Financial services updater - international edition

Publication | 2 July 2012


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

Highlights this week include:

  • ESMA proposes rules on derivatives, central counterparties and trade repositories
  • ESMA proposes remuneration guidelines for AIFMs

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


Principles for effective risk data aggregation and risk reporting

The Basel Committee on Banking Supervision (BCBS) has issued a paper entitled Principles for effective risk data aggregation and risk reporting.

The paper contains a set of principles to strengthen banks’ risk data aggregation capabilities and risk reporting practices. The principles are initially addressed to (SIBs) and apply at both the banking group and on a solo basis. However, national supervisors may choose to apply the principles to a wider range of banks, in a way that is proportionate to the size, nature and complexity of the bank’s operations.

The principles are expected to support a bank’s efforts to:

  • Enhance the infrastructure for reporting key information, particularly that used by the board and senior management to identify, monitor and manage risks.
  • Improve the decision making process throughout the banking organisation.
  • Enhance the management of information across legal entities, while facilitating a comprehensive assessment of risk exposures at the global consolidated level.
  • Reduce the probability and severity of losses resulting from risk management weaknesses.
  • Improve the speed at which information is available and hence decisions can be made.
  • Improve the organisation’s quality of strategic planning and the ability to manage the risk of new products and services.

National supervisors expect global SIBs to implement these principles by 2016 and will assess their implementation starting in 2013.

View Principles for effective risk data aggregation and risk reporting, 26 June 2012

Update - The banking union

The European Commission has published an updated memorandum on the banking union.

The updated memorandum states that once the vision for the banking union is agreed at the political level, the Commission will propose the necessary measures for implementation. The Commission could make proposals as early as autumn 2012.

The Commission also calls on the Council of the European Union and the European Parliament to accelerate the decision-making process on key legislation already in the pipeline.

View Update - The banking union, 22 June 2012

EBA 2011 Annual Report

The European Banking Authority (EBA) has published its first Annual Report which provides an account of its activities and achievements in its first year of existence.

The EBA’s priorities and activities covered three main areas: regulation, risk analysis and operations. In terms of regulation the EBA focussed on laying the foundation for the so called single European rulebook, a common set of fully harmonised rules that will be directly enforceable in all Member States. This is a substantial task with more than 100 binding technical standards due to be issued by 1 January 2013. During 2011, the EBA prepared the ground for the development of a number of binding technical standards on areas such as own funds and liquidity on the basis of the CRD IV proposals.

View EBA 2011 Annual Report, 28 June 2012

Capital adequacy

Composition of capital disclosure requirements

To improve consistency and ease the use of disclosures relating to the composition of regulatory capital, and to mitigate the risk of inconsistent formats undermining the objective of enhanced disclosure, the Basel Committee on Banking Supervision (BCBS) has agreed that internationally active banks across Basel member jurisdictions will be required to publish their capital positions according to common templates.

The BCBS has now published a paper which contains the text of the final rules for the composition of capital disclosure requirements. The requirements are set out in five sections:

  • Section 1: Post 1 January 2018 disclosure template. A common template that banks must use to report the breakdown of their regulatory capital when the transition period for the phasing-in of deductions ends on 1 January 2018.
  • Section 2: Reconciliation requirements. A three step approach for banks to follow to ensure that the Basel III requirement to provide full reconciliation of all regulatory capital elements back to the published financial statements is met in a consistent manner.
  • Section 3: Main features template. A common template that banks must use to meet the Basel III requirement to provide a description of the main features of regulatory capital instruments issued.
  • Section 4: Other disclosure requirements. This section sets out what banks must do to meet the Basel III requirement to provide the full terms and conditions of regulatory capital instruments on their websites and the requirement to report the calculation of any ratios involving components of regulatory capital.
  • Section 5: Template during the transitional period. This section requires banks to use a modified version of the post 1 January 2018 template in section 1 during the transitional phase.

National authorities will give effect to the disclosure requirements set out in the paper by 30 June 2013. Banks will be required to comply with the disclosure requirements from the date of publication of their first set of financial statements relating to a balance sheet date on or after 30 June 2013.

View Composition of capital disclosure requirements, 26 June 2012

European Parliament to consider CRD IV on 22 - 23 October 2012

The European Parliament has updated its procedure file for the CRD IV. The file indicates that the European Parliament will consider the legislative proposals in its plenary session on 22 - 23 October 2012.

View European Parliament procedure file CRD IV Directive, 26 June 2012

View European Parliament procedure file for Capital Requirements Regulation, 26 June 2012

Clearing & settlement

ESMA proposes rules on derivatives, central counterparties and trade repositories

The European Securities and Markets Authority (ESMA) has published a Consultation Paper concerning the regulatory technical standards and implementing technical standards that it is required to produce under the Regulation on over-the-counter derivatives (OTC), central counterparties and trade repositories (otherwise known as EMIR).

The requirements set out in the draft technical standards are designed to ensure the reduction of counterparty risks, safe and resilient central counterparties (CCPs) and increased transparency.

Counterparty risks will be reduced by:

  • Defining the framework for the application of the clearing obligation.
  • Specifying the risk mitigation techniques for OTC derivatives not centrally cleared.
  • Laying down the requirements for the application of carve outs for non-financial counterparties and intra-group transactions.

