Financial services updater

28 February 2012


Related services


Welcome to the latest international edition of our financial services updater.

Highlights this week include:

  • ESMA Discussion Paper - Draft technical standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories
  • ESMA Discussion Paper - Key concepts of the Alternative Investment Fund Managers Directive and types of AIFM

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


Basel III implementation monitoring

The Basel Committee on Banking Supervision (BCBS) is monitoring the impact of Basel III: A global regulatory framework for more resilient banks and banking systems and Basel III: International framework for liquidity risk measurement, standards and monitoring on participating banks. The exercise will be repeated semi-annually with end-December and end-June reporting dates.

The BCBS has now published the following documents concerning the implementation of Basel III:

  • Basel III implementation monitoring workbook. The workbook is for information purposes only. While the structure of the workbooks used for the data collection exercise is the same in all participating countries, it is important that banks only use the workbook obtained from their respective national supervisory agency to submit their returns.
  • Instructions for Basel III implementation monitoring. This version of the instructions refers to version 2.3.x of the reporting template which should be used for the 31 December 2011 reporting date. Changes compared to the previous version of the reporting template are highlighted in the Annex. The remainder of the document is set out as follows. Section 2 discusses general issues such as the scope of the exercise, the process and the overall structure of the quantitative questionnaire. Sections 4 to 6 discuss the worksheets for data collection on the definition of capital, the leverage ratio and liquidity, respectively.
  • Frequently asked questions on Basel III implementation monitoring. The document provides answers to technical and interpretive questions raised by supervisors and banks during BCBS Basel III implementation monitoring. However, the document is not intended to facilitate the completion of the monitoring questionnaire and should not be construed as an official interpretation of other documents published by the BCBS.

View Basel III implementation monitoring, 17 February 2012

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Clearing & settlement

ESMA Discussion Paper - Draft technical standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories

The European Securities and Markets Authority (ESMA) has published a Discussion Paper on draft technical standards for the European Market Infrastructure Regulation (EMIR).

The publication of the Discussion Paper follows the trialogue meeting on 9 February at which the European Commission, European Parliament and Council of Ministers reached political agreement on EMIR.

The Discussion Paper seeks stakeholders' views on the regulatory and implementing technical standards ESMA is required to draft under EMIR and submit to the Commission by the end of September 2012. The Commission will then endorse them in the form of Commission Regulations, which will be legally binding instruments directly applicable in all Member States in the European Union.

The Discussion Paper follows the structure of EMIR, with the first section focusing on over-the-counter (OTC) derivatives and in particular the clearing obligation, risk mitigation techniques for contracts not cleared by a central counterparty (CCP) and exemptions to certain requirements. The second part focuses on CCP requirements, where a number of provisions need to be specified through technical standards. The third part deals with trade repositories and in particular the content and format of the information to be reported to trade repositories, the content of the application for registration to ESMA and the information to be made available to the relevant authorities.

The deadline for comments on the Discussion Paper is 19 March 2012.

View ESMA Discussion Paper - Draft technical standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories, 16 February 2012

Top news from the European Commission 18 February - 16 March 2012

The European Commission has announced plans to adopt a proposal for a Regulation on Central Securities Depositaries (CSDs) on 7 March 2012.

The main objectives of the proposal are to:

  • Increase the safety of settlements, in particular for cross-border transactions, by ensuring that buyers and sellers receive their securities and money on time and without risks.
  • Increase the efficiency of settlements, in particular for cross-border transactions, by introducing a true internal market for the operations of national central securities depositories (CSDs).
  • Increase the safety of CSDs by applying high prudential requirements in line with international standards.

View Top news from the European Commission 18 February - 16 March 2012, 17 February 2012

Transactions in flex derivatives contracts conducted through Eurex OTC

The FSA has published a memo entitled Transactions in flex derivatives contracts conducted through Eurex OTC. In this memo, the FSA discusses the guidance on reporting transactions in derivatives concluded through clearing platforms of derivatives markets (ISIN and Aii), which it set out in issue 40 of its Market Watch newsletter.

The memo confirms that the FSA and the approved reporting mechanisms (ARMs) will obtain instrument reference data for Eurex flex derivatives contracts enabling it to identify and accept the instruments for those transactions. Therefore, from 31 March 2012, firms must report transactions in flex derivatives contracts conducted through Eurex OTC by using the respective Aii code issued for those contracts.

Prior to 31 March 2012, firms are not required to report transactions in flex derivatives contracts conducted through Eurex OTC. However, if firms choose to do so, they have 3 options:

  • Use the equivalent Aii code of standardised derivatives contracts.
  • Use the Aii code issued by Eurex to the parties to the trade. However, these will be rejected, as the FSA and ARMs will not obtain the reference data prior to 31 March 2012, but they do not need to be re-submitted.
  • Report as an OTC derivative contract.

