulation on 6 October and it is expected to be formally adopted before the end of 2015.
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Europe
Benchmark RegulationOn 19 May, the European Parliament agreed on its mandate for negotiations with the Council on the Regulation on indices used as benchmarks in financial instruments and financial contracts.
The Regulation would prohibit
the use of unauthorised
benchmarks in the EU and require
benchmarks administrators
to seek authorisation from
their NCA. The Regulation also
proposes that financial institutions
mandatorily contribute data
to ‘critical’ benchmarks.
Following the European Parliament’s agreement on its mandate tri-alogues have begun.
The Council and the Parliament have identified the main issues requiring political compromise:
• Scope The European Parliament limits the activities of Central Banks to be exempted from the Regulation and includes a full exemption for CCPs and Credit Unions. This contrasts with the Council text
• Definition of critical benchmarks The European Parliament text allows for benchmarks contributed by unsupervised entities to be deemed critical
• Proportionality There is a difference between the Council’s text and the Parliament’s texts relating to the definition of non-critical benchmarks and the list of exemptions for them
• Powers of ESMA The Council and the Parliament also differ on the competency to deem a benchmark critical
• Third country regime The European Parliament supports endorsement/recognition, based on audited IOSCO compliance, while the Council does not support this. The Council proposes cooperation arrangements with third country NCAs
• Authorisation/Registration The split system for critical versus non-critical in the European Parliament text does not exist in the Council text.
The legislation is expected to be
finalised by the end of 2015.
12 REGULATORY iNSiGHTS SUMMER 2015
Europe
AMLD IVThe fourth Anti-Money Laundering
Directive (AMLD IV) has been
published in the OJ and they
entered into force on 25 June.
In February 2013, the European Commission published the AML IV proposal, with a view to further strengthening the EU’s defences against money laundering and terrorist financing, while also ensuring that the EU framework is aligned with Financial Action Task Force (FATF) standards.
The AMLD IV package contains two distinct proposals – a proposal for a directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financ-ing and a proposal for a Regulation of the European Parliament and the Council on information accompanying transfers of funds (FATF 2 Regulation).
The core elements are:
• The inclusion of tax crimes in the scope of the package
• The introduction of new requirements for domestic Politically Exposed Persons (PEPs) working in international organisations
• The establishment of central registers of information on beneficial ownership of companies that will be accessible to NCAs
• New rules relating to sanctions.
Member States have until
26 June 2017 to transpose and
comply with AMLD IV.
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Europe
The EU Commission Technical Advice on Contributions to the Single Resolution FundIn June, the EBA issued technical
advice to the Commission on
contributions to the Single
Resolution Fund (SRF), which will
finance any eurozone-level support
to banks resolved by the Single
Resolution Mechanism (SRM).
The SRM, as part of the Banking
Union, is intended to complement
the Single Supervisory Mechanism
(SSM), by providing the mechanism
through which a troubled bank
can be resolved by a common
set of rules and procedures.
The technical advice feeds into a delegated act that the Commission is empowered to adopt to specify criteria on the levies. It outlines criteria to determine the uniform level of contributions by eurozone banks to the SRF, including how they will be spread out in time.
The EBA suggests several safeguards to ensure that the SRF’s target level (one percent of covered deposits, around €55 billion) is achieved within eight years, as requested and includes some consideration on which share to collect on an annual basis.
In general, the EBA seems to suggest a collection of 11.25 percent of the total amount on a yearly basis as a baseline, but the SRM Regulation allows deviations, based on macro-economic considerations. The EBA thus hints at a range of 10 percent to 12.5 percent per year.
The EBA’s technical advice will
inform a delegated act to be
adopted by the Commission
on the initial period for
contributions to the SRF.
14 REGULATORY iNSiGHTS SUMMER 2015
Europe
EU Commission Action Plan on Corporate TaxationThe EU Commission has launched
an action plan for reform to
corporate taxation in the EU
and a public consultation on tax
transparency. The action plan
sets out measures to ensure that
corporate taxation across the EU
is fair and efficient, in order to
distribute the tax burden equitably
and to ensure that the corporate
tax system works to strengthen
both EU growth and investment.
Key measures include:
• The re-launch of the CCCTB. This will include provisions to tackle tax avoidance and the phasing in of certain aspects of the proposals on a step-by-step basis. The Commission intends to present new CCCTB proposals in early 2016
• Measures on ‘effective taxation’ which aim to enhance anti-abuse clauses and reform transfer pricing schemes
• A public consultation on public disclosure of certain tax information by multinationals. The consultation is being led by the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) and runs until 9 September 2015
• A first pan-EU list of third-country non-cooperative tax jurisdictions
• Improved co-ordination between Member States on tax issues.
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EIOPA Consultation on a Standardised Pan-European Personal Pension Product
Europe
In July, the EIOPA published a Consultation Paper which will run until October on the creation of a standard-ised PEPP, a type of retirement savings product with an investment element. EIOPA is proposing the creation of a harmonised legal framework for an internal European PEPP market.