Safe and resilient CCPs by:

  • A comprehensive set of organisational, conduct of business and prudential requirements for CCPs.
  • Requirements to ensure better protection of client positions and collateral on clearing member default.

Increased transparency by:

  • Specifying the details of derivatives transactions that need to be reported to trade repositories.
  • Defining the trade repositories' data to be made available to relevant authorities.
  • Setting the information to be provided to ESMA for the authorisation and supervision of trade repositories.

The Consultation Paper is based on the EMIR texts as adopted by the European Parliament on 29 March 2012 and by the Council of the European Union on 11 April 2012.

The deadline for responding to the Consultation Paper is 5 August 2012 and the final draft standards are intended to be submitted to the European Commission for endorsement by 30 September 2012.

ESMA will hold a public hearing on the draft technical standards on 12 July 2012 in Paris.

View ESMA proposes rules on derivatives, central counterparties and trade repositories, 25 June 2012

Derivatives reform - Regulatory update

The FSA has published a speech by David Lawton (Acting Director, Markets, FSA) entitled Derivatives reform - Regulatory update. In this speech Lawton provides a progress report in relation to the implementation of the G20 commitments for improving counterparty risk management and transparency in over-the-counter (OTC) derivatives markets.

At the start of his speech Lawton reflects on what has been achieved so far and this includes:

  • The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have agreed new principles for financial market infrastructures. These principles are designed to ensure the infrastructure supporting global financial markets is more robust and well placed to withstand financial shocks.
  • CPSS’s and IOSCO’s work on data reporting and aggregation, which culminated in recommendations in January this year, has provided the basis for commonality of approaches on trade repositories. There is further work underway within CPSS and IOSCO on regulatory access to trade repository data, which should further reduce any differences in the regimes.
  • Under the guidance of the OTC Derivatives Regulators’ Forum market participants have made good strides towards increased central clearing and trade reporting. Trade repositories will soon be in place to support trade reporting in all major OTC derivative asset classes.

Lawton then discusses four areas where further progress needs to be made:

  • Bilateral collateralisation of uncleared trades. A working group on margin trades consisting of the principal prudential, markets and payment systems regulators has been formed to consider creating standards for margining as a tool to mitigate the risks in the non-cleared part of the market, and is due to consult in June with final proposals by end 2012. At the same time the European Supervisory Authorities are considering the collateral requirements under a regulatory technical standard of the European Market Infrastructure Regulation (EMIR) which is due by the end of 2012.
  • Tools to assist the recovery or resolution of central counterparties (CCPs). CPSS-IOSCO will produce a consultation on how the Financial Stability Board’s Key Attributes of Effective Resolution Regimes applies to financial market infrastructure and what special guidance may be needed. EU legislative action in this area is expected sometime this year.
  • Application of requirements cross border. Lawton states that the FSA operates to a longstanding principle that it seeks to avoid extraterritorial application of its rules outside the UK, and instead places reliance on the application of regulation that achieves equivalent regulatory outcomes by overseas regulators in their domestic jurisdictions, where that exists. The FSA also applies a policy objective that promotes a system of regulation for the OTC derivatives market that is globally coordinated, reducing the potential for gaps in oversight or arbitrage of differing regulatory regimes. In applying these two principles the FSA believes that it would be desirable to achieve a global system of regulation for the OTC derivatives market based upon mutual recognition or substituted compliance where possible.
  • Readiness of firms, financial and non-financial, not currently clearing. Lawton states that EMIR affects all participants in derivatives markets, from the largest bank to the smallest investment fund. The FSA has recently run a series of workshops for firms affected by EMIR and has identified a number of outstanding significant implementation challenges. One of the most significant challenges concerns the preparation for non-clearing members to access central clearing. A lack of standardised client clearing documentation increases the scale of the challenge.

View Derivatives reform - Regulatory update, 26 June 2012

Market abuse

Presidency progress report on MAR

The Presidency of the Council of the European Union (the Presidency) has published a progress report concerning the proposal for a Regulation on insider dealing and market manipulation (MAR).

The Presidency notes that generally speaking MAR has been well received and that the outstanding areas that Member States need to agree on covers:

  • Inside information and publication - the definition and time of publication.
  • Insider dealing and defences.
  • Accepted market practices.
  • Powers of competent authorities.
  • Administrative sanctions.
  • Publication of sanctions.

View Presidency of the Council of the European Union progress report on a proposal for a Regulation of the European Parliament and of the Council on insider dealing and market manipulation, 21 June 2012

JURI opinion on MAD revision

The European Parliament’s Committee on Legal Affairs (JURI) has published opinions on the proposed:

  • Regulation on insider dealing and market manipulation (MAR).
  • Directive on criminal sanctions for insider dealing and market manipulation (CSMAD).

The JURI makes a number of criticisms of the MAR including:

  • The definition of ‘inside information’ is complex and difficult. JURI regretted that the European Commission could not take into account the Court of Justice of the European Union's decision in Markus Geltl v Daimler AG.
  • The proposal to penalise even an attempt to commit a breach is in principle to be welcomed as it expands the circumstances in which retribution is possible. However, it is not clear whether and how, in practice, an attempt can actually be shown to have been made.
  • When announcing the imposition of penalties, the identity of the persons responsible for breaches should not be published.
  • It is doubtful whether the blanket exclusion of monetary and public debt management activities and climate policy activities is justified, and this aspect should be reviewed.

