Introduction
The asset management regulation group advises on the full range of legal and regulatory issues for institutional and specialist asset management firms, including advising on documentation and all aspects of compliance with applicable regulatory requirements.
Every month the group publishes an updater which covers the latest regulatory developments that affect those involved in asset management. Welcome to the July 2012 edition of the asset management regulation updater.
Highlights include:
- Proposal for UCITS V
- ESMA proposes remuneration guidelines for AIFMs
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Banking
EBA opinion on Commission’s Green Paper on shadow banking
On 17 July 2012, the European Banking Authority (EBA) published an opinion on the European Commission’s Green Paper on shadow banking.
In its opinion the EBA:
- Agreed with the definition of shadow banking proposed by the Financial Stability Board’s recommendations entitled Shadow banking: Scoping the issues. In particular the EBA considers shadow banking as a system of intermediaries, instruments, entities or financial contracts generating a combination of bank-like functions outside the regulatory perimeter or under a lightly regulated regime and without access to a central bank liquidity facility or public sector credit guarantees.
- Believed that the point made by the Green Paper on the legal definition of banking deserves strong attention. The Green Paper stated; “existing EU banking legislation is limited to deposit-taking institutions that provide credit. It could be considered to enlarge the scope of financial institutions and activities covered by the current legislation. The Commission is currently studying the merits of extending certain provisions of CRD IV to non-deposit taking finance companies not covered by the definition in the Capital Requirements Regulation (CRR). This would also limit the scope for future regulatory arbitrage for providers of credits.”
- Believed that there is a need to further examine the issue of consolidation, from a prudential as well as an accounting standpoint. The EBA noted that the Basel Committee on Banking Supervision is currently undertaking work to consider whether shadow banking entities are consolidated for accounting and prudential purposes and to clarify whether there are differences in regulatory consolidation practices across jurisdictions. This analysis will allow regulators to assess if there is a need to improve the consistency of the regulatory consolidation or to assess if some shadow banking entities need to be consolidated for prudential purposes.
- Argued that the large exposures regime should act as a backstop regime also to ‘shadow activities’ and tackle the risk of interconnectivity by making sure interconnections are duly identified.
View EBA opinion on Commission’s Green Paper on shadow banking, 17 July 2012
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Collective investment schemes
Proposal for UCITS V
On 3 July 2012, the European Commission published a legislative proposal that amends the current UCITS Directive. The Commission's proposed amendments to the UCITS Directive focus on three areas:
- Clarification of the UCITS depositary's functions and improvements to provisions governing their liability, should assets be lost in custody.
- The introduction of rules on remuneration policies that must be applied to key members of the UCITS managerial staff.
- Harmonisation of the minimum administrative sanctions that are available to supervisors in case of key violations of the UCITS rules, including common standards on the level of administrative fines.
The draft legislation has now gone to the European Union and the Council of the European Union for their consideration under the co-decision procedure. Once they reach agreement, Member States usually have two years to transpose the provisions into their national laws and regulations, meaning that the new rules could apply by the end of 2014.
View Proposal for a Directive amending Directive 2009/65/EC, 3 July 2012
ESMA Q&A - Notification of UCITS and exchange of information between competent authorities
On 9 July 2012, the European Securities and Markets Authority (ESMA) published questions and answers concerning the notification of UCITS and the exchange of information between competent authorities.
The Q&A is aimed at competent authorities under UCITS to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. However, the answers are also intended to help UCITS management companies by providing clarity as to the content of the UCITS rules, rather than creating an extra layer of requirements.
The Q&A covers:
- Notification of new investment compartments.
- Amendments and update of documents referred to in Article 93(2) of Directive 2009/65/EC.
- UCITS host Member State’s access to documents.
- Part A of the notification letter.
- Exchange of information between competent authorities in the context of establishment of a branch of a UCITS management company.
- Attestation of payment of notification fees.
View ESMA Q&A - Notification of UCITS and exchange of information between competent authorities, 9 July 2012
ESMA Q&A - Risk measurement and calculation of global exposure and counterparty risk for UCITS
On 9 July 2012, the European Securities and Markets Authority (ESMA) published questions and answers concerning risk measurement and calculation of global exposure and counterparty risk for UCITS.
