Financial services asset management regulation updater

17 May 2012

London office building

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Introduction

The asset management regulation group advises on the full range of legal and regulatory issues for institutional and specialist asset management firms, including advising on documentation and all aspects of compliance with applicable regulatory requirements.

Every month the group publishes an updater which covers the latest regulatory developments that affect those involved in asset management. Welcome to the May 2012 edition of the asset management regulation updater.

Highlights include:

  • ESMA begins AIFMD co-operation discussions with non-EU supervisors
  • Towards better regulation of the shadow banking system

Collective investment schemes

MMF Systemic Risk Analysis and Reform Options

There is no globally accepted definition of money market funds (MMFs). However, they are usually defined as an investment fund that has the objective to provide investors with preservation of capital and daily liquidity, and that seeks to achieve that objective by investing in a diversified portfolio of high-quality, low duration fixed-income instruments.

MMFs are generally used by both retail and institutional investors as a way to achieve diversified cash management. MMFs act as intermediaries between shareholders seeking to achieve liquid investments and diversification of credit risk exposure and borrowers seeking short term funding. MMFs typically invest in high-quality, short term debt instruments such as commercial paper, bank certificates of deposit and repurchase agreements and generally pay dividends that reflect prevailing short term interest rates.

On 27 April 2012, the Technical Committee of the International Organisation of Securities Commissions (IOSCO) published a Consultation Report entitled Money Market Fund Systemic Risk Analysis and Reform Options. The objective of the consultation is to share with market participants IOSCO’s preliminary analysis regarding the possible risks that MMFs may pose to systemic stability, as well as possible policy options to address these risks.  

The Consultation Report followed a request by the Financial Stability Board for IOSCO to undertake a review of potential regulatory reforms of MMFs that would mitigate their susceptibility to runs and other systemic risks, and to develop policy recommendations by July 2012.

The deadline for comments on the Consultation Report is 28 May 2012.

View Money Market Fund Systemic Risk Analysis and Reform Options, 27 April 2012

IOSCO consultation - Principles of liquidity risk management for collective investment schemes

On 26 April 2012, the Technical Committee of the International Organization of Securities Commissions published a Consultation Report that set out principles against which both the industry and regulators can assess the quality of regulation and industry practices concerning liquidity risk management for collective investment vehicles.

The principles are structured according to the time frame of a collective investment scheme’s life. They start with principles which should be considered in the design (pre-launch) phase of a collective investment scheme. They then outline the principles that should form part of the day-to-day liquidity risk management process.

The deadline for comments on the Consultation Report is 2 August 2012.

View Consultation Report - Principles of liquidity risk management for collective investment schemes, 26 April 2012

ESMA begins AIFMD co-operation discussions with non-EU supervisors

On 26 April 2012, the European Securities and Markets Authority (ESMA) announced that it will begin discussions with non-EU supervisors of entities subject to the requirements of the Alternative Investment Fund Managers Directive (AIFMD) about supervisory co-operation issues.

The announcement followed agreement by ESMA’s Board of Supervisors to follow a common policy in relation to the co-operation arrangements under the AIFMD, which should be in place between EU and non-EU securities supervisors by July 2013.

ESMA will lead on the negotiation of co-operation arrangements with non-EU authorities on behalf of EU supervisors. While ESMA will negotiate on behalf of the EU competent authorities, the final signature of individual Memorandum’s of Understanding will be the responsibility of each EU competent authority.

View ESMA begins AIFMD co-operation discussions with non-EU supervisors, 26 April 2012

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FSA Handbook

Finalised guidance 12/14: Transaction reporting of strategy trades

On 16 May 2012, the FSA published finalised guidance concerning transaction reporting of strategy trades. The guidance applies to exchange traded strategy trades whereby two or more legs that are dependent on each other are executed simultaneously. The guidance applies to transaction reports submitted to the FSA. All transactions that include the combined execution of multiple legs should be reported with each reportable leg as an individual transaction to the FSA. The guidance is effective from 15 August 2012.

The FSA also published a summary of the feedback it received to its earlier guidance consultation. As a result of the feedback received the FSA made a number of changes to the guidance including:

  • Replacing the term "Stock Contingent Trade" with "strategy trades" in paragraphs 1.1, 1.4 and 1.6.
  • Adding the words "exchange traded" to emphasise the scope of the guidance.
  • Rephrasing (but retaining the same meaning) of the example provided to improve clarity and offer better distinction between the two exchanges used in the example as they have similar names.

