Financial services updater - international edition

4 June 2012

London office building

Contacts

Introduction

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

Highlights this week include:

  • Commission proposes a new framework for bank recovery and resolution
  • Revised version of the Financial Services Bill published

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

Banking

Commission proposes a new framework for bank recovery and resolution

The European Commission (the Commission) has published an agenda document, which contains its top news for the period 26 May 2012 to 23 June 2012. The document states that on 6 June 2012 the Commission will propose a new framework for bank recovery and resolution.

The key elements of the proposal are:

  • The framework will be based first on prevention and reducing the risk of failure. This will involve early intervention requiring the powers of supervisory authorities to be increased.
  • Appropriate coordination tools for national authorities and the European Banking Authority to ensure coherent procedures. This is important in the context of cross-border banking groups.
  • The framework will provide for credible resolution tools when a bank is no longer viable and where allowing it go bankrupt would be disruptive for essential financial services or overall stability. These tools will include bail-in powers, enabling the debt of failing banks to be converted or written down.
  • Sufficient funds are to be available to finance resolution effectively. For example, funds may be used to issue guarantees or provide short term loans to help a newly set up bridge bank to operate. These funds are to ensure the continuity of critical functions and not to bail out troubled institutions.

View Commission proposes a new framework for bank recovery and resolution, 25 May 2012

Policy Statement 12/10: Deposit protection: raising consumer awareness

The FSA has published Policy Statement 12/10: Deposit protection: raising consumer awareness (PS12/10). PS12/10 follows Consultation Paper 11/29: Deposit protection: raising consumer awareness (CP11/29). The proposals in CP11/29 were intended to complement and strengthen existing compensation disclosure requirements and raise consumer awareness.

PS12/10 provides feedback on the responses that the FSA received to CP11/29 as well as setting out the final policy on the new disclosure requirements. The FSA received 19 responses to CP11/29 from firms, trade bodies, individuals and consumer groups. These respondents, almost unanimously, agreed that consumer awareness of deposit protection plays an important role in maintaining consumer confidence and financial stability.

The new rules require all banks, building societies and credit unions to prominently display posters and stickers in branches and on websites explaining which deposit guarantee scheme applies to their customers' deposits. If customers are using the UK branch of a foreign bank from the European Economic Area, then posters will have to set out that those customers are not covered by the UK's Financial Services Compensation Scheme. In this case they would have to specify which national scheme will provide protection.

Deposit takers are expected to be compliant with the new rules by 31 August 2012 with the exception of Northern Ireland credit unions who are expected to comply with these rules at the same time as they become subject to other FSA disclosure rules.

View Policy Statement 12/10: Deposit protection: raising consumer awareness, 28 May 2012

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Capital adequacy

Consultation on data point model related to ITS on supervisory reporting

The European Banking Authority (EBA) published on 20 December 2011 a Consultation Paper on draft Implementing Technical Standards (ITS) on supervisory reporting requirements for institutions (CP5o) and on 13 February 2012 a Consultation Paper on a draft ITS on reporting of large exposures (CP51).

In order to assist in the uniform implementation of the ITS on supervisory reporting requirements for institutions the EBA has now published a Consultation Paper which the data items included in CP5o and CP51 have been translated into a data point model (DPM). The proposed DPM is a structured representation of the data, identifying all the business concepts and its relations, as well as validation rules.

The deadline for comments on the EBA consultation is 11 June 2012.

View Consultation on data point model related to Implementing Technical Standards on supervisory reporting, 28 May 2012

View Data point model related to Implementing Technical Standards on supervisory reporting, 28 May 2012

Treasury Committee publishes terms of reference for inquiry into Bank’s macro-prudential tools

The House of Commons’ Treasury Committee (the Committee) has published the terms of reference for an inquiry into the macro-prudential tools that are set to be handed to the Financial Policy Committee of the Bank of England (FPC).

The Committee would welcome evidence on the following:

  • Whether the interim FPC has requested the most appropriate tools over which the FPC should be given the power of direction.
  • Whether additional tools should be given to the FPC (these may include tools rejected by the FPC, not considered by the FPC or that use the balance sheet of the Bank of England).
  • The extent to which the FPC’s powers of recommendation are appropriate, and how they will work with the powers of direction.
  • What structures should be created to provide the necessary transparency and accountability structures for the use of the tools.
  • Whether the FPC should provide guidance on the use of the tools, and if so, what form that guidance should take.
  • Whether the tools requested, taken as a whole, should be symmetrical, that is, the extent to which they should ameliorate downturns as well as upswings in credit cycles.
  • What further analysis should be provided by the Bank of England before the macro-prudential tools are granted to the FPC, and what analysis should be periodically produced by the Bank of England once any tools have been introduced.

