Legal shorts 1.11.13 including how to start a fund and the future of the industry


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Legal shorts 1.11.13 including how to start a fund and the future of the industry

  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 How to start and build a fund At a seminar this week, Claire Cummings joined Johnny Moulsdale of Rees Pollock and Nancy King of Portman Compliance to give a short talk on the basic UK and offshore steps for starting and building a fund manager and fund. A short video of all the talks will be made available next week on CLTV (Cummings Law Televsion, which is found at ESMA: RTS ESMA has published a list of responses to its July discussion paper on its draft RTS under CRA III Regulation. Respondents include the Association for Financial Markets in Europe and number of credit rating agencies. Details can be found on
  2. 2. Financial Stability Board AIMA is one of the industry bodies to reply to the Financial Stability Board (FSB) consultation on implementation guidance for the key attributes of effective resolution regimes. Other respondents include the the Managed Funds Association, the Association of British Insurers and the Institute of International Finance. Details can be found on: Algorithmic and high-frequency trading concerns The Financial Markets Law Committee (FMLC) has published a letter it has sent to the European Commission highlighting concerns relating to algorithmic and high-frequency trading. Having previsusly raised concerns about legal uncertainties, the FMLC now comments on algorithmic trading and high-frequency trading ambiguities in the MiFID II and MAR proposals and sets out the provisions concerned, the ambiguities identified, the impact of each ambiguity and, where available, a proposed solution. High Court on securities lending In a negligence claim for damages arising out of a failed investment, the High Court looked at the role of a securities lending agent which had been appointed to invest and manage its client's cash collateral reinvestment portfolio. The court found that that on becoming aware that an investment was at serious risk of default and loss, the securities lending agent presented its client with information that was misleading and incomplete which, while not intentionally misleading, amounted to negligent misstatement or misrepresentation or both. Thus, the securities lending agent’s dealings with its client both fell below the standards of care by which it had contractually agreed to be bound and was a failure to comply with the common law duty of care. EMIR The FCA has published two factsheets relating to EMIR and thethe Regulation on OTC derivatives, central counterparties and trade repositories). The first is a factsheet for financial counterparties (FCs) subject to the EMIR requirements for timely confirmation and bilateral risk
  3. 3. mitigation and summarises the FCA’s findings from discussions it held with FCs this summer to identify challenges for market compliance with the timely confirmation and bilateral risk mitigation requirements OTC derivative contracts under EMIR. The second factsheet is for those nonfinancial counterparties (NFCs) which are subject to EMIR and gives information on a review by the FCA into how NFCs have been defining their hedging activity and monitoring their status against the clearing threshold. This factsheet also discusses certain challenges of complying with EMIR. EMIR notifications for intragroup exemption submissions The FCA is now accepting submissions for the intragroup exemption from the clearing obligation under EMIR via its EMIR web portal. At the moment, only notifications for exemptions in respect of transactions between two entities in the same group that are both established in the UK can be submitted. The FCA has 30 calendar days to consider notifications and applications and will email counterparties within this time period to confirm whether counterparies can use the exemption, or notified them in advance if the FCA expects to oppose use of the exemption. Details on when submissions will be accepted for transactions between UK and EU counterparties or UK and non-EU counterparties can be found on the EMIR portal Q&A pages. ESMA and Prospectuses ESMA has updated it’s Q&A on prospectuses with three new questions: (i) on the statement of auditors' agreement where a prospectus includes a profit estimate, ESMA considers that this statement may be made by the auditors, issuer, offeror or person seeking admission to trading and holds that the statement means that the auditors do not expect the figures to change substantially, except in the case of unforeseen events, and does not necessarily imply that the auditors should be able to issue their audit opinion when the prospectus is published; (ii) on the application of proportionate disclosure regime to a rights issue that is not fully subscribed, ESMA holds that an offer to the public for unsubscribed shares following a rights issue is a separate public offer and should be accompanied by a prospectus drawn up in accordance with the requirements of Annexes I to III of the Prospectus Regulation. It adds that unless an exemption is available, the proportionate disclosure regime for rights issues will not apply; and (iii) on the proportionate disclosure regime for rights issues and admission to trading, ESMA confirms that a prospectus drawn up in accordance with the
  4. 4. proportionate disclosure regime for rights issues also applies to the admission to trading on a regulated market of new shares that are not subscribed by existing shareholders or by pre-emptive rights holders, but placed with other investors by using the exemptions set out in Article 3.2 of the Prospectus Directive.. ESMA has also updated its responses to the questions relating to pro forma financial information and the level of disclosure concerning price information for share offerings . The revised responses will not take effect until 28 January 2014. The FCA comments on the future of the industry Martin Wheatley, FCA Chief Executive, has given a speech on shaping the future in asset management in which he called for greater transparency in asset management to boost its reputation, and an open discussion on how and where dealing commission is spent. He also commented on: (i) regulations, saying that the FCA will be working with asset managers in the UK and policy makers in Europe to find a balanced regulatory solution; (ii) conflicts of interests, stating that the FCA will conduct a thematic review following up on previous work; and (iii) examining bundled brokerage arrangements and looking at buy-side and sell-side practices . He confirmed that the FCA plans to publish a consultation paper in November seeking views on how to improve the use of dealing commissions and focusinh on providing clarity around how "research" is defined, and what the FCA considers to be eligible and non-eligible when purchasing goods and services from clients' dealing commissions. Possible AIFMD reporting delays Reports are circulating that ESMA rules which should come into force in January 2014 may be delayed by the FCA. GUEST SHORTS This week, Wall Street attorney Stephen A. Bornstein reports on the FCA's recent announcement regarding the warning of investors about targets of ongoing securities fraud investigations: “Until now, the UK’s financial regulator publicly revealed the identities of alleged securities violators only after it had made the decision to impose a
  5. 5. penalty or initiate a proceeding. The newly-established Financial Conduct Authority, however, has just announced that it intends to publicly disclose warnings sent to suspected wrongdoers – firms and individuals — that they can expect enforcement actions against them. The purpose of the new initiative is to put investors on notice of putative fraud so as to prevent any further harm. Targets apparently would be given the opportunity before their warnings are published to persuade the FCA that publication would be unfair. According to one UK legal observer, “the FCA … knows that the crowd only gathers when there is a body in the stocks.” Stephen's law practice is described at and his blog posts on legal and regulatory developments in the global financial services industry appear at Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 1 November 2013