The Q&A is aimed at competent authorities under UCITS to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. However, the answers are also intended to help UCITS management companies by providing clarity as to the content of the UCITS rules, rather than creating an extra layer of requirements.
The Q&A covers:
- Hedging strategies.
- Disclosure of leverage by UCITS.
- Concentration rules.
- Calculation of global exposure for fund of funds.
View ESMA Q&A - Risk measurement and calculation of global exposure and counterparty risk for UCITS, 9 July 2012
FSCS statement on reporting of annual eligible income from CIS
On 29 June 2012, the Financial Services Compensation Scheme (FSCS) published a statement which explained how it has been advising firms to report income from collective investment schemes under the current rules. This is so that firms know how to report in the future and to explain the consequences of this for the 2010/2011 levy review process. The FSCS also published a set of frequently asked questions alongside the statement.
In the statement the FSCS stated that if a firm did not apply to revise its 2010/11 tariff data by 31 March 2012 and now wished to apply to have a request to revise its tariff data considered it should write to the FSCS by 31 August 2012.
View FSCS interim levy - Tariff issues: FSCS statement on reporting of annual eligible income from collective investment schemes, 29 June 2012
View FSCS interim levy - Tariff issues: FSCS statement on reporting of annual eligible income from collective investment schemes Q&As, 29 June 2012
CLLS response to HM Treasury consultation: Policy options for implementing the AIFMD
On 22 May 2012, the City of London Law Society Regulatory Law Committee (CLLS) published its response HM Treasury's informal Discussion Paper entitled Policy options for implementing the Alternative Fund Managers Directive.
CLLS argued that the key transposition issue relates to the definition of a collective investment scheme (CIS) under the Financial Services and Markets Act 2000 (FSMA) and the definition of an alternative investment fund (AIF) under the AIFMD.
According to the CLLS even though there are difficulties with the definition of an AIF, that definition is clearer in both substantive and policy terms than the FSMA definition of a CIS.
The CLLS therefore suggested that HM Treasury should reconsider the unstated assumption in the Discussion Paper that the FSMA regime regulating those "establishing, operating or winding up" a CIS should be retained alongside the new regime regulating those managing an AIF. The CLLS argued that retaining the existing FSMA regime in addition to the new one amounted to inappropriate "gold plating" in the context of the introduction of the AIFMD regime.
The remainder of the CLLS response covered:
- Requirements for sub-thresholds for alternative investment fund managers.
- Venture Capital Funds and European Social Entrepreneurship Funds.
- Approved Persons regime.
- Marketing to retail investors.
- Private placement regime.
View CLLS Regulatory Law Committee response to HM Treasury’s informal consultation: Policy options for implementing the Alternative Investment Fund Managers Directive, 22 May 2012
The impact of regulatory changes in the US
On 9 July 2012, Norton Rose LLP hosted a web seminar on the impact of regulatory changes in the US.
The topics discussed were:
- Marketing private funds - the changing landscape - JOBS Act Update.
- New CFTC Rules impact on private investment funds - will you need to register as a commodity pool operator?
- Overview of key regulatory filing dates.
Please access the webinar recording below.
Access the audio recording and presentation slides
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FSA Handbook
Handbook Release 127
On 16 July 2012, the FSA published Handbook Release 127.
This Handbook Release contained pages to be inserted into paper versions of the Handbook in order to bring them up to date. The pages incorporate changes made to the Handbook which came into force between 7 June 2012 and 6 July 2012.
View Handbook Release 127, 16 July 2012
Finalised guidance 12/14: Transaction reporting of strategy trades
On 16 May 2012, the FSA published finalised guidance concerning transaction reporting of strategy trades. The guidance applies to exchange traded strategy trades whereby two or more legs that are dependent on each other are executed simultaneously. The guidance applies to transaction reports submitted to the FSA. All transactions that include the combined execution of multiple legs should be reported with each reportable leg as an individual transaction to the FSA. The guidance is effective from 15 August 2012.