View Finalised guidance 12/14: Transaction reporting of strategy trades, 16 May 2012

Policy Development Update (no.146)

On 27 April 2012, the FSA published its latest Policy Development Update (no. 146). At the end of the update the FSA set out a table describing forthcoming publications for 2012. In particular the FSA stated that in Q2 2012 it will publish a Consultation Paper following Discussion Paper 12/1: Implementation of Alternative Investment Fund Managers Directive.

View Policy Development Update (no.146), 27 April 2012

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Market abuse

ECON draft report on MAD revision

On 10 May 2012, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report which set out proposed amendments 4 to 32 to the proposed Directive on criminal sanctions for insider dealing and market manipulation.

The report did not contain an explanatory statement concerning the proposed amendments.

View ECON draft report - Amendments 4 -32 on the proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation, 10 May 2012

Council compromise proposal on MAR

On 2 May 2012, the Presidency of the Council of the European Union published a compromise proposal concerning the draft Regulation on insider dealing and market manipulation (MAR). The compromise proposal was produced following discussions at Council working party meetings. Additions and changes to the Commission proposal were denoted by bold underlining.

View Council compromise proposal on MAR, 2 May 2012

Criminal sanctions for insider dealing and market manipulation

On 27 April 2012, the Council of the European Union (the Council) published a press release, which stated that it had reached a partial general approach on a proposed Directive on criminal sanctions for insider dealing and market manipulation (MAD). The draft Directive establishes minimum rules for criminal sanctions for the most serious market abuse offences - insider dealing and market manipulation.

The partial general approach comprises Articles 5 to 12 and the corresponding recitals, which include provisions on:

  • Inciting, aiding and abetting and attempt (Article 5).
  • Criminal sanctions (Article 6).
  • Liability of legal persons (Article 7).
  • Sanctions for legal persons (Article 8).
  • The report on the application of the Directive (Article 9).

The press release stated that since many elements in the draft Directive depend on the content of other legislation, such as the proposed Regulation on insider dealing and market manipulation (MAR), the Council will await the discussions in the preparatory bodies to properly address the remaining Articles.  

View Press release - Criminal sanctions for insider dealing and market manipulation, 27 April 2012

EESC opinion on the MAD revision legislative proposals

On 28 March 2012, the European Economic and Social Committee (EESC) published an opinion concerning the European Commission’s legislative proposals which revise the Market Abuse Directive (MAD).

The EESC agreed in principle with the Commission’s proposals but had a number of concerns in relation to them being in the form of a Regulation and a Directive. In particular the EESC argued that the vague wording of many offences in the proposal for a recast Directive on market abuse, and the delegation of further detail to the European Securities and Markets Authority and/or the Commission at Level 2 are likely to cause significant legal uncertainty.

In its opinion the EESC sets out a number of specific remarks on the legislative proposals. In particular it welcomed the extension of the scope to include over-the-counter financial instruments. However, the EESC stated that it is unclear as to how these are to be covered by the proposals. The EESC also broadly welcomed the inclusion of highly sophisticated technology for implementing trading strategies within the scope of the rules on market abuse. However, the EESC states that it should be remembered that algorithm-based trading is not a bad thing per se, but is also used by credit institutions to process day-to-day orders from private clients. The EESC stated that those applying the law therefore need further clarification as to what is legally permissible.

View Opinion of the European Economic and Social Committee on the Proposal for a Regulation of the European Parliament and of the Council on insider dealing and market manipulation and the Proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation, 28 March 2012

ESMA report - Actual use of sanctioning powers under MAD

On 26 April 2012, the European Securities and Markets Authority (ESMA) published a report on the use of administrative and criminal sanctions by EU national regulators under the Market Abuse Directive. The report provided a comparison of the use of administrative sanctioning powers across 29 EEA Member States for 2008-2010. The report compared Member States' market abuse regimes across a number of categories, which are:

  • The type of sanctioning powers available to competent authorities (CAs) and against whom and for which offences they were applicable.
  • The resources allocated by CAs to this issue.
  • The actual use of sanctioning powers available - settlement, administrative and criminal sanctions and publication.

The results of the report are intended to provide input to the legislative process on the new market abuse regime.

