Legal shorts 04.07.14 including FCA updates AIFMD webpage and ESMA updates Q&As on AIFMD


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Legal shorts 04.07.14 including FCA updates AIFMD webpage and ESMA updates Q&As on AIFMD

  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 FCA updates AIFMD webpage The FCA has updated its AIFMD webpage to add two new sections, one relating to AIFs in the form of limited partnerships and the other regarding the Alternative Investment Fund Managers Order 2014. The FCA has received a number of queries regarding how to determine where an AIF in the form of an LP is established and sets out an explanation on its webpage reflecting its understanding of the effect of the AIFM Regulations 2013. On the basis of the Glossary definition of "established" for an AIF, an AIF that is not authorised or registered anywhere in the EEA and has a registered office, will be considered by the FCA to have as its place of establishment the country or territory where that office is located. A UK limited partnership does not have a registered office as such, but is required to register its principal place of business and the FCA regards that as the equivalent of a registered office for these purposes. As regards the Alternative Investment Fund Managers Order 2014, the FCA explains on its webpage the changes the Order makes to the implementation of the AIFMD in the UK.
  2. 2. ESMA updates Q&As on AIFMD ESMA has updated its Q&As on the application of the AIFMD. Q&As on the following issues have been inserted: (i) remuneration and the ability to exclude portfolio managers from the scope of identified staff under ESMA's guidelines on sound remuneration policies under the AIFMD; (ii) reporting and which countries are covered under references to the "EEA" and references to the "Union", respectively; (iii) Reporting and what mandatory, optional and conditional categories mean; (iv) notification of AIFMs and the identification of existing AIFs; (v) notification of AIFMs under Article 33 without setting up AIFs; and (vi) MiFID services under Article 6(4) and passport notifications. ESMA publishes Q&As on CRD IV ESMA has published Q&As on the Delegated Regulation (Regulation 604/2014) setting out RTS on criteria to identify categories of staff whose professional activities have a material impact on the risk profile of an institution within the scope of CRD IV. The Delegated Regulation came into force on 26 June 2014. Among other things, the FAQs cover the following areas: (i) which members of staff will be identified as material risk takers; and (ii) whether members of staff who meet one or more of the criteria can nonetheless claim that, in fact, they are not material risk takers. FCA statement on EMIR The FCA has published a statement issued containing reporting advice for clearing member firms under EMIR. The statement explains that the FCA has contacted a number of authorised firms that have been identified as a clearing member and client of a CCP to advise them that authorised or recognised CCPs under EMIR are required to calculate hypothetical capital information. This information must be supplied by CCPs to their clearing members as well as to the competent authority of the clearing member. Clearing member firms that have not been contacted directly should inform the FCA. Firms that are part of a dual-regulated prudential group should note that the PRA is conducting a similar exercise for dual-regulated firms that are clearing members of CCPs. EMIR Michel Barnier issued a statement on the regulation of global derivatives markets. He states that the G20 and international standard setters have made remarkable progress over the past five years in adopting international principles for regulation of the global derivatives markets, and that these must now be fully implemented by regulators. He believes that a final push is now required by
  3. 3. regulators to agree how "deference" to each other's rules will work in practice and that he intends to propose shortly that the Commission adopt "equivalence" decisions that will allow CCPs from five countries outside the EU (Japan, Singapore, Australia, Hong Kong and India) to clear EU derivatives trades. This will be done in full deference to the rules and supervisory systems of those countries. ELTIF Regulation The EU Council has published statements on the Presidency's general approach on the proposed ELTIF Regulation and a joint statement by the UK and Estonia. The statement confirms that the UK and Estonia support the regulation in general, but remain concerned about the requirement for investors to commit to a minimum investment of EUR10,000, arguing that this requirement undermines the original policy intention of creating an EU regime suitable for retail investors, and that it could severely restrict uptake. The Council announced that it had agreed the general approach on the ELTIF Regulation on 25 June 2014. FATF report on virtual currencies FATF has published a report on virtual currencies. The report focuses on key definitions, potential anti-money laundering (AML) and combating the financing of terrorism (CFT) risks. The FATF has conducted research into the characteristics of virtual currencies (particularly Bitcoin) to make a preliminary assessment of the AML and CFT risks associated with this payment method, such as the anonymity provided by the trade in virtual currencies on the internet and the limited identification and verification of participants. The report establishes a conceptual framework of key definitions, which could form the basis for further policy development, and contains examples of money laundering offences involving virtual currencies to demonstrate how this payment method can be abused. FSB publishes summary of its workshop on compensation practices The Financial Stability Board (FSB) has published a summary of its second workshop, held on 1 April 2014, on compensation practices. The focus of the workshop was on three main areas: (i) the identification and treatment of material risk takers; (ii) the use of malus and clawback clauses as part of the alignment of compensation with risk taking and performance; and (iii) governance frameworks, including the role of compensation structures in supporting a sound risk and compliance culture at financial institutions. The summary reflects the main points raised in the discussion that took place during
  4. 4. the workshop. The FSB welcomes feedback on the topics discussed at the workshop and outlined in the summary. Comments should be sent to the FSB by 30 July 2014. GUEST SHORTS Penny Froggatt, of LoweFroggatt Limited, a regulatory consultancy firm, updates us this week on EMIR client accounts, as follows: “Penny Froggatt and Jane Lowe of regulatory consultancy LoweFroggatt have prepared a factual analysis of six of the major central counterparties (CCPs) clearing derivatives and their client account offerings, summarising and drawing together publicly available information from the CCPs’ websites. It is intended to provide a consistent starting point for investors and their clients who will shortly be making clearing choices in earnest. Further details may be found on their website at . The analysis may be purchased for £1,000.” For more information on the above, please contact Penny Froggatt at Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 4 July 2014