In relation to the CSMAD the JURI makes a number of points including that the ne bis in idem principle (which translates literally as “not twice in the same”, meaning that no legal action can be instituted twice for the same cause of action) should be spelt out, particularly as regards the combination of criminal and administrative sanctions.

View Opinion of the Committee on Legal Affairs on the proposal for a Regulation of the European Parliament and of the Council on insider dealing and market manipulation, 20 June 2012

View Opinion of the Committee on Legal Affairs on the proposal for a Directive of the European Parliament and of the Council on criminal sanctions for insider dealing and market manipulation, 20 June 2012

European Parliament to consider MAD revision on 22 - 23 October 2012

The European Parliament procedure files for both the proposed Regulation on insider dealing and market manipulation and the proposed Directive on criminal sanctions for insider dealing and market manipulation note that the Parliament will consider these proposals in plenary session on 22 - 23 October 2012.

View European Parliament procedure file proposed Regulation on insider dealing and market manipulation, 27 June 2012

View European Parliament procedure file proposed Directive on criminal sanctions for insider dealing and market manipulation, 27 June 2012


EIOPA guidelines on complaints handling by insurance undertakings

The European Insurance and Occupational Pensions Authority has published guidelines on complaints handling by insurers under the Solvency II Directive. The guidelines apply to Member State supervisors.

View EIOPA guidelines on complaints handling by insurance undertakings, 27 June 2012

Money laundering

Outcomes of the plenary meeting of the FATF, 20-22 June 2012

The Financial Action Task Force (FATF) has published a summary of its plenary meeting which took place on 20 - 22 June 2012. The summary states that the FATF:

  • Produced two public documents: (1) a public statement on jurisdictions with strategic anti-money laundering and combating the financing of terrorism (AML/CFT) deficiencies; and (2) a document entitled Improving Global AML/CFT Compliance: on-going progress. This document covers jurisdictions with strategic AML/CFT deficiencies for which they have developed an action plan with the FATF.
  • Received an update on progress made by Argentina and Turkmenistan.
  • Called on Turkey to enact adequate counter terrorist financing legislation by October 2012.
  • Reviewed the voluntary tax compliance programme in Spain, Pakistan and Curacao.
  • Published three reports which outline new methods and trends in money laundering and terrorist financing: (1) operational issues - financial investigations guidance; (2) specific risk factors in laundering the proceeds of corruption; and (3) illicit tobacco trade.
  • Welcomed the Anti-Money Laundering Liaison Committee of the Franc Zone as an observer to the FATF.
  • Is committed to promoting effective global implementation of the revised FATF recommendations. As part of this commitment, the FATF is working closely with FATF-style regional bodies (FSRBs) to move toward more harmonisation in the application of FATF and FSRB processes.

View Outcomes of the plenary meeting of the FATF, 20-22 June 2012, 26 June 2012

Regulation & compliance

Top news from the European Commission 23 June - 21 July 2012

The European Commission has issued a press release stating that on 3 July 2012 it will present a three part legislative package which will comprise a proposal for a Regulation on transparency in packaged retail investment products (PRIPS), a revision of the Insurance Mediation Directive (IMD) and a proposal for an amendment to the Undertakings for Collective Investment in Transferable Securities Directive (UCITS V).

The main elements of the package’s components are:

  • PRIPS: Sales of investment products should be accompanied by a key information document (KID) which provides retail investors with short, clear and comparable information written in accordance with a common standard.
  • Revision of the IMD: The sale of insurance products should be accompanied, when necessary, by honest and professional advice, along with information about the status of the insurance product seller and the remuneration the seller receives. This level of protection should apply whether consumers buy insurance directly from an insurance undertaking or indirectly from an intermediary. Sales of insurance investment products should be subject to enhanced standards including the assessment of suitability and appropriateness of the product for the consumer.
  • UCITS V: New rules on the tasks and liability of depositaries, remuneration of fund managers, and sanctions. If assets held by a depositary are lost, they should normally be replaced as soon as possible with assets of the same type or value; management companies should follow remuneration policies which do not lead to excessive risk-taking.

View Top news from the European Commission 23 June - 21 July 2012, 22 June 2012

Presidency progress report on MiFID review

The Presidency of the Council of the European Union (the Presidency) has published a progress report concerning the European Commission’s legislative proposals for the MiFID review. The progress report gives an overview of the situation regarding the more important issues concerning the draft legislation, including those which may require discussion at the political level.