This framework aims to provide
a level playing field for pensions
providers, remove existing
barriers to cross-border business,
and facilitate the cross-border
offering of PEPPs to consumers.
EIOPA has proposed legislation focusing on product features and information disclosure requirements that would characterise a so-called ‘2nd regime’, which would not replace existing PPPs but would constitute an alternative with a ‘passport’ allowing Pan-EU distribution.
Among the ideas raised in the paper, EIOPA recommends the introduction of a ‘product passport’, a limited number of investment options, that PEPPs should be designed so that they can be sold without advice, especially in the case of PEPPs with default options and for Packaged Retail and Insurance-based Investment Products (PRIIPs) disclosure elements be applied to PEPP disclosure. EIOPA will host a public event for stakeholders to share ideas on the creation of the PEPP on 7 September. The consul-tation period ends on 5 October.
16 REGULATORY iNSiGHTS SUMMER 2015
Europe
Bank Structural ReformIn June, the EU Council agreed
a general approach on the
Regulation on Structural Measures
Improving the Resilience of
EU Credit Institutions.
At the start of 2014, the EU Commis-sion published a proposed regulation on structural measures improving the resilience of EU credit institutions. The proposal aims to address the potential systemic risk posed by large banking groups within the EU, by introducing a prohibition of pro-prietary trading and allowing for the separation of certain risky trading activities, following assessment by an NCA and subject to certain metrics being exceeded. The proposed regula-tion sets out to reduce excessive risk taking and stipulates the mandatory separation of proprietary trading and other related trading activities.
Under the Council version of the text, the Regulation would be applicable to global systemically important institutions (as set out under the CRD IV) or to institutions with total assets of at least €30 billion over the last three years and trading activities of at least €70 billion, or 10% of their total assets. These banks would be divided into two tiers, depending on whether the amount of their trading activities during the last three years exceeds €100 billion or not. For institutions exceeding the threshold, stricter reporting requirements, a more thor-ough risk assessment and different supervisory actions would apply. Institutions with total eligible deposits (under the revised Deposit Guarantee Schemes Directive) of less than three percent of their total assets, or total eligible retail deposits of less than €35 billion would be out of scope of the Regulation. As proposed by the EU Commission, it would also not apply to sovereign debt instruments. However, the Council version of the text includes a review clause which specifies that the Commission would review this exclu-sion, taking into account developments at European and international level.
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Europe
Data ProtectionThe EU Council has reached a general approach on the proposed General Data Protection Regulation.
The proposed regulation updates
EU data protection rules and
enhances current data protection
measures. It includes strict new
rules for data controllers and
data subjects. In addition, the new
rules are intended to complement
the creation of a Digital Single
Market, by improving cross-border
data exchange and harmonising
national data protection rules.
The Council’s general approach text contains a number of additional elements to the original Commission proposal which include:
• Further measures to enhance the level of data protection
• Increased focus on business oppor-tunities in the Digital Single Market
• More tools to enforce compliance with the data protection rules
• Guarantees regarding transfers of personal data outside the EU.
The agreement on a general approach has enabled the EU Council to enter into trialogue negotiations with the European Parliament to establish a finalised compromise text.
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The Companies (Guernsey) Law 2008 (amendment) Ordinance
Channel islands
The States of Guernsey are
expected to approve amendments
to the Companies (Guernsey) Law
2008 on 29 July. The Ordinance
will introduce a number of
changes relevant to both
directors and service providers,
with some changes coming into
effect towards the end of 2016
and others requiring further
implementing regulations.
Some of the changes are aimed at facilitating and accelerating the timetable for corporate actions on takeovers, migrations and amalgama-tions. Other changes may warrant a review and an updating of memoranda and articles and standard template minutes. The objective of these is to set specific time limits for deemed receipt of shareholder notices via post or e-mail, to clarify the duties and obligations for company secretaries and to set exemptions for directors for the production of directors’ reports (for non-regulated entities).
ESMA Extends Advice on AIFMD Passports to Guernsey and JerseyESMA has concluded a country by country assessment on six non-EU countries on the possibility of extending AIFMD passport functionality to those countries. ESMA has advised that no obstacles exist to the extension of a passport to Guernsey and Jersey.
This advice has now been sent to the Commission, Parliament and Council for their consideration on whether to activate the relevant provision within AIFMD to extend the passport through a Delegated Act.
19 REGULATORY iNSiGHTS SUMMER 2015
Amended Fund Categories DirectiveGermany
On 17 April, the German Federal
Financial Supervisory Authority
(BaFin) published the amended
Fund Categories Directive
according to Section 4 (2) of the
German Investment Code.
The amendments refer only to money market instruments and comprise inter alia criteria for the rating of the quality of money market instruments.