View Transactions in flex derivatives contracts conducted through Eurex OTC, 17 February 2012

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Collective investment schemes

Consultation Report - Principles for the valuation of collective investment schemes

The International Organisation of Securities Commissions (IOSCO) has published a Consultation Report entitled Principles for the valuation of collective investment schemes (the Consultation Report).

The Consultation Report updates and modernises IOSCO’s Principles for CIS valuation, originally developed in 1999, to take into account subsequent regulatory, industry and market developments. It also clarifies some concepts put forward by IOSCO in its report entitled Principles for the Valuation of Hedge Fund Portfolios, such as the entity responsible for establishing a policy governing valuation and the independence of the valuation duty.

The Consultation Report outlines principles against which both the industry and regulators can assess the quality of regulation and industry practices concerning collective investment scheme (CIS) valuation. Generally, the draft principles reflect a level of common approach and are intended to be a practical guide. IOSCO also recognises that implementation of the principles may vary from jurisdiction to jurisdiction, depending on local conditions and circumstances.

The deadline for comments on the Consultation Report is 18 May 2012.

View Consultation Report - Principles for the valuation of collective investment schemes, 16 February 2012

ESMA Discussion Paper - Key concepts of the Alternative Investment Fund Managers Directive and types of AIFM

Article 4 of the Alternative Investment Fund Managers Directive (AIFMD) includes definitions of some of the terms used in the Directive.

Article 4(4) of the AIFMD provides that the European Securities and Markets Authority (ESMA) shall develop draft regulatory technical standards (RTS) to determine types of alternative investment fund manager (AIFM), where relevant in the application of the AIFMD, and to ensure uniform conditions of application of the AIFMD.

ESMA has now published a Discussion Paper concerning the interpretation of certain key concepts of the AIFMD. The responses to the Discussion Paper will assist ESMA in developing a Consultation Paper setting out formal proposals for RTS on Article 4(4) AIFMD.

The Discussion Paper covers:

  • Definition of AIFM.
  • Definition of AIF.
  • Treatment of UCITS management companies.
  • Treatment of MiFID firms and credit institutions.

The deadline for responding to the Discussion Paper is 23 March 2012. ESMA will produce a follow up Consultation Paper in Q2 2012. The results of the Consultation Paper will be used by ESMA in finalising the draft RTS to be submitted to the European Commission for endorsement by the end of 2012.

View ESMA Discussion Paper - Key concepts of the Alternative Investment Fund Managers Directive and types of AIFM, 23 February 2012

Revisions to the Hedge Fund Standards and Feedback on Consultation

The Hedge Fund Standards Board (HFSB) came into being on 22 January 2008. The HFSB has created standards which are designed for hedge fund managers and they are all encouraged to become signatories (the Standards). The Standards are also intended to apply to broader asset management groups but only in respect of their hedge fund management activities.

Following a consultation undertaken in 2011 the HFSB has updated the Standards.

The purpose of the earlier consultation was to internationalise and strengthen the Standards. Ensuring that the Standards are appropriate for US managers was a key objective of the consultation. The amendments to the Standards relating to fund governance, in particular, have been designed to cater for a different approach to structuring hedge funds that is typical in the US.

The HFSB has also introduced a number of amendments which are designed to strengthen the Standards so as to:

  • Strengthen disclosure to investors.
  • Improve risk management.
  • Ensure consistency in valuation.
  • Ensure that policies are in place to prevent market abuse.

View Revisions to the Hedge Fund Standards and Feedback on Consultation, 17 February 2012

View Hedge Fund Standards Board strengthens standards with international dimension, 17 February 2012

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Market abuse

Ministerial statement - Criminal Sanctions Directive on Market Abuse

In a written ministerial statement the Financial Secretary, Mark Hoban MP, has stated that the Government has decided at this time not to opt in to the European Commission’s proposal for a criminal sanctions Directive on insider dealing and market manipulation, although it hopes to be in a position to do so in the future.

The ministerial statement provides that the Government’s decision not to opt in at this stage is a reflection of the sequencing of the Commission’s proposal, rather than particular concerns as to the substance. The proposed Directive is dependent on the draft Market Abuse Regulation and the draft recast Markets in Financial Instruments Directive, both of which are in the early stages of negotiation. The Government believes that it is difficult to assess the implications, scope and way this proposal may develop considering the broader uncertainty of the market abuse framework being simultaneously subject to a major review.

View Ministerial statement - Criminal Sanctions Directive on Market Abuse, 20 February 2012

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Money laundering

FATF identifies jurisdictions with strategic deficiencies

The Financial Action Task Force (FATF) has published the following:

  • An updated public statement on jurisdictions with strategic anti-money laundering and combating the financing of terrorism (AML/CFT) deficiencies.
  • A document which identifies jurisdictions that have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF.