The FSA also published a summary of the feedback it received to its earlier guidance consultation. As a result of the feedback received the FSA made a number of changes to the guidance including:
- Replacing the term “Stock Contingent Trade” with “strategy trades” in paragraphs 1.1, 1.4 and 1.6.
- Adding the words “exchange traded” to emphasise the scope of the guidance.
- Rephrasing (but retaining the same meaning) of the example provided to improve clarity and offer better distinction between the two exchanges used in the example as they have similar names.
View Finalised guidance 12/14: Transaction reporting of strategy trades, 16 May 2012
Finalised guidance on the practice of ‘Payment for Order Flow’
On 14 May 2012, the FSA published finalised guidance on payment for order flow (PFOF) arrangements. The FSA defines PFOF arrangements as an arrangement whereby a broker receives payment from market makers in exchange for sending order flow to them.
The finalised guidance covers:
- The practice of PFOF and its possible advantages and disadvantages.
- The rules contained in the Conduct of Business (COBS) sourcebook and the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) that are relevant to the practice of PFOF.
- Guidance on the consistency of the practice of PFOF with the relevant COBS and SYSC provisions.
- Why this issue is separate from that of the fee schedules of trading platforms.
The FSA confirms that PFOF arrangements create a clear conflict of interest between the clients of the firm and the firm itself. Therefore, this type of arrangement is unlikely to be compatible with the FSA’s inducements rule and possibly the best execution rules. However, the FSA does not prohibit payments from a market maker to a broker, provided that all three tests of the inducements rule are satisfied, and that both the best execution and the conflicts of interest rule are complied with.
The FSA also distinguishes between payments made in the inter-dealer broker market and other circumstances where a broker operating on a regulated market acts on behalf of a client. These other circumstances amount to a PFOF arrangement and must comply with the COBS rules and ensure that any conflicts are managed in accordance with SYSC.
The FSA also published a summary of the feedback received to its October 2011 guidance consultation on PFOF.
View Finalised guidance on the practice of ‘Payment for Order Flow’, 14 May 2012
View Summary of feedback received, 14 May 2012
FG12/16: Assessing suitability: Replacement business and centralised investment propositions
On 5 July 2012, the FSA published Finalised Guidance 12/16: Assessing suitability: Replacement business and centralised investment propositions (FG12/16).
In preparation of the Retail Distribution Review (RDR) many firms are changing their business model and choosing to offer a centralised investment proposition (CIP). This includes portfolio advice services, discretionary investment management and distributor-influenced funds.
In FG12/16 the FSA outlines its findings of a thematic review which assessed how this change has affected consumers. The FSA also identified suitability failings of wider relevance relating to replacement business. In FG12/16 the FSA covers:
- The factors firms must consider when deciding whether a recommendation to switch a client’s investment is in the client’s best interests.
- The steps firms should take when designing or adopting a CIP.
- The FSA’s expectations of firms to ensure that individual recommendations to invest into a CIP are suitable.
View FG12/16: Assessing suitability: Replacement business and centralised investment propositions, 5 July 2012
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Market abuse
Council compromise proposal on MAR
On 4 July 2012, the Presidency of the Council of the European Union published a compromise proposal on the proposed Regulation on insider dealing and market manipulation.
The compromise proposal was published ahead of a meeting of the working party on financial services which was due to take place on 11 July 2012. Additions and deletions to the previous Council compromise proposal are denoted by bold underlining and the deletions by strike throughs.
View Presidency of the Council of the European Union - Compromise on the proposal for a Regulation on insider dealing and market manipulation, 4 July 2012
Council Presidency paper on outstanding issues on MAD review
On 4 July 2012, the Presidency of the Council of the European Union published a paper which described the outstanding issues concerning the proposal for a Directive on criminal sanctions for insider dealing and market manipulation (MAD).
The paper described certain specific issues relating to:
- Description of the offences, in particular the need to clarify the description of the administrative offences in the proposed Regulation on insider dealing and market manipulation (MAR) and MAD.
- The principle of ne bis in idem, in terms of criminal and administrative proceedings being brought for the same act.
- Privilege against self incrimination. This issue concerns, in particular, the exercise of investigative powers by the national authorities competent to ascertain the administrative offences covered by MAR, when these concern directly the person (or persons) suspected of the infraction.
