Introduction
Welcome to the latest international edition of our financial services updater.
Highlights this week include:
- ESMA proposes remuneration guidelines for firms providing investment services
- How conduct regulation will be changing and how the new regulator will seek to get a fair deal for consumers
To view know-how corner our video summary concerning this week's highlights please click here.
ARROW visit coming up? It is important that firms properly prepare themselves for an ARROW visit. There are many ways in which we can assist in this preparation to ensure that the process runs smoothly. For further information please contact either Jonathan Herbst or Peter Snowdon.
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Banking
Core Principles for Effective Banking Supervision
The Basel Committee on Banking Supervision (BCBS) has published an updated version of its Core Principles for Effective Banking Supervision (the Core Principles). The Core Principles are de facto minimum standards for sound prudential regulation and supervision of banks and banking systems.
The Core Principles have been updated following a review by the BCBS to take into account significant developments in the global financial markets and regulatory landscape following the financial crisis in 2006, including post-crisis lessons for promoting sound supervisory systems.
The BCBS states that in some cases existing criteria to the Core Principles have been upgraded and in other cases new criteria added. In addition, the update has taken into account several key trends and developments that have emerged in the last few years, these include:
- The need for greater intensity and resources to deal effectively with systemically important banks.
- The importance of applying a system-wide, macro-perspective to the micro-prudential supervision of banks to assist identifying, analysing and taking pre-emptive action to address systemic risk.
- Increasing focus on effective crisis management, recovery and resolution measures in reducing both the probability and impact of a bank failure.
In addition the BCBS notes that sound corporate governance underpins effective risk management and public confidence in individual banks and the banking system. A new Core Principle on corporate governance has been added by bringing together existing corporate governance criteria in the assessment methodology and giving greater emphasis to sound corporate governance practices.
View Core Principles for Effective Banking Supervision, 13 September 2012
European Parliament publishes adopted text of resolution on banking union
The European Parliament has published its resolution on the proposals for European banking union. The resolution was adopted by a show of hands one day after the European Commission published the legislative proposals for the EBU.
The text of the resolution is unchanged from that set out in the motion for a resolution published by the European Parliament on 12 September 2012. In particular the resolution stresses the need to enhance democratic legitimacy with regard to the proposed EBU and single supervisory mechanism by fully involving the European Parliament as co-legislator.
View European Parliament resolution of 13 September 2012 - Towards a Banking Union, 13 September 2012
European Parliament publishes adopted text of resolution on EU banking union
The European Parliament has published its resolution on the proposals for European banking union. The resolution was adopted by a show of hands one day after the European Commission published the legislative proposals for the banking union.
The text of the resolution is unchanged from that set out in the motion for a resolution published by the European Parliament on 12 September 2012. In particular the resolution stresses the need to enhance democratic legitimacy with regard to the banking union and the single supervisory mechanism by fully involving the European Parliament as co-legislator.
View European Parliament resolution of 13 September 2012 - Towards a Banking Union, 13 September 2012
ECON draft report on EU banking union
The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has published a draft report on the European Commission's proposals for European banking union. The draft report contains a motion for a European Parliament resolution together with an annex to the motion containing detailed recommendations. The recommendations cover four key themes:
- An integrated financial framework.
- An integrated fiscal framework.
- An integrated economic policy framework.
- Strengthening democratic legitimacy and accountability.
View ECON draft report on EU banking union, 17 September 2012
Hearing of the chairpersons of the ESAs - Initial statement of the chairperson of the EBA
The European Banking Authority (EBA) has published the initial statement given by its chairperson, Andrea Enria, to the Committee on Economic and Monetary Affairs at the hearing of the chairpersons of the European Supervisory Authorities.
In her statement Mrs Enria states that the European banking union will have an impact on the responsibilities of the EBA as it will call on the whole EU for a stronger commitment to the single rulebook and for a move towards the single supervisory handbook with unified supervisory methodologies to asses the risks at banks and to trigger corrective actions.
Mrs Enria also states that the EBA faced strong pressure to address the difficult situation in banking markets and this resulted in it moving slower than expected to accomplish tasks in the area of consumer protection. However, she adds that the EBA is now working at a much higher speed in this area and envisages issuing important guidelines on responsible mortgage lending and on arrears management. She also mentions that the EBA’s reviews of the risks for consumers and banks from financial innovations such as exchange traded funds, contracts for differences and structured products are being finalised.
