Legal shorts 17.01.14, including taxation of partnerships and first Renminbi ETF listed on lSE


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Legal shorts 17.01.14, including taxation of partnerships and first Renminbi ETF listed on lSE

  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 AIFMD: FCA update on application process The FCA has published information about the application process on its AIFMD webpage. The new section explains that when a prospective AIFM applies to the FCA for authorisation or a VoP, a "triage team" will decide whether that application contains enough information to be assigned to a case officer. The FCA carries out this analysis as quickly as possible, but it is expecting to receive a high volume of AIFM applications in January 2014, so the assessment could take longer than expected. If an application is deemed to be incomplete, the FCA will notify the firm and ask the firm to send the necessary information. The statutory timeframe for determinations will only start once an application is complete. MiFID II The European Parliament has published a press release announcing that informal political agreement in trialogue has been reached on the proposed MiFID II Directive and the proposed Markets in Financial Instruments Regulation (MiFIR). The press release highlights the agreements reached on the
  2. 2. following issues: market structure, investor protection, commodities (in particular, the power of competent authorities to limit the size of a net position that a person may hold in commodity derivatives), high-frequency algorithmic trading in financial instruments and the use of an "EU passport" by third countries whose rules are equivalent to those of MiFID II. The EU plans to implement MiFID II by the end of 2016. Taxation of partnerships The House of Lords Economic Affairs Committee has announced that it has established the House of Lords Finance Bill Sub-Committee (FBSC) to inquire into the draft Finance Bill 2014 clauses. The FBSC has announced a call for evidence on two particular topics, one being the taxation of partnerships. The FBSC requests evidence on whether the approach of the legislation is appropriate or whether the provisions, such as those in the draft Finance Bill 2014, are a symptom of underlying problems with that approach. It also invites evidence on the conclusions in the report that is expected to be published shortly by the Office of Tax Simplification on the taxation of partnerships. The deadline for the written evidence is 23 January 2014. Capital Requirements Regulation: own funds Further to the implementing Regulation relating to the disclosure of own funds requirements under the Capital Requirements Regulation (CRR) adopted by the European Commission last week, draft RTS have been set out in a cover note published this week. The RTS cover a number of areas, including: common equity tier 1 capital, additional tier 1 capital, deductions from common equity tier 1 capital and from own funds in general, transitional grandfathering provisions for own funds and specification of the concept of gain on sale. The EBA published a final draft version of these RTS in July 2013. Basel III proposals endorsed The BIS has announced that the Basel Committee on Banking Supervision (BCBS) has endorsed a number of Basel III proposals. These proposals relate to completion of post-crisis regulatory reforms and include: (i) a common definition of the leverage ratio; (ii) changes to the net stable funding ratio (NSFR); (iii) minimum requirements for liquidity-related disclosures; and (iv) the strategic priorities of the BCBS for the next two years. A common definition of the leverage ratio has been formulated to overcome differences in national
  3. 3. accounting frameworks which had prevented ready comparison and the ratio has been adjusted following warnings that the rule could penalise low-risk financial activities and curtail lending. The LCR-related disclosure requirements are intended to improve the transparency of regulatory liquidity requirements and enhance market discipline; the liquidity rule was also modified to make it easier to count a certain type of central bank loan against regulatory standards. First Renminbi ETF listed on LSE A new qualified fund has been launched on the London Stock Exchange enabling investors to invest directly in the Chinese equity markets in Renminbi (RNB). CSOP Asset Management, a Chinese firm based in Hong Kong, and Source, a UK firm based in London, are launching the fund, which will be the first RNB qualified foreign institutional investor (RQFII) exchange traded fund (ETF) listed in London. The Hong Kong and UK RQFII schemes permit financial institutions to use offshore RNB to invest in the Chinese mainland equity markets (that is, investments in shares, bonds and money market instruments). This development follows steps taken by the Chinese and UK governments to develop the offshore RNB market in London. The fund will be available to retail and institutional investors across the EU. Special Administration Regime for investment banks HM Treasury has published the final report from Peter Bloxham following his review of the special administration regime (SAR) for investment banks. The conclusion of the report is that the SAR should remain in force, but identifies certain recommendations for reform. These recommendations include: (i) facilitating transfers of client positions without the need for client consent; (ii) amendments to the bar date i.e. the cut-off date for claims; (iii) making the CASS and SAR rules work better together; and (iv) making further enhancements to the Financial Services Compensation Scheme. The report concludes with the hope that a combination of CASS reforms, operational improvements in going concern mode and changes to the SAR will improve the overall effectiveness of the client asset and SAR regimes when an investment firm fails.
  4. 4. UK to form free trade zone within the EU? The Chancellor has said that Britain should try to form a free trade zone within the EU to speed up completion of the single market. Mr Osborne expressed frustration at the slow pace of EU reform and suggested that the principles of enhanced cooperation be used i.e. like-minded EU Member States should be able to create a free trade agreement in the same way as 11 Member States have signed up for the proposed financial transaction tax. GUEST SHORTS This week, James Lasry, partner and head of funds, and Richard Bowry, senior associate, at Hassans law firm, Gibraltar, report on Gibraltar’s status as a full signatory to the IOSCO MMoU on regulatory information exchange, as follows: “The Financial Services Commission of Gibraltar has been approved as a full “A” signatory under the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the “MMoU”) of the International Organisation of Securities Commissions (“IOSCO”). The status enhances the position of Gibraltar as a gateway territory to the EU for the purposes of the AIFMD. In the context of AIFMD, the new status means Gibraltar can freely enter into memoranda of understanding with regulators of non-EU countries in order to allow Gibraltar fund managers to delegate services outside the EU, a common practice. By such means, it will be possible for new and existing fund managers to set up a fund management business in Gibraltar with minimal disruption to their existing business. Such entities can establish a fund manager in Gibraltar and delegate the provision of services, such as portfolio and risk management, to their existing group entities or service providers outside Gibraltar, and outside the EU. As Gibraltar is within the EU, the Gibraltar manager will be able to market its EU based funds throughout the EU utilising the EU-wide marketing passport available under AIFMD. A Swiss fund management group, for example, can set up a fund management business in Gibraltar, and delegate portfolio management and other services back to the existing Swiss operation. The Swiss group, through its Gibraltar manager, will be able to market all its existing EU funds throughout the EU via the marketing passport. The MMoU sets out general principles regarding areas such as mutual assistance and the exchange of information between regulatory authorities. The MMoU has become the benchmark for IOSCO members for the purposes of cooperation and exchange of information. By being a full signatory to the MMoU, Gibraltar joins the ranks of other key international financial centres who have subscribed to these international standards.” If you would like to discuss the above or receive further information regarding
  5. 5. the investment funds industry in Gibraltar, please contact James Lasry at Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 17 January 2014