- Approximation of penalties. The Presidency stated that on the basis of informal contacts with the European Parliament, the approximation of penalties will, with all probability, form part of a specific proposal for amendment of MAD.
View Council Presidency paper Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation - outstanding issues, 4 July 2012
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Money laundering
FATF report - Specific Risk Factors in Laundering the Proceeds of Corruption
On 2 July 2012, the Financial Action Task Force (FATF) published a report which is intended to assist reporting institutions - financial and non financial - that have a legal obligation to file suspicious transaction reports, or otherwise engage in anti-money laundering / counter terrorist financing due diligence.
The report assists to help these financial institutions to better analyse and better understand specific risk factors that may assist them in identifying situations posing a heightened risk of corruption-related money laundering risk. In particular the report seeks to answer the following question: Are there specific types of business relationships, customers or products which should lead a reporting institution to pay particular attention to the risk of corruption-related money laundering?
View FATF report - Specific Risk Factors in Laundering the Proceeds of Corruption, 2 July 2012
Consultation on proposed changes to the Money Laundering Regulations 2007: Government response
In June 2011 HM Treasury issued a consultation document concerning proposed changes to the Money Laundering Regulations 2007 (the Regulations). The Government received 72 responses to the consultation and a summary of responses was published in November 2011.
On 17 July 2012, HM Treasury published a response document which set out the Government’s views on the responses to its consultation, including the changes that it will be making to the Regulations.
A table in Annex A of the response document provides a summary of all changes the Government will be making and timing. Annex B contains draft regulations making the relevant amendments to the Regulations, which will come into force on 1 October 2012.
View Consultation on proposed changes to the Money Laundering Regulations 2007: Government response, 17 July 2012
HM Treasury advisory notice on money laundering and terrorist financing controls in overseas jurisdictions
On 12 July 2012, HM Treasury published an updated advisory notice about risks posed by unsatisfactory money laundering and terrorist financing controls in a number of jurisdictions. The advisory notice supersedes previous advice issued by HM Treasury, in particular that issued on 5 March 2012.
The advice is split into two parts:
- Part A: Jurisdictions with ongoing and substantial money laundering and terrorist financing risks.
- Part B: Jurisdictions with strategic deficiencies in their anti-money laundering (AML) and counter terrorist financing (CFT) regime, which have developed an action plan with the Financial Action Task Force.
In relation to Part A of the advice HM Treasury has included three jurisdictions which were not included in the advice issued on 5 March 2012: Ecuador, Vietnam and Yemen.
In relation to Part B of the advice HM Treasury has included three jurisdictions which were not included in the advice issued on 5 March 2012: Afghanistan, Albania and Kuwait. Turkmenistan was assessed to have made sufficient amendments to its AML/CFT regime to be removed from the advice.
View HM Treasury advisory notice on money laundering and terrorist financing controls in overseas jurisdictions, 12 July 2012
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Regulation & compliance
FSB publishes implementation monitoring report on compensation practices
On 13 June 2012, the Financial Stability Board (FSB) published a report on the progress made by member jurisdictions and firms in implementing the FSB Principles for Sound Compensation Practices and their Implementation Standards (the FSB Principles and Standards).
The report describes the developments in implementing the FSB Principles and Standards since the FSB’s October 2011 thematic peer review. Key findings in the report include:
- Almost all FSB member jurisdictions have now completed the implementation of the FSB Principles and Standards in their national regulation or supervisory guidance.
- Notable progress has been made in implementing the Basel Committee’s Pillar 3 disclosure requirements issued in July 2011, but more needs to be done.
- There remain important differences in terms of applying the FSB Principles and Standards. In particular, implementation choices vary with respect to the application of the principle of proportionality and to the identification of employees as material risk takers.
- Supervisory attention on compensation issues at the domestic level continues to increase. Most authorities report that firms in their jurisdiction have made good progress and that those firms - especially the ones deemed significant for the purposes of the FSB Principles and Standards - do not show major implementation gaps.
- Cross border supervisory cooperation on compensation issues is improving, but more progress can be made.
