FUND NEWS Financial Services / Regulatory and Tax / Issue 108
Developments in October 2013 Investment Fund Regulatory and Tax developments in selected jurisdictions
3 PRIPs approved in ECON 3 ECON voted report on recovery and resolution
3 AIFMD MoUs signed by the EU authorities 3 ESMA publishes Q&A on EMIR
for non-bank institutions
Ireland 4 CBI Issues Deadline for AIFM Applications 4 CBI Publishes 4th Edition of AIFMD Q&A 4 CBI Amends UCITS Notices 4 Irish Stock Exchange â€“ Fund Publication Initiative 5 IFIA Paper on the Requirements for 5 Offsetting Financial Assets and Liabilities 5 FRC Publishes Draft Amendments to FRS 102 5 CBI Publishes Guidance/Instructions on Preapproved Controlled Functions (PCFs) 5 Key Dates Reminder
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Luxembourg 6 CSSF regulation relating to the resolution of extrajudicial claims 6 Grand-ducal regulation relating to the fees to be levied by the CSSF Switzerland 7 Revised Anti-Money Laundering Law will enter into force on 1 November 2013 UK 8 FCA raises its concerns over the use of brokerage fees and fee bundling 8 FCA makes a commitment to faster fund authorisations 8 FCA draft guidance on converting investors between pre- and post-RDR unit classes International 9 2nd IOSCO hedge fund survey published
European Union PRIPs approved in ECON The Economic and Monetary Affairs Committee (ECON) of the European Parliament approved a draft law on 21 October 2013 on a Key Information Document (“KID”) for Packaged Retail Investment Products (“PRIPs”). The new KID should include up-to-date clear information on the product, including a risk assessment, and would enable small investors to compare PRIPs. The Committee agreed to exclude deposits, securities and insurance products which do not offer a surrender value from the scope of the rules. The creator of the KID would be responsible for the information provided and could be liable under civil law if any of such information was misleading to investors. Penalties would include banning the product, fines of up to 10% of the investment product manufacturer’s total annual turnover or up to €5,000,000 on individual persons. The next step will be the vote in plenary which is scheduled on 21 November 2013, and then the start of negotiations with the European Council.
ECON voted report on recovery and resolution for non-bank institutions
AIFMD MoUs signed by the EU authorities
ECON also adopted a report on recovery and resolution for non-bank institutions on 22 October 2013. The report stresses the need for strong recovery and resolution rules for key critical market infrastructures that are non-bank financial institutions, including CCPs, CSDs, insurance undertakings, asset managers and payment systems.
In the context of AIFMD cross-border business activities ESMA published a list of the AIFMD MoUs signed by EU authorities on its website on 18 October 2013, which is available via the following link:
The report mainly focuses on CCPs and CSDs, however concerning asset managers, the report recommends to assess whether any asset manager should be designated as systemically important based on criteria including the scope of their activity, size, business models, risk profile, trading activity and asset segregation requirements. Despite the safeguard of client assets with custodians, the report calls for an effective securities legislation that could mitigate issues due to the failure of large cross-border asset managers.
ESMA publishes Q&A on EMIR On 22 October ESMA published a Questions and Answers on the implementation of EMIR which is available via the following link: http://www.esma.europa.eu/page/ Post-trading-documents
The framework for crisis management and resolution for non-bank institutions is part of the EU Commission roadmap for 2014.
Fund News / Issue 108 / Developments in October 2013 / 3
Ireland CBI Issues Deadline for AIFM Applications
CBI Publishes 4th Edition of AIFMD Q&A
Irish Stock Exchange – Fund Publication Initiative
With the transitional period set to expire on 22 July 2014, the Central Bank of Ireland has advised that 21 February 2014 is the latest date for receipt of applications from existing managers seeking authorisation as an alternative investment fund manager (AIFM). Given the expected volume of applications, applicants have been advised to submit their applications at the earliest opportunity.
On the 30 September 2013 the Central Bank of Ireland published a fourth edition of the AIFMD Q&A document. The updated Q&A document is available on the Central Bank of Ireland’s website.
Since 2 October 2013 the Irish Stock Exchange (“ISE”) has been offering listed funds the opportunity to publish a variety of documents on the ISE website without charge.
It is important to note that this deadline will apply not only to existing managers wishing to be authorised as an AIFM, but also to self/internally managed Alternative Investment Funds (“AIFs”) and managers whose assets under management are below the thresholds set out in Regulation 4 of the AIFMD Regulations (i.e. “registered AIFMs”). The Central Bank of Ireland has advised that applicants should take care to ensure that their applications are of the highest standard as incomplete or insubstantial applications will be returned.