View ESMA report - Actual use of sanctioning powers under MAD, 26 April 2012

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Money laundering

FSA fines Habib Bank AG Zurich £525,000 and money laundering reporting officer £17,500 for anti-money laundering control failings

On 15 May 2012, the FSA announced its decision to fine Habib Bank AG Zurich (Habib) £525,000 and its former Money Laundering Reporting Officer Syed Itrat Hussain £17,500 for failing to take reasonable care to establish and maintain adequate anti-money laundering (AML) systems and controls.

During its investigation, the FSA found that Habib maintained a high risk country list which excluded certain high risk countries on the basis that it had group offices in them.  However, Habib’s local knowledge of these countries did not negate the higher risk of money laundering that they presented.

The FSA published the Final Notices of Habib and Hussian on its website.  

Tracey McDermott, acting FSA Director of Enforcement and Financial Crime, stated that:

"Firms must take a dynamic approach to assessing money laundering risk so they can adapt to the ever-evolving risks of financial crime. It is a basic requirement that firms know their customers and understand the risks they pose. The requirement for enhanced due diligence recognises that some customers present a greater risk of money laundering than others and that firms therefore need to do more to identify, manage and control that risk. Habib fell short in this regard".

View FSA fines Habib Bank AG Zurich £525,000 and money laundering reporting officer £17,500 for anti-money laundering control failings, 15 May 2012

View FSA Final Notice - Habib Bank AG Zurich, 15 May 2012

View FSA Final Notice - Syed Itrat Hussain, 15 May 2012

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Regulation and compliance

Final communiqué - Meeting of G20 finance ministers and central bank governors

On 19 April 2012, the G20 finance ministers and central bank governors issued a final communiqué following their meeting in Washington DC.

The communiqué looked ahead to the G20 leaders’ summit which will be held in Los Cabos, Mexico on 18 and 19 June 2012 and the work scheduled to be finalised for that summit.

In the communiqué G20 finance ministers and central bank governors:

  • Reaffirmed their commitment to common global standards by pursuing the financial regulatory reform agenda.
  • Welcomed the Financial Stability Board (FSB) progress report on strengthening the oversight and regulation of the shadow banking system.
  • Supported the work coordinated by the FSB to provide safeguards supportive of a global framework for central counterparties (CCPs) as an important element in achieving the agreed over-the-counter (OTC) derivatives reforms, so that authorities can make informed decisions on the standards and requirements of CCPs to meet by end 2012 their commitment that all standardised OTC derivatives be centrally cleared in CCPs with the appropriate safeguards.
  • Supported the work of the FSB on the global governance framework for the legal identifier and looks forward to its recommendations in June on establishing a global LEI system.
  • Supported work on developing for consultation, internationally consistent standards on margining for non-centrally cleared OTC derivatives by June 2012.

View Final communiqué - Meeting of G20 finance ministers and central bank governors, 19 April 2012

FSB letter to G20 finance ministers and central bank governors regarding progress of financial regulatory reforms

On 16 April 2012, the Financial Stability Board (FSB) published a letter to G20 finance ministers and central bank governors concerning the progress of the financial regulatory reforms agreed by G20 leaders at Cannes. The letter covered a number of areas including:

  • Strengthening the oversight and regulation of shadow banking activities. The FSB has put on track a number of initiatives including developing, with other standard setting bodies, regulatory recommendations: (i) to mitigate the spill-over effect between the regular banking system and the shadow banking system; (ii) to reduce the susceptibility of money market funds to “runs”; (iii) to assess and mitigate systemic risks posed by other shadow banking entities than money market funds; (iv) to assess and align the incentives associated with securitisation to prevent a repeat of the creation of excessive leverage; and (v) to dampen risks and pro-cyclical incentives associated with securities lending and repos that may exacerbate funding strains at times of shocks to confidence. A full set of recommendations will be issued by the end of 2012.
  • Creating continuous markets - OTC derivatives reforms. The FSB noted that work is well advanced to establish a safe environment for clearing over-the-counter (OTC) derivatives through a global framework of central counterparties. The FSB is also on course to meet the mandate from the G20 leaders’ summit in Cannes to provide recommendations on the governance framework for a global legal entity identifier to the G20 summit in Los Cabos, as well as providing proposals for the implementation of the system.
  • Timely and consistent implementation of reforms. The FSB will report to the G20 summit in Los Cabos on progress across the range of reforms. The reporting will include separate progress reports on the three priority areas where the reforms are most advanced (Basel III, OTC derivatives and compensation practices), together with an overview progress report.