The deadline for providing written evidence is 22 June 2012.

View Treasury Committee publishes terms of reference for inquiry into Bank’s macro-prudential tools, 30 May 2012

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Clearing & settlement

A guide to MiFID transaction reporting for the FSA via the CREST ARM

Euroclear UK & Ireland has published an updated version of A guide to MiFID transaction reporting for the FSA via the CREST ARM. The guide has been updated in line with version 3.0 of the Transaction Reporting User Pack (TRUP) issued by the FSA.

The updated guide explains how Euroclear UK & Ireland, in its role as an Approved Reporting Mechanism (ARM), will interpret transaction reports made by CREST member firms using the CREST system for onward reporting to the FSA (the ARM service). The updated guide is non-binding and is designed to assist CREST members in understanding the ARM service. The ARM service forms part of the CREST Services (as defined in the CREST Glossary of Terms) and a full description of the ARM service is contained in the CREST Manual. The updated guide does not cover any additional reports regarding transactions or instruments beyond the scope of the Markets in Financial Instruments Directive.

View A guide to MiFID transaction reporting for the FSA via the CREST ARM, 30 May 2012

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Consumer credit

Consumer credit regulation

The Department for Business, Innovation and Skills (BIS) has updated its web page entitled Consumer credit regulation.  The web page provides an update on the Government’s plans to transfer responsibility for consumer credit regulation from the Office of Fair Trading (OFT) to the proposed new Financial Conduct Authority (FCA).

Before the transfer takes place, the Government will design a model of FCA regulation that reflects the particular characteristics of consumer credit, and is proportionate for the different segments of the market according to the risk they pose to the consumer. Once the model for FCA regulation has been designed with input from the FSA, OFT, and industry and consumer representatives, the transfer will then be subject to an impact assessment and approval by both Houses of Parliament. The impact assessment is due to be published in early 2013 and approval by both Houses of Parliament is expected in summer 2013.  Responsibility for consumer credit regulation is expected to transfer to the FCA in April 2014. In the meantime, the OFT will remain responsible for regulating consumer credit.

View Consumer credit regulation, 28 May 2012

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FSA Handbook

Handbook Notice 120

The FSA has published Handbook Notice 120. This Handbook Notice introduces the FSA Handbook and other material made by the FSA Board under its legislative powers on 24 May 2012. The FSA made changes in one instrument which:

  • Sets 2012/13 fees and levies for the FSA, the Financial Ombudsman Service and the Money Advice Service (FSA 2012/26).
  • Introduces new rules in relation to disclosure requirements for deposit takers (FSA 2012/27).

Outside of the Handbook, changes have been made to the Unauthorised Mutual Societies Registration Fees rules.

View Handbook Notice 120, 28 May 2012

Policy Development Update (no. 147)

On 25 May 2012, the FSA published its latest Policy Development Update (no. 147). In this Update the FSA briefly discusses the following recent FSA publications:

  • Consultation Paper 12/09: Consumer redress scheme in respect of unsuitable advice to invest in Arch cru funds.
  • Policy Statement 12/08: Pension transfer value analysis assumptions.
  • Policy Statement 12/07: Regulatory prudent valuation return.

The FSA also sets out information about recent Handbook-related and other developments. In particular the FSA lists recent consumer publications and finalised guidance.

At the end of the Update the FSA sets out a table describing forthcoming publications for 2012. In particular the FSA states that it will publish a:

  • Policy Statement to Consultation Paper 11/16: Recovery and Resolution Plans in Q3 2012.
  • Policy Statement to Consultation Paper 11/31: Mortgage Market Review: Proposed package of reforms in Q2/Q3 2012.
  • Consultation Paper following Discussion Paper 12/1: Implementation of Alternative Investment Fund Managers Directive in Q3 and Q4 2012.

View Policy Development Update (no. 147), 25 May 2012

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Regulation & compliance

Meeting of the FSB board in Hong Kong on 29-30 May

The Financial Stability Board (FSB) has issued a press release following its board meeting in Hong Kong on 29-30 May 2012. At its meeting, the FSB discussed vulnerabilities currently affecting the global financial system and the progress in authorities’ ongoing work to strengthen global financial regulation. In relation to the latter the press release notes:

  • The FSB reviewed the ongoing work to develop further the systemically important financial institutions (SIFI) framework, including extending it to domestic systemically important banks and establishing a process to ensure consistent implementation of the policy measures, in particular for resolvability, that apply to global SIFIs.
  • The FSB reviewed the steps being taken to implement over-the-counter (OTC) derivatives reforms, on which it will shortly issue its third progress report. It also noted that in the coming weeks, standard setters will issue consultation papers on margining requirements for bilaterally-cleared derivatives transactions and on resolution of central counterparties and other financial market infrastructures.
  • The FSB reviewed the ongoing work streams to strengthen the oversight and regulation of shadow banking. The FSB will publish by end-2012 an initial integrated set of policy recommendations to strengthen the regulation of shadow banking.
  • The FSB approved recommendations to support the establishment of a global legal entity identifier (LEI) system that will provide a unique global identifier for parties to financial transactions.
  • That FSB members approved progress reports in the following areas: OTC derivatives market reforms, Basel III implementation and implementation of the FSB Principles and Standards for Sound Compensation Practices.