BaFin Administrative Practice Regarding Granting of LoansOn 12 May, the BaFin published its amended administrative practice regarding the granting of loans by investment funds. In keeping with the emerging European opinion that an AIF can grant loans, as well as in anticipation of the upcoming change of law in Germany, BaFin considers
that the granting of loans, the re-structuring of loans and prolongation of loans by an AIF, as a part of the collective investment management is both compatible with the product requirements, according to the German Investment Code and permissible.
20 REGULATORY iNSiGHTS SUMMER 2015
Germany
BaFin Consultation 05/2015On 16 April 2015, the BaFin
launched a consultation on the
requirements for appointing
external valuers for real estate.
The Circular provides information on the conditions for appointing an external valuer for real estate in both open- and closed-ended investment funds, as well as the documents which need to be submitted within the report under Section 216 (5) of the German Investment Code. There is a reporting duty if:
• An external valuer is appointed
• The external valuer changes
• The external valuer ceases to act.
21 REGULATORY iNSiGHTS SUMMER 2015
Germany
UCITS VOn 3 July, the Federal Ministry of
Finance published a ministerial
draft on the Implementation
of UCITS V which relates
to the coordination of laws,
regulations and administrative
provisions as regards depositary
functions, remuneration
policies and sanctions.
The Implementation Act leads to changes in the German Investment Code (KAGB) and the German Banking Act (KWG) in the following areas, inter alia:
• Remuneration Systems: For UCITS management companies, the same requirements for remuneration systems, as already known for AIF management companies, are introduced
• Liability of the depositary: The current regulations will be further accentuated
• Sanctions: The catalogue of administrative offences in sec. 340 KAGB will be significantly extended and the scope of fines will be raised. The publication of decisions on imposed fines on BaFin’s website has to be expected
• Independence of management companies and depositary as well as the segregation of assets in case of insolvency of the sub-custodian: The KAGB is supposed to be changed based on ESMA’s final reports. It is presumed that the Commission will accept the proposals made by ESMA
• Further changes affect, inter alia, the transfer of the management to another management company as well as the adaption of the KAGB to the Foreign Account Tax Compliance Act (FATCA) agreement (exclusion of individual certificates).
With some exceptions, the UCITS-V-Implementing Act will come into force on 18 March 2016.
In addition, a BaFin circular regarding the implementation of UCITS V and AIFMD for depositories is expected in Q1 2016, following significant delay.
22 REGULATORY iNSiGHTS SUMMER 2015
ireland
Fund Management Company BoardsFollowing a public consultation
(CP86) which closed at the
end of 2014, the Central Bank
of Ireland (CBI) published a
document in relation to Fund
Management Company Boards
on 12 June. The document
is divided into four parts.
Part i: The CBi’s feedback on CP86The CBI clarified the distinction between the role of a director and a ‘designated person’, who has been appointed to perform managerial functions. Each appointment should require a separate letter of appoint-ment, even where both functions are performed by the same person.
The CBI also indicated that it is pro-ceeding with its intention to streamline the existing managerial functions into six core functions and will provide more information on what it expects in relation to each. The newly-introduced organisational effectiveness role is strategic and inward looking in nature and is not classified as a managerial function, but as a task which must be undertaken by one of the directors.
The requirement for two Irish resident directors is retained. This is primarily because of the important role of Irish resident directors in circumstances where an investment fund or fund man-agement company becomes distressed. For the purposes of defining Irish resident, the benchmark is ‘presence in Ireland’ for 110 working days per year.
There is a requirement to document and include in the business plan/programme of operations the rationale for the board composition. This is to instill the discipline of considering board composition in a systematic way.
23 REGULATORY iNSiGHTS SUMMER 2015
ireland
Part ii: Consultation on Delegate Oversight Guidance
In this section, the CBI launched a further short public consultation on the issuance of guidance for effective oversight of delegates. The CBI acknowledged that the delegation of certain tasks is common in Irish fund boards. However, it emphasised that delegation does not reduce the board’s ultimate responsibility. The board must, at all times, retain and exercise overall control of the relevant company’s management.
The CBI suggests that a board should design its governance practices so as to be appropriate and commensurate to the business of the relevant company and should operate on the basis of openness, engagement, co-operation and dialogue with its delegates.
All major strategic and operation-al decisions should be taken by the board regardless of whether tasks are retained or delegated by boards. The board should exercise skill and diligence in the identification, approval and oversight of delegates, including the receipt of satisfactory periodic reports from them. This also applies to reports or presentations addressing significant developments in the del-egates’ business. The consultation considers, in detail, each of the six streamlined managerial functions.
The consultation closed on 24 July 2015.
Part iii: Fund Management Companies – Organisational Effectiveness
One of the independent directors of a fund management company should undertake an organisational effectiveness role. Tasks may include the following:
• Monitoring the adequacy of a fund management company’s internal resources for its day-to-day managerial roles
• Reviewing the organisational structure of the fund management company and considering whether it remains fit for purpose
• Considering the conflicts of interest and initiating action and escalation, where necessary
• Reviewing the board composition
• Organising periodic evaluations of board effectiveness
• Overseeing how well the decisions taken by the fund management company and the arrangements for the supervision of delegates are working in the interests of investors.
