Welcome to Euro Shorts, a short briefing on some of the week’s developments in the
financial services industry in Europe.
...
PE guidelines for good practice reporting
The Guidelines Monitoring Group published an updated version of its guidelines
o...
European Parliament votes to adopt CSMAD
The European Parliament has voted to adopt the proposed Directive on criminal
san...
Government response to failed ECJ challenge on short selling
The UK government has responded to the ECJ judgment on its ch...
system and destroy any hard copies. Neither Cummings nor the sender accepts liability for
any corruption, interception or ...
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Euro shorts 07.02.14 including EU bonus cap and crowdfunding

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Euro shorts 07.02.14 including EU bonus cap and crowdfunding

  1. 1. Welcome to Euro Shorts, a short briefing on some of the week’s developments in the financial services industry in Europe. If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers. Claire Cummings 020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com EU bonus cap The European Commission has asked the BoE to explain how new allowances in UK bankers’ pay comply with the EU bonus cap. It is reported that UK banks are expected to raise the non-bonus part of remuneration with monthly or quarterly allowances; under EU rules, bonuses cannot exceed fixed salary, or double this amount with shareholder approval, and so the Commission has demanded that the PRA clarify the allowances. The UK is currently challenging the bonus cap in the ECJ, arguing that it goes beyond EU powers and will push up fixed pay, creating a risk that banks will not be able to cut costs quickly if the markets are in trouble. The bonus cap is due to come into effect in 2015. EMIR Regulators are said to be concerned that the market is not ready for next week’s approaching deadline for the start of mandatory reporting under EMIR. According to some estimates, a little over 8% of the region's derivatives users have so far registered for the preliminary legal entity identifier (LEI) that will allow them to report their over-the-counter and listed trades. Regulators have sought to engage with as many bodies as they can and to hold seminars and other events, but there is a recognition that reaching all of the targeted institutions will be a challenge.
  2. 2. PE guidelines for good practice reporting The Guidelines Monitoring Group published an updated version of its guidelines on good practice reporting by private equity portfolio companies under the Walker Guidelines. The substantive content of the guidelines remains unchanged from the version issued in March 2012, but do, however, include updated examples of reporting drawn from portfolio companies' accounts over the last two years that the GMG considers to represent good practice. The group notes that the annual report when taken as a whole should be considered fair, balanced and understandable to a user of the accounts. In relation to the definition of a portfolio company for the purposes of the reporting guidelines, the group is currently reviewing whether the transaction size criteria should be lowered to bring more portfolio companies into scope and any changes will be announced during 2014. Crowdfunding IOSCO has published a working paper on the risks and benefits of crowdfunding i.e. peer-to-peer lending and equity crowdfunding. The report provides a global overview of the crowdfunding industry, together with a mapping exercise of the global regulatory landscape. It seeks to identify investor protection issues and to determine whether crowdfunding poses a systemic risk to the global financial sector. The main risks set out in the report are: default risk, platform risk, fraud risk, illiquidity risk, risk of cyber attack, lack of transparency and disclosure risks and the risk of investor inexperience. The report concludes that FR crowdfunding does not currently present a systemic risk to the global financial sector, although it does pose problems for investor protection that need to be addressed. The paper states that the views expressed in it are those of IOSCO's research department and do not necessarily reflect the views of IOSCO or its members. Stress tests for EU banks The European Banking Authority has announced the details of the stress tests it will be subjecting 124 major EU banks to this year. Although precise terms of the tests have yet to be announced, the EBA has said that they would involve credit risk, market risk, sovereign risk, securitisation and the cost of funding. The objective of the stress tests is to assess the resilience of financial institutions in the EU to adverse market developments and assess the potential for systemic risk to increase in situations of stress. In order to pass the tests, banks will need their main measure of capital to be above 8% and 5.5% in the most stressed scenarios. Amongst the banks taking part are Barclays, HSBC, RBS, Santander, Deutsche Bank and the Lloyds Banking Group.