The progress report is set out under the following headings:

  • Scope including exemptions. A majority of Member States are of the opinion that further elements should be included in the list of criteria to determine whether an activity is ancillary to the main business of a non-financial firm. The Presidency and the Commission will look into this further.
  • Organised Trading Facility (OTF). Member States are largely divided in two camps regarding the OTF proposal. One side is in favour, but would like to make the OTF rules less strict. The other side would like to make the OTF rules stricter or perhaps even remove this new trading venue category and ensure that organised trading can only take place on the existing types of execution venues.
  • Systematic internalisation (SI) and post-trade transparency rules for investment firms. Member States are generally in favour of an amended SI regime but more work needs to be done to reach agreement about the size of the quotes up to which the SI rules should apply.
  • Transparency for trading venues. Member States are divided over the application of general waivers from pre-trade transparency for non-equity instruments for request-for-quote and voice trading systems or for markets with trading restricted to professional participants.
  • Corporate governance. There appears to be a broad consensus on the Presidency approach which aligns the provisions of MiFID with the ones that are agreed upon in the CRD IV, while acknowledging the need to keep specific requirements that are only relevant for investment firms.
  • Investor protection. The compromise text introduced by the Presidency imposes stricter disclosure requirements on firms receiving inducements. At the same time, it has introduced a possibility for firms to retain the ‘independent’ label if monetary inducements are passed in full to their clients. A larger group of Member States seems to favour this regime, while also calling for more transparency through better disclosure of inducements. However, a smaller group of Member States seems firmly committed to introducing a general ban on inducements.
  • MTF, regulated markets and SME growth markets. Member States are broadly content with the Commission’s proposals in this area.
  • Authorisation and operating conditions for investment firms. Member State discussions have mainly focused on organisational requirements, particularly the telephone recording requirement.
  • Algorithmic trading and direct electronic access. The Presidency has introduced certain changes which has lead to most Member States supporting the regime for direct electronic access and algorithmic trading. However, there may still be a need to work more on the requirement for algorithmic traders to provide liquidity on a continuous basis regardless of prevailing market conditions.
  • Data reporting services and transaction reporting. Discussions between Member States have been constructive with the objective to clarify and strengthen the proposals, as well as to align the provisions with complementary legislation such as the Market Abuse Regulation and the Short Selling Regulation.
  • Derivatives and clearing. One Member State has expressed strong reservations about the provisions regarding non-discriminatory clearing and would prefer to delete them. Another Member State feels that there should be fewer options for restricting access. A few Member States have also expressed a desire to align the access provisions further with the European Market Infrastructure Regulation.
  • Position management, position limits and product intervention. Discussions have centred on the types of contracts which should be covered by position management, and the balance between position limits and other position management tools. Consideration has also been given to the benefits of a regime which is internationally consistent, including with the USA.
  • Competent authorities and sanctions. The most difficult aspect seems to be the publication of sanctions, where a couple of member states have strong concerns.
  • Third country regime. Several Member States have expressed serious concerns and have strong reservations regarding the Commission proposal introducing a third country regime.

View Presidency progress report on MiFID and MiFIR, 20 June 2012

ESMA publishes its first Annual Report

The European Securities and Markets Authority (ESMA) has published its first Annual Report which provides an overview of its operations in the past year and sets out its work programme for 2012.

Going forward the Annual Report states that 2012 will be a key year for ESMA, due to the following four challenges:

  • The introduction of new, and the overhaul of existing, legislation will be a key challenge for ESMA.
  • ESMA will continue to develop technical standards and advice to build a single rulebook for Europe. While it will provide advice and support on legislation being introduced and debated by the Council of the European Union and the European Parliament, particularly on MiFID/MiFIR, ESMA will also continue to promote supervisory convergence and work to avoid regulatory arbitrage.
  • ESMA will fully exercise its supervisory duties for the first time as the focus for credit rating agencies (CRAs) moves from registration to effective supervision.
  • In order to enable ESMA to deliver on its demanding 2012 work programme, it will need to substantially increase its staffing and budget. Staff numbers are expected to grow from 75 in 2011 to 101 by the close of 2012, and the budget from €16.9 to €20.2 million. Funding will also be generated from CRA’s fee contributions.

View ESMA publishes its first Annual Report, 25 June 2012

ESMA publishes an update to the MiFID Q&A in the area of investor protection and intermediaries

The European Securities and Markets Authority (ESMA) has published an updated version of its MiFID Questions and Answers. The purpose of this document is to promote common supervisory approaches and practices in the application of MiFID and its implementing measures. It does this by providing responses to questions posed by the general public and competent authorities in relation to the practical application of MiFID. The document contains a new question 9 which covers the automatic execution of trade signals.

View ESMA publishes an update to the MiFID Q&A in the area of investor protection and intermediaries, 22 June 2012

ESMA proposes remuneration guidelines for AIFMs

Annex II of the Alternative Investment Fund Managers Directive (AIFMD) establishes a set of rules which alternative investment fund managers (AIFMs) have to comply with when establishing and applying the remuneration policies for certain categories of their staff.

Article 13(2) of the AIFMD requires the European Securities and Markets Authority (ESMA) to develop guidelines on sound remuneration policies which comply with Annex II of the AIFMD (the Guidelines).

ESMA has now published a Consultation Paper concerning the Guidelines which covers:

  • The background to, and the structure of, the Guidelines.
  • The proposed scope of the Guidelines and the timing of their entry into force.
  • The proposed application of the proportionality principle as regards remuneration policies.
  • The proposed treatment of AIFMs that are part of a group.
  • Guidance on the consideration to be given to the financial situation of the AIFM when establishing the remuneration policies.
  • The proposed approach to governance of remuneration.
  • General requirements on risk alignment.
  • The proposed approach on remuneration disclosure requirements.

The deadline for responding to the Consultation Paper is 27 September 2012. ESMA aims to adopt the final text of the Guidelines in Q4 2012.