View Hearing of the chairpersons of the ESAs - Initial statement of the chairperson of the EBA, 19 September 2012
Parliamentary Commission on Banking Standards to conduct pre-legislative scrutiny of the draft Banking Reform Bill
The Parliamentary Commission on Banking Standards (the Parliamentary Commission) has confirmed that it will be conducting pre-legislative scrutiny of the Government’s draft Banking Reform Bill (the Bill).
The Parliamentary Commission will receive the draft Bill during the week commencing 8 October 2012 and commence its examination of it immediately.
In its Terms of Reference, the Parliamentary Commission has been asked to report on legislative action no later than 18 December 2012 and the Bill is expected to appear before the House of Commons in January 2013. The Government intends for the Bill to receive Royal Assent and all relevant secondary legislation to be completed by the scheduled end of the current Parliament in May 2015.
The main aim of the Bill is to give HM Treasury and the relevant regulators powers to implement the recommendations of the Independent Commission on Banking on ring-fencing requirements for the banking sector. In addition to this the Bill will contain provisions relating to depositor preferences and additional primary loss absorbing capacity requirements.
View Parliamentary Commission on Banking Standards to conduct pre-legislative scrutiny of the draft Banking Reform Bill, 12 September 2012
The Financial Services Bill: The Financial Policy Committee's macro-prudential tools
HM Treasury has published a Consultation Document entitled The Financial Services Bill: The Financial Policy Committee’s macro-prudential tools.
The macro-prudential powers of the Financial Policy Committee (FPC) are designed to allow it to mitigate risks to systemic stability, for example, by influencing the behaviour of firms or placing requirements on them. The Financial Services Bill will provide the FPC with two primary tools: powers of recommendation and powers of direction.
The FPC will have the power to make recommendations (which can be on a comply or explain basis) to the Financial Conduct Authority, the Prudential Regulation Authority, HM Treasury, within the Bank of England and other relevant persons. In practice the Government believes that recommendations will be the primary means by which the FPC will address the risks it identifies. However, in some circumstances the Government believes that it will be appropriate for the FPC to direct the regulators to take action.
The FPC’s direction making power will be restricted to specific tools that are covered by the FPC’s direction making power. In the Consultation Document the Government sets out its proposals for the macro-prudential tools that will initially be subject to the FPC’s direction-making powers. These powers were previously recommended by the interim FPC and cover:
- The countercyclical capital buffer.
- Sectoral capital requirements.
- A leverage ratio.
The Consultation Document also includes a discussion of other macro-prudential tools that the interim FPC highlighted as potentially being the subject of future recommendations to HM Treasury regarding the FPC’s directive tools. These cover: liquidity requirements, margining requirements, loan to value and loan to income ratios and disclosure requirements. The Government does not intend to include these tools in the FPC's initial set of direction powers.
View The Financial Services Bill: The Financial Policy Committee's macro-prudential tools, 18 September 2012
A practical process for implementing a bail-in resolution power
The Bank of England (BoE) has published a speech given by Andrew Gracie (Director, Special Resolution Unit, BoE) entitled A practical process for implementing a bail-in resolution power.
At the start of his speech Mr Gracie stresses that bail-in cannot, and should not, be used in isolation from other tools and powers. Writing down and converting debt into equity may help restore solvency, but on its own it cannot restore viability. He adds that bail-in cannot and should not be used simply as a tool for keeping a loss-making business artificially alive. Instead its role is to help keep a bank's vital operations functioning, and avoid the disorder that would result from the bank suddenly ceasing to trade, whilst it is reorganised, replacing management and restructuring the business as necessary. Credible bail-in, Mr Gracie states, should enable the firm to access market liquidity.