The Central Bank of Ireland has amended paragraph 4 of Notice UCITS 10 (Financial Derivative Instruments) to expand the list of eligible counterparties for OTC derivatives. Additional counterparties are set out in paragraph 4 (iii) of the Notice. The amendment takes effect from 11 October 2013.
This will assist fund’s in providing investors with direct access to up to date information about the fund which may, among other things, include information on the prospectus and prospectus updates, the fund’s listing particulars, the key investor information document (“KIID”) and annual reports. Uploaded documents are linked to the fund’s details on the ISE website and will be distinguished by the letter “D” on the right hand side of the fund’s name.
Paragraphs 4(iv) to (vi) inclusive of the existing Notice UCITS 10 have been deleted. These provisions on valuation of OTC derivatives are redundant due to the obligations set out in Article 11 of EMIR (i.e. Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR) and the related Commission Delegated Regulation (EU) No 149/2013). The obligations set out in EMIR apply to UCITS as financial counterparties under that Regulation.
This initiative may be of particular interest to funds seeking to meet AIFMD transparency requirements. An AIFM may publish information on the ISE’s website relating to listed AIF’s, including information on AIF’s prospectus, annual report, net asset value, and may use the ISE’s company announcements office to disclose periodic information to investors and to announce matters requiring immediate notification to investors, for example the activation of gating provisions.
CBI Amends UCITS Notices
Notwithstanding the list of eligible counterparties set out in the UCITS Notices, UCITS must at all times ensure that counterparties to OTC derivative transactions are those prescribed in their prospectus.
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IFIA Paper on the Requirements for Offsetting Financial Assets and Liabilities
CBI Publishes Guidance/ Instructions on Preapproved Controlled Functions (PCFs)
Following amendments to IFRS 7 and IAS 32 and the Financial Accounting Standards Board’s update ASU 2011- 11, the Irish Funds Industry Association has published a paper entitled: “The Requirements for Offsetting Financial Assets and Liabilities”.
On 04 October 2013 the Central Bank of Ireland published guidance/instructions for regulated financial service providers on how to access the Online Reporting System (ONR) PCF Information Page and guidance on the features of the ONR PCF Information Page.
The paper will assist those preparing financial statements to review their current systems and netting arrangements, evaluate the impact that the new disclosures may have on their current processes, and the internal controls that are in place to analyse the information needed to comply with the new disclosure requirements.
FRC Publishes Draft Amendments to FRS 102 The Financial Reporting Council has published draft amendments to FRS 102 on the financial reporting standard applicable in the UK and the Republic of Ireland for Hedge Accounting. The FRC publication is available at the following link: http://www.frc.org.uk/Our-Work/ Publications/Accounting-andReporting-Policy/FRED-51-StaffDraft.pdf
On 03 October 2013 the Central Bank of Ireland published guidance/instructions on the resignation process for PCFs.
• 31 December 2013 Fitness & Probity: Collective investment schemes, management companies and other regulated financial service providers, assuming they have not already done so, will need to obtain their annual certification from persons performing PCFs (e.g. directors) and CFs (e.g. Money Laundering Reporting Officer (MLRO and Company Secretary) that they are aware of the fitness and probity standards, agree to continue to abide by those standards and will notify the relevant entity if they no longer comply.
Key Dates Reminder • 28 October 2013 Deadline for responses to the Central Bank’s consultation on the authorisation of regulated firms, funds and intermediaries, process improvements and service standards (CP67). Previously reported on in August, Issue 106. • 31 October 2013 Deadline for responses to the Central Bank’s consultation on client assets requirements (CP71). Previously reported on in August, Issue 106. • 29 November 2013 Deadline for responses to the Central Bank’s consultation on Investment Intermediaries (CP72). Previously reported on in September, Issue 107.
• 31 December 2013 UCITS Business Plan: UCITS management companies and SelfManaged Investment Companies, assuming they have not already done so, may need to obtain annual confirmations from service providers and relevant persons in accordance with their business plans. • 21 February 2014 The latest date by which applications for authorisation as an AIFM, self/internally managed AIFM, or “Registered AIFM” must be submitted to the Central Bank of Ireland.
• 20 December 2013 Normal timeframes apply for QIAIF authorisations and filings until 20 December 2013. QIAIF filing deadlines for the Christmas period have been notified to industry in a letter to the IFIA.