View FATF identifies jurisdictions with strategic deficiencies, 16 February 2012

FATF steps up the fight against money laundering and terrorist financing

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the ministers of its member jurisdictions. FATF’s mandate is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system.

The FATF Recommendations provide a framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction.

After working with member countries for over two years the FATF has updated its Recommendations. The main changes are:

  • Combating the financing of the proliferation of weapons of mass destruction through the consistent implementation of targeted financial sanctions when these are called for by the UN Security Council.
  • Improved transparency to make it harder for criminals and terrorists to conceal their identities or hide their assets behind legal persons and arrangements.
  • Stronger requirements when dealing with politically exposed persons.
  • Expanding the scope of money laundering predicate offences by including tax crimes.
  • An enhanced risk-based approach which enables countries and the private sector to apply their resources more efficiently by focusing on higher risk areas.
  • More effective international cooperation including exchange of information between relevant authorities, conduct of joint investigations and tracing, freezing and confiscation of illegal assets.
  • Better operational tools and a wider range of techniques and powers, both for the financial intelligence units, and for law enforcement to investigate and prosecute money laundering and terrorist financing.

View FATF steps up the fight against money laundering and terrorist financing, 16 February 2012

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Regulation and compliance

Suitability requirements with respect to the distribution of complex financial products

The International Organisation of Securities Commissions (IOSCO) has published a Consultation Report entitled Suitability requirements with respect to the distribution of complex financial products (the Consultation Report).

The Consultation Report has been produced following concerns regarding the assessment of customer suitability in relation to the distribution of complex financial products arising out of and in connection with recent market turmoil. It also supports the call by the G20 for action to review business conduct rules.

The Consultation Report sets out proposed principles relating to customer protections, including suitability and disclosure obligations, which relate to the distribution by intermediaries of complex financial products to retail and non-retail customers.

The analysis in the Consultation Report distinguishes between the customer protections, including suitability/appropriateness/know your customer related standards, arising from the different types of selling related services (advisory and non-advisory business) and the degree of customers’ sophistication (retail and non-retail customers). As part of its work in developing the Consultation Report ISOCO carried out work in order to ascertain what criteria its members deem appropriate for applying these standards to both retail and non-retail customers and has considered how firms implement appropriate customer protections, including suitability, know your customer and disclosure requirements, in order to assess whether a product is adequate or appropriate to a specific customer.

The deadline for comments on the Consultation Report is 21 May 2012.

View Suitability requirements with respect to the distribution of complex financial products, 21 February 2012

Publication of an update to the Q&A on Money Market Funds

The European Securities and Markets Authority (ESMA) has updated its Q&A on Money Market Funds.

The purpose of the Q&A is to promote common supervisory approaches and practices in the application of the guidelines on a Common Definition of European Money Market Funds developed by the Committee of European Securities Regulators by providing responses to questions posed by the general public and competent authorities.

The updated Q&A contains two new questions, 15 and 16‚ which cover the use of credit ratings provided by credit rating agencies and corrective actions to be taken by management companies.

View Publication of an update to the Q&A on Money Market Funds, 21 February 2012

Regulation adopted on short selling and credit default swaps

The Council of the European Union has issued a press release stating that it has adopted the proposed Regulation on short selling and certain aspects of credit default swaps. The Regulation introduces common EU transparency requirements and harmonises the powers that regulators may use in exceptional situations where there is a serious threat to financial stability.

Adoption of the Regulation follows agreement reached with the European Parliament in first reading on 18 October 2011, and subsequent approval by the Permanent Representatives Committee on 10 November 2011.

The Regulation should be applicable from 1 November 2012.

View Regulation adopted on short selling and credit default swaps, 21 February 2012

Consolidated version of FSMA

In June 2011, the Treasury produced a consolidated version of the Financial Services and Markets Act 2000 to illustrate how it would be amended by the draft Financial Services Bill.

The Treasury has now updated this document to show the proposed changes to FSMA as at the Bill’s introduction. The changes are marked in the following ways:

  • Inserted and substituted text is underlined.
  • Repealed text is either struck through or where whole sections are repealed, this is shown as a dotted line.

View Consolidated version of FSMA, 23 February 2012

FSA enforcement

The FSA has obtained an interim injunction against Stuart Mudge and Anthony Lewis regarding their involvement in the Churchgate Trading Syndicate (Churchgate). The injunction prevents the two men from accepting any further investments into Churchgate and assets belonging to both men have been frozen. It appears that since September 2010, Mr Mudge and Mr Lewis have accepted approximately £5m from UK investors by promising a guaranteed return generated by trading in spread betting. The FSA is concerned that Mr Mudge and Mr Lewis may have been engaging in these activities without the necessary approval from the FSA, without which investor funds may have been put at risk (as investors may not claim compensation from the Financial Services Compensation Scheme or make a complaint to the Financial Ombudsman Service). 