In the remainder of his speech Mr Gracie discusses some of the practical aspects of how bail-in could work for a global systemically important financial institution. He starts by noting that the Financial Stability Board’s international standards for resolution regimes, (the Key Attributes of Effective Resolution Regimes for Financial Institutions) and the draft Recovery and Resolution Directive do not set out in detail the process to be followed to put a bail-in into effect. However, he states that the BoE has conducted work which suggests that a process for implementing a bail-in could consist of four key steps: stabilisation, valuation and exchange, re-launch and restructuring. Mr Gracie briefly considers each stage and in relation to the restructuring stage makes the point that in all instances this would involve replacing culpable management and addressing the firm’s governance failures.
View A practical process for implementing a bail-in resolution power, 17 September 2012
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Clearing and settlement
DG Internal Market and Services - Info-letter on post trading
The DG Internal Market and Services of the European Commission has published the 4th edition of its info-letter on post-trading.
The info-letter covers a number of post-trading topics including:
- Safer and more efficient EU securities settlements - A common regulatory framework for CSDs.
- Recognition of close-out netting agreements.
- The key challenge in securities law - who owns what?
- Crisis management of financial market infrastructures.
- Global regulatory work on strengthening the regulation and oversight of the shadow banking system.
View DG Internal Market and Services - Info-letter on post trading, 18 September 2012
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Collective investment schemes
UAE: Investment Funds Regulations issued
In April 2011, we informed you that the UAE Securities and Commodities Authority (SCA) had published draft investment fund regulations for consultation with interested parties. The SCA has now issued the UAE investment funds regulations (Regulations) which will come into effect when published in the Official Gazette (which is expected imminently) although readers should note, however, that the SCA is currently, in practice, applying the provisions of the Regulations.
Our online briefing concerning the UAE Investment Fund Regulations can be found here.
For further information please contact Jane Clayton
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Insurance
Directive amending Solvency II published in Official Journal
The Directive amending the transposition and application dates of the Solvency II Directive (the Directive) has been published in the Official Journal of the European Union.
The arrangements proposed under Solvency II will put in place the solvency requirements reinsurers must meet and will fully review the financial condition of insurance and reinsurance companies. Solvency II aims for more transparency and accessibility through the recasting of 14 existing Directives into a single document.
The European Parliament adopted a legislative resolution on the Directive on 3 July 2012 and the Council of the European Union adopted it on 5 September 2012. According to the procedure file the final act was signed on 12 September 2012.
View Directive amending the transposition and application dates of the Solvency II Directive (2009/138/EC), 14 September 2012
View Directive on the taking-up and pursuit of the business of Insurance and Reinsurance 2009/138/EC (Solvency II), 14 September 2012
FSA publishes IMAP data review findings on compliance with the requirements of the Solvency II Directive
The FSA has published a feedback report to firms entitled Solvency II: Internal model approval process data review findings (the feedback report). While the FSA’s review work into the compliance of firms with the requirements of the Solvency II Directive is not yet complete, the feedback report gives firms an interim response on the FSA’s findings to date. The feedback report includes an outline of the FSA’s approach to the data review, a summary of the results so far, as well as detailed observations on areas for firms to consider when preparing their application to use an internal model. Requirements relating to internal models are still being developed, and it is expected that delegated acts, binding technical standards and guidance relating to internal models will be adopted in the future.
The data review is expected to be completed by Q3 2013 but the FSA may provide feedback on any significant new findings before then using its usual communications.
View FSA Solvency II: Internal model approval process data review findings, 14 September 2012
ABI paper - The way ahead for conduct regulation: A positive partnership to deliver for consumers
The Association of British Insurers (ABI) has published a paper entitled The way ahead for conduct regulation: A positive partnership to deliver for consumers.
In the paper the ABI outlines its vision for conduct regulation. The ABI states that the Financial Conduct Authority (FCA) and the financial services industry can and should work together in partnership to deliver good outcomes to more confident and informed consumers. The ABI also argues that it is worthwhile for both regulator and regulated to seek to develop and maintain a shared agreement on the key risks and priority areas for improving standards.
The ABI believes that conduct regulation must be firmly placed in the public policy context. Public policy objectives and conduct regulation rules should not be developed in isolation from each other but should be aligned where possible.
The paper sets out six themes for the way conduct regulation should be taken forward by the FCA, the insurance industry, consumer groups and the Government:
- Making markets and regulation work to deliver public policy goals.
- A regulator that is in touch with the consumer experience.
- Regulation focused on markets delivering products that meet consumer needs.
