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Legal shorts 04.04.14 including FCA update on AIFMD authorisation applications and report on cross sector risks facing EU financial system
Legal shorts 04.04.14 including FCA update on AIFMD authorisation applications and report on cross sector risks facing EU financial system
Legal shorts 04.04.14 including FCA update on AIFMD authorisation applications and report on cross sector risks facing EU financial system
Legal shorts 04.04.14 including FCA update on AIFMD authorisation applications and report on cross sector risks facing EU financial system
Legal shorts 04.04.14 including FCA update on AIFMD authorisation applications and report on cross sector risks facing EU financial system
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Legal shorts 04.04.14 including FCA update on AIFMD authorisation applications and report on cross sector risks facing EU financial system


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  • 1. Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry. Listen to this week's Legal Shorts on CLTV by going to 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 FCA update on AIFMD authorisation applications The FCA has updated its AIFMD webpage relating to authorisation applications from firms relying on the one year transitional period, which ends on 22 July 2014. The FCA reminds firms that AIFMs are not required to be authorised by 22 July 2014, but that they must submit a complete application by that date. However, firms that defer their application until the end of the transitional period and therefore do not have the necessary authorisation on 22 July 2014 should be aware that, from that date: (i) they must be fully compliant with all relevant AIFMD requirements, including, where necessary, engaging the services of a depositary; (ii) they will not be entitled to passport their activities into other EEA Member States until the firm receives authorisation and the relevant notification is processed; and (iii) they may be at risk of business interruption if their application is materially incomplete or deficient and, as a result, authorisation cannot be granted. The FCA is therefore strongly encouraging firms to submit their applications as soon as possible, and ideally no later than 22 April 2014.
  • 2. FCA’s 2014/15 business plan and 2014 risk outlook The FCA has published its 2014/15 business plan and 2014 risk outlook. The business plan sets out the activities the FCA will undertake to achieve its three operational objectives, namely: securing protection for consumers; protecting and enhancing the integrity of the UK financial system and promoting effective competition in the interests of consumers. The risk outlook sets out the FCA's approach to assessing risks to its objectives. It analyses the fundamental causes of risk and how these affect the financial services market and its participants. Report on cross-sector risks facing EU financial system The Joint Committee of the European Supervisory Authorities (ESAs) published its third bi-annual report on the risks and vulnerabilities in the EU financial system. The report considers those risks that have worsened or emerged since the ESAs' second report, published in August 2013 focuses in particular on risks arising from the following issues: (i) the search for yield in a protracted low-interest-rate environment; (ii) a sudden increase in global bond yields and credit spreads; (iii) renewed tensions in emerging market economies; (iv) risks from the deteriorating conduct of business of financial institutions, such as the impact of redress costs and settlement payment on firms' profitability; and (v) operational risks from IT infrastructures. ESMA publishes TR supervision work plan for 2014 ESMA has published its trade repository (TR) supervision work plan for 2014. ESMA's aim in publishing the work plan is to enhance the transparency of its actions concerning the supervision of TRs in the EU under EMIR. The work plan sets out the main features of ESMA’s supervision of TRs, in respect of which ESMA will adopt a risk-based approached. This means that its approach to its TR supervisory activities regarding the reporting regime will rely on evidence and data related to TR activity and it will further employ this approach to define a risk profile for each TR to plan and prioritise its supervisory activities and to allocate resources efficiently.
  • 3. FSB discusses 2014 work plan The Financial Stability Board has discussed its work plan for 2014 to complete some of the remaining elements of the post-crisis financial reforms. The work plan includes; (i) ending too big to fail; (ii) approval of an information-sharing process among its members to support oversight and regulation of shadow banking entities other than money market funds; (iii) progress as regards implementation of OTC derivatives market reforms; (iv) an update on benchmark reforms and the work of the FSB Official Sector Steering Group; and (v) approval of a thematic peer review report on reducing reliance on credit rating agencies. FMLC criticises proposed Benchmark Regulation The Financial Markets Law Committee (FMLC) has published a paper highlighting legal uncertainties arising from proposed Benchmark Regulation. The FMLC raises concerns on certain issues, including the following: (i) the proposed definitions of "index", "benchmark", "trading venue" and "investment fund" used in the proposed Regulation; (ii) the governance requirements for administrators and contributors; (iii) the compulsory withdrawal of benchmarks, which could raise considerable legal risks associated with contractual discontinuity; and (iv) the requirement that benchmarks provided by a third country administrator may be used by EU firms where the Commission has adopted an equivalence decision. Money laundering and terrorist financing risk assessment HM Treasury and the Home Office have launched an online survey to obtain views from regulated industries on the most prevalent money laundering and terrorist threats to their sectors. The government will use the survey responses to assist in developing the UK national risk assessment (NRA) of money laundering and terrorist financing risk. The NRA implements a FATF recommendation that each country should identify, assess, and understand its own money laundering and terrorist financing risks. The NRA is intended to be a systematic assessment of threats and vulnerabilities in the UK that will provide an evidence base to help the government assess the effectiveness and proportionality of current requirements and the application of the risk-based approach by supervisors and firms. In its AML annual report for 2012/13, the FCA stated that the NRA is due to be published in summer 2014.
  • 4. UK expected to raise rates in spring 2015 The City of London and the financial markets expect the first interest rate rise to come sometime during spring 2015. According to Ian McCafferty of the Monetary Policy Committee, the MPC is well aware of the particular sensitivities in the economy starting from the current low rate of 0.5% and expects to see rates rise only gradually. Mr McCafferty also repeated recent views from Bank of England Governor Mark Carney and fellow MPC member David Miles that interest rates are unlikely to return to their pre- crisis average in the coming years. GUEST SHORTS This week, Kathleen Mcleay of NCM Fund Services Limited, discusses a potential cost effective solution to the issue of the Depositary under AIFMD, as follows: “The words Alternative Investment Fund Managers Directive (AIFMD) have brought tears to the eyes of many fund managers with 72% viewing it as a business threat when surveyed in 2012. It is now however upon us with a final deadline for implementation of 22 July 2014. One of the requirements of AIFMD is that an AIFM must appoint an independent regulated depositary in respect of each AIF it manages. This requirement only applies if the manager has assets under management of over €100m if leveraged or €500m if non-leveraged. The depositary is responsible for cash monitoring, oversight, due diligence, verification of ownership of assets and segregation. After lobbying from industry bodies a depositary “light” option was introduced to provide a more cost effective method of compliance for unauthorised funds. This option allows closed ended real estate and private equity (PE) funds to appoint a depositary that will benefit from a less onerous regime than those acting as depositaries to other fund types. NCM Fund Services Limited has created a new entity (NCM Depositary Services Limited) which is regulated by the FCA to act as a depositary to real estate and PE funds. NCM Fund Services Limited is very aware that for fund managers this is another regulatory and cost burden so it aims to provide a solution that is as unobtrusive as possible within the requirements of the Directive. NCM Depositary Services Limited aims to avoid duplication of adviser effort and minimise interruption to every day running of the fund whilst offering additional investor protection which is the ultimate aim of AIFMD.” If you would like to discuss the above or receive further information regarding depositary issues under the AIFMD, please contact Kathleen
  • 5. McLeay at or visit NCM’s website at: Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 28 March 2014