View FSB letter to G20 finance ministers and central bank governors regarding progress of financial regulatory reforms, 16 April 2012

FSB report on strengthening the oversight and regulation of shadow banking

On 16 April 2012, the Financial Stability Board (FSB) published a progress report to G20 finance ministers and central bank governors concerning strengthening the oversight and regulation of shadow banking.

The FSB published initial recommendations concerning shadow banking in its October 2011 report Shadow Banking: Strengthening Oversight and Regulation. Following the initial recommendations five work streams have been launched to advance the work to develop proposed policy recommendations in the following areas:

  • Banks’ interactions with shadow banking entities.
  • Money market funds.
  • Other shadow banking entities.
  • Securitisation.
  • Securities lending and repos.

The first, second and fourth of the above work streams will prepare their recommendations by July 2012. The recommendations from the other work streams are expected by September 2012, while the securities lending/repo work stream is to prepare recommendations by the end of 2012.

View FSB report on strengthening the oversight and regulation of shadow banking, 16 April 2012

Detailed planning of main Commission initiatives 2012

On 4 May 2012, the European Commission published updated versions of its documents relating to the planning of its initiatives for 2012. This included updated versions of:

  • Adopted Commission initiatives from 1st January 2012.
  • Planned Commission initiatives until end of 2012.

From a financial services perspective key points in these documents included:

  • Implementing measures for the Alternative Investment Fund Managers Directive are expected to be published in July 2012.
  • Implementing measures for the Regulation on short selling and certain aspects of credit default swaps are expected to be published in June 2012.

View Adopted Commission initiatives from 1st January 2012, 4 May 2012

View Planned Commission initiatives until end of 2012, 4 May 2012

Towards better regulation of the shadow banking system

On 27 April 2012, the European Commission (the Commission) published a speech given by Michel Barnier (European Commissioner for Internal Market and Services) entitled Towards better regulation of the shadow banking system.

In his speech, Barnier focused on three areas:

  • What is the goal of the Commission’s recent Green Paper on shadow banking? He states that the first aim is to establish a clear definition of shadow banking. The Green Paper has further aims which are to: review the numerous measures that the Commission has already adopted in relation to the shadow banking system, assess the risks presented by shadow banking and list the issues that need to be addressed.
  • What does the Commission hope to achieve by regulating the shadow banking system? Barnier stated that it is too early to go into detail and make specific proposals. However, he stated that it is important to establish four general principles from the outset: (1) that regulators and supervisory authorities must have a complete overview; (2) not to repeat the mistakes made with the special securitisation vehicles; (3) not to call into question the alternative financing chains, which complement bank lending and are of direct benefit to the real economy; and (4) ensure consistent regulation across various financial sectors.
  • Where do the discussions go from here? Barnier stated that a Commission expert group is due to publish proposals on the structure of the banking sector in October 2012. The Commission will use this report, as well as the FSB's recommendations on shadow banking that are due to be published in the second half of 2012, and the output from the G20 meeting in Los Cabos in June 2012, as the basis for targeted sectoral consultation exercises. Barnier added that the consultation exercises are likely to be followed by legislative proposals in the form of Regulations.

View Towards better regulation of the shadow banking system, 27 April 2012

Shadow banking – The ECB perspective

On 27 April 2012, the European Central Bank (ECB) published a speech given by Vitor Constâncio (Vice-President, the ECB) entitled Shadow banking - The ECB perspective.

At the beginning of his speech, Constâncio noted that the term "shadow banking" is widely used to cover activities related to credit intermediation, liquidity and maturity transformation taking place outside the regulated banking system. He also added that the shadow banking system has significantly expanded and shifted regulated banking activities into institutions, transactions or markets which are not within the scope of regulation.

Constâncio then addressed the general problems created by unregulated shadow banking as well as the main guidelines for the necessary regulatory reform that is progressing internationally under the aegis of the Financial Stability Board. He then focused on repo markets, given their importance for the functioning of money markets and consequently for central banks. 

Near the end of his speech Constâncio proposed the creation of an EU central database on euro repos. Due to its role in macro-prudential financial stability and the closeness of repo to monetary policy, Constâncio argued that the ECB would be well placed to centralise the gathering of data for the euro repo market.