- Facilitating effective competition and innovation in financial services.
- Actively shaping the FCA’s wider regulatory programme within the EU and the UK.
- Building mutual confidence and respect between the FCA and the insurance industry.
View ABI paper - The way ahead for conduct regulation: A positive partnership to deliver for consumers, 18 September 2012
Netherlands: DNB: Insurers’ investments in government bonds increased
On 12 September 2012, the Dutch Central Bank (De Nederlandsche Bank, DNB) announced that Dutch insurers had increased their direct investments in government bonds to almost EUR 120 billion. This is pursuant to purchases for EUR 5 billion, and price increases of existing portfolios.
The publication of the DNB (in English) can be found at:
http://www.dnb.nl/en/news/news-and-archive/statistisch-nieuws-2012/dnb278069.jsp
For further information please contact Floortje Nagelkerke
Netherlands: DNB: The Dutch life insurance sector after five years of crisis
On 7 September 2012, the Dutch Central Bank (De Nederlandsche Bank, DNB) published a bulletin on the Dutch life insurance sector after 5 years of crisis. Pursuant to national and international developments there was a downward trend in the sale of new individual life insurances. Next to that, there was an increase in returns on investments. This resulted in a net decline of the solvency ratios for life insurers. The DNB notes that life insurers currently invest more in ‘safe ’investments in the euro zone.
The publication of the DNB (in English) can be found at:
http://www.dnb.nl/en/news/news-and-archive/dnbulletin-2012/dnb277938.jsp
For further information please contact Floortje Nagelkerke
Canada: Life insurers - New expectations with respect to management, governance, oversight, transparency and enhanced capital requirements
The Office of the Superintendent of Financial Institutions (Canada) (the OSFI), has recently published a regulatory framework aimed at the life insurance industry on which it will be focusing through the end of 2016.
More specifically, the OSFI recognizes that life insurance companies are in many ways significantly different from banks and deposit-taking institutions. To that effect, the OSFI will not indiscriminately implement the regulatory developments relating to deposit-taking institutions (i.e. Basel III) to life insurance companies. Nevertheless, the OSFI recognizes that changes to companies’ risk management, governance and oversight are necessary but that they must be evolutionary rather than revolutionary. Accordingly, the OSFI has indicated its intention to introduce enhancements to the regulatory framework for life insurance companies through:
- A revised corporate guideline which will address how companies should approach their own risk and solvency assessments (ORSA) (the OSFI plans to issue a draft ORSA Guideline for public comment in the Autumn of 2012. The final guideline is expected to be issued in 2013 with implementation scheduled for 2014).
- Revised regulatory capital requirements that will: (i) take into account the total financial and asset requirements of a company (TAR); (ii) measure risks at a similar confidence level; (iii) incorporate new risks not explicitly covered by the current framework; and (iv) accommodate smaller companies, as well as larger, more complex, companies. (The OSFI plans to issue a draft Definition of Capital paper for public consultation in late 2012, early 2013).
- Consideration of developments in actuarial and economic capital theory.
- Linking risk measures to the quality of capital available to absorb losses.
- Taking into account the interaction between risks (diversification/concentration).
- Reflecting effective hedging and other risk mitigation practices.
- A more market consistent approach for determining requirements for guarantees relating to segregated fund products.
- Information disclosure to support the revised regulatory capital requirements.
Expected practical consequences for insurance companies:
- Boards of directors may need to be augmented with broader set of skills.
- Companies may have to increase resources in governance and risk management.
- Capital levels may change due to internal capital targets.
- A reallocation of regulatory capital to various risks or line of business may occur which may impact business models.
For further information please contact Marc Duquette or Laurent Levac
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Regulation & compliance
IOSCO creates Task Force on Financial Market Benchmarks
The International Organisation of Securities Commissions (IOSCO) has created a Board Level Task Force on Financial Market Benchmarks (the Task Force). The Task Force has been formed in light of the significant issues raised by investigations into attempted manipulation of benchmarks, in particular involving the London Interbank Offered Rate (LIBOR), the European Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR). The Task Force will collaborate with other international bodies to establish a robust set of principles.
It will aim to produce a Consultation Paper towards the end of 2012 or early 2013.