View FSA Final Notice - Stuart Mudge and Anthony Lewis, 21 February 2012

The FSA has obtained a court order against Monobank Plc (Monobank) for €77,000. Monobank provided promotional literature stating that it was in the final stages of setting up a prepaid credit card service in the UK and Europe and had entered into commercial agreements to that effect. However, the FSA found no evidence to suggest that any of this was true. The court ruled that Monobank was complicit in offshore boiler rooms, cold calling UK consumers and offering them shares in the firm. The €77,000 will be used to redress victims of the scam.

View FSA Final Notice - Monobank Plc, 17 February 2012

Santander UK PLC (Santander) has been fined £1.5 million for breaches of Principle 2 (Skill, care and diligence) and Principle 7 (Communications with clients) and Rule 6.1.16 in COBS in connection with its sales of structured products. Between 1 October 2008 and 6 January 2010 Santander failed to: (i) deal appropriately with the issue of the scope of Financial Services Compensation Scheme (FSCS) cover over its structured products; and (ii) provide investors with clear information regarding the scope of cover available from the FSCS in relation to its structured products. As a result, there was a risk that investors' decisions to invest in Santander’s structured products were based on insufficiently clear information regarding the scope of cover offered by the FSCS. During the relevant period, sales of Santander’s structured products totalled £2.743 billion. The FSA felt Santander's breaches to be serious as, amongst other things, the investors in these structured products may have included some with no or low appetite for risk or no or little previous investment experience. In addition, following the onset of the financial crisis in September 2008, Santander ought to have been on notice of the increased importance of the issue of FSCS cover to investors

View FSA Final Notice - Santander UK PLC, 16 February 2012

Andrew Jon Osborne has been fined £350,000 for engaging in market abuse as a result of his behaviour between 9 and 11 June 2009. In June 2009, Mr Osborne was a Managing Director in the Corporate Broking group of Merrill Lynch International (MLI). In May and June 2009, Mr Osborne led the corporate broking team at MLI in acting for Punch Taverns Plc (Punch) as joint book runner and co-sponsor in relation to a transaction to issue new equity. On 9 June 2009, Mr Osborne and Punch management had a call on a non wall crossed basis with, amongst others, Mr Einhorn, the owner, President and sole portfolio manager of Greenlight Capital Inc (Greenlight) which manages various entities (the Greenlight Funds), several of which had shareholdings in Punch (the Punch Call). The FSA states that on the Punch Call Mr Osborne disclosed inside information that Punch were at an advanced stage of the process of issuing new equity, probably within a week. Following the Punch Call, Mr Einhorn directed that Greenlight traders sell the Greenlight Funds entire shareholding in Punch.

View FSA Final Notice - Andrew Osborne, 15 February 2012

Abu Dhabi: Changes to the Saudi Arabian Listing Rules

The Saudi Arabian Capital Market Authority (CMA) has issued new listing rules (the Rules) which took effect on 22 January 2012. The new rules codify existing CMA practice and seek to establish new standards for transparency.

Key changes include:

  • A foreign issuer may cross-list its securities on the Tadawul at the CMA’s sole discretion and provided that the rules of the market in which the issuer has its primary listing are at least equivalent to the Rules. At present, the CMA has not issued any guidance as to which regulatory regimes will be considered equivalent.
  • Customised requirements for the listing of securities other than debt and equity have been added to the Rules. Eligibility requirements specific to real estate companies have been added and the Rules address the issuance of debt programmes in tranches.
  • Specific regulations concerning capital increases have been added with an emphasis on the use of proceeds resulting from the rights issue.
  • Directors of an issuer must make a specific declaration that funds raised will be utilised as set out in the prospectus.
  • All offers of securities must be fully underwritten and the underwriters must comply with CMA prudential rules.
  • A financial advisor and a law firm must both be appointed and provide certain prescribed confirmations to the CMA upon listing of securities (including, in the case of the financial advisor, a confirmation that the issuer has established adequate controls and processes to allow the issuer to comply with the Rules). The financial advisor and law firm must be independent of the issuer and must be retained for a period of 12 months following the date of listing to advise the issuer of its continuing obligations under the Rules.
  • There is no specified grace period for issuers to comply with the Rules.

For further information please contact Darran McGlinchey.