24 REGULATORY iNSiGHTS SUMMER 2015
ireland
Part iv: Directors’ Time CommitmentsIn this section, the CBI considers the time commitments of directors to fund boards. A minimum time allo-cation for board meeting attendance and preparation should be agreed and documented in the director’s letter of appointment, bearing in mind the number and complexity of funds within scope. Sufficient time should also be set aside as a buffer for directors to deal with ad hoc issues or to carry out the role of chairperson.
A separate letter of appointment should issue and a specific time commitment should be specified for a director assuming managerial functions.
Individuals with multiple directorships should consider the conflicts which may arise from this. Conflicts which may occur between individuals with full-time positions in a service provider to the board should also be considered.
High numbers of directorships, com-bined with high aggregate levels of annual professional time commitments will be treated as a risk indicator by the CBI. This is initially set in terms of a joint test of (a) having more than 20 directorships and (b) having an aggre-gate professional time commitment in excess of 2,000 hours per year.
In the case of the proposed appointment of directors who already hold in excess of the initial levels set, the CBI will:
• Request confirmation from the board of how the proposed time commitment is in accordance with the Irish Funds (former Irish Fund Investment Association, IFIA) Corporate Governance Code for the Funds Industry
• Withdraw the option of the 24-hour authorisation time-frame from any corporate Qualifying Investor AIF seeking to appoint such a director.
Previously authorised investment funds, which continue to have individual directors who exceed the defined levels after 1 January 2016, will be given priority consid-eration for inclusion in CBI thematic reviews of board effectiveness.
25 REGULATORY iNSiGHTS SUMMER 2015
ireland
Next steps
The immediate changes will
include an amendment to the AIF
Rulebook and the incorporation in
the forthcoming UCITS Rulebook
of a technical definition of an
Irish resident as a person who is
present in Ireland for the whole
of 110 working days per year.
The CBI will also amend the
authorisation process for fund
management companies. A copy
of each designated person’s letter
of appointment and the rationale
for the board composition will have
to be included in the business
plan/programme of operations.
Future changes will make further amendments to the CBI’s AIF Rulebook. The forthcoming UCITS Rulebook will include measures on the newly streamlined managerial functions and the requirements around who may carry out those roles.
Future CBi management company guidance
The CBI intends to issue fund man-agement company guidance on a phased basis in three releases.
• First publication This first document, already published on 12 June, contains guidance on Organisational Effectiveness and Directors’ Time Commitments and the CBI’s draft Delegate Oversight Guidance.
• Second publication Later in 2015, the CBI will issue a public consultation on ‘Managerial Functions’. This will include provisions on managerial functions and on-going control and ‘operational’ sections of the fund management company guidance. This document will give some insight into the CBI’s thinking on these matters.
• Third publication Before the end of 2015, the CBI will issue the finalised ‘Managerial Functions’ and ‘Operational’ sections.
While the CBI has advised that
divergence from the completed
guidance will not be a regulatory
breach, the CBI’s supervisors
will refer to this guidance
when forming a view as to
whether a fund management
company has complied with
its regulatory obligations.
26 REGULATORY iNSiGHTS SUMMER 2015
ireland
Hong Kong-Shanghai Stock Connect – UpdateFollowing the launch of Shanghai – Hong Kong Stock Connect at the end of 2014, the Central Bank of Ireland undertook a detailed analysis of the construct to determine their position on its permissibility for Irish authorised funds. During this analysis phase State Street provided the Central Bank of Ireland with detailed material which addressed key areas of importance such as beneficial own-ership and legal entitlement as well as providing them with comparisons to other market infra structure con-structs. As part of their analysis the Central Bank also spoke directly with the Hong Kong Exchange (HKEx) and regulatory authorities in the region.
On 15 July, the Central Bank issued updates to both their AIFM and UCITS Q&A to reflect the conclusion of their analysis which sets out their position on the circumstances in which Shanghai – Hong Kong Stock Connect is permissible for Irish authorised funds. In summary, the Central Bank will allow the use of Shanghai Hong Kong Stock Connect where the depositary can satisfy its responsibilities and where, at the present time, the broker of the investment fund is a partici-pant of Hong Kong Securities Clearing Company (HKSCC) is an entity within the depositary’s custodial network.
For clients wishing to use Shanghai Hong Kong Stock Connect please approach your normal contacts for account opening or client servicing. These teams will be able to advise you both what the requirements are in terms of account opening and also in terms of trading instructions, cut off times, FX requirements etc.
To view the relevant sections of the updated UCITS Q&A click here.
27 REGULATORY iNSiGHTS SUMMER 2015
ireland
Investor Money Regulations – UpdateThe new Investor Money
Regulations (IMR) were
published on 31 March (Statutory
Instrument 105 of 2015).