The findings in the report confirm the conclusion in the 2011 thematic peer review that achieving lasting change in behaviour and culture within firms is a long-term challenge requiring a sustained commitment and that additional time is needed for a common supervisory understanding to evolve and for effective and consistent implementation of the FSB Principles and Standards to take place.
View Implementing the FSB Principles for Sound Compensation Practices and their Implementation Standards - Progress Report, 13 June 2012
View FSB publishes implementation monitoring report on compensation practices, 13 June 2012
Presidency progress report on MiFID review
On 20 June 2012, the Presidency of the Council of the European Union (the Presidency) published a progress report concerning the European Commission’s legislative proposals for the MiFID review.
The progress report covered a number of issues including:
- Scope including exemptions. A majority of Member States believe that further elements should be included in the list of criteria to determine whether an activity is ancillary to the main business of a non-financial firm. The Presidency and the Commission will look into this further.
- Organised Trading Facility (OTF). Member States are largely divided into two camps regarding the OTF proposal. One side is in favour, but would like to make the OTF rules less strict. The other side would like to make the OTF rules stricter or perhaps even remove this new trading venue category and ensure that organised trading can only take place on the existing types of execution venues.
- Systematic internalisation (SI) and post-trade transparency rules for investment firms. Member States are generally in favour of an amended SI regime but more work needs to be done to reach agreement about the size of the quotes up to which the SI rules should apply.
- Transparency for trading venues. Member States are divided over the application of general waivers from pre-trade transparency for non-equity instruments for request-for-quote and voice trading systems or for markets with trading restricted to professional participants.
- Investor protection. The compromise text introduced by the Presidency imposes stricter disclosure requirements on firms receiving inducements. At the same time, it has introduced a possibility for firms to retain the 'independent' label if monetary inducements are passed in full to their clients. A larger group of Member States seems to favour this regime, while also calling for more transparency through better disclosure of inducements. However, a smaller group of Member States seems firmly committed to introducing a general ban on inducements.
- MTF, regulated markets and SME growth markets. Member States are broadly content with the Commission's proposals in this area.
- Authorisation and operating conditions for investment firms. Member State discussions have mainly focused on organisational requirements, particularly the telephone recording requirement.
- Algorithmic trading and direct electronic access. The Presidency has introduced certain changes which has lead to most Member States supporting the regime for direct electronic access and algorithmic trading. However, there may still be a need to work more on the requirement for algorithmic traders to provide liquidity on a continuous basis regardless of prevailing market conditions.
- Data reporting services and transaction reporting. Discussions between Member States have been constructive with the objective to clarify and strengthen the proposals, as well as to align the provisions with complementary legislation such as the Market Abuse Regulation and the Short Selling Regulation.
- Derivatives and clearing. One Member State has expressed strong reservations about the provisions regarding non-discriminatory clearing and would prefer to delete them. Another Member State feels that there should be fewer options for restricting access. A few Member States have also expressed a desire to align the access provisions further with the European Market Infrastructure Regulation.
- Position management, position limits and product intervention. Discussions have centred on the types of contracts which should be covered by position management, and the balance between position limits and other position management tools. Consideration has also been given to the benefits of a regime which is internationally consistent, including with the USA.
- Third country regime. Several Member States have expressed serious concerns and have strong reservations regarding the Commission proposal introducing a third country regime.
View Presidency progress report on MiFID and MiFIR, 20 June 2012
European Commission adopts technical standards on Regulation on short selling
On 29 June 2012, the European Commission adopted the regulatory and implementing technical standards on the Regulation on short selling and certain aspects of credit default swaps.
An implementing Regulation sets out technical standards concerning the means for public disclosure of net positions in shares and the format of the information to be provided to the European Securities and Markets Authority (ESMA).
The Implementing Regulation will enter into force on the day following its publication in the Official Journal of the European Union (the Official Journal) and shall apply from 1 November 2012 except for the provisions on principal trading venue, which apply from the date of entry into force.
The Delegated Regulation on regulatory technical standards sets out the details of the information on short positions that must be notified to competent authorities and disclosed to the public. It also specifies what information competent authorities must report on a quarterly basis to ESMA, and the method of calculation of turnover for ESMA to determine the principal trading venue of shares.