View IOSCO creates Board Level Task Force on Financial Market Benchmarks, 14 September 2012
Increasing need to enhance and harmonise disclosure requirements in the Islamic Capital Market
The Islamic Financial Services Board, the International Organisation of Securities Commissions and the Securities Commission of Malaysia have issued a joint press release concerning a recent closed door roundtable in Kuala Lumpar which was themed on disclosure requirements for Islamic capital market products.
The press release states that the roundtable represents a significant step towards the development of international regulatory standards and best practices relating to disclosure requirements for Islamic Capital Market products.
View Increasing need to enhance and harmonise disclosure requirements in the Islamic Capital Market, 18 September 2012
Council publishes latest compromise proposals on MIFID review
The Presidency of the Council of the European Union has published its latest compromise proposals on both the proposed recast of the Markets in Financial Instruments Directive (MiFID II Directive) and the proposed Regulation on Markets in Financial Instruments (MiFIR).
View Proposal for a Directive of the European Parliament and of the Council on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council - Presidency compromise, 19 September 2012
View Proposal for a Regulation of the European Parliament and of the Council on markets in financial instruments and amending Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories - Presidency compromise, 19 September 2012
ESMA proposes remuneration guidelines for firms providing investment services
The European Securities and Markets Authority (ESMA) has published a Consultation Paper containing draft guidelines on remuneration policies and practices in the context of the rules on conflicts of interest and conduct of business under the Markets in Financial Instruments Directive (MiFID).
The draft guidelines are mainly targeted at sales activities with retail clients but ESMA states that they should be considered as applicable, to the extent they are relevant, when services are provided to any type of clients.
The draft guidelines focus on the remuneration of all persons involved in the provision of investment and/or ancillary services. In particular those who can have a material impact on the service provided and on the conduct of business risk profile and/or who can influence corporate behaviour (these are referred to in the draft guidelines as “relevant persons”). The guidelines note that relevant persons may be:
- Client-facing front-line staff, sales force staff and/or other staff indirectly involved in the provision of investment services whose remuneration may create inappropriate incentives to act against the best interests of their clients.
- Those who oversee the sales force who may be incentivised to put pressure on the sales staff, or financial analysts whose literature may be used by sales staff to induce clients to make investment decisions.
- Those involved in complaints handling, claims processing, client retention and in product design and development.
For the purposes of the draft guidelines remuneration consists of all forms of payments or benefits provided directly or indirectly by firms to relevant persons in the provision of investment and/or ancillary services to clients.
The deadline for responding to the Consultation Paper is 7 December 2012. ESMA expects to publish a final report and the final version of the guidelines by Q2 2013.
View ESMA proposes remuneration guidelines for firms providing investment services, 17 September 2012
Financing European growth: The challenge for markets, policy-makers and investors
The European Securities and Markets Authority (ESMA) has published a speech given by its chairman, Steven Maijoor, at the AFME roundtable in Brussels. The speech is entitled Financing European growth: The challenge for markets, policy-makers and investors.
In his speech Mr Maijoor discusses the role of financial market regulation for economic growth. He begins by providing some thoughts on the relationship between finance and economic growth. He then covers the role of regulation and provides a few examples where ESMA has contributed to the promotion of stable markets.
In his conclusion Mr Maijoor states:
“Finding alternatives for traditional intermediation models will be an important task. Whatever ways the markets may take in this regard, it is essential that we restore investor confidence by having a high level of investor protection. In addition, financial stability and efficiency are necessary prerequisites for economic growth. Efficient and effective regulation and supervision, in turn, safeguard and enhance financial stability and efficiency, in particular through the preservation of the European Single Market. It thereby also promotes economic growth.”
View Financing European growth: The challenge for markets, policy-makers and investors, 18 September 2012
How conduct regulation will be changing and how the new regulator will seek to get a fair deal for consumers
The FSA has published a speech given by Martin Wheatley (Managing Director, FSA) entitled How conduct regulation will be changing and how the new regulator will seek to get a fair deal for consumers. The speech was given at the recent ABI conference “A way ahead for conduct regulation”.
In his speech Mr Wheatley discusses conduct regulation by the proposed Financial Conduct Authority (FCA) and what will be expected of firms. In particular at the start of his speech Mr Wheatley mentions that first and foremost firms should read the FCA Approach Document which will be published at the end of next month.