France: AMF implements transaction reporting on OTC derivative instruments in anticipation of EMIR and MiFID II

In anticipation of the entry into force of the European Market Infrastructure Regulation (EMIR) and MiFID II, the French securities regulator (the Autorité des Marchés Financiers or AMF) has decided to extend existing transaction reporting requirements to over-the-counter (OTC) equity derivatives and credit derivatives (including sovereign CDS) effective 1 January 2012. This new requirement may‚ however‚ be applied from a date later than 1 January 2012 by those operators that need to upgrade their IT capabilities, provided it is applied retroactively to earlier transactions.

Up until 1 January 2012, French authorised investment firms and French branches of EEA investment firms were only required to report to the AMF transactions on financial instruments admitted to trading on a regulated market or on NYSE Alternext Paris.

The extended transaction reporting regime also covers OTC equity derivatives and credit derivatives whose value depends on that of a financial instrument admitted to trading on an EEA regulated market or on NYSE Alternext Paris.

The AMF has amended its Rulebook and revised its Instruction 2007-06 on reporting to the AMF information on transactions on financial instruments by investment services providers and branches to this effect. In so doing, the AMF opted in CESR Guidance 10-661 (How to report transactions on OTC derivative instruments), thus allowing the exchange of transaction reports among EU national regulators.

For further information please contact Roberto Cristofolini or Anselme Mialon.

France: Large-sized financial intermediaries are now required to set up a compensation committee

Legislation has recently been introduced that requires credit institutions, investment firms and private equity investment companies to set up a compensation committee when the size of these entities exceeds a given threshold. The compensation committee's role is to review annually the compensation policy of the entity.

The threshold has been set by way of a government decree at EUR 10 billion of total assets, whether on a consolidated or unconsolidated basis, with immediate effect. Given the size of the threshold it is expected that only about twenty institutions, exclusively banks, are required to set up a compensation committee.

While companies managing UCITS are not targeted by this new requirement, French professional associations have made it clear that their compensation policy should be reviewed by their special committees where they have been set up. In addition, the Alternative Investment Fund Managers Directive provides that alternative investment fund managers that are “significant” in their size or the size of their alternative investment fund, their internal organisation and the nature, scope and complexity of their activities, will also be required to establish a compensation committee.

For further information please contact Roberto Cristofolini or Anselme Mialon.

France: French authorities lift the ban on taking covered short sales on a number of French securities of the financial sector

Last summer, the French securities regulator (the Autorité des Marchés Financiers or AMF) had implemented a temporary ban on taking covered short sales in connection with a number of credit institutions or insurance companies listed on the French regulated market NYSE Euronext Paris. As required by law, this ban had been extended by the French Minister of the Economy. However, the temporary ban has now been lifted. As a result, covered short positions on such securities are again permissible subject to a number of reporting requirements, which for the most part anticipate the entry into force of the EU Regulation on short selling and certain aspects of credit default swaps.

For further information please contact Roberto Cristofolini or Anselme Mialon.

France: Changes to banking intermediary status due to come into force shortly

As previously reported, legislation has recently been introduced that requires banking intermediaries (intermédiaires en opérations de banque et services de paiement) to comply with a number of new requirements. Certain draft government decrees had been published for consultation to further clarify the new regulatory regime. The government decrees have now been finalised and are due to come into force shortly.

A banking intermediary conducts the business of assisting with the conclusion of a banking transaction and/or carries out preparatory work for its achievement but may not effect such transactions.

In essence, banking intermediaries will be required to register on a master list which encompasses all sorts of intermediaries (financial advisors, insurance brokers and tied agents).

Banking intermediaries are now divided into four subcategories: (i) brokers acting by virtue of a mandate delivered by a client (and that may not act by virtue of a mandate delivered by a credit institution), for example to search for the best possible credit offer for this, by setting credit and payment establishments in competition; (ii) intermediaries acting by virtue of an exclusive mandate delivered by a single credit institution; (iii) intermediaries acting by virtue of non-exclusive mandate delivered by several credit institution; and (iv) intermediaries carrying out all of the above.

Under the current regime, no authorisation or registration is required in order to act as a banking intermediary. In contrast, banking intermediaries will be required - to varying degrees depending on the sub-category they fall within - to possess a financial guarantee, professional competence, liability insurance and to comply with a number of conduct of business rules inspired by MiFID.

The above provisions are planned to take effect within the three months following the implementation of the intermediaries’ master list, which date has still not been set with certainty.

For further information please contact Roberto Cristofolini or Anselme Mialon.

Hong Kong: HKMA revises requirements for investment product offerings to private banking customers

On 20 January 2012, the Hong Kong Monetary Authority (HKMA) published a revised version of its “enhanced measures to the sale of investment products". The “enhanced measures” were originally published on 8 January 2009 as recommendations made in the HKMA’s Report on Issues Concerning the Distribution of Structured Products Connected to Lehman Group Companies. These recommendations were required to be implemented by authorised institutions in a circular dated 9 January 2009, with details of the implementation published on 25 March 2009.