Steven Maijoor, ESMA Chair, stated:

“The proposed remuneration guidelines for alternative investment funds are an important step in creating a single EU rulebook by ensuring the consistent application of the AIFMD remuneration requirements across Member States.

“Given our co-operation with the European Banking Authority on remuneration principles, we expect that the future guidelines will ensure consistency of the rules for remuneration across financial sectors. This consistency will help strengthen the protection of investors and avoid the creation of adverse incentives for those managing alternative investment funds.”

View ESMA proposes remuneration guidelines for alternative investment fund managers, 28 June 2012

House of Lords Delegated Powers and Regulatory Reform Committee - Financial Services Bill

The Delegated Powers and Regulatory Reform Committee (the Committee) is appointed by the House of Lords each session with terms of reference that includes to report on whether the provisions of any Bill inappropriately delegates legislative power or whether any Bill has been subject to an inappropriate degree of Parliamentary scrutiny.

The Committee has now published a report which details certain Bills before Parliament including the Financial Services Bill (the FS Bill). There has also been published a delegated powers memorandum on the FS Bill which identifies the provisions for delegated legislation in the FS Bill. It explains the purpose of the delegated powers taken, describes why the matter is to be left to delegated legislation, and explains the procedure selected for each power and why it has been chosen.

The Committee notes that the FS Bill contains numerous delegated legislative powers but that many of them are well founded in precedent and that there is little that needs drawing to the attention of the Lords.

The Committee also notes that although the structure of regulation for financial services under the FS Bill is more complex than current arrangements, the overall approach does not raise any novel issues about delegated powers. However, the Committee does draw the Lords attention to the following clauses:

  • Clause 3 - macro-prudential measures.
  • Clause 5 - the objectives of the Financial Conduct Authority (FCA).
  • Clause 9 - permission to carry on regulated activities.
  • Clause 91 - consumer credit.

In relation to consumer credit the Committee notes that clause 6 of the FS Bill enables consumer credit to be regulated by the FCA under the Financial Services and Markets Act 2000 (FSMA), by bringing it within the scope of the power to make orders under section 22. Clause 91 deals with what happens when an order is made making an activity a regulated activity under FSMA instead of an activity needing a licence under section 21 of the Consumer Credit Act 1974 (CCA 1974).

In these circumstances, clause 91(2) and (4) enable HM Treasury, by order subject to affirmative procedure, in particular:

  • To transfer to the FCA functions of the Office of Fair Trading under the CCA 1974.
  • To apply specified enforcement provisions of the FSMA to failure to comply with a requirement for the CCA 1974; and in that connection to dis-apply criminal offence provisions of the CCA 1974.
  • Having regard to the FCA’s operational objectives, to repeal, or exclude the application of, any provision of the CCA 1974.

The Committee notes that this power is of unusual breadth and significance which, unless limited by amendment to the Bill, is capable of being used in ways that could make significant inroads into the current rights and duties of consumers and providers under current consumer credit legislation.

View House of Lords Delegated Powers and Regulatory Reform Committee - Financial Services Bill, 21 June 2012

View Financial Services Bill - Delegated Powers Memorandum, 21 June 2012

Draft MoU between the PRA and the FSCS

The FSA has published a draft memorandum of understanding (MoU) between the Prudential Regulation Authority (PRA) and the Financial Services Compensation Scheme (FSCS). The MoU sets out how the PRA and FSCS will co-ordinate and co-operate with each other under the new regulatory regime. The MoU covers:

  • Roles and responsibilities of the PRA.
  • Roles and responsibilities of the FSCS.
  • Information sharing.
  • Confidentiality.
  • Policy making.
  • Supporting the resolution of regulated firms.
  • Funding the FSCS.
  • Reporting to the PRA.
  • Disaster recovery.

In relation to the resolution of firms the MoU states, among other things, that in support of the PRA, the FSCS will assist in monitoring the readiness of bank systems to conduct a rapid payout, including through the verification of deposit-takers’ ability to provide a single customer view.

View Draft MoU between the PRA and the FSCS, 26 June 2012

FSA enforcement

Barclays Bank Plc (Barclays) has been fined £59.5 million for breaches of Principles 2, 3 and 5 of the FSA’s Principles for Businesses relating its submission of rates which formed part of the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). This is the largest fine ever imposed by the FSA. Barclays’ breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a number of years. Barclays’ misconduct included: (i) making submissions which formed part of the LIBOR and EURIBOR setting process that took into account requests from Barclays’ interest rate derivatives traders who were motivated by profit and sought to benefit Barclays’ trading positions; (ii) seeking to influence the EURIBOR submissions of other banks contributing to the rate setting process; and (iii) reducing its LIBOR submissions during the financial crisis as a result of senior management’s concerns over negative media comment. In addition, from January 2005 until June 2010 Barclays failed to have adequate systems and controls in place relating to its LIBOR and EURIBOR submissions processes and failed to review its systems and controls at a number of appropriate points. Barclays had no specific systems and controls in place relating to its LIBOR and EURIBOR submissions processes until December 2009 (when Barclays started to improve its systems and controls). Barclays also failed to deal with issues relating to its LIBOR submissions when these were escalated to Barclays’ Investment Banking compliance function in 2007 and 2008. Barclays agreed to settle at an early stage of the FSA’s investigation and therefore qualified for a 30% discount under the FSA’s executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £85 million.