When discussing what is expected of insurance firms Mr Wheatley mentions that the FCA will look at the product lifespan, from the boardroom to the point of sale. He adds that the biggest difference will be a move from an essentially reactive approach to a more pre-emptive approach. This will be about identifying and heading off issues before they turn into big problems for consumers. This will be based on the FCA making forward-looking judgements about firms’ business models, product strategies and how they run their business. This will help the FCA to intervene earlier to prevent problems from turning into actual harm.
Mr Wheatley then explains how some firms will be expected to change their culture and the way they view consumers. Firms will need to balance the way products are developed and sold in the right way against making profits. This will, however, be balanced against consumers taking more of an interest in the products they purchase.
Mr Wheatley then discusses the product intervention power given to the FCA adding that a wider product pre-approval scheme has been looked at but ruled out for the moment. The FCA will be selective and proportionate when using the product intervention power but the point Mr Wheatley makes is that the power will be used when needed. The FCA will not adopt a tick box approach when using the power. The FCA will instead look across the whole process - the structure of the product, the target market, the distribution process and wider sales and marketing as well as detailed individual product issues.
Near the end of his speech Mr Wheatley covers the FCA’s objective to promote effective competition in the interests of consumers. This does not mean simply having more firms in the market. Instead, the FSA’s current thinking is that it broadly comes down to four areas:
- Firms competing for business by offering better services, better value and the types of products their clients want and need.
- No firms sustaining excess profits.
- Firms innovating and developing new products, or providing services in different ways.
- A market where the successful firms are the ones that respond most effectively to consumers’ genuine needs.
At the end of his speech Mr Wheatley describes three key themes that firms should take away from his speech:
- The FSA appreciates that the environment in which it operates is changing. As a regulator, the FSA is changing as it prepares to become the FCA. As part of this, the FSA’s expectations of firms are also changing.
- The FSA wants to continue to work with firms to ensure that customers’ interests are at the heart of their business models.
- The FSA appreciates the vital role that a stable and trustworthy insurance sector plays as part of a thriving financial services sector.
View How conduct regulation will be changing and how the new regulator will seek to get a fair deal for consumers, 18 September 2012
Beating the fraudster
The FSA has published a speech given by Bob Ferguson (Head of Financial Crime & Intelligence, FSA) entitled Beating the Fraudster.
In his speech Mr Ferguson discusses two topics:
- The current transition from the FSA to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
- How the transition to the new structure will play out in relation to the work against insurance fraud.
In relation to the first issue Mr Ferguson notes that one of the more striking features is that the new set up gives a very clear mandate to the FCA in relation to financial crime. The FCA’s integrity objective explicitly tasks the FCA not to let the UK financial system be used for the purposes of financial crime. However, whilst the PRA has no such mandate that does not mean it can forget about insurance fraud altogether. From its prudential point of view, insurance fraud is operational risk, and the PRA needs to know that PRA regulated firms are on top of their operational risks and that their solvency is not being undermined by external or insider fraud.
When tackling its financial crime responsibilities the FCA’s priorities will be risk driven and the types of questions it will ask itself include:
- To what extent do non-regulatory players have natural incentives to guard against the type of crime in question?
- How good is the industry or sector at tackling the crime risk in question through collective action?
- Who else is on the pitch, tackling the risk?
Mr Ferguson states that taking into account all these factors, the FSA’s top concerns at the moment are money laundering risk, corruption risk, investment fraud against consumers and, on the markets side, insider dealing.
View Beating the fraudster, 13 September 2012
Netherlands: Dutch rules on derivatives transactions for social housing funds
In response to the recent market turmoil regarding Dutch social housing funds, the Dutch Minister of Interior has published policy guidelines in relation to the use of financial derivatives by social housing funds. Several housing funds have in the past entered into various (naked) interest swap transactions. As a result of decreasing interest rates, some of them have been (and still are) facing liquidity problems due to the vast amount of collateral to be provided under these swap transactions.