The Delegated Regulation is subject to a one-month objection period by the European Parliament and the Council of the EU, which can be extended by one month. It will only enter into force provided that neither co-legislator objects, at the end of this period and the day following publication in the Official Journal.
View Short selling: Commission adopts technical standards, 29 June 2012
View Short selling: technical standards - Frequently asked questions, 29 June 2012
View Text of implementing Regulation (provisional version), 29 June 2012
View Text of delegated Regulation (provisional version), 29 June 2012
ESMA publishes an update to the MiFID Q&A in the area of investor protection and intermediaries
On 22 June 2012, the European Securities and Markets Authority (ESMA) published an updated version of its MiFID Questions and Answers. The purpose of this document is to promote common supervisory approaches and practices in the application of MiFID and is implementing measures. It does this by providing responses to questions posed by the general public and competent authorities in relation to the practical application of MiFID. The document contains a question 9 which covers the automatic execution of trade signals.
View ESMA publishes an update to the MiFID Q&A in the area of investor protection and intermediaries, 22 June 2012
ESMA proposes remuneration guidelines for AIFMs
Annex II of the Alternative Investment Fund Managers Directive (AIFMD) establishes a set of rules which alternative investment fund managers (AIFMs) have to comply with when establishing and applying the remuneration policies for certain categories of their staff.
Article 13(2) of the AIFMD requires the European Securities and Markets Authority (ESMA) to develop guidelines on sound remuneration policies which comply with Annex II of the AIFMD (the Guidelines).
On 28 June 2012, ESMA published a Consultation Paper concerning the Guidelines which covered:
- The background to, and the structure of, the Guidelines.
- The proposed scope of the Guidelines and the timing of their entry into force.
- The proposed application of the proportionality principle as regards remuneration policies.
- The proposed treatment of AIFMs that are part of a group.
- Guidance on the consideration to be given to the financial situation of the AIFM when establishing the remuneration policies.
- The proposed approach to governance of remuneration.
- General requirements on risk alignment.
- The proposed approach on remuneration disclosure requirements.
The deadline for responding to the Consultation Paper is 27 September 2012. ESMA aims to adopt the final text of the Guidelines in Q4 2012.
Our new online briefing note on ESMA's consultation on the Guidelines can be found here.
View Designation of investment firms by the PRA, 17 May 2012
Designation of investment firms by the PRA
On 17 May 2012, the FSA and the Bank of England (the Bank) published a paper entitled Designation of investment firms by the PRA.
This paper set out the FSA's and the Bank's initial views on how the Prudential Regulation Authority (PRA) will designate certain investment firms for prudential regulation by the PRA rather than by the Financial Conduct Authority (FCA). The designation powers have been set out in the Financial Services and Markets Act 2000 (PRA-Regulated Activities) Order 201* (the draft Order), which was published by HM Treasury in January 2012.
The paper comprises the following sections:
- Designation policy. The PRA's power to designate certain investment firms contributes to its objective of promoting the safety and soundness of regulated firms by seeking to minimise any adverse effects of firm failure on the UK financial system. In light of this, it should be noted that where the draft Order specifies factors that the PRA must consider, it is not an exhaustive list and the PRA may also have regard to other factors.
- Assets. The FSA and the Bank expect the PRA to consider the value of the total assets of a firm, when deciding whether it should be designated. The PRA should also consider a firm’s business model and book keeping practices to ensure that the assets booked to a particular firm do not give a distorted view of the firm's business.
- Group considerations. Certain investment firms may be designated for regulation by the PRA because they are part of a group containing entities which are subject to PRA regulation. In deciding whether a firm is material to a group, the PRA will assess the share of the firm’s revenues, balance sheet or risk taking as a proportion of the group’s revenues, balance sheet or risk taking. The PRA will also consider the structure of the group. Therefore, it will not be possible to structure a group to avoid designation by the PRA.
View Designation of investment firms by the PRA, 17 May 2012
FSA Annual Public Meeting: Chairman’s speech
On 3 July 2012, the FSA published the speech that Lord Turner (FSA Chairman) gave at the FSA Annual Public Meeting.