View Barclays fined £59.5 million for significant failings in relation to LIBOR and EURIBOR, 27 June 2012

The FSA has issued a public censure to Kaupthing Singer and Friedlander (KSFL), the UK subsidiary of Icelandic banking group Kaupthing Bank Hf, for breaching Principle 2 between 29 September 2008 and 2 October 2008 in relation to the assessment and reporting of its liquidity position. KSFL failed to consider promptly and properly whether liquidity stresses in its parent would have a detrimental effect on its own liquidity position. By 29 September 2008, KSFL should have realised that there was a serious risk that the £1billion value of the arrangement might not be recoverable in full on an overnight basis or within 0-8 days. KSFL assumed that it could draw down on a special financing arrangement with its parent company without testing that assumption and, when it began to have concerns about the arrangement and there were warning signs that the parent’s liquidity position was strained, failed to discuss these with the FSA until 2 October 2008. Three directors have provided undertakings to the FSA that they will not perform any significant influence functions for five years from 8 October 2008 (the date KSFL was placed into administration).

View Final Notice - Kaupthing Singer and Friedlander Limited (in administration), 18 June 2012

The Tribunal has upheld an FSA decision to cancel the Part IV permission of a sole trader on the basis of his refusal to pay fees and levies, failure to comply with the terms of a settlement agreement with the FSA and continuing health problems. The Tribunal considered that neither his health problems nor the financial crisis excused his failures to pay between 2005 and 2011. The consistent pattern of behaviour suggested his failure was deliberate and he admitted he had de-prioritised the fees. His disregard of obligations and the settlement agreement evidenced a lack of integrity.

View Athanass Stefanopoulos, 28 May 2012

France: New admitted market practice on bond buy-backs for liquidity purposes

On 10 May 2012, the French securities regulator (the AMF) accepted a new market practice within the meaning of the EU Regulation concerning buy-back programmes with respect to a liquidity agreement on pure (i.e. non equity-linked) debt securities. Under this new admitted practice, a company listed on NYSE Euronext Paris or NYSE Alternext Paris may enter into a liquidity agreement with an investment firm under which the investment firm will buy or sell debt securities on behalf of the company in order to increase the liquidity of transactions on the market.

This decision takes place in a context of efforts for regulatory relief by French authorities to increase the liquidity of secondary markets of debt securities.

Under the Market Abuse Directive, there is a rebuttable presumption that companies that entered into a liquidity agreement with an investment firm in compliance with the terms of such market practices have not committed market abuse. This new market practice has been modelled on that already existing for liquidity agreement in the context of share buy-backs. The liquidity agreement must comply with the principles set out in the professional charter drafted by Paris Europlace, an association promoting and developing the Paris marketplace. Under this charter, the investment firm must determine independently from the company, the timing and volume of its trades. A number of disclosure requirements also apply to the company.

This new market practice comes amid intense lobbying by French market participants so that market practices are not scrapped from the draft Market Abuse Regulation, as has been suggested.

For further information please contact Roberto Cristofolini or Anselme Mialon

France: Securities regulator clarifies treatment of cash-settled derivatives for the purposes of threshold disclosure

As reported in previous international updaters, in response to a number of high-profile cases, recent legislation changed disclosure requirements applicable to cash-settled derivatives with effect from 1 October 2012. From this date onwards, cash-settled derivatives that have a similar economic effect to holding shares will have to be aggregated to shares actually held for the purposes of calculating thresholds to be disclosed. Thus far, cash-settled derivatives only had to be separately disclosed at a time the statutory disclosure threshold was independently crossed. However, it was left to the Rulebook of the French securities regulator (the AMF) to clarify new rules on a number of issues. To this end, the AMF opened a public consultation that is due to close on 6 August 2012.

First, only cash-settled derivatives that have an economic effect similar to holding shares will fall within the scope of the new requirement. According to the AMF, this covers cash-settled derivatives referenced to an issuer’s shares or voting rights and which give rise to a long position on the economic performance of the underlying shares or voting rights. This notably includes contracts for difference, equity swaps, and other structured products such as basket and index derivatives, unless they are sufficiently diversified. The AMF suggests that a financial instrument would be deemed as sufficiently diversified and hence would not have to be aggregated where no single share represents over 20% of the basket or index. In respect of all such instruments, it is anticipated to aggregate to the shares actually held the “maximum number of [underlying] issued shares”. In so doing, the AMF proposes that cash-settled be aggregated on a notional basis; however, the AMF appreciates that the current review of the Transparency Directive may lead to reporting on a delta adjusted basis instead (taking into account a number of parameters such as the current implied volatility of the derivative and the closing price of the underlying instrument).

In addition, the AMF supplements information to be made at the time of crossing the thresholds of 10 per cent, 15 per cent, 20 per cent or 25 per cent of the shares or voting rights of a company requiring a statement of intent with regard to the following 6 months with respect to the investor’s holding in a company. Such disclosure will now include information as to the investor’s intentions regarding the unwinding of the derivative (cash-settlement or physical delivery), whether the investor intends to exercise the derivative or acquire the shares held as a hedge by the counterparty. Also, changes in the distribution of shares and voting rights disclosed (e.g. upon the exercise of options or acquisition of underlying shares from the counterparty to a CFD) would trigger the filing of an additional disclosure.

