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Euro shorts 21.03.14 including UK Budget 2014 and EMIR
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Euro shorts 21.03.14 including UK Budget 2014 and EMIR

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  • 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 UK Budget 2014 The Chancellor delivered the 2014 Budget this week and the following changes are of particular interest to the financial services industry in the UK, namely measures relating to the bank levy, offshore funds and annuities. Whilst bank levy rates remain unchanged, a new basis for setting bank levy charges is to be trailed in a consultation document next week. With regard to offshore funds, under the current legislation a company can be designated as eligible for UK taxes if its central management and control functions are exercised in the UK, but this will no longer be the case. The government is to widen the scope of section 363A of the Taxation International and Other Provisions Act 2010 (TIOPA) to remove the risk that offshore funds managed from the UK could be deemed UK resident for tax purposes. Non-UK UCITS funds were already exempt and the budget will now extend that treatment to all alternative investment funds. As regards pensions, all tax restrictions on access are to be removed, which will end the requirement to buy an annuity. EMIR NASDAQ OMX Clearing became the first EU-based central counterparty to be authorised as EMIR-compliant this week. ESMA has since published information about NASDAQ OMX and the contracts it is authorised to clear. The information is published in the form of a list of authorised CCPs, which includes the classes of financial instruments covered by NASDAQ’s authorisation (as the sole CCP to date), and a public register which lists the classes of OTC derivative contracts that CCPs have been authorised to clear by their national competent authority. Again, these only relate to NASDAQ at present.
  • 2. EMIR Q&As ESMA has published an updated version of its Q&A on EMIR which includes a table of questions on pages 6 and 7, detailing which questions have been updated as at 20 March 2014. They deal with: intragroup transactions; notional amounts; risk mitigation techniques for OTC derivative contracts not cleared by a CCP; reporting of outstanding positions following the entry into force of EMIR (backloading); and various issues relating to TR reporting requirements. The Q&A were originally published in March 2013 and were last updated in February 2014. Bonuses withheld due to alleged FX manipulation According to reports, some major banks have frozen bonuses in their FX trading teams amid internal investigations into possible manipulation of currency benchmarks. The major banks include Barclays, RBS and Citigroup. The alleged manipulation has led to a number of suspensions at several banks and the Bank of England launched its own internal inquiry last week. A number of regulators, including the FCA, have extended their global investigation into FX rigging to include 15 banks and ESMA has started collecting information from the FX market, although it has no direct powers regarding any enforcement issues. EU Savings Directive update The European Commission's proposals for a draft directive aimed at strengthening EU rules on the taxation of savings income were on the ECOFIN agenda for its meeting last week, but ECOFIN was unable to reach political agreement on the proposals. Nevertheless, Commissioner Šemeta released a positive post-meeting statement stating that the text was near to being finalised. The statement further noted his confidence that the EU leaders will endorse the EUSD before the end of the month. The proposed amendments represent material changes in scope to the EUSD as payments to legal entities and payments of interest equivalents will be brought within the regime. Britain unlikely to regain AAA status in the near future The debt rating agency Fitch said that Britain's public sector net debt will need to fall before it can regain its AAA-sovereign debt rating. Fitch currently rates Britain AA+, one notch below triple-A, with a stable rating, down from its AAA rating last April. Britain's public sector net debt is expected to rise over the coming years and is not forecast to fall below its current level until the 2018/19 financial year. Standard & Poor’s still has the UK on the top rating, but on “negative outlook”. In the meantime, Fitch has re-affirmed the US AAA rating this week.
  • 3. UCITS V The EU Council has announced that COREPER has approved an agreement with the European Parliament on the proposed text of UCITS V. The compromise text results from the provisional agreement on the text reached in February 2014. The Council explains in the press release that COREPER's agreement will enable UCITS V to be adopted at first reading before the Parliament adjourns for elections at the end of May 2014. According to the press release, Member States will have 18 months to transpose UCITS V into national law and depositories will be given an additional 24-month transition period after the transposition deadline. UK interest rates to rise sooner than expected? Martin Weale, a BoE policymaker, has warned that UK interest rates could rise within a year and rise sharply if inflationary pressures begin to build. The Bank has estimated spare capacity in the economy between 1 – 1.5% of GDP and believes this will be absorbed by 2017. Mr Weale, however, estimates the capacity at 0.9%, which could be absorbed by 2016, which means that interest rates could rise sooner and more quickly than market expectations if the Bank is forced to raise rates to keep inflation close to its 2% target. The Governor, Mark Carney, has nevertheless made it clear that rates will not start to rise until the UK’s recovery is more sustainable and broader-based. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com 21 March 2014