Legal shorts 13.12.13 including draft finance bill 2014


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Legal shorts 13.12.13 including draft finance bill 2014

  1. 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 Draft Finance Bill 2014 HM Treasury and HMRC have published a consultation on draft legislation, explanatory notes and tax policy updates for the Finance Bill 2014. The draft legislation implements a number of tax policies announced in the 2013 Budget and 2013 Autumn Statement that are relevant specifically to the financial services sector, including measures relating to the taxation of partnerships, offshore non-UCITS funds and bank levy review. Although it had been widely anticipated that further information around the taxation of partnerships and LLPs would be made available in the Autumn Statement, in a surprise move HMRC went ahead last week with some anti-avoidance measures relating to taxation of partners in ‘mixed partnerships’ with immediate effect, although the draft legislation does not appear to affect those profits arising before 6 April 2014. Comments on the draft legislation are invited by 4 February 2014.
  2. 2. AIFMD: FCA update on NPPR The FCA has updated its webpage on the national private placement regime under the AIFMD. The FCA considers that the references to non cooperative country and territory (NCCT) in the AIFMD should be interpreted as a reference to a jurisdiction that appears in either part of the FATF list of high-risk and non co-operative jurisdictions. The private placement regime broadly allows the marketing of AIFs that are not allowed to be marketed under the AIFMD domestic marketing or passporting regimes. However, to be able to market under the regime, a number of conditions need to be met, including a condition about AIFs and AIFMs not being established in an NCCT. FCA consults on updates to Handbook The FCA has published its third quarterly consultation (CP13/18) inviting comments on proposed amendments to the FCA Handbook. The consultation addresses changes to COLL, in that the FCA is proposing rules and guidance to extend the ability of authorised fund managers and other persons, such as depositaries, to communicate electronically with investors, including by the use of website-based communications, if the investors agree to it. The FCA is also proposing to amend the procedure it uses when it receives a waiver application, as set out in Chapter 8 of SUP. Responses are invited by 6 February 2014. FCA statement on COLL The FCA has published a webpage on the implementation of COLL 4.2.5R(3)(ca). This applies where a UCITS scheme or a non-UCITS retail schemes (NURS) has indicated in its name, investment objectives or fund literature (including in any financial promotions for the fund), through use of descriptions such as "absolute return", "total return" or similar, an intention to deliver positive returns in all market conditions and where there is no actual guarantee of such returns. In this scenario, additional disclosures must be made in the prospectus, specifying that capital is in fact at risk, the investment period over which the fund aims to achieve a positive return and that there is no guarantee that this will be achieved over that specific, or any, time period. COLL 4.2.5R(3)(ca) will apply from 26 January 2014, or earlier if a fund's prospectus is updated prior to that date, following the expiry of a transitional provision.
  3. 3. CRD IV The government has published the Capital Requirements (Country-byCountry Reporting) Regulations 2013, which implement provisions of CRD IV in the UK. The Regulations implement Article 89 which requires firms to disclose certain information annually on a consolidated basis by each country where they have an establishment. This information includes the nature of the firms' activities, the number of their employees, their turnover, profit or loss before tax and tax on profit and loss. The PRA will enforce the Regulations for PRA-authorised firms and the FCA will enforce them for all other firms within the scope of CRD IV. The Regulations come into force on 1 January 2014. UCITS V The Presidency of the EU Council has published an addendum to its note to COREPER relating to the EC’s legislative proposal on UCITS V. The note related to the EC’s general approach to UCITS V and was originally published on 3 December 2013. The addendum includes the UK’s concern that Article 52(1) of UCITS V could artificially discriminate against the use of OTC derivatives that are cleared through central counterparties (CCPs). This issue is of concern because EMIR introduces clearing obligations requiring standardised OTC derivatives to be cleared through CCPs. This could discriminate in favour of exchange-traded derivatives and noncentrally cleared derivatives. CIMA corporate governance statement The Cayman Islands Monetary Authority released its Statement of Guidance for Regulated Mutual Funds last week. According to the Statement, CIMA has now formally adopted fund governance standards based on the Weavering principles and other international standards. The most important development is that CIMA has now imposed a minimum requirement for board meetings to be held "at least twice per year"; previously, there was no legal minimum requirement for the frequency of board meetings.
  4. 4. IMA on outsourcing by managers The Investment Management Association has published a response from the Outsourcing Working Group (OWG), which was formed in response to the FSA’s CEO letter on asset managers’ outsourcing arrangements. The OWG sets out guiding principles and considerations that asset managers should take into account depending on the nature, size and scope of their outsourced arrangements, requiring firms to: (i) have a full understanding of arrangements so that they can manage and oversee the relationship with service providers; (ii) have a comprehensive exit plan to enable the transition from one outsourcing service provider to another; and (iii) focus on terminology and documentation, data interfaces and testing methodologies. Financial Transaction Tax The House of Lords committee has entered the debate on the FTT, urging the government to cultivate allies and be more closely involved in defending the single market. The committee has identified serious flaws with the Commission’s use of enhanced co-operation, including that the tax would have an adverse impact on non-participating Member States such as the UK, which could be unfairly required to collect the tax on behalf of other Member States. The committee stated that the FTT would undermine the EU market and presents a “real and present danger to the City of London”. Although few in the industry believe the FTT will be implemented as currently proposed, given pressure from France and other EU Member States for a less ambitious tax, the 11 EU Member States who have signed up to the tax are meeting this week to push ahead with negotiations. ISDA standard margin calculations ISDA is progressing with plans to standardise initial margin calculations which should provide greater transparency around uncleared swaps to regulators. ISDA has identified five important assumptions requiring agreement: (i) the general structure of margin calculations; (ii) the requirement for margin to meet a 99% confidence level over a 10-day standard margin period of risk; (iii) model validation; (iv) the use of portfolio risk sensitivities; and (iv) the use of collateral haircut calculations. The model would also have to meet several general criteria, such as efficiency, speed, transparency, non-procyclical, be governable and not restrict market access.
  5. 5. GUEST SHORTS This week, Gary Pitts, managing partner of Tetractys Partners LLP, a regulatory and governance consultancy, updates us on the approaching EMIR reporting deadline, as follows: “The EMIR reporting deadline of 12 February 2014 is fast approaching, especially given that the period covers the Christmas break and 12 February falls during the half-term holidays. Indications are that many firms have not fully appreciated the extent of the work that might be involved in being as prepared as possible for their obligations. Further ESMA guidance on reporting is expected before this date. The reporting obligation applies to all derivatives (including exchangetraded and OTC) which were entered into prior to 16 August 2012 and are still outstanding or which were entered into on or after 16 August 2012. Managers should be considering liaising with counterparties to understand their LEI code status, the universe of existing transactions which need uploading into the trade repositories and reviewing legal agreements with trade repositories and with counterparties. Managers should understand they remain responsible for reporting, even when they are relying on a broker, and should ensure that they have access to their reports at the trade repository so that they can monitor the accuracy of the reporting. Managers that undertake intra-group transactions should also ensure they address the issue of how these trades will be reported. Firms that are also caught by Dodd-Frank will need to look at their reporting mechanisms carefully, as the Dodd-Frank and EMIR reporting obligations are not considered to be “equivalent.” While there are indications of some regulatory forbearance in the early days, firms would be unwise to rely on the uncertainty around some of the requirements as an excuse for not being as prepared as possible for EMIR.” If you would like to discuss the above or receive further information regarding EMIR, please contact Gary Pitts on 07795 830 636 or at
  6. 6. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 13 December 2013