Fund News / Issue 108 / Developments in October 2013 / 5
Luxembourg • The director responsible for the claim treatment procedure and its implementation within the entity
CSSF regulation relating to the resolution of extrajudicial claims A CSSF Regulation was published to Memorial A on 28 October 2013 relating to the resolution of extrajudicial claims. This regulation will repeal IML Circular 95/118 and will provide clear details on the process and timeline of the resolution of the extrajudicial claims introduced by clients of entities supervised by the CSSF (“professionals”).
• The complaint terms (such as the type of information to be provided to the professional, identity and contact details of the person or service in charge of complaints etc.)
• The procedure in place to followup the claim (such as an indicative timeline, acknowledgement of receipt, possibility of involvement of the CSSF in the resolution of the claim etc.)
The regulation is split into the following two main sections: 1. Process relating to the resolution of extrajudicial claims sent to the CSSF The new regulation keeps the core ideas of IML circular 95/118 while introducing more requirements to the process of extrajudicial claim resolution. The regulation is much more detailed than the circular was and introduces a timeframe with deadlines throughout the process The rules regarding this content will enter into force on January 1, 2014. 2. Obligations on professionals regarding dealing with claims The new regulation imposes stricter claims procedural requirements on professionals. In addition to existing requirements, professionals will have to maintain a clear, precise and up-to-date procedure for dealing with claims on an ongoing basis. This procedure will have to include:
• The procedures in place to analyse the individual claims received: analysis of the claim’s causes and origins, possible impact of such cause on other procedures or products and correction plan of the claim if relevant.
The details of the procedures put in place by professionals will have to be published and made available to their clients. The new regulation also requires a yearly reporting to the CSSF. The claims department will have to report the CSSF all claims received during the year and the measures taken. The rules regarding professional obligations will enter into force on 1 July 2014. The full text can be found via the following link: http://www.cssf.lu/fileadmin/files/ Lois_reglements/Legislation/ Reglements/RCSSF_No13-02.pdf
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Grand-ducal regulation relating to the fees to be levied by the CSSF A Grand-ducal regulation was issued on 31 October 2013 updating the fees to be levied by the CSSF. This Grandducal regulation is applicable as from 1 November 2013 and repeals the Grand-ducal regulation of 29 September 2012 relating to these fees. The fees to be levied by the CSSF are payable by the different financial entities supervised in Luxembourg. The new regulation mainly introduces fees relating to entities derived from the AIFM law (law of 12 July 2013). The full text can be found via the following link: http://www.cssf.lu/fileadmin/files/ Lois_reglements/Legislation/ Reglements/RGD_281013_taxes_ CSSF.pdf
Switzerland Revised Anti-Money Laundering Law will enter into force on 1Â November 2013 The partial revision of the Swiss AntiMoney Laundering Act (AMLA) will enter into force on 1 November 2013. This was decided by the Federal Council in its meeting on 16 October 2013. In the future, the Money Laundering Reporting Office Switzerland (MROS, the Swiss Financial Intelligence Unit) will be in the position of also sharing financial information with its foreign counterparts.
The Federal Parliament adopted the revision of the AMLA on 21 June 2013. Besides an enhanced exchange of information, the revision brings with it an extended authority to gather information from the financial intermediaries. The MROS will be able to independently conclude contracts regarding the technical cooperation with foreign money laundering reporting offices. Inter alia, the revised Act contains specific provisions regarding the release of information, the cooperation with foreign agencies and the right to refuse to provide information. As the referendum deadline for the revision of the AMLA expired unused on 10 October 2013, the Federal Council decided to bring the partial revision of the AMLA into force on
1Â November 2013. At the same time, a revision of the Ordinance on the MROS (MGwV) will enter into force. It was also adopted by the Federal Council on 16 October 2013. Therein, specific amendments to the law will be further specified (e.g. definition of MROSâ€™s tasks and processing of reports and information). For Switzerland, the aforementioned revision of the anti-money laundering provisions will be marking a legal paradigm shift, as the extended authority to gather financial information will yet again result in a substantial restriction of the Swiss banking secrecy. It will in any case be interesting to see how both the Swiss financial intermediaries as well as the MROS itself will cope with the new provisions.