These new Regulations will
apply to Fund Service Providers
(FSPs). There will be a 12-month
period before the Regulations
take effect on 1 April 2016.
In addition to the Regulations, the CBI published a Guidance Note for FSPs.
State Street is part of an industry group currently engaged with the CBI regarding subscription/redemption monies that may be held as fund assets and would not therefore be within the IMR. Discussions on this model will continue to progress over the coming weeks and State Street will advise of developments in due course. Until this engagement concludes, it is not certain what impact these regulations will have on current operating models.
In parallel, State Street has established an internal project tasked with deliv-ering a model which complies with the IMR. We are currently working through the analysis phase.
28 REGULATORY iNSiGHTS SUMMER 2015
ireland
Regulation of Lobbying Act 2015The Regulation will be effective
from 1 September. The first filing
deadline on activity between
1 September and 31 December
2015 will be 21 January 2016.
What is lobbying?Lobbying is defined as communi-cation by Persons within the scope of the Act on relevant matters with Designated Public Officials (DPOs).
Who is within the scope of the Act?
• Persons with more than 10 employees
• Representative bodies and advocacy bodies with at least one employee
• Third party lobbyists (who are paid by a client to lobby on the client’s behalf)
• Anyone lobbying about the development or zoning of land.
What are ‘relevant matters’?
• The initiation, development or modification of any public policy or of any public policy programme
• The preparation of an enactment
• The award of any grant, loan or other financial support, contract or other agreement, or of any licence or other authorisation involving public funds.
Who are the DPOs?
• Ministers, Ministers of State
• Members of Dáil Éireann and Seanad Éireann (the two Houses of the Irish Parliament)
• Members of the European Parliament (MEPs) for constituencies in the State
• Members of Local Authorities
• Senior Civil and Public Servants. On commencement of the Regulation, this will include the Secretary General, Assistant Secretary General and Director grades and equivalent grades in the Civil Service. It will also include CEOs and Directors of Services in Local Authorities. Engagement with the CBI will be covered.
29 REGULATORY iNSiGHTS SUMMER 2015
ireland
What activities are excluded from the scope of the Act?
Matters relating only to the imple-mentation of a policy, programme, enactment or award
• Matters of a technical nature
• Provision of strictly factual information
• Consultations where responses are published
• Work Groups/Task Forces which include DPOs, provided that these are subject to a transparency code, which will be issued in the coming weeks.
On registration, information must be provided in relation to, among other things, the organisation’s name, contact details and business address; the person with primary responsibility for lobbying; the main business activities and the Company Registration Office Number.
Returns must be made three times a year, based on a four-month period. They must be submitted within 21 days of the return date and include informa-tion on who was lobbied, the subject matter and aims of the lobbying activity, as well as the type and extent of activity.
30 REGULATORY iNSiGHTS SUMMER 2015
FATCA Legislation – Update from Italian Banking Association Working Group
italy
On 3 June, the Italian Parliament
approved the law of ratification
of the Italy-USA agreement in
relation to the FATCA. It should
be published soon in the Official
Gazette (Italian OJ). Following
this, the related Ministerial
Decree should be issued.
The Ministerial Decree, should not undergo substantial modifications from the draft published on the website of the Ministry of Finance (MEF), dated 4 July 2014. A final article should be added as a safeguard clause, indicating that, in the absence of specific rules (in fact the FATCA legislation in Italy has yet to be issued), intermediaries have 30 days to adhere to it.
The FATCA Reporting, as indicated by the draft Ministerial Decree, should be issued within 30 days of the publi-cation of the Measure of the Director of the local Italian tax authorities.
31 REGULATORY iNSiGHTS SUMMER 2015
italy
AIFMD Legislation applicable to UCITS and Pension Funds – UpdateWith the publication of the
Bank of Italy Regulation of
19 January, implementing the
AIFMD in Italy, the Bank of Italy
has decided to extend to UCITS
and Pension funds’ depositaries
the AIFMD depositary bank
regime – with some exceptions.
With this decision, effective since
22 July 2015, the Bank of Italy
has de facto brought forward
some provisions of the UCITS V
Directive (to be implemented in
the EU only by 18 March 2016).
In order to be aligned with the other European countries, State Street Bank GmbH – Succursale Italia and the other Italian-based depositary banks, through the Italian banking association (ABI), formally approached the Bank of Italy, COVIP (Italian authority on Pension Funds) and the MEF, requesting a post-ponement of the 22 July 2015 deadline to 18 March 2016. Unfortunately, this attempt did not succeed.
As a consequence, by 22 July all the depositary bank agreements with UCITS had to be replaced by new agreements compliant with the Bank of Italy Regulation of 19 January 2015.
The discussions between ABI, the Bank of Italy, COVIP and MEF are still ongoing in order to evaluate, and eventually mitigate the impacts arising from the application of the AIFMD to UCITS and Pension funds, with par-ticular reference to the delegation of custody functions and the asset segregation at sub-custodians’ level.