At the start of his speech Lord Turner discussed the financial crisis, prudential supervision and conduct regulation on the retail side.
Near the end of his speech Lord Turner referred to supervision in the wholesale space. He began by stating that in the past the FSA has tended to adopted a somewhat caveat emptor approach to wholesale conduct issues. However, the issue for the proposed Financial Conduct Authority (FCA) to consider was how far the caveat emptor approach is sufficient. Lord Turner stated: “We will therefore need to think carefully how far we should shift our past approach to the supervision of wholesale conduct, and what resources and skills we need to be more effective in this area. This is an issue currently under discussion between the executive and the Board, and one on which we will comment in the FCA approach document which we will publish in autumn.”
In the final part of his speech Lord Turner discussed the timing of the transition from the FSA to twin peaks regulation. He stated that the current estimate is that “legal cut over” will occur in April 2013. However, whether this is the date depends on the Parliamentary timetable up to Royal Assent and the time needed thereafter for secondary legislation and regulations.
View, FSA Annual Public Meeting: Chairman’s speech, 3 July 2012
Credible deterrence: here to stay
On 2 July 2012, the FSA published a speech by Tracey McDermott (Acting Director of the FSA Enforcement and Financial Crime Division) entitled Credible deterrence: here to stay. In this speech McDermott discussed what the Enforcement Division of the FSA has been up to in the past two years, and then briefly covered what firms can expect from enforcement in the future.
In particular McDermott picked out three themes from recent market abuse cases:
- The role of professionals in stamping out misconduct in markets. In the Greenlight case, the FSA not only took action against David Einhorn, who directed the trading, but also against Alexander Ten Holter, the compliance officer who failed to recognise the risk that inside information had been disclosed.
- Some of the cases concerned people who were not setting out to break the rules and in some cases were attempting, albeit ineptly, to stay within the letter rather than the spirit of the law. An example of this is the Kyprios case.
- Several cases have applied the new penalties policy, which the FSA introduced in March 2010. The changes to the penalties framework gave the FSA a minimum starting point of £100,000 for individuals who commit serious market abuse.
View Credible deterrence: here to stay, 2 July 2012
The FCA - our vision for enforcement
On 2 July 2012, the FSA published a speech by Martin Wheatley (CEO designate of the Financial Conduct Authority (FCA)). The speech was entitled The FCA - our vision for enforcement.
At the start of his speech Wheatley discussed the transition from the FSA to twin peaks supervision and briefly covered the FCA’s product intervention powers. In relation to these powers Wheatley made the point that they will not always be the first thing the FCA reaches for. However, he also warned that the powers are not window dressing and will be used when needed.
Wheatley then discussed putting consumers at the heart of what the FSA does and then the FSA's approach to enforcement.
At the end of his speech Wheatley gave his audience three main messages:
- The FCA’s core purpose is to make sure markets work well so consumers get a fair deal - to do that it needs to have not only new powers, but a new supervisory approach and a new culture.
- Key to the success of this approach is ensuring that good consumer outcomes are built into the business models of regulated firms.
- While much of what the FSA is doing is changing, its enforcement approach and credible deterrence agenda is here to stay.
View The FCA - our vision for enforcement, 2 July 2012
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Retail
Commission publishes legislative proposals on PRIPS
On 3 July 2012, the European Commission published a legislative proposal, in the form of a draft Regulation, concerning packaged retail investment products (PRIPS). The proposal is intended to improve the quality of information that is provided to consumers when considering investments.
The Commission's proposal aims to inform consumers in a format easy to understand by introducing a new, standard for product information, one that is short and plain-speaking, and consumer-friendly. This document is called the 'Key Information Document' (KID). The proposal foresees that every manufacturer of investment products (e.g. investment fund managers, insurers, banks) will have to produce such a document for each investment product.
The Commission's proposal has now gone to the European Union and the Council of the European Parliament for their consideration under the co-decision procedure. Once they reach agreement, detailed work will be done by the Commission with the input of experts, consumers and stakeholders on the implementing measures. The full proposal could be expected to be in place by the end of 2014.