Fund News / Issue 108 / Developments in October 2013 / 7
UK FCA raises its concerns over the use of brokerage fees and fee bundling At the Financial Conduct Authority’s (“FCA”) annual Asset Management Conference on 30 October the keynote speech “Shaping the future in asset management” was given by Martin Wheatley, Chief Executive of the FCA. The speech raised some clear challenges on the need for the industry to: demonstrate greater stewardship; deliver fair outcomes; transparently disclose fees and charges; and better manage conflicts if it is to remain internationally competitive. The FCA is returning to what services can be provided to asset managers by broker’s in return for clients’ dealing commissions. It has concerns in a number of areas including: material payments for “corporate access”; use of commissions for non-eligible costs and services that should be financed by the manager from its fees; and poor value for money with greater use of clients’ commission payments for the same level of research services simply because the number of transactions executed increased. The FCA considers there to be material flaws and distortions, together with a lack of transparency to customers. It considers that the evidence it has from its supervisory work highlights that the 2006 regime is not working, despite the clarification it provided in 2006, and reform is required, and that reform will involve the sell side as well as the buy side.
The FCA looks to work at an EU level though the Markets in Financial Instruments Directive (“MiFID”) to ensure a pan-European level playing solution to a problem that is not UK specific but also, and importantly, with the industry to deliver an informed and robust long-term solution. However, the FCA also indicated it will not wait for MiFID II to consult and address the areas of concern that have been identified. Martin Wheatley announced that the FCA’s work will commence with a thematic review which will consider its conflicts of interest findings of 2012 including the attestations it received, to be followed by a consultation paper in November on: how to improve the regime; how to define “research”; and what is eligible and non-eligible when purchasing goods and services from dealing commissions paid by clients.
It has also committed to enhance the service for UCITS authorisations with 90% being authorised within six weeks from April 2014. Details of the commitments were published in “Fair, transparent and competitive: the FCA’s vision for the asset management sector” which is available here: http://www.fca.org.uk/news/ fair-transparent-and-competitivethe-fcas-vision-for-the-assetmanagement-sector
and are included in its statement on fund authorisations on the FCA website, here: http://www.fca.org.uk/news/firms/ statement-on-fund-authorisations#
The text of the speech is available here: http://www.fca.org.uk/news/shapingthe-future-in-asset-management
FCA makes a commitment to faster fund authorisations On 30 October at its annual asset management conference the Financial Conduct Authority (“FCA”) announced a commitment to support the development of UK Authorised Funds by speeding up its fund authorisations process. The FCA committed that by April 2014 it will reduce the time to authorisation from the current statutory maximum of six months to three months for non-UCITS retail schemes (“NURS”) and to two months for Qualified Investor Schemes (“QIS”); then from April 2015 to two months for NURS and one month for QIS.
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FCA draft guidance on converting investors between pre- and post-RDR unit classes On 23 October the Financial Conduct Authority (“FCA”) published a consultation on proposed FCA guidance setting out its expectations of firms delivering, for investors, the conversion of their units from pre-RDR unit classes to post-RDR unit classes. The guidance has been produced to address a range of questions and uncertainties raised with the FCA as to how to convert investors into new unit or share classes.
International It will establish the FCA’s expectations in response to the following questions: • Can a conversion be treated in the same way as a switch? • When can a conversion be done in bulk rather than individually? • When can conversions happen without express customer permission? • Is advice is needed, and what is the role of advisors in conversions? • Does a new KIID need to be issued before conversion? The FCA expects to see a significant move to “clean” share classes before the end of the two year transition (6 April 2016) following the ban on payments to platforms and product providers from 6 April 2014.
While the guidance is currently at the consultation stage, it indicates what the FCA expects, though the FCA’s draft guidance remains somewhat ambiguous on whether a conversion should be treated in the same way as a switch. Tax is a separate matter and HM Revenue & Customs has already introduced regulations to give comfort that, provided the conditions are met, there should be no disposal for the investor for capital gains tax purposes regardless of whether there is a conversion or a switch. Consultation responses are required by 23 November and the FCA’s summary together with a link to the draft guidance (five pages in Q&A format) is available here: http://www.fca.org.uk/news/ guidance-consultations/gc13-7changing-customers-to-post-rdrunit-classes#
2nd IOSCO hedge fund survey published In October 2013 the IOSCO published its second hedge fund survey. The survey collected data from hedge funds managers and advisers in 15 jurisdictions on their trading activities, the markets they operate in, leverage, funding and counterparty information. The objectives of the survey include gaining a better insight into the global hedge fund industry and well as facilitating the exchange of consistent and comparable data amongst relevant regulators regarding possible systemic risks in the sector. The full report is available via the following link: http://www.iosco.org/library/ pubdocs/pdf/IOSCOPD427.pdf
Evolving Investment Management Regulation Light at the end of the tunnel? June 2013 kpmg.com
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Fund News / Issue 108 / Developments in October 2013 / 9
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Our latest edition of Fund News – Issue 108 – provides you with regulatory news from the European Union, Ireland, Switzerland, UK and Luxemb...