32 REGULATORY iNSiGHTS SUMMER 2015
Information in relation to Unregulated and Regulated Alternative Investment Funds
Luxembourg
On 5 May, the Commission
de Surveillance des Services
Financiers (CSSF) issued CSSF
Circular 15/612 (the Circular)
on information to be submitted
to the CSSF, concerning non-
regulated AIFs and regulated
AIFs established in a third
country by AIFMs, subject to
the Luxembourg law of 12 July,
2013 on alternative investment
fund managers (the AIFM law).
The CSSF indicates that the reason for the circular is to permit it to report to ESMA, on a quarterly basis, the list of AIFs managed by AIFMs established in Luxembourg.
The circular does not apply to regulated AIFs, established in another EU Member State and managed by a Luxembourg-established AIFM. Such AIFMs are expected to notify the CSSF under Article 32 of the AIFM Law.
The circular applies to AIFMs that are registered with the CSSF, pursuant to article 3 of the AIFM Law and to those authorised by the CSSF, pursuant to article 5 of the AIFM Law. Certain information must be transmitted to the CSSF when such AIFMs start to manage additional AIFs that are either:
• Unregulated (regardless of whether the AIF is a Luxembourg entity, another EU Member State entity or a third country entity), or
• Regulated in a third country (i.e. a non EU Member State).
33 REGULATORY iNSiGHTS SUMMER 2015
Luxembourg
Additional AIFs refers to each non-reg-ulated AIF and each regulated non-EU AIF which has not been the subject of a communication to the CSSF during either the review of the authorisation file, or registration file of the AIFM, or during the updating of the afore-mentioned files. Furthermore, in the case where the AIF comprises several compartments, the CSSF indicates that the information should also be communicated to the CSSF at the level of each new compartment of the AIF.
Within 10 days of commencing the man-agement of the relevant AIF, the AIFM must transmit the information set out in the relevant annexes to the Circular. In addition to the forms, the articles of incorporation, the offering document and the last annual report of the relevant AIF must be transmitted to the CSSF, where relevant.
It is to be noted that the CSSF considers that an AIFM starts exercising its man-agement role from the date of signature or the date of effectiveness of the management contract – even if the AIF has not yet been launched at that date.
In addition, the AIFM must inform the CSSF within ten working days of when it ceases to manage an AIF.
34 REGULATORY iNSiGHTS SUMMER 2015
Luxembourg
Developments in Automatic Exchange of Tax Information and AMLOn 27 March, the CSSF published
Circular 15/609 to remind the
paying agents of their obligation
to communicate information
relating to interest paid during
2015, in accordance with
the EU Saving Directive.
On 19 January, the Luxembourg tax authorities (Administration des contribution directes) issued the Circular Letter RIUE No. 4 on the Law implementing the Council of the EU Directive on the taxation of savings income in the form of interest payments (EU Savings Directive).
The exchange of information, introduced by the revised Admin-istrative Co-operation Directive, targets information related to the fiscal period from January 2016.
At European level, tax offences are now considered as primary offences of money laundering.
35 REGULATORY iNSiGHTS SUMMER 2015
Luxembourg
CSSF Circular 15/611: Managing the Risks related to the Outsourcing of SystemsOn 16 April, the CSSF issued a new
circular to draw the attention of all
entities, subject to the supervision
of the CSSF, to the fact that the
management board/strategic
documents may contain sensitive
data, such as strategic company
data which are not and might
never be released to the public.
The circular also defines what is
meant by strategic documents
(for example, documents required
for analysis during a merger/
acquisition process), which are
stored in so-called data rooms.
The CSSF notes the elements that should be included when performing a due diligence check of the service provider that will host and operate the infrastructure on which the data of the entity are stored. The due diligence shall, amongst other elements, include a detailed evaluation of the security aspects of the service provider. In addition, the CSSF states that it is the entity’s responsibility not to disclose any information that is considered confidential under Article 41 of the Law of 5 April 1993 on the financial sector (e.g. names of the clients or investors) to a service provider not subject to professional secrecy obligations.
36 REGULATORY iNSiGHTS SUMMER 2015
Luxembourg
AML: New Form to File Suspicious Transactions ReportsOn 16 March, the Financial Intelligence Unit (FIU) of Luxembourg issued a new format to file Suspicious Transactions Reports (STR). The anti-money laundering law of 12 November 2004 includes the obligation, for the sub-jected professionals, to inform without delay, on their own initiative, the FIU when they know, suspect or have reasonable grounds to suspect that money laundering or terrorist financ-ing is being committed or has been committed or attempted. Details will be needed on: its development; the person concerned; the origin of the funds and the purpose, nature and procedure of the operations. This report must be accompanied by all supporting information and the documents which prompted the report.