The revised requirements apply to dealings between “private banking customers” and authorised institutions (AIs) operating as private banks or with dedicated private banking unit’s private banking customers. For these purposes, “private banking customer” is defined by the HKMA as a person maintaining a personalised relationship with the AI, who receives personalised banking or portfolio management services from the AI and has assets under the AI’s management of at least US$1 million. However, the HKMA expects this financial threshold to be observed reasonably and, in exceptional circumstances, will allow private banks to have clients below US$1 million.

Given the differences between private banking and retail customers, the changes set out in the revised requirements include, inter alia:

  • The separation of the customer risk profile assessment from the sales process is no longer mandatory when dealing with private banking customers.
  • Documenting the basis upon which a product is considered suitable for a private banking client may be permissible as an alternative to audio-recording.
  • Private banks are excepted from introducing a mystery shopper programme.
  • Steps to ensure clearer differentiation between traditional deposit-taking activities and retail securities business is no longer necessary.

Despite these revisions, private banks are still expected to ensure that adequate controls are in place for the sale of investment products and comply with relevant regulatory codes and guidelines, including the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

The new measures for private banks are expected to be implemented no later than 20 May 2012.

Hong Kong: Relevant Hong Kong Authorities publish guidelines on AML and CTF ahead of the introduction of the Anti-Money Laundering and Counter Terrorist Financing (Financial Institutions) Ordinance

Both the Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have issued new guidelines on anti-money laundering (AML) and counter-terrorist financing (CTF).

The guidelines assist licensed corporations and authorised institutions, respectively, to comply with the requirements under AML and CTF legislation and regulations in Hong Kong, following the introduction of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO). The guidelines will take effect on 1 April 2012 at the same time as the AMLO.

Although the guidelines are not subsidiary legislation and failure to comply with them will not, in itself, lead to judicial or other proceedings, it should be noted that they are admissible as evidence in any court proceedings. Furthermore, under the AMLO, if any provision in the guidelines appears to be relevant to any question arising in any court proceedings, they must be taken into account when determining that question. As such, although not statutory in nature, the guidelines carry considerable weight and financial institutions should adhere to them closely.

The SFC guidelines will replace the SFC’s existing Prevention on Money Laundering and Terrorist Financing Guidance Note, and the HKMA guidelines supersede its Guideline on Prevention of Money Laundering, and Supplement to the Guideline on Prevention of Money Laundering and Interpretative Notes.

For further information please contact Charlotte Robins or David Lee.

Italy: Long awaited regulations on financial intermediaries finally taking shape


The Bank of Italy has recently published a consultation document relating to new Regulations which would result in significant changes to the laws that currently regulate the activities of financial intermediaries in Italy (financial intermediaries being financial instituitions within the meaning of the Capital Requirements Directive).

The proposed Regulations would align the Italian legal framework on credit and financial institutions with the principles introduced pursuant to the Capital Requirements Directive.

New rules on financial intermediaries were first introduced in a legislative decree enacted in August 2010 (Legislative Decree n. 141), which largely amends the Italian Consolidated Banking Act (also referred to as Legislative Decree n. 385 of 1 September 1993). The main objective of the proposed new Regulations is to strengthen the overall stability of the Italian financial system.

Operators in the financial services sector are invited to study and send comments to the Bank of Italy on the consultation document by mid-March 2012.

The text of the proposed new Regulations is expected to be adopted and come into force by the end of September 2012.

Main features of the proposed new Regulations

Some of the main features of the proposed new Regulations are:

  1. A reduction in the number of so-called “licensed activities”, which would be limited for the most part to lending and servicing operations. However, financial intermediaries could apply for specific authorisation to offer payment services, issue e-money and offer other types of financial services to clients.
  2. The establishment of a single register for financial intermediaries to be kept by the Bank of Italy. This single register would substitute the current dual-register system, which provides for a general register for “simply registered” financial intermediaries and a special register for financial intermediaries which require “supervision”.
  3. More stringent requirements for the authorisation, ownership and structure of financial intermediaries. For example, prior to granting authorisation, the regulator will look at the “honesty and professional profile” of the applicant’s shareholders and managers as well as the applicant’s business plan. This will allow the regulator to better assess the risks related to the applicant’s business.
  4. New minimum capital requirements equal to € 2 million for companies engaging only in lending activities and € 3 million for companies engaging in lending activities as well as providing guarantees, as compared to respectively € 600,000 and € 1,500.000, required by the current regulations.
  5. A new regime for consolidated supervision applicable in case of a financial group, composed of financial intermediaries and its subsidiaries with greater responsibility on the part of parent companies for the activities of branches performing financial intermediary activities in Italy.
  6. Specific rules for financial intermediaries relating to corporate governance, risk control, risk management, internal flow of information, administrative and accounting procedures and measures to ensure business continuity and disaster recovery. In particular, as regards corporate governance, the roles and responsibilities of the company’s management team and statutory auditors must be clearly defined. So-called “control functions” (i.e. risk management, compliance and internal audit) must be independent and only small entities (defined as those financial intermediaries belonging to class 3 of the ICAAP rules with total assets not exceeding € 100 million, unless they are parent companies of a financial group, are engaged in deposit operations through securities, securitisation transactions or are authorised to provide payment services, investment services, or issue e-money) will be allowed to delegate more than one of these functions to a single officer or manager. Outsourced activities will also be evaluated. In sum, the rules relating to financial intermediaries will become very similar to those currently imposed on banks.
  7. A new obligation to monitor exposure to liquidity risk on an ongoing basis.