The policy guidelines pertain to, amongst others, capital and organisational requirements but also permitted types of derivates to be entered into as well as their relevant contractual terms. In addition, they also introduce a prohibition for social housing funds to enter into derivatives if it is not considered to be a non-professional investor by the relevant swap providers. This is intended to ensure that the rules on duty of care as stipulated in the Act on the Financial Supervision (Wet op het financieel toezicht) apply. The policy guidelines as published in the State Gazette will not have retrospective effect and will not apply to derivatives transactions entered into prior to 1 October 2012.
The proposed rules (in Dutch) can be found at:
http://www.rijksoverheid.nl/onderwerpen/woningcorporaties/documenten-en-publicaties/besluiten/2012/09/05/beleidsregels-derivaten-woningcorporaties.html
For further information please contact Floortje Nagelkerke
Netherlands: AFM will investigate services provided to non-consumers
The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) has announced that it will conduct an investigation into the provision of financial services to non-consumers. The AFM will undertake this investigation pursuant to the recent market turmoil regarding Dutch social housing funds, but also in relation to other ‘professional’ investors such as universities and municipalities. The recent Act on the Financial Supervision (Wet op het financieel toezicht) assumes that these parties are professional clients and experienced enough to understand the risks involved in relation to complex financial products. However, based on recent developments the AFM will investigate whether this assumption is correct.
The publication (in Dutch) can be found at:
http://www.afm.nl/professionals/afm-actueel/nieuws/2012/sep/onderzoek-dienstverlening-niet-retailklanten.aspx
For further information please contact Floortje Nagelkerke
Netherlands: Four themes for reviewing 2013 annual accounts
The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) has published the four themes which it will specifically review in the 2013 financial accounts published by listed companies. The AFM will focus its review on investments, credit risk, cash flows and provisions.
The publication of the AFM (in Dutch) can be found at:
http://www.afm.nl/nl/professionals/afm-actueel/nieuws/2012/sep/toetsing-jaarverslagen.aspx
For further information please contact Floortje Nagelkerke
Poland: Pegasus third country regulatory matrix
The third country regulatory matrix which appears on our online technical resource “Pegasus” has been updated to include an entry for Poland.
View Third country regulatory matrix - Poland, 18 September 2012
France: Delta-adjusted reporting of cash-settled derivatives enters into effect on 1 October 2012
As reported in previous financial services international updaters, the French Government has introduced legislation which changes disclosure requirements applicable to cash-settled derivatives with effect from 1 October 2012. Prior to this change, cash-settled derivatives only had to be separately disclosed at the time when a statutory disclosure threshold was independently crossed. The legislation changes the position in that cash-settled derivatives that have a “similar economic effect to holding shares” will have to be taken into account for the purposes of calculating thresholds to be disclosed.
The French securities regulator (the AMF) has recently published its amended Rulebook implementing the new regime.
There has been a debate as to how to calculate underlying shares to cash-settled derivatives. By way of background, the disclosure of notional interests implies disclosing the maximum number of underlying shares and voting rights of a derivative instrument (this applies to physically-settled derivatives). By contrast, delta-adjusted reporting implies disclosing underlying shares and voting rights to a derivative instrument only up to the level of the notional amount multiplied by the delta applicable to the derivative instrument. The latter method of calculation has been found by the market to better reflect the exposure to the economic performance of underlying shares or voting rights with respect to cash-settled derivatives.
Under the AMF Rulebook, cash-settled derivatives positions will be required to be reported on a delta-adjusted, rather than a notional, basis. As a consequence, investors may need to file additional disclosures every time changes of delta result in statutory thresholds being crossed.
In addition, it is worth noting that statutory thresholds may be crossed merely as a result of the entry into force of the new regime on 1 October 2012. Such disclosure will have to be made by 5 October 2012.
For example, an investor holding as at 1 October 2012 CFDs equal to 6% of the share capital and voting rights of an issuer (on the basis of the delta-adjusted calculation) will have to disclose by 5 October 2012 the crossing of 5% threshold of the share capital and voting rights, even if it does not hold any shares in the issuer. If it holds shares, the shares held will need to be aggregated to the underlying shares of the CFDs held.
The AMF Rulebook contains detailed rules on how calculation of the holding to be disclosed must be made, on the information to be contained in the notification with respect to cash-settled derivative and the extent to which some exceptions may apply.