From now on, the STR itself has
two new appendices, one dedicated
to Legal Person (LP) and the
other to Natural Person (NP),
to inform about the particulars
of the persons subject to the
suspicion or simply involved in the
relationship with the professional
who has a suspicion to report.
An appendix must be completed
for each person under suspicion.
37 REGULATORY iNSiGHTS SUMMER 2015
Fair and Effective Markets ReviewUnited Kingdom
The Fair and Effective Markets Review was published on 10 June and sets out 21 recommendations relating to the wholesale FICC markets. The Review was established by the Chancellor of the Exchequer and the Governor of the Bank of England in June 2014 to help restore trust in those markets, in the wake of a number of recent high profile abuses.
Key recommendationsProposals to strengthen regulation of FICC markets include:
• Extending elements of the Senior Managers and Certification Regimes to a wider range of regulated firms active in FICC market
• Creating a new statutory civil and criminal market abuse regime for spot FX, drawing on the international work on a global code.
Proposals to firms to improve the quality, clarity and understanding of FICC trading practices include:
• Creating a new FICC Market Standards Board with participation from a broad cross-section of firms and end users and, involving regular dialogue with the public authorities, to address areas of uncertainty in trading practices and to promote adherence to standards.
Proposals to raise standards, professionalism and accountability of individuals include:
• Encouraging IOSCO to consider developing a set of common standards for trading practices that will apply across all FICC markets
• Extending UK criminal sanctions for market abuse to a wider range of FICC instruments and lengthening the maximum sentence from seven to ten years’ imprisonment
• Mandating qualification standards, in order to improve professionalism and disclosure requirements for references and to avoid misconduct going undetected when individuals change jobs.
38 REGULATORY iNSiGHTS SUMMER 2015
United Kingdom
Proposals to the international authorities to raise standards in global FICC markets include:
• Agreeing a single global FX code, providing a comprehensive set of principles to govern trading practices around market integrity, information handling, treatment of counterparties and standards for venues – as well as stronger mechanisms to ensure that market participants adhere to that code
• Examining ways to improve the alignment between remuneration and conduct risk at a global level.
In addition, the Review identifies a set of principles to guide a more forward-looking approach to the structure, behaviour and supervision of FICC markets.
It is expected that certain recommendations can be implemented quickly, while others will require consultation ahead of possible legislative change. The Fair and Effective Markets Review will provide a full implementation update on the proposals to the Chancellor and Bank of England by June 2016.
An Open Forum will be held at the Bank of England this autumn where stake-holders will have the opportunity to discuss the report’s recommendations.
39 REGULATORY iNSiGHTS SUMMER 2015
Individual Accountability in the Banking Sector
United Kingdom
In July, the Financial
Conduct Authority (FCA)
and Prudential Regulation
Authority (PRA) published rules
on individual accountability
in the banking sector.
The FCA policy statement provides the final rules that will apply to relevant individuals and covers the Senior Managers Regime (SMR), the Certification Regime, applicable to other staff who could pose significant harm to the firm or its customers, and conduct rules. The FCA's final rules are included in the first part of a consultation paper which seeks comments from stakeholders about amendments to FCA rules in relation to the certification of individuals involved in wholesale market activities.
Comments are due by 7 September. The PRA's policy statement contains the final rules to implement the SMR and Certification Regime for rele-vant authorized persons at UK banks, building societies, credit unions and PRA-designated investment firms.
40 REGULATORY iNSiGHTS SUMMER 2015
United Kingdom
PRA Consultation on Contractual Stays in Financial Contracts Governed by Third Country LawThe PRA has launched a consultation on the contractual adoption of UK resolution stays in certain financial contracts.
The consultation proposes a
new rule for the PRA Rulebook,
requiring the contractual adoption
of UK resolution stays in certain
financial contracts governed by
the law of a jurisdiction outside
the European Economic Area
(EEA). The rule would apply to
UK banks, building societies and
PRA-designated UK investment
firms, as well as their qualifying
parent undertakings.
The proposed rule is intended to support the orderly resolution of failing firms by ensuring that any resolution action taken against such a firm will not result in the early ter-mination of its financial contracts governed by third-country law, while its financial contracts governed by an EEA jurisdiction are stayed.
The deadline for comments
is 26 August.