The proposed new legal framework also allows financial intermediaries to acquire shareholdings in other companies in order to develop their business, but not without limitation. To this extent, the consultation document introduces specific provisions, similar to those applicable to banks. In particular, investments in fixed assets (real estate and shareholdings) would be limited to an overall of 60 percent of overall capital investment.

Whilst no such limitation would apply to the acquisition of shareholdings in other financial intermediaries (or companies exercising ancillary activities), the proposed new Regulations impose not only notification obligations but also new authorisation requirements in the event of a proposed acquisition of shareholdings in financial intermediaries. In addition, prior to granting authorisation, the Bank of Italy will analyse the intentions of the acquirer, to ensure that these are honest and part of a sound and prudent management of the business, backed by financial stability. This is an important change in the existing legal framework, which requires only notification to and not authorisation by the Bank of Italy for these types of acquisitions.

The text of the consultation document is available in italian only at:

Italy: Repurchase or early repayment by intermediaries of bank securities - Consob clarifies rules of conduct towards clients

Consob, the Italian securities exchange supervisory authority, has published an official communication (Communication no. DIN/12010034 of February 2012) following numerous enquiries which it has received regarding the duties of intermediaries in the context of the repurchase by banks of their securities (subordinated bonds and similar debt securities of any description) (buyback transactions). The buyback transactions in question are generally characterized as offers to "qualified investors" or to the owners of quoted securities having a nominal threshold value of over €50,000 and as such are exempt from the preparation of a prospectus under relevant Italian laws.

Banks often enter into a buyback transaction in order to reduce their debt exposure and improve their capital adequacy position.

In its communication, Consob warned that in order to protect the banks' retail customers and avoid conflicts of interest, certain precautions must be taken prior to a buyback transaction. In particular, Consob stated:

"intermediaries who hold in their custody and administration financial instruments, have a duty to take reasonable action, taking into consideration the duration of the offer to retail investors, to inform all holders of the instruments themselves of the planned buyback, even if the latter cannot directly take part in the offer, about the terms and conditions of the planned transaction."

In addition, Consob stated that, prior to recommending to any client to participate in a buyback transaction, the intermediary has a duty to consider, based on a "rigorous assessment" and "predetermined procedures", whether the recommendation is appropriate and also what the consequences would be should the client not participate in the offer.

Consob further warned that the above-mentioned precautions require special attention and careful application by the intermediary any time the planned buyback transaction may possibly give rise to a conflict of interest with retail clients (chiefly in the event that issuer/offerer belong to the same group of the intermediary) and called on management teams at intermediaries to put in place requisite compliance procedures to ensure "adequate and full implementation" of these conduct of business rules.

The full text of Consob Communication no. DIN/12010034 of 02.09.2012 can be found on the Consob website, at:

Italy: Italian companies face changes to the composition of their corporate boards

The composition of Italian corporate bodies will be extensively modified through both regulatory and legislative intervention

The Italian Decree Law 201/2011, has been amended by Italian Law 214/2011 so that, for the first time, the issue of personal cross holdings within credit and financial markets is regulated. Article 36 of the Italian Decree Law now provides that directors and summit officers operating in the banking, insurance or financial markets are forbidden from covering or exercising similar positions in competing companies. The purpose of the prohibition is to improve competition between companies operating in those markets, neutralizing potential distortions or collusive conduct. Directors and summit officers that currently hold equivalent positions in more than one company operating in those markets are given 90 days to choose which single appointment to continue. In the case of non-compliance with this requirement, the relevant director or summit officer will lose all of their appointments.