Our new online briefing note on the Commission's legislative proposals for PRIPs can be found here
View Proposal for a Regulation on key information documents for investment products, 3 July 2012
View Impact Assessment on a proposal for a Regulation on key information documents for investment products, 3 July 2012
View FAQs for Key Information Documents for packaged retail investment products, 3 July 2012
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Securities
Primary Market Bulletin No.2
In 2010 the FSA produced the UKLA Technical Notes and Procedural Notes (the Notes) in which it consolidated all of the articles that appeared in the publication List! and republished only those articles that were valid and accurate as at that date. Since publication the FSA has not updated or revised the information contained in the Notes.
On 13 July 2012, the FSA issued a guidance consultation as part of an exercise which is intended to revise and update the information contained in the Notes.
In order to keep the Notes current and relevant the FSA is proposing to publish them in a new format which is introduced in Primary Market Bulletin No.2 (PMB No.2). The new format is a UKLA knowledge base which is intended to be a single repository of all guidance available from the UKLA. The principal content of the UKLA knowledge base will be a number of short notes organised on a topic-by-topic basis in two series - Technical Notes and Procedural Notes.
PMB No.2 presents for consultation the Notes that the FSA is proposing to publish in the UKLA knowledge base. The deadline for comments is 14 August 2012. The Notes published following the consultation process with constitute FSA guidance.
View Primary Market Bulletin No.2, 13 July 2012
ESMA questions and answers on prospectuses (15th updated version)
On 2 July 2012, the European Securities and Markets Authority (ESMA) published a further updated version of its questions and answers on prospectuses.
In this version ESMA provided a new question (question 80) dealing with the format of the prospectus summary (Annex XXII of the Commission Delegated Regulation (EU) No 486/2012 of 30 March 2012).
View ESMA questions and answers on prospectuses (15th updated version), 2 July 2012
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Seminars
40 minute briefing series - May to September 2012
We are pleased to announce that the invitation for the next series of 40 minute briefings is now available.
If you can not access this link, please copy and paste the address below into your web browser.
www.nortonrose.com/invitations/2012/your-guide-to-the-key-regulatory-challenges-in-2012-65614.aspx
Financial services regulatory products: Phoenix, Pegasus, OTC Oracle and AIFMD expert
Having difficulty keeping up with the pace of the Government's regulatory reform proposals?
Phoenix is our new financial services product that is an online resource designed to help those who are starting their UK regulatory reform projects. It sets out the latest developments and timing of the Government's reform programme plus the key resource papers from the Treasury, Bank of England, FSA and the ICB. The latest Norton Rose LLP briefing notes, videos and webcasts are also available.
The Phoenix main page can be found here.
Behind the curve on the MiFID review?
We have launched a second online resource product called "Pegasus". Pegasus is a new financial services product that is an online resource designed to assist those starting work on MiFID review projects.
The Pegasus main page can be found here.
G20 commitment on clearing
Our third online resource product is OTC Oracle. OTC Oracle is designed to assist clients track the implementation of the G20 commitment to have all standardised OTC derivatives traded on exchanges or electronic trading platforms, where appropriate, and cleared through CCPs by the end of 2012. OTC Oracle sets out the latest developments and timing plus the key resource papers from each of the EU, Canada, Hong Kong and Singapore.
The OTC Oracle main page can be found here.
AIFMD expert
Our fourth online resource product is AIFMD expert. AIFMD expert is designed to assist clients and contacts of Norton Rose LLP when conducting their projects on the Alternative Investment Fund Managers Directive. It sets out the latest developments and timing of the AIFMD plus the key resource papers from the Commission, ESMA and the FSA. Clients and contacts are also given access to the latest Norton Rose LLP briefing notes, slides and webcasts.
The AIFMD expert main page can be found here.
Financial services Fireside Fridays
Please click on the links below:
Financial services & markets webinars
We are currently experiencing significant changes in the European financial services regime that could have a particular impact on both financial firms and non-financial firms that trade energy, commodities and emissions. To assist our clients we have produced a series of short webinars which will look at the forthcoming regulatory changes and their impact on the financial regulation of trading.
Financial services webcasts
Please click on the links below:
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