41 REGULATORY iNSiGHTS SUMMER 2015
ABi Italian Banking Association (Associazone Bancaria Italiana)AiF Alternative Investment FundAiFM Alternative Investment Fund ManagerAiFMD Alternative Investment Fund Managers DirectiveAMLD iv Fourth Anti-Money Laundering DirectiveBaFin German Federal Financial Supervisory Authority
(Bundesanstalt für Finanzdienstleistungsaufsicht)BCBS Basel Committee on Banking SupervisionCBi Central Bank of IrelandCCP Central CounterpartiesCCCTB Common Consolidated Corporate Tax BaseCMU Capital Markets UnionCOviP Italian authority on pension fundsCP Consultation PaperCRD iv Fourth Capital Requirements DirectiveCRR Capital Requirements RegulationCSD Central Securities DepositoryCSSF Commission de Surveillance du Secteur FinancierDG FiSMA Directorate-General for Financial Stability,
Financial Services and Capital Markets UnionDPO Designated Public OfficialsEBA European Banking AuthorityEEA European Economic AreaEiOPA European Insurance and Occupational Pensions AuthorityELTiF European Long-Term Investment FundsEMiR European Market Infrastructure RegulationESAs European Supervisory Authorities (EBA, ESMA and EIOPA)ESMA European Securities and Markets AuthorityETD Exchange-Traded DerivativesEU European UnionFATCA Foreign Account Tax Compliance ActFATF Financial Action Task ForceFCA Financial Conduct AuthorityFEMR Fair and Effective Markets ReviewFiCC Fixed income, currency and commodityFiU Financial Intelligence Unit of LuxembourgFSP Fund Service ProviderFTT Financial Transaction TaxFX Foreign ExchangeHKEx Hong Kong Stock ExchangeHKSCC Hong Kong Securities Clearing Company
Abbreviations
42 REGULATORY iNSiGHTS SUMMER 2015
iFiA Irish Fund Industry Association (Newly named Irish Funds)iMR Investor Money RegulationsiOSCO International Organization of Securities CommissionsiORP ii The second Institutions for Occupational Retirement
Provision DirectiveLiBOR London Interbank Offered RateKAGB German Financial Supervisory Authority (Kapitalanlagegesetzbuch)KWG German Banking Act (Kreditwesengesetz)LP Legal PersonMAR Market Abuse RegulationMEF Ministry of Finance (Italy)MEP Member of European ParliamentMiFiD Markets in Financial Instruments DirectiveMiFiR Markets in Financial Instruments RegulationMMF Money Market FundNCA National Competent AuthorityNP Natural PersonNPPR National Private Placement RegimeOJ Official JournalOTC Over-the-counterPEP Politically Exposed PersonPEPP Pan-European Personal PensionPRA Prudential Regulation AuthorityPRiiPS Packaged Retail and Insurance-based Investment ProductsRTS Regulatory Technical StandardsSFT Securities Financing TransactionSFTR Securities Financing Transactions RegulationSiCAv Public Limited Company with its own legal personality, whose
capital is variable (Société d’Investissement à Capital Variable)SM&CR Senior Managers and Certification RegimeSME Small or Medium-Sized EnterprisesSRF Single Resolution FundSRM Single Resolution MechanismSSE Shanghai Stock ExchangeUCiTS Undertaking(s) for Collective Investment in Transferable Securities
43 REGULATORY iNSiGHTS SUMMER 2015
Regulatory Timeline
2012/Q1 2013/Q1 2014/Q1 2015/Q1 2016/Q1Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Post 2016
FTT
Data Protection
Solvency II
IORP II
SFT
Benchmarks
Shareholders Rights Directive
ELTIFs
PRIIPs
MMFs
UCITS V
CSMAD/MAR
MiFID II/MiFIR
CSD
EC Legislative Proposal
EIOPA Report on LTG
Provisional Level 1 Text
Provisional Level 1 Text
Provisional Level 1 Text
Provisional Level 1 Text
Provisional Level 2 Text
Provisional Level 2 Text
Provisional Level 2 Text
Provisional Level 2 Text
Provisional Level 2 Text
Provisional Level 2 Text
Provisional Level 2 Text Application Deadline
Transposition Deadline Application DeadlineJanuary 2017
Application Deadline2017
Full DematerialisationBy 2023-25
5-year Transitional Periodfor KID Requirement forUCITS Funds
Application DeadlineJuly 2016
Application Deadline
Application DeadlineMarch 2016
Application DeadlineTBC
Application DeadlineTBC
Application DeadlineTBC
Application DeadlineQ4 2017/Q1 2018
Application DeadlineTBC
Application DeadlineTBC
Application DeadlineSubmission of Set 1 ITSPublication of Set 2 Guidelines
Provisional Level 1 Text
Provisional Level 1 Text
Provisional Level 1 Text
Provisional Level 1 Text
Provisional Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 2 Text
Omnibus II Voted on in Parliament
Final Level 2 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text
Final Level 1 Text EC Legislative Proposal
EC Legislative Proposal
EC Legislative Proposal
EC Legislative Proposal
EC Legislative Proposal
EC Legislative Proposal
Provisional Level 1 Text
Provisional Level 1 Text
Application DeadlineFinal Level 1 Text EC Legislative Proposal
EC Legislative Proposal
EC Legislative Proposal
EC Legislative Proposal – Q4 2011
EC Legislative Proposal – Q4 2011
Final Level 2 Text
Final Level 2 Text EC Legislative Proposal
Submission of Set 2 ITS
Final Level 2 Text
Publication of Set 1 Guidelines
Completed MilestonesFuture MilestonesApplication Date
44 REGULATORY iNSiGHTS SUMMER 2015
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