Constâncio acknowledged that the creation of an EU central database would require the European Commission to put forward legislative measures.  As a first step he called for the preparation of a detailed feasibility study of the repo market database in cooperation with the Commission.

View Shadow banking – The ECB perspective, 27 April 2012

ESMA speech - Shaping the future of Europe’s financial markets

On 11 May 2012, the European Securities and Markets Authority (ESMA) published a speech given by its Executive Director, Verena Ross, entitled Shaping the future of Europe’s financial markets.

Ross’ speech is set out under the following headings:

  • ESMA’s role in the new EU framework. Ross states that ESMA has two key aspects to its mission as an organisation: the building of a "single rulebook" for the regulation of the EU’s financial markets and ensuring its consistent application at national level.
  • Development of a single rulebook. Ross explained that in terms of the development of a single rulebook for Europe, ESMA took on its new role as EU securities markets standard setter with clear responsibilities for the development of technical standards and advice for new, or soon to be revised, pieces of legislation. In particular over the last year ESMA produced the first technical standards (for credit rating agencies and short selling) but also conducted significant preparatory work for devising the standards for the European Market Infrastructure Regulation (EMIR).
  • Supervisory convergence. Ross acknowledged that while the single rulebook will be the basis of achieving supervisory convergence, having a single legal text does not actually achieve convergence in implementation and actual regulation on the ground. She stated that supervisory convergence is still very much “work in progress” but describes a number of work streams through which ESMA has worked on achieving a common approach to regulation. This included issuing opinions on the treatment of sovereign debt under IFRS and conducting peer reviews of national authorities’ activities.
  • Direct supervision. Ross noted that beyond supervisory convergence, ESMA has been given responsibility to directly supervise a number of cross-border market players. She states that bringing credit rating agencies under the umbrella of EU supervision is a milestone achievement. From 2013 ESMA will also take on direct supervisory responsibility for trade repositories under EMIR.
  • Key priorities for 2012. Ross explained that ESMA will work on establishing harmonised binding implementing measures in different areas such as EMIR, the Alternative Investment Fund Managers Directive and the revised Prospectus Directive. She stated that EMIR will dominate ESMA’s agenda for the next 6 months, with a consultation paper in June and final standards due to be delivered by the end of September.
  • ESMA’s stakeholders - national regulators, market players and investors. Ross reminded her audience that while it may be the national tendency to see rules and regulations emanating from Brussels as an attempt to stifle the UK’s financial services sector, they should view its consultative process as an opportunity to contribute to the development of the European regulatory system.
  • ESMA’s role in international cooperation. Ross stated that global leaders have established common objectives at the G20 level and regulators have set up a number of international groups aimed at providing international consistency the different regimes. Ross further stated that at the end of the process there must be reliance on equivalence and co-operation among authorities.

View Shaping the future of Europe’s financial markets, 11 May 2012

ESMA publishes its 2012 Regulatory Work Programme

On 7 May 2012, the European Securities and Markets Authority (ESMA) published its 2012 Regulatory Work Programme.

The aim of the work programme is to provide information on the planned technical standards, technical advice and guidelines and recommendations that will be issued by ESMA in 2012.

The accompanying press release stated that the work programme was based on ESMA's 2012 Work Programme which was published on 4 January 2012. However, this version provides a more detailed outline of ESMA's individual work streams. Key work streams relate to the Regulation on short selling and certain aspects of credit default swaps, the European Market Infrastructure Regulation and the Alternative Investment Fund Managers Directive.

View ESMA publishes its 2012 Regulatory Work Programme, 7 May 2012

Call for evidence on transaction reporting

During the course of 2012 the European Securities and Markets Authority (ESMA) intends to proceed with an initiative of preparing guidelines on harmonised transaction reporting under the Markets in Financial Instruments Directive (MiFID), which will also include, among others, an update of the guidance issued by ESMA’s predecessor, CESR, entitled How to report transactions on OTC derivative instruments.

On 7 May 2012, ESMA issued a call for evidence in relation to transaction reporting. ESMA published this call for evidence in order to provide an opportunity to interested parties to comment on this initiative. The deadline for responding to the call for evidence is 4 June 2012.