View Meeting of the FSB board in Hong Kong on 29-30 May, 30 May 2012

IOSCO Consultation Report on CRAs’ internal controls

The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a Consultation Report entitled Credit Rating Agencies: Internal Controls Designed to Ensure the Integrity of the Credit Rating Process and Procedures to Manage Conflicts of Interest. The purpose of the Consultation Report is to describe certain internal controls and procedures that credit rating agencies (CRAs) use to promote the integrity of the credit rating process and address conflicts of interest, respectively, with the aim of promoting a better understanding of these practices.

IOSCO seeks the views of stakeholders, and particularly of CRAs in order to refine and enhance the descriptions and assist in further analysis of the internal controls and procedures used by CRAs.

The internal controls and procedures described in the Consultation Report comprises six sections:

  • Quality of the rating process.
  • Structural support to ensure the quality of the rating process.
  • Monitoring and updating.
  • Integrity of the rating process.
  • Managing firm-level conflicts.
  • Managing employee-level conflicts.

Reponses to the Consultation Report are requested by 9 July 2012.

View IOSCO Consultation Report on Credit Rating Agencies’ internal controls, 25 May 2012

Proposal for a Regulation amending the CRA Regulation - General approach

The Council of the European Union (the Council) has published its general approach in relation to the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1060/2009 on credit rating agencies (the CRA Regulation). This document includes the amendments to the proposed Regulation that were announced by the Council on 21 May 2012.

The proposed Regulation is sometimes referred to as CRA III and is intended to amend the CRA Regulation to strengthen existing EU legislation on CRAs. In particular, CRA III is intended to reduce over-reliance by financial institutions on external credit ratings and impose additional requirements on CRAs relating to sovereign debt ratings.

View Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1060/2009 on credit rating agencies - General approach, 27 May 2012

CRA Delegated Regulations published in the Official Journal

The following Delegated Regulations establishing regulatory technical standards for credit rating agencies have been published in the Official Journal of the European Union:

  • Commission Delegated Regulation (EU) No 446/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards on the content and format of ratings data periodic reporting to be submitted to the European Securities and Markets Authority by credit rating agencies.
  • Commission Delegated Regulation (EU) No 447/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council on credit rating agencies by laying down regulatory technical standards for the assessment of compliance of credit rating agencies.
  • Commission Delegated Regulation (EU) No 448/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards for the presentation of the information that credit rating agencies shall make available in a central repository established by the European Securities and Markets Authorities.
  • Commission Delegated Regulation (EU) No 449/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards on information for registration and certification of credit rating agencies.

View Commission Delegated Regulation (EU) No 446/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards on the content and format of ratings data periodic reporting to be submitted to the European Securities and Markets Authority by credit rating agencies, 30 May 2012

View Commission Delegated Regulation (EU) No 447/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council on credit rating agencies by laying down regulatory technical standards for the assessment of compliance of credit rating agencies, 30 May 2012

View Commission Delegated Regulation (EU) No 448/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards for the presentation of the information that credit rating agencies shall make available in a central repository established by the European Securities and Markets Authorities, 30 May 2012

View Commission Delegated Regulation (EU) No 449/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards on information for registration and certification of credit rating agencies, 30 May 2012

Revised version of the Financial Services Bill published

On 23 May 2012, the Financial Services Bill (the Bill) received its first reading in the House of Lords. Following this reading, Parliament has now published a revised version of the Bill on its website. This version of the Bill shows the minor amendments that have been made to the previous version of the Bill, which was published on 10 May 2012. The amendments:

  • Clarify which persons can make a super-complaint reference to the Financial Conduct Authority (FCA). This is achieved by inserting new sections 234C and 234D into the Financial Services and Markets Act 2000.
  • Require the Bank of England to report to HM Treasury on how it is complying, or how it intends to comply with a direction made by HM Treasury. This amendment was made to clause 58 of the Bill.
  • Provides for the transfer of consumer credit regulation from the Office of Fair Trading to the FCA, including the transfer of property, rights and liabilities. This is achieved by a new Part 2 to Schedule 21 of the Bill.