For further information please contact Roberto Cristofolini or Anselme Mialon

Dubai: UAE Financial Services Association

The UAE Financial Services Association (UFSA) is a relatively new non-profit company established in the Dubai International Financial Centre (DIFC), of which we, Norton Rose (Middle East) LLP, are a member.

The UFSA’s main objectives are to develop a working relationship between the financial services community in the UAE (including the DIFC) and the various financial regulators and to participate in the development of the financial services industry in the UAE. To achieve its objectives, the UFSA will, among other things, represent the financial services industry in the UAE and engage with the regulators on regulations and policies related to the financial services industry. The UFSA board (comprising representatives of prominent local and international financial institutions and service providers) has high level access to the financial regulators in the UAE and an established method of consulting with them.

The UFSA will form working groups (headed by service providers such as lawyers) to work on distinct topics, e.g. fund management, ECM, etc. The UFSA currently has two working groups, the Securities and Commodities Authority (SCA) Fund Management working group (chaired by the CEO of Fidelity Worldwide Investment in the UAE) and the SCA Investment Management working group (chaired by the CIO of National Bank of Abu Dhabi).

The current members of the UFSA are the National Bank of Abu Dhabi, Invest AD, the National Investor, UBS AG, Fidelity Worldwide Investment, Franklin Templeton Investments, ING Investment Management, Allfunds Bank, Skandia International, Deloitte, Norton Rose (Middle East) LLP, Clifford Chance, Capital Advantage, Habib Al Mulla & Company, Arendt & Medernach, Barclays Bank, HSBC Securities Services UAE, T. Rowe Price, Aviva Investors and Morning Star.

For further information please contact Jane Clayton

Italy: Long awaited implementation of Second Electronic Money Directive in Italy completed and new regulatory framework on payment institutions adopted

Following the coming into force of Legislative Decree no. 45 of 16 April 2012, on 20 June 2012 the Bank of Italy adopted: (i) Regulation on the supervision on payment institutions and e-money institutions of 20 June 2012 (the E-money Regulations); and (ii) Regulation on transparency of banking and finance services of 20 June 2012 ((the Transparency Regulations) and, collectively with the E-money Regulations, the Regulations). The Regulations complete the implementation process in Italy of Directive 2009/110/EC on electronic money (2EMD). The Regulations have not yet been published in the Official Gazette of the Italian Republic, but are expected to come into force soon.

The new regulatory framework extends the range of activities that e-money institutions can carry out and simplify the supervisory requirements. In particular the E-money Regulations provide, inter alia, the following:

  • E-money institutions can carry out payment services.
  • Minimum initial capital requirements have been decreased from Euro 1 million to Euro 350.000.
  • The currently applicable prudential rules on the investment of sums received by customers following the issue of electronic money are replaced with rules on the protection of customers’ funds, similar to those applicable to payment institutions.
  • Rules on distribution networks have been amended. In particular, e-money institutions may use agents in respect of payment services, while they may distribute and redeem electronic money through natural or legal persons acting on their behalf subject to conditions and procedures similar to those applicable to outsourcing.

The Regulations amend the current transparency regime on the customer-intermediary relationship in particular on disclosure and reimbursement of electronic money and fees.

The E-money Regulations also introduce certain amendments to the regulatory framework applicable to payment institutions, implementing legislation adopted at the end of 2011 (Legislative Decree no. 230 of 29 December 2011). Newly introduced amendments relate to, inter alia:

  • Granting credit in connection with credit cards (e.g. revolving cards) by EU payment institutions in Italy under freedom of establishment regime.
  • Clarifications on certain aspects of hybrid payment institutions regime.
  • Investment of monies deposited on payment accounts.

The adoption of the Regulations has brought the Italian regulatory regime applicable to e-money institutions in line with the regulatory framework currently in force in the other EU Member States. The equivalent prudential regime applicable to payment institutions and e-money institutions is intended to stimulate the efficiency and competition of this sector of the financial market and to open it up to new operators by simplifying the regulatory framework.

A transitional regime is provided for e-money institutions already enrolled in the relevant register kept by the Bank of Italy. Such institutions shall comply with the new regulatory regime and make all filings with the Regulator contemplated in the transitional provisions of the E-money Regulations within 60 days of its coming into force.

For further information please contact Nicolo Juvara or Davide Nervegna

Netherlands: DNB on Intervention Act

On 13 June 2012, the so-called Intervention Act came into force with retroactive effect from 20 January 2012. The Intervention Act will create several means of intervention in respect of financial enterprises in financial difficulties. Amongst other things, the Intervention Act provides that the Dutch Minister of Finance may take certain measures vis-a-vis a financial enterprise in financial difficulties. The Intervention Act restricts various rights of the contractual counterparties of that financial enterprise which these counterparties would normally have had, if these measures qualify as an event of default or a notification event under financial arrangements entered into by such a financial enterprise. As a result, without permission from the Dutch Central Bank (De Nederlandsche Bank), such counterparty may not, for example, claim repayment, demand additional security, transfer assets, amend any outstanding amounts or due dates for payment of such amounts, file a counterclaim or invoke any rights of suspension, withholding or set-off, regardless of the law governing the contractual arrangement.