View Call for evidence on transaction reporting, 7 May 2012

Final report - ESMA’s technical advice on possible delegated acts concerning the Regulation on short selling and certain aspects of CDS

The Regulation on short selling and certain aspects of credit default swaps (the Regulation) was published in the Official Journal of the EU on 24 March 2012 and comes into effect from 1 November 2012.

On 19 April 2012, the European Securities and Markets Authority (ESMA) published a final report setting out technical advice on a number of delegated acts concerning the Regulation. The final advice was set out as follows:

  • Section 1 covered the definition of when a natural or legal person is considered to own a financial instrument for the purposes of the definition of short sale (Article 2(2) of the Regulation).
  • Section 2 related to the net short position in shares or sovereign debt covering the concept of holding a position, the case when a person has a net short position and the method of calculation of such a position including when different entities in a group have long or short positions or for fund management activities related to separate funds (Article 3(7) of the Regulation).
  • Section 3 set out advice in instances where a credit default swap (CDS) transaction is considered to be hedging against a default risk or the risk of a decline of the value of the sovereign debt and the method of calculation of an uncovered position in a CDS (Article 4(2) of the Regulation).
  • Section 4 defined the initial and incremental levels of the notification thresholds to apply for the reporting of net short positions in sovereign debt (Article 7(3) of the Regulation).
  • Section 5 specified the parameters and methods for calculating the threshold of liquidity on sovereign debt for suspending restrictions on short sales of sovereign debt (Article 13(4) of the Regulation).
  • Section 6 contained ESMA’s proposal of advice on what constitutes a significant fall in value for various financial instruments and also specifies, in the form of a draft regulatory technical standard, the method of calculation of such falls (Article 23(7) and (8) of the Regulation).
  • Section 7 set out criteria and factors to be taken into account by competent authorities and ESMA in determining when adverse events or developments arise (Article 30 of the Regulation).

View Final report - ESMA’s technical advice on possible delegated acts concerning the Regulation on short selling and certain aspects of credit default swaps, 19 April 2012

Shadow banking: Thoughts for a possible policy agenda

On 27 April 2012, the Bank of England (BoE) published a speech presented by Paul Tucker (Deputy Governor Financial Stability, the BoE) entitled Shadow banking: Thoughts for a possible policy agenda.

In his introduction Tucker acknowledged the European Commission's Green Paper on shadow banking and stated that it is time to move onto a concrete policy agenda.

In the first part of his speech, Tucker set out three broad points regarding the definition of shadow banking:

  • It is very clear that shadow banking is not the same as the non-bank financial sector. This is not a debate about the appropriate regulatory framework for the whole of finance.
  • Non-bank intermediation of credit is not a bad thing in itself.
  • Shadow banking comes in lots of shapes and colours. There are degrees to which any particular instance of shadow banking replicates banking.  

Tucker then set out his current thinking on policy in the following areas:

  • Shadow banks that are really part of banks.
  • Banks' provision of committed lines of credit to independent shadow banks.
  • Money funds.
  • Securities dealers, finance companies.
  • Securities dealers and the "rehypothecation" of client assets.
  • Securities lending, repo and collateralised-financing markets.
  • Conclusion: innovation, evolution and surveillance.

In his conclusion Tucker stated that:

"But it would be foolhardy to imagine that we can frame policies today that will stand the test of time. The financial system will evolve, and we need to permit innovation. A policy framework on shadow banking therefore needs to be adaptive. And it mustn’t try to shut everything down. As I said at the outset, non-bank finance is not intrinsically a bad thing. We will need effective surveillance of what is going on and what concentrations of risk are emerging – through outfits like the FSB’s committee on vulnerabilities and, in the EU, through the European Systemic Risk Board. And we will have to make discerning policy judgments that are explained and consulted upon. That is exactly what the EU, alongside the FSB, is now embarked on."

View Shadow banking: Thoughts for a possible policy agenda, 27 April 2012

MPs announce terms of reference for corporate governance and remuneration inquiry

On 28 April 2012, the House of Commons' Treasury Select Committee published the terms of reference for a new inquiry into corporate governance in systemically important financial institutions.

Andrew Tyrie MP (Committee Chairman) commented:

“The Committee will seek to address, among other things, why it was that so many experienced and technically competent non-executives - the cream of British corporate life - appeared to be asleep in some of the boardrooms of our major financial firms.

"In systemically risky institutions, it is particularly important to find a way to encourage more constructively engagement with shareholders on crucial governance issues, including risk and remuneration.