View Financial Services Bill - As brought from the Commons on 23rd May 2012, 25 May 2012

View Financial Services Bill - Explanatory notes, 25 May 2012

Enterprise and Regulatory Reform Bill published

On 23 May 2012, the Enterprise and Regulatory Reform Bill (the Bill) was presented to Parliament. The Bill is intended to deliver legislation that will encourage long term growth by:

  • Improving the employment tribunal system by persuading parties to come together to settle their disputes before an employment tribunal claim is lodged.
  • Establishing a new Competition and Markets Authority, combining the functions of the Office of Fair Trading and the Competition Commission. This should make competition processes faster with clearer timeframes bringing greater certainty and reduced burdens on business.
  • Setting the purpose of the UK Green Investment Bank in legislation. This will include embedding its operational independence and providing Government with a specific power to finance it.
  • Addressing the disconnect between directors' pay and long-term company performance by giving shareholders of UK quoted companies binding votes on directors remuneration. The Bill repeals section 439 (5) of the Companies Act 2006, removing the statutory provision which currently prevents the statutory requirement for a vote on the directors' remuneration report having the effect of making a person's entitlement to remuneration contingent on the outcome of the shareholder resolution.
  • Preventing the importation and sale of unauthorised replicas of class designs which qualify for copyright protection.  

The Bill will now begin its passage through the House of Commons and the House of Lords.

View Enterprise and Regulatory Reform Bill published, 23 May 2012

View Enterprise and Regulatory Reform Bill (HC Bill 7), 23 May 2012

View Enterprise and Regulatory Reform Bill - Explanatory notes, 23 May 2012

Policy Statement 12/11: Consolidated Policy Statement on our fee-raising arrangements and regulatory fees and levies 2012/13

The FSA has published Policy Statement 12/11: Consolidated Policy Statement on our fee-raising arrangements and regulatory fees and levies 2012/13 (PS12/11). PS12/11 provides a summary of the FSA’s policy in relation to its fee-raising powers under the Financial Services and Markets Act 2000. PS12/11 contains two parts:

  • Part A. This part contains the Consolidated Policy Statement on the FSA's fee-raising arrangements, which explains how the FSA allocates its costs and recovers them from firms through fees and levies. This part also includes the levies of the Financial Services Compensation Scheme, the Financial Ombudsmen Service (FOS) and the Money Advice Service (MAS).
  • Part B. This part contains the final 2012/13 FSA periodic fee rates and the FOS and MAS levies that were consulted on in CP12/3: Regulatory fees and levies – Rates proposals 2012/13 (CP12/3). This part also includes the final policy changes that the FSA consulted on in CP12/3 where it has not already provided feedback.

In an accompanying press release, the FSA states that it has reduced the amount that firms will be required to pay to the FSA in fees. PS12/11 confirms that the final 2012/13 annual funding requirement (AFR) is £559.8m which is £18.6m lower than the estimate in CP12/3. This reduction is the result of internal cost controls which reduced potential IT spend and the return of contingency monies set aside for use only in the event that the FSA needed to deploy extra resources to deal with extreme macro-economic and regulatory events.

The press release also states that the Financial Penalties Discount has increased. Financial penalties received for 2011/12 totalled £70.7m, compared with an estimate of £58.7m. The enforcement fines that the FSA imposes during the previous year are returned to the industry by way of discounts to the AFR in the following year. Therefore, the actual amount invoiced will be £489.1m.

View Policy Statement 12/11: Consolidated Policy Statement on our fee-raising arrangements and regulatory fees and levies 2012/13, 29 May 2012

View FSA confirms its regulatory fees and levies for 2012/13, 29 May 2012

FSA consults on lowering its projection rates

The FSA has published a joint Consultation Paper with the Financial Reporting Council (FRC) on rules that are intended to ensure that investors taking out a retail investment product such as a personal pension or a life policy receive a realistic indication of potential future returns and charges.

In the Consultation Paper the FSA is consulting on:

  • Updating the mortality assumption to be used when illustrating a personal pension.
  • Introducing a separate Consumer Prices Index (CPI) assumption for transfer value analysis (TVA) when benefits under a detailed benefit pension scheme are compared with the possible benefits under a personal pension scheme.
  • Changes to the investment return assumptions (projection rates) in the Conduct of Business sourcebook (COBS).

The deadlines for comments on the FSA’s part of Consultation Paper are:

  • Chapter 2 – mortality assumptions: 29 June 2012.
  • Chapter 3 – transfer value analysis: 31 August 2012.
  • Chapter 4 – investment return assumptions: 31 August 2012.

The FRC is also consulting on possible changes to the assumptions used for Statutory Money Purchase Illustrations, to make them more consistent with the FSA assumptions in COBS (as amended in the fourth chapter of the Consultation Paper).

The deadline for comments on the FRC part of the Consultation Paper is 31 August 2012.