In addition, the composition of corporate boards will be further changed as a result of Consob Resolution no. 18098 of 8 February 2012. This Resolution requires listed companies to apply a criterion of gender representation when appointing new members to corporate boards. The criterion provides that a gender which is less represented (usually the female gender) has a right to be represented on at least one third of the seats held on boards of directors and boards of statutory auditors (reduced to one fifth at the first renewal). The provision was first introduced under Italian Law no. 120 of 12 July 2011, which has amended the Italian Consolidated Financial Law, and has recently been introduced in the Italian Issuers’ Regulations pursuant to the above Consob Resolution. Italy is now in line with other Member States, which have all introduced some kind of compulsory quotas.

For further information please contact Nicolo Juvara or Davide Nervegna.

Netherlands: DNB on financial transaction tax: undesirable

On 6 February 2012, the Dutch Central Bank (De Nederlandsche Bank, DNB) expressed its view that the introduction of the European financial transaction tax (FTT) is undesirable. The DNB states that it is doubtful whether the FTT will counteract disruptive market behaviour and that the current proposal will slow down economic growth. The DNB estimates that the FTT would set Dutch banks, pension funds and insurers back € 4 billion per year. According to the DNB, the Netherlands will be relatively severely affected by the FTT on account of its large financial sector, including pension funds. If the FTT is not levied on a global scale, the negative effects in terms of economic growth and arbitrage will be stronger.

The press release (in English) can be found at:

For further information please contact Floortje Nagelkerke

Netherlands: Profit share of investment funds

On 16 February 2012, the Dutch Central Bank (De Nederlandsche Bank, DNB) announced that the total net assets of Dutch investment funds rose by 1.7 per cent quarter on quarter (€ 7.7 billion) to € 474.0 billion in the fourth quarter of 2011. In particular the price gains on equities made a positive contribution to the increase in the net assets, whereas in the third quarter of 2011 net assets declined by 0.3 per cent quarter on quarter due to price losses on equities. The number of investment funds climbed by 12 to 1,468 in the fourth quarter of 2011.

The press release (in English) can be found at:

For further information please contact Floortje Nagelkerke

Singapore: Singapore’s Court of Appeal outlines what constitutes insider trading

The Singapore Court of Appeal (CA) has, for the first time, given a detailed outline of what constitutes insider trading in Singapore.

In the recent case of MAS v Lew Chee Fai Kevin, the CA upheld a High Court ruling against Kevin Lew (Lew), the former chief financial officer of WBL Corporation Limited (WBL). In 2010, the High Court ruled that Lew contravened the insider trading prohibition in section 218 of the Securities and Futures Act. Lew was ordered to pay a civil penalty of S$67,500.

The key facts of the case are that Lew sold 90,000 of his shares in WBL on 4 July 2007, when he was in possession of non-public price-sensitive information about WBL which he had acquired at an internal executive meeting held on 2 July 2007.

In its decision, the CA recognised that an insider trading transaction generally comprises three events:

  • The acquisition of inside information by the alleged insider.
  • The acting on the inside information by the alleged insider (e.g. by buying or selling the shares of the company concerned).
  • The subsequent release of the inside information into the public domain.

Notably, in giving its decision the CA stated that the actual impact that the information had on the market was ‘’relevant but not conclusive’’ in showing that the information was not material. The test was whether a reasonable person would expect the information to affect a common investor, and not to examine in detail what actually happened to the share price later. The CA also opined that the elements of insider trading applied equally to civil and criminal cases.

For further information please contact Daniel Yong or Wilson Ang.

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FSA announcement relating to suspension of shares by CPP Group Ltd

The FSA has issued a press release stating that CPP Group PLC (CPP) has suspended the listing of its shares with immediate effect, following discussions with the FSA around the sale of its card protection and identity protection products in the UK. The FSA has also issued a brief statement for customers of CCP.

View FSA announcement relating to suspension of shares by CPP Group Ltd, 20 February 2012

View Information for CPP customers following share suspension, 20 February 2012

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40 minute briefing series - January 2012 to April 2012

We are pleased to announce that the invitation for the next series of 40-minute briefings is now available.

If you cannot access this link, please copy and paste the address below into your web browser.

Financial services regulatory products: Phoenix and Pegasus

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.

Financial services Fireside Fridays

Please click on the links below:

  • EMIR (17 February 2012)
  • AIFMD Update (3 February 2012)
  • The regulatory year ahead (20 January 2012)
  • The regulatory year in review (16 December 2011)
  • MiFID review and third country issues (25 November 2011)
  • The MiFID Review (21 October 2011)
  • The regulatory regime for energy and commodity companies (7 October 2011)
  • The final report of the Independent Commission on Banking (23 September 2011)

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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  • Publications

    Blog: AIFM Directive - 2011

    Please be advised that this blog is no longer in use and has been replaced by our online technical resource “AIFMD expert”.


    Blog: MiFID review

    The Markets in Financial Instruments Directive (MiFID) entered into force in November 2007.

    March 2011