For further information please contact Roberto Cristofolini or Anselme Mialon
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Securities
ESMA consults on market maker and primary dealer exemption for short selling
The European Securities and Markets Authority (ESMA) has published a Consultation Paper containing draft guidelines on market making and the application of the exemption for market making activities and primary market operations under the Regulation on short selling and certain aspects of credit default swaps.
The draft guidelines are intended to clarify:
- The scope of the exemption for market making activities including the required link between the relevant financial instrument, the trading venue or "equivalent" third country venue and the membership of the notifying entity.
- How the relevant competent authority for notification is defined, in particular for notifying entities from third countries.
- The process of notification of the intent to use the exemption and its content, including common templates for notification as well as the approach to processing notifications received by relevant competent authorities and assessing conditions of the exemption.
- Transitional measures relating to the sending of notification of intention to use the exemption for market making activities or as Authorised Primary Dealers as of 1 September 2012.
The deadline for responding to the Consultation Paper is 5 October 2012. An open hearing on the draft guidelines will take place in Paris on 1 October 2012. ESMA will consider the responses to the consultation and expects to adopt final guidelines in November 2012.
View ESMA consults on market maker and primary dealer exemption for short selling, 17 September 2012
ESMA Q&A on the implementation of the Regulation on short selling and certain aspects of credit default swaps
The European Securities and Markets Authority (ESM) has published a paper setting out questions and answers regarding the Regulation on short selling and certain aspects of credit default swaps (the Regulation). The Regulation comes into force on 1 November 2012.
The purpose of ESMA’s paper is to promote common supervisory approaches and practices among Member States. The paper covers the following topics:
- Scope.
- Transparency of net short positions.
- Calculating the net short position.
- Handling of notification and disclosure of net short positions.
- Uncovered short sales.
- Enforcement.
View ESMA Questions and Answers - Implementation of the Regulation on short selling and certain aspects of credit default swaps, 13 September 2012
Delegated and implementing Regulations to the Regulation on short selling and certain aspects of credit default swaps published in the Official Journal
There has been published in the Official Journal of the European Union:
- Commission Delegated Regulation (EU) No 826/2012 of 29 June 2012 (the Delegated Regulation) supplementing the Regulation on short selling and certain aspects of credit default swaps.
- Commission Implementing Regulation No 827/2012 of 29 June 2012 (the Implementing Regulation) laying down implementing technical standards with regard to the Regulation on short selling and certain aspects of credit default swaps.
The Delegated Regulation lays down regulatory technical standards on notification and disclosure requirements with regard to net short positions. It also specifies the:
- Details of the information on net short positions to be provided to the competent authorities and disclosed to the public by a natural or legal person pursuant to Article 9(5) of the Regulation on short selling and certain aspects of credit default swaps (the Regulation).
- Details of the information to be provided to the European Securities and Markets Authority (ESMA) by the competent authority pursuant to Article 11(3) of the Regulation.
- Method for the calculation of turnover to determine the principal venue for the trading of a share pursuant to Article 16(3) of the Regulation.
The Delegated Regulation enters into force on the day following that of its publication in the Official Journal of the European Union.
The Implementing Regulation lays down implementing technical standards relating to the means for public disclosure of net position in shares, and specifies the:
- Means by which information on net short positions may be disclosed to the public by natural or legal persons as well as the format of information to be provided to ESMA by competent authorities pursuant to Article 9(6) and Article 11(4) of the Regulation.
- Types of agreements, arrangements and measures that adequately ensure that the shares are available for settlement and the types of agreements or arrangements that adequately ensure that the sovereign debt is available for settlement pursuant to Article 12(2) and 13(5) of the Regulation.
- Date and period for principal trading venue calculations, notification to ESMA and the effectiveness of the relevant list pursuant to Article 16(4) of the Regulation.
The Implementing Regulation enters into force on the day following its publication in the Official Journal of the European Union.
View Commission Delegated Regulation of 29 June 2012 supplementing the Regulation on short selling and certain aspects of credit default swaps, 18 September 2012
View Commission Implementing Regulation of 29 June laying down implementing technical standards as regards the Regulation on short selling and certain aspects of credit default swaps, 18 September 2012
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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.
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G20 commitment on clearing
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