Sheila Nicoll (Director of conduct policy, FSA) said:

"Investors need to be able to trust information they receive and any suggestion as to how their investment might grow in future must not be misleading. We are proposing lower growth rates which firms may use but we are reinforcing the fact that these are maximum levels. Providers and advisers need to take a long, hard look at the rates they use, taking account of the underlying assets they are dealing with."

View FSA consults on lowering its projection rates, 31 May 2012

FSA enforcement

The director of an IFA has been fined £60,000, had his approval withdrawn and been prohibited for advising clients to invest in Unregulated Collective Investment Schemes (UCIS) and other complex unregulated investments when these were unsuitable, in breach of Statements of Principle 2 and 7. He did not understand the regulatory restrictions on the promotion of UCIS or the products he recommended. He did not adequately assess whether the investments met clients’ objectives (including whether they were able to bear investment risks) or whether they understood the risks. He did not take reasonable steps to ensure he obtained necessary customer information. He also failed to take reasonable steps to ensure that the firm complied with regulatory requirements including restrictions on the promotion of UCIS. After the FSA asked the firm to stop selling UCIS, he permitted further business to be completed and continued to do so even after he had confirmed to the FSA that he would stop selling. The FSA noted that, although he may have honestly believed he was doing his best for customers, he advised many of them to invest a significant proportion of their funds in illiquid, complex and higher risk investments which are not covered by FSCS and that some of his clients were vulnerable. A reference to the Upper Tribunal was withdrawn.

View FSA Final Notice - Patrick Francis O'Donnell, 24 April 2012

The firm’s permission was also cancelled on the basis that the prohibition of its sole director left it with inadequate human resources.

View FSA Final Notice - P3 Wealth Management Limited, 24 April 2012

The CEO of a hedge fund management company has referred to the Upper Tribunal a decision to fine him £3 million, withdraw his approval and prohibit him for breaches of Statement of Principle 1 in connection with significant losses suffered by the fund (amounting to approximately 85% of its NAV or $390 million). The FSA contends that he sought to conceal the losses by lying to investors and by entering into contracts to buy units in bonds which he knew were not genuine in order to create artificial gains. In addition he procured further investment in the fund by providing information to a new investor which he knew to be false at a time when he knew that there was no realistic prospect of the investor recovering its investment. The decision notice comments that his behaviour is amongst the most serious that the FSA has ever encountered. The FSA also found that he provided false and misleading information to the FSA. Although the FSA noted that the fine was likely to cause serious financial hardship, it considered that it may not be appropriate to reduce a penalty where to do so would reduce its deterrent effect, even where this may result in bankruptcy.

View FSA Decision Notice - Alberto Micalizzi, 20 March 2012

The FSA decided to cancel the permission of the company on the grounds that it failed to ensure that its business was conducted soundly and prudently and in compliance with proper standards. The company’s compliance officer has already been prohibited and fined (Dr Sandradee Joseph, 22 November 2011).

View FSA Decision Notice - Dynamic Decisions Capital Management Limited, 20 March 2012

Australia: Will I need an AFS Licence to deal in Regulated Emissions Units? Updated draft legislation and new ASIC regulatory guide released

Previously it was proposed that "Australian carbon credit units" and "eligible international emissions units" be deemed as "financial products" under the Corporations Act 2001 (the Corporations Act). This was in line with the Australian Government’s aim to "provide a strong regulatory regime to reduce the risk of market manipulation and misconduct" in relation to such carbon products.

On 22 November 2011, the Australian Treasury issued 'exposure draft' legislation (the Previous Draft) that proposed to modify the application of the financial services regulatory regime under the Corporations Act to the above carbon products. The draft changes reflected the Australian Government's original undertaking to effect "appropriate amendments to the regime to fit the characteristics of units and avoid unnecessary compliance costs…".

In February 2012, the Australian Treasury released an updated version of the Previous Draft (the Updated Regulations). The Updated Regulations are based on the Previous Draft however there are some key differences, including the proposal to also regulate "carbon units" (the units issued by the Australian Government under the Carbon Pricing Mechanism) and clarification on the transitional arrangements. For the purposes of this article "Australian carbon credit units", "eligible international emissions units" and "carbon units" are collectively known as Regulated Emissions Units.

The Updated Regulations seek to apply existing aspects of the financial services regulatory regime under the Corporations Act to certain activities involving Regulated Emissions Units. In particular, the proposed characterisation of Regulated Emissions Units as "financial products" means that firms and intermediaries that are involved in transactions involving these products would need to assess whether such transactions would trigger the need for an Australian financial services licence (AFS Licence).

In March 2012 the Australian Securities and Investment Commission released Regulatory Guide 236: Do I need an AFS licence to participate in carbon markets which provides guidance on the AFS licensing issues regarding Regulated Emissions Units.