  3. 3. European Parliament votes to adopt CSMAD The European Parliament has voted to adopt the proposed Directive on criminal sanctions for insider dealing and market manipulation (CSMAD). The CSMAD, together with the proposed Regulation on insider dealing and market manipulation (MAR), make up the MAD II legislative proposals that will replace the Market Abuse Directive (MAD). The European Commission has published a set of FAQs on CSMAD. The Council of the EU will now formally adopt the text of the CSMAD proposal at a future meeting. Member States will have two years to implement the Directive after publication in the OJ, which is expected in June 2014. Financial Transaction Tax The European Commissioner for tax has urged Parliament to push through the implementation of the FTT, amid fears that the 11 Member States have become susceptible to vested-interest groups. Algirdas Semeta said that Parliament has already presented viable concessions to the tax, including the removal of the tax on real economy transactions and intra-group transactions and that supporters of the FTT must adapt to the reality and determine what can be achieved. Germany's top two governing parties have indicated that they are prepared to accept a tax on stock trades as part of a move toward a broader FTT. The move could bolster Germany's goal of partnering with France to get Spain and Italy to implement the tax. Efforts to reach a compromise have been given additional impetus by Greek’s assumption of the Presidency, as it is in favour of the FTT. EU and US to co-operate on derivatives reform The EU and the US regulators have pledged to work more closely together on reforming the derivatives market. The EU and US are putting into effect a host of measures to reform the financial industry and have agreed to try to minimize the divergence on margin requirements, particularly once new international standards have been widely adopted. According to reports this week, it appears that the EU is nearing agreement with the US to grant EU swap-trading platforms a reprieve from the Dodd-Frank Act rules, which are due to come into effect next week.
  4. 4. Government response to failed ECJ challenge on short selling The UK government has responded to the ECJ judgment on its challenge to ESMA’s powers under the Short Selling Regulation. It states that it is disappointed that the ECJ has not upheld the UK's legal challenge, as the government has consistently said it wants tough financial regulation that works, but powers conferred on EU agencies must be consistent with the EU treaties, and ensure legal certainty. It confirmed that the ruling bears no impact on the day-to-day application of the Short Selling Regulation and that it has no implications for other legal challenges made by the UK relating to financial services regulation. UK falls to 19th in PwC ‘premier league’ The UK is struggling to stay in the premier league of countries ranked by PwC after suffering more grievously than other countries. PwC’s Escape index placed the UK 19th, which is down seven places from its pre-financial crisis position. According to PwC, the UK has had relatively low GDP per capita growth and high inflation since the crisis, although both of these improved last year. The league table is headed by Sweden, Switzerland and Singapore and is based on a range of yardsticks, such as economic, political, social, technological and environmental indicators of success. We have taken great care to ensure the accuracy of this version of Euro Shorts. However, Euro Shorts is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication. If you would like to be removed from the mailing list of this publication please click unsubscribe below. Authorised and regulated by the Solicitors Regulation Authority. Please contact us if you would like to arrange a meeting. This message (including any attachments) from the law firm of Cummings is confidential and may contain information which is proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you are not the intended recipient, please do not read, copy, distribute, disclose or otherwise use or place any reliance on any information in this message or any attachments; and please alert the sender by return e-mail, delete this message and any attachments from your
  5. 5. system and destroy any hard copies. Neither Cummings nor the sender accepts liability for any corruption, interception or unauthorized amendment of messages or attachments transmitted by e-mail. It is your responsibility to scan this message and any attachments for computer viruses in accordance with good working practice. The firm is not authorised by the Financial Conduct Authority, but is authorised and regulated by the Solicitors Regulation Authority (for the code of conduct please see www.sra.org.uk/rules) and undertakes certain activities in relation to investments which are limited in scope and incidental to its legal services or which may reasonably be regarded as a necessary part of its legal services. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com 7 February 2014

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