The publication of the DNB (in Dutch) can be found at here

For further information please contact Floortje Nagelkerke

Netherlands: AFM newsletter on new prospectus rules

On 11 June 2012, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) published a newsletter which provides information on new rules relating to prospectuses which are expected to come into force on 1 July 2012. The newsletter discusses new definitions such as qualified investor and the amended exemptions concerning the obligation to publish a prospectus (for instance the exemption if the offer is made to less than 100 persons). The newsletter also sets out the amendments relating to the prospectus itself, such as the requirements of the summary, the method of publication, the validity of the prospectus and the supplements to the prospectus.

The publication (in Dutch) can be found here

For further information please contact Floortje Nagelkerke

Netherlands: AFM publishes information bulletin on EMIR

On 14 June 2012, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) published an information bulletin on the consequences of the European Markets Infrastructure Regulation (EMIR). As of 1 January 2013, new rules relating to derivatives transactions will come into force. These rules will be applicable to all parties to a derivatives transaction, not only to financial institutions but also non-financial institutions. Many non-financial institutions are currently not regulated by the AFM nor the Dutch Central Bank (De Nederlandsche Bank). The information bulletin sets out information concerning scope and the parties that EMIR applies to, the clearing obligations, the reporting obligation to trade repositories and rules on segregation and portability.

The publication of the AFM (in Dutch) can be found here

For further information please contact Floortje Nagelkerke

Netherlands: DNB: funding ratio pension funds remain stable

On 15 June 2012, the Dutch Central Bank (De Nederlandsche Bank, DNB) announced that at the end of May the average funding ratio (ratio between available assets and liabilities) of Dutch pension funds was 99%, which was the same as by the end of March this year. According to the DNB, the ratio remained stable because the returns on fixed-rate assets were positive pursuant to the decline of the long-term interest rate and because the pension funds may use the average interest rate. This offsets the losses incurred by the pension funds on the stock exchanges.

The publication of the DNB (in English) can be found here

For further information please contact Floortje Nagelkerke


FSA consults on changes to platforms market

In Policy Statement 11/09: Platforms: Delivering the RDR and other issues for platforms and nominee related services (PS11/9) the FSA published final rules which introduced a definition of a platform service and included rules on platform service providers and on how advisers should use platform services. PS11/9 also set out the FSA’s intention to prevent platforms from being funded by payments from product providers whilst maintaining the policy position that product providers should not be able to pay cash rebates to consumers.

The FSA has now published Consultation Paper 12/12: Payments to platform service providers and cash rebates from providers to consumers (CP12/12).

In CP12/12 the FSA proposes a ban on platforms being funded by product providers. The FSA is seeking to introduce rules that mean that when supplying a platform service, a platform service provider cannot receive any remuneration for this service (and any other related services) except for platform charges paid by the retail client. The proposed ban would affect both the advised platforms market and non-advised (direct to consumer) platforms that allow consumers to invest directly in retail investment products.

The proposed rules would also capture any payments made to a product wrapper held on the platform when provided by the platform service provider. If the platform service provider is also the provider of product wrappers the FSA states that these are two distinct, albeit related, services and should be priced as such.

The FSA is also consulting on banning cash rebates from product providers to consumers using platforms on a non-advised basis. However, this approach would not prevent rebates being made through additional investment into the product (unit rebating).

The FSA is also seeking views on whether it should ban rebates from all firms providing a similar service to platforms - that is, distributing retail investments to retail consumers. Such an extension might affect pension scheme providers, life companies, execution-only brokers (those that are not already caught by the definition) and any other firm that provides a distribution service.

The deadline for comments on CP12/12 is 27 September 2012.

The FSA plans to publish its finalised rules on platforms before the end of 2012, allowing platforms over a year to implement the necessary changes to their business models before the rules come into effect on the proposed date of 31 December 2013.

The FSA has also published its latest Consumer Research Paper (Consumer Research 87: The platforms market: consumer interaction). The Consumer Research Paper discusses the findings of independently commissioned consumer research on the impact of its proposals on platforms’ business models and competition.

View FSA consults on changes to platforms market, 27 June 2012

View Consultation Paper 12/12: Payments to platform service providers and cash rebates from providers to consumers, 27 June 2012

View Consumer Research 87: The platforms market: consumer interaction, 27 June 2012


ESMA Questions and Answers Prospectuses (14th updated version)

The European Securities and Markets Authority (ESMA) has published an updated version of its Questions and Answers document concerning the Prospectus Directive.

The updated document contains updated answers concerning:

  • Information on taxes on the income from the securities withheld at source.
  • Global depositary receipts.

The updated document also contains a new section regarding questions and answers on issues concerning prospectus legislation that has not yet come into force. This new section covers:

  • Issue specific details in case of category B items.
  • Interpretation of the term “index description” included in item 4.2.2 of Annex XII.

View ESMA Questions and Answers Prospectuses (14th updated version), 20 June 2012


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.

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.

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:

  • The Queen's Speech (18 May 2012)
  • 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:



Peter Snowdon

Peter Snowdon

Gijs van Leeuwen

Gijs van Leeuwen

Roberto Cristofolini

Roberto Cristofolini

Paris Casablanca
Marc  Duquette

Marc Duquette

Jane Clayton

Jane Clayton