Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry. 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 claire.cummings@cummingslaw.com www.cummingslaw.com

1.
Welcome to Legal Shorts, a short briefing on some of the week’s developments in the
financial services industry.
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
claire.cummings@cummingslaw.com
www.cummingslaw.com
ESMA speech on Brexit, transaction cost transparency and review of
ESAs
ESMA published a speech by Steven Maijoor, ESMA Chair, on, among other
things, supervisory convergence in the context of Brexit, transaction cost
transparency and the review of the European Supervisory Authorities (ESAs) (that
is, ESMA, EIOPA and the EBA). Points of interest of the speech include:
Supervisory convergence. While financial centres in the EU27 should be
free to compete based on the strengths they can offer firms relocating from
the UK as a result of Brexit, the EU rulebook should always be applied
consistently. Regulatory or supervisory arbitrage should not feature in firms'
contingency plans. ESMA does not wish to question or undermine the
delegation model under the AIFMD and, instead, it seeks to avoid the
creation of "letterbox entities" (whereby AIFM delegates its functions to the
extent that, in essence, it is no longer the manager of the relevant AIF).
Transaction cost transparency. The changes to cost transparency
introduced by MiFID II, MiFIR and the Regulation on KIDs for PRIIPs are
already having a positive impact. For example, the new model of payments
for research should help ensure better use of firms' research budgets, while
the KIDs have given investors a complete picture of the costs of the
investment product they are buying.
Review of the ESAs. Mr Maijoor expressed confidence that ESMA would
be able to deploy the proposed new convergence powers on delegation

2. arrangements efficiently and proportionately. Under the proposed new
funding model, ESMA would be able to expand its supervisory convergence
activities.
FCA consults on mission documents setting out its approach to (i)
supervision and (ii) enforcement
The FCA published for consultation a document setting out its approach to
supervision and explaining that supervision is the continuing oversight of firms
and individuals controlling firms to identify, prevent and reduce actual and
potential harm to consumers and markets. The approach document sets out (i) the
FCA's supervisory principles; (ii) the FCA's supervisory priorities and focus; (iii)
how the FCA supervises; and (iv) how the FCA evaluates its supervisory activities.
The FCA also published for consultation a document setting out its approach to
enforcement and explaining that the overriding principle of its approach to
enforcement is a commitment to achieve fair and just outcomes in response to
misconduct. Increasingly, severe penalties and sanctions alone are not enough to
reduce and prevent serious misconduct. The FCA seeks to increase the likelihood
of detection alongside carrying out efficient investigations.
The approach document sets out (i) how the FCA identifies harm; (ii) how the FCA
diagnoses harm through its investigations; (iii) the sanctions and remedies
available to the FCA; and (iv) how the FCA evaluates its approach to enforcement
and measures its performance.
G20 communiqué from meeting of finance ministers and central bank
governors: crypto-asset aspects
The G20 recently published a communiqué following a meeting of finance
ministers and central bank governors in March 2018. In the communiqué, the G20
notes that crypto-assets raise issues with respect to consumer and investor
protection, market integrity, tax evasion, money laundering, terrorist financing
and, potentially in the future, financial stability. The G20 commits to implement
the FATF standards as they apply to crypto-assets, and looks forward to the FATF
review of those standards. It also calls on the FATF to advance their
implementation worldwide. It calls on international standard-setting bodies
(SSBs) to continue their monitoring of crypto-assets and their risks. The FSB, in
consultation with other SSBs, including CPMI, IOSCO and the FATF to report in
July 2018 on their work on crypto-assets.
ESMA opinion on treatment of packages under MiFIR trading
obligation for derivatives
ESMA recently published an opinion on the treatment of packages under MiFIR.
Article 28 of MiFIR introduces a requirement to trade derivatives that have been

3. declared subject to the trading obligation on regulated markets, multilateral
trading facilities (MTFs), organised trading facilities (OTFs), or equivalent third-
country trading venues.
In the