"We will look at whether, and if so how, they can and should do more. Rightly, shareholders have shared the blame and the losses.

"When it came to the destruction of major banks, the taxpayer also lost out, making corporate governance a crucial issue of public and Parliamentary concern."

View MPs announce terms of reference for corporate governance and remuneration inquiry, 28 April 2012

ISDA position paper on MiFID/MiFIR: The OTF and SI regime for OTC derivatives

On 2 May 2012, the International Swaps and Derivatives Association (ISDA) published a position paper concerning its views on the European Commission's MiFID review proposals regarding the Organised Trading Facility (OTF) and the Systematic Internaliser (SI) regime. In the paper the ISDA made the following points:

  • The Commission’s approach that the trading obligation should only capture clearing eligible and sufficiently liquid contracts was endorsed.
  • The establishment of the OTF category (and the discretion afforded to the operator of an OTF) was welcomed, but the ISDA has reservations about the fact that the derivatives trading obligation promotes multilateral trading systems above bilateral ones, even when the latter offers equivalent levels of transparency.
  • Clarity is needed as to the relative roles of regulated trading venues, systematic internalisation and pure bilateral over-the-counter trading.
  • The treatment of block trades in derivatives is crucial and that it is appropriate, and in many cases necessary, for such transactions to occur on a bilateral basis, which currently does not appear to be possible under the proposals.
  • The SI regime for ‘non-equities’ should operate at the level of liquid instrument to ensure consistency with the approach to pre- and post-trade transparency and the approach to the equities regime.
  • More broadly, the Commission’s approach to ‘non-equities’ markets poses a challenge given the differences between asset classes within the non-equities category, such as derivatives and fixed income, with significant differences between them in terms of quoting practice, pricing conventions and levels of automation of trading.

View ISDA position paper on MiFID/MiFIR: The OTF and SI regime for OTC derivatives, 2 May 2012

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Seminars

Invitation to buy-side regulatory workshop

The coming months will see the buy-side readying itself for a number of key regulatory developments, both in the UK and in Europe.  

To help asset managers, custodians, administrators and other buy-side players prepare for the new regulatory requirements to be introduced by the Alternative Investment Fund Managers Directive (AIFMD), the review of the Markets in Financial Instruments Directive (the MiFID Review), the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EMIR) and other initiatives, Norton Rose LLP’s financial services group is running its 2012 workshop on managing regulatory change.

This workshop will take place on Thursday 12 July 2012 at 2.30pm. It is designed to look at the practical issues for the industry, identifying the key regulatory changes and how you can plan for and implement them.

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

http://www.nortonrose.com/invitations/2012/uk-and-eu-financial-services-reform-managing-regulatory-change-for-the-buy-side-66878.aspx

40 minute briefing series - May to September 2012

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

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

www.nortonrose.com/invitations/2012/your-guide-to-the-key-regulatory-challenges-in-2012-65614.aspx

Financial services regulatory products: Phoenix, Pegasus and OTC Oracle

Having difficulty keeping up with the pace of the Government's regulatory reform proposals?

Phoenix is our new financial services product that is an online resource designed to help those who are starting their UK regulatory reform projects. It sets out the latest developments and timing of the Government's reform programme plus the key resource papers from the Treasury, Bank of England, FSA and the ICB. The latest Norton Rose LLP briefing notes, videos and webcasts are also available.

The Phoenix main page can be found here.

Behind the curve on the MiFID review?

We have launched a second online resource product called "Pegasus". Pegasus is a new financial services product that is an online resource designed to assist those starting work on MiFID review projects. 

The Pegasus main page can be found here.

G20 commitment on clearing

Our third online resource product is OTC Oracle. OTC Oracle is designed to assist clients track the implementation of the G20 commitment to have all standardised OTC derivatives traded on exchanges or electronic trading platforms, where appropriate, and cleared through CCPs by the end of 2012. OTC Oracle sets out the latest developments and timing plus the key resource papers from each of the EU, Canada, Hong Kong and Singapore.

The OTC Oracle main page can be found here.

Financial services Fireside Fridays

Please click on the links below:

  • FSA Business Plan - 2012/13 (27 April 2012)
  • EMIR Part II (5 April 2012)
  • Twin Peaks - The FSA operational changes (16 March 2012)
  • AIFMD Update (2 March 2012)
  • 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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