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Legal shorts 21.03.14 including Budget 2014 and UCITS V


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Legal shorts 21.03.14 including Budget 2014 and UCITS V

  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 Budget 2014 The Chancellor delivered the 2014 Budget this week and three major announcements will affect in particular the financial services industry, namely measures relating to the bank levy, offshore funds and annuities. Whilst bank levy rates remain unchanged, a new basis for setting bank levy charges is to be trailed in a consultation document next week. Under the current legislation, a company can be designated as eligible for UK taxes if its central management and control functions are exercised in the UK, but this will no longer be the case, as the government is to widen the scope of section 363A of the Taxation International and Other Provisions Act 2010 (TIOPA) to remove the risk that offshore funds managed from the UK could be deemed UK resident for tax purposes. Non-UK UCITS funds were already exempt and the budget will now extend that treatment to all alternative investment funds. As regards pensions, all tax restrictions on access are to be removed, which will end the requirement to buy an annuity. The budget also confirmed that Schedule 19 Stamp Duty Reserve Tax would
  2. 2. be abolished for unit trusts and open-ended investment companies, as announced last year, and that the Seed Enterprise Investment Scheme (SEIS) is to be made permanent. UCITS V The EU Council has announced that COREPER has approved an agreement with the European Parliament on the proposed text of UCITS V. The compromise text results from the provisional agreement on the text reached in February 2014. The Council explains in the press release that COREPER's agreement will enable UCITS V to be adopted at first reading before the Parliament adjourns for elections at the end of May 2014. According to the press release, Member States will have 18 months to transpose UCITS V into national law and depositories will be given an additional 24-month transition period after the transposition deadline. EMIR NASDAQ OMX Clearing has become the first clearing house in Europe to be authorised as EMIR compliant, as the Swedish FSA (SFSA) has approved its application as a central counterparty under EMIR. For banks and broker firms using NASDAQ OMX Clearing, the EMIR authorisation confirms that the risk models, systems and operations are resilient and robust and have the ability to handle increased demand during periods of market stress. NASDAQ OMX Clearing was also the first clearing house to have a solution that provides protection to client assets in the case of a default of a clearing member. EMIR: FCA reminder to firms reporting to TRs The FCA updated its transaction reporting webpage to remind firms that reporting to trade repositories under EMIR does not replace any transaction reporting obligations. The EMIR reporting obligation to report to trade repositories came into effect on 12 February 2014. Accordingly, firms'
  3. 3. transaction reporting obligations remain unchanged and they should continue transaction reporting according to their existing arrangements, submitting their transaction reports using an Approved Reporting Mechanism (ARM) in accordance with Chapter 17 of the Supervision sourcebook. FCA and BOE MoU on supervision of markets and market infrastructure The FCA and the Bank of England have reviewed and republished the MoU on responsibilities for the supervision of financial market infrastructure. As a result of the review, the FCA and PRA have concluded that the MoU's co- operation arrangements over the first 11 months of the new UK financial services regulatory regime have worked well and in a co-ordinated manner, with no material duplication. The BoE has also published its annual report in this respect and the BoE's priorities for 2014 include: credit and liquidity risk; recovery and resolution; operational risk management; new payments systems regulator; and proposed regulation on improving securities settlement and regulating central securities depositories (CSD Regulation). White list of specified transactions published The Investment Transactions (Tax) Regulations 2014 were made this week and consolidate and expand the "white list" of transactions. The income from such white list transactions will not be treated as trading income for the purposes of the taxation of authorised investment funds (AIFs), exempt unauthorised unit trusts, investment trusts and offshore funds. The Regulations are substantively identical to the draft version published on 20 December 2013 and have effect for transactions entered into on or after 8 April 2014.
  4. 4. CRR delegated Regulation The European Commission has published the EC delegated Regulation with regard to RTS for own funds requirement, as required by the CRR and CRD IV. The RTS cover areas including: common equity tier 1 (CET1) capital, additional tier 1 capital, deductions from CET1 capital and from own funds in general, transitional provisions for own funds in terms of grandfathering, the conditions under which competent authorities may determine that an undertaking qualifies as a mutual, co-operative society, savings institution or similar institution for the purposes of the CRR own funds requirements and the specification of the concept of gain on sale. FCA’s new webpage on supervisory approach The FCA has published a new webpage with links to four new guides for firms relating to its supervisory approach. The guides apply to C1 groups, C2 firms and groups, C3 firms and C4 firms respectively. According to the webpage, the guides bring together, and build on, previously published information, setting out what firms can expect from the FCA in terms of supervision, and what the FCA expects from firms, expanding on the details in certain areas. The webpage adds that the guides "do not give the step-by- step process for every aspect of supervision, as this will vary by firm and sector...” but that they explain the reasoning behind the FCA's approach. BoE internal investigation on FX manipulation The House of Commons Treasury Select Committee has published the oral evidence given by Mark Carney and Paul Fisher (BoE director for markets) at a hearing last week into the BoE’s internal investigation into alleged FX manipulation. In response to a statement by Mr Carney that it is the FCA’s responsibility to investigate the markets as appropriate, the FCA has addressed a letter to the Select Committee. The letter advises that, as part of its own forex market investigation, the FCA is not investigating the BoE. It explains that the BoE is an exempt person and the FCA has no jurisdiction over the BoE's internal controls. The FCA is able to request information from non-authorised persons and confirmed that the BoE has provided
  5. 5. relevant information to it and has committed to continue to do so. GUEST SHORTS This week, Andreas Woelfl from Argentarius, a service provider for securitisations of alternative investments, informs us on exchange traded instruments, as follows: “ETI Securities offer an interesting and cost-effective solution for managers who either want to continue marketing their fund in the EU post-AIFMD, without having to endure the somewhat arduous and expensive compliance process, or are alternatively looking to securitise non-eligible securities such as private equity into a listed and UCITS-eligible format with daily liquidity. One particular group who could benefit from this in particular are CTA or commodity funds who have significant commodity futures exposure and are currently utilising some type of synthetic replication such as a Total Return Swap in order to replicate the commodity performance of their portfolio. ETIs or Exchange Traded Instruments are structurally the same as ETCs (Exchange Traded Commodities) and represent securities linked to and backed by an asset such as an investment fund. Due to a specific ECB exemption, regulation 24/2009, ETIs fall outside the scope of AIFMD. This means that the manager is able to market a listed feeder fund with an EU passport without having to alter its existing structure. Further, as of 1st January 2014, UCITS funds can no longer allocate as part of their TRASH quota; an added benefit of an ETI is that the structure then becomes UCITS eligible, such that a UCITS fund of fund vehicle is able to purchase the security without any restrictions. ETI Securities is currently one of the leading issuers of these types of instruments and has thus far completed 11 listings on the Frankfurt Stock Exchange.” If you would like to discuss the above or receive further information regarding exchange-traded instruments, please contact Andreas Woelfl at
  6. 6. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 21 March 2014