Norton Rose Australia has published an new online briefing note which outlines some of the key changes proposed under the Updated Regulations (although several of these changes were already contained in the Previous Draft) and briefly examines the need for an AFS licence in relation to dealings in Regulated Emissions Units.

Click here for the briefing. 

For further information please contact Fadi Khoury or Elisa de Wit.

Italy: Supervisory authorities publish enforcement criteria for the new interlocking prohibition

In December 2011, the Italian Government enacted an "interlocking prohibition" under article 36 of the Italian Legislative Decree no 201 of 6 December 2012, the so-called "Salva Italia" Decree (the Decree). Pursuant to this article, persons who are members of management, supervisory and controlling bodies or top managers of a company or group (the “Relevant Person”) operating within the financial services sector (either in the credit, investment or insurance sector) are prohibited from taking on similar roles in competing companies or groups carrying out the same business, except for those companies or groups which are connected by a relationship of control, as defined under Italian competition law (i.e. interlocking positions).

If a Relevant Person holds conflicting offices contrary to the interlocking provision, he/she has a 90 day period in which they can opt to remain in only one office. However, if a Relevant Person does not make such a decision, he/she will automatically lose their office in all companies and their termination from each office will be declared within 30 days from the date of termination by the relevant company. In the event that the relevant company fails to terminate the Relevant Person’s office, then the competent supervisory authority (the Bank of Italy, the Italian securities exchange commission, CONSOB and the Italian Insurance Market Supervisory Authority, ISVAP) shall declare such office forfeit. However there is no time scale for declaring the forfeiture.

On 20 April 2012, the above mentioned supervisory authorities published a joint position paper which: explains in detail the rationale of the interlocking prohibition; provides a list of criteria for the enforcement of the same; and indicates the relevant regulations to be applied for each financial sector in the context of the application and interpretation of the interlocking prohibition.

The interlocking prohibition is aimed at preventing Relevant Persons holding strategic offices in several competing companies. The Italian legislator considers this to be a significant issue, especially in the financial services sector which tends to distort competition and hinder the development of Italian financial markets.

For more information please contact Nicolò Juvara, Davide Nervegna, or Donatella De Lieto Vollaro.

Italy: CONSOB simplifies regulations for issuers

Following extensive public consultation, on 9 May 2012 CONSOB passed Resolution 18214 relating to regulations for issuers. This is the second part of a process which began in January 2012 aimed at simplifying the regulatory framework for issuers in order to rationalise the current rules and favour market access for firms and investors. In particular, Resolution 18214 provides simplified rules relating to disclosure obligations, public offers, shareholders’ rights, and issuers of widely distributed securities. The following highlights some of the more significant changes that have been introduced.

Disclosure obligations

The following disclosure obligations have been simplified by Resolution 18214:

  • Regulations regarding communications to the public and CONSOB have been unified under a single normative framework.
  • Companies no longer have an obligation to comment on rumours regarding “significant circumstances and events”, but CONSOB still has the right to request that information be made public if it determines that there is a risk that the public may be misled.
  • Disclosure obligations not required under the Transparency Directive regarding shareholdings have been removed (i.e., thresholds of 35 per cent, 40 per cent, 45 per cent and 75 per cent).
  • Simplified regulations regarding the publication of shareholder agreements will come into force on 1 July 2013.
  • Disclosure obligations for listed companies have been simplified with respect to extraordinary deals and buybacks.
  • The responsibilities of managers of multilateral trading systems and systematic internalisers have been simplified to facilitate the development of trading platforms as an alternative financing source for medium sized enterprises (as compared to a listing).

Public offers

With respect to public offers, Resolution 18214 provides:

  • For public offers of subscription and sale of open-ended UCITS (investments funds, SICAV) and insurance products, the minimum amount required for subscription to allow for exemption from the obligation to publish a prospectus has been reduced from EUR 250,000 to EUR 100,000.
  • For tender offers and exchange offers, the scope of application of the exemption from the obligation to publish a bid document for buy-backs of non-equity financial instruments has been extended.
  • The procedure for tender offers and exchange offers has been simplified in that the initial disclosure required by the bidder is in general less detailed; the obligation to disclose the certification of the commitment to pay the price has been removed, as well as the obligation to inform the issuer of the bid.
  • From 1 July 2013 the duty to publish the announcement of the tender offer document in a newspaper will be replaced by a more simple communication to the market.

Shareholder rights

With respect to shareholder rights, Resolution 18214 provides:

  • A single threshold is introduced for the presentation of the lists relating to the nomination of members of the board (i.e., 1 per cent for all companies with capitalization ranging from EUR 1 to EUR 15 billion euro, and 2.5 per cent for companies with a lower capitalization).
  • Less information has to be included in minutes of shareholders' meetings and in the publication of agreements on crossover shareholdings and related storage when they constitute duplication of the requirements already provided for under other laws.

Issuers of widely distributed securities

With respect to issuers of widely distributed securities, Resolution 18214 provides:

  • The definition of "issuers of widely distributed securities" has been amended; the number of shareholders and bondholders relevant to the application of the regulation has been raised from 200 to 500.
  • To publish information, issuers of widely distributed securities are now allowed to use their websites or, alternatively, an SDIR (System for the Disclosure of Regulated Information).

Click here for the full text of Resolution 18214 (in Italian and English).

For more information please contact Nicolò Juvara, Davide Nervegna or Donatella De Lieto Vollaro.

Italy: UCITS IV Directive finally implemented in Italy

Following the enactment of Legislative Decree n. 47 of 16 April 2012 (the Decree), CONSOB and the Bank of Italy, each within their respective areas of competence, have adopted the following amendments and integrations to their regulations to complete the transposition of the UCITS IV Directive:

  • On 8 May 2012, the Bank of Italy adopted: (i) new Regulations on Collective Investment Schemes, repealing the old set of regulations dated 15 April 2005, and (ii) new Regulations on Depositary Bank Services for UCITS and Pension Funds. The new rules relating to depositary banks entered into force on 13 May 2012, the new Regulations on Collective Investment Schemes on 16 May 2012.
  • On 9 May 2012 CONSOB adopted Resolution n. 18210, amending and integrating CONSOB Regulations on Issuers and CONSOB Regulations on Intermediaries. The new rules relating to issuers entered into force on 16 May 2012 (the day following their publication on the Official Gazette).
  • On 9 May 2012, through a joint resolution entered into force on 16 May 2012, the Bank of Italy and CONSOB amended the Joint Bank of Italy - CONSOB Regulations on Organisation and Procedures for Intermediaries dated 29 October 2007.  

With the implementation of the UCITS IV Directive, Italy has, inter alia, formally harmonised its regulation on the registration of foreign UCITS with the EU legal framework whereby an offeror who intends to market the units of a fund in Italy no longer needs to file an application with Consob. Obligations concerning information to be provided to investors have also been amended and now require the offeror to deliver the Key Investor Information Document instead of the “prospetto semplificato” (simplified prospectus). Certain amendments have also been made to the rules of conduct for marketing and distribution of UCITS products, including rules on inducements. In addition, new rules on harmonised asset management companies, merger of UCITS funds and SICAVS and master-feeder funds structures have been introduced in compliance with the UCITS IV Directive.

For more information please contact Nicolò Juvara or Davide Nervegna.

Hong Kong: New market entry criteria for banks

Hong Kong legislation is to be amended to remove the licensing requirement under which an applicant for a bank licence must have total customer deposits of not less than HK$3 billion and total assets of not less than HK$4 billion. Some of the restrictions on foreign banks establishing a locally incorporated subsidiary will also be removed.

The changes will take place through implementation of The Banking Ordinance (Amendment of Seventh Schedule) Notice 2012, which was gazetted on 18 May 2012. The amendments arose from a review by the Hong Kong Monetary Authority, which concluded that some licensing conditions under Hong Kong’s Banking Ordinance are not found in other major financial markets.

The amendments are expected to take effect from 12 July 2012.

Click here for the HKMA press release.

For more information please contact Charlotte Robins or David Lee.

Netherlands: AFM on use of benchmarks

On 30 May 2012, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) published guidance on the use of benchmarks by investment fund managers. It is important for investors to get a good insight into the performance of an investment fund. According to the AFM the benchmark should be aligned with the investments made by the fund in relation to: (i) the kind of instrument;(ii) the currency; (iii) the region; (iv) the sectors; and (v) the dependency of performances of a specific instrument and the benchmark.

Click here for the AFM publication (in Dutch).

For further information please contact Floortje Nagelkerke.

Netherlands: Information bulletin on tests on daily management and supervisory body

On 29 May 2012, the Dutch Central Bank (De Nederlandsche Bank) and the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) published a bulletin in which they provided information on developments relating to the tests they undertake on the fitness and proprietary of daily management and the supervisory bodies (commissarissen) of a financial institution. Both regulators will keep an internal register, the Bestuurdersmonitor, in which they will register the antecedences related to a daily manager or supervisor.

Click here for the AFM publication (in Dutch).

For further information please contact Floortje Nagelkerke.

Netherlands: AFM consults on amendment to Further Regulation

On 25 May 2012, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) issued a consultation concerning the proposed amendment to the Further Regulation Conduct of Business Financial Undertakings (Nadere Regeling gedragstoezicht financiele ondernemingen, Further Regulation). On 1 January 2012, the Dutch Securities Giro Act (Wet giraal effectenverkeer, Wge) was extended, so that it could offer better protection against the insolvency of an intermediary. As the scope of the Wge has been extended, the Further Regulation is being amended so that it is in line with the Wge. The consultation period ends on 22 June 2012.

Click here for the AFM publication (in Dutch).

For further information please contact Floortje Nagelkerke.

Netherlands: DNB: assets under management hit record

On 22 May 2012, the Dutch Central Bank (De Nederlandsche Bank, DNB) announced that the total net assets of Dutch investment funds rose by 6.2% quarter on quarter (EUR 29.6 billion) to EUR 506.9 billion in Q1 2012. This was due to the price gains on investments and to some extent to net deposits. In the Q1 2012 net assets also rose, but by 1.2%. The number of investment funds declined slightly by 6 to 1,472 in the Q1 2012.

Click here for the AFM publication (in Dutch).

For further information please contact Floortje Nagelkerke.

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Securities

Policy Statement 12/9: UK implementation of Amending Directive 2010/73/EU

On 11 December 2010, Amending Directive 2010/73/EU was published in the Official Journal of the European Union which revised the Prospectus Directive and the Transparency Directive (the Amending Directive). The Amending Directive came into force on 31 December 2010 and Member States have until 1 July 2012 to implement it.

On 13 December 2011, the FSA published Consultation Paper 11/28: UK implementation of Amending Directive 2010/73/EU (CP11/28). In CP11/28 the FSA set out proposals to implement the Amending Directive in the UK. The deadline for comments on CP11/28 was 13 March 2012.

The FSA has now published Policy Statement 12/9: UK implementation of Amending Directive 2010/73/EU - Simplifying the EU Prospectus and Transparency Directives (PS12/9). PS12/9 reports on the main issues arising from CP11/28 and publishes a draft statutory instrument and FSA near-final rules.

In chapter 2 of PS12/9 the FSA explains the changes that HM Treasury is making to the Financial Services and Markets Act 2000 (FSMA), and why it has set them out as a draft statutory instrument in Appendix 1. The key changes made since CP11/28 are:

  • Certain changes to the order of the provisions.
  • Clarification that the consent of either the issuer, or other person responsible for drawing up a prospectus (but not both), is required on a subsequent placement through an intermediary.
  • An adjustment to the definition of “Qualified Investor” - the Amending Directive requires that this concept ties in fully with the Markets in Financial Instruments Directive, including taking account of any opt-downs.
  • Clarifications of the content of the prospectus summary, and the definition of “key information”.

In chapter 3 of PS12/9 the FSA explains the changes it is making to its rules, and why these appear as near final rules. It also explains how the reproduction of extracts of changes to the Prospectus Regulation will be made to the FSA’s Prospectus Rules.

The draft statutory instrument has yet to be laid before Parliament, but the FSA does not anticipate extensive changes to it. As changes to FSMA relevant to the FSA rules have not yet been made, the FSA is not in a position to publish final rules. However, the FSA Board has approved the rules as near final and expects that these will be ratified after the statutory instrument is made. Any further changes to FSA rules will be published in a Handbook Notice. In either case the rules will come into effect on 1 July 2012.

View Policy Statement 12/9: UK implementation of Amending Directive 2010/73/EU - Simplifying the EU Prospectus and Transparency Directives, 25 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, OTC Oracle and AIFMD expert

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

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

The Phoenix main page can be found here.

Behind the curve on the MiFID review?

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

The Pegasus main page can be found here.

G20 commitment on clearing

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

The OTC Oracle main page can be found here.

AIFMD expert

Our fourth online resource product is AIFMD expert. AIFMD expert is designed to assist clients and contacts of Norton Rose LLP when conducting their projects on the Alternative Investment Fund Managers Directive. It sets out the latest developments and timing of the AIFMD plus the key resource papers from the Commission, ESMA and the FSA. Clients and contacts are also given access to the latest Norton Rose LLP briefing notes, slides and webcasts.

The AIFMD expert main page can be found here.

Financial services Fireside Fridays

Please click on the links below:

Financial services & markets webinars

We are currently experiencing significant changes in the European financial services regime that could have a particular impact on both financial firms and non-financial firms that trade energy, commodities and emissions. To assist our clients we have produced a series of short webinars which will look at the forthcoming regulatory changes and their impact on the financial regulation of trading.

Financial services webcasts

Please click on the links below:

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  • Publications

    Blog: Basel III

    On 12 September 2010, the Group of Governors and Heads of Supervision of the Basel Committee on Banking Supervision announced that they had reached agreement on...

    October 2011

    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”.

    2011

    Blog: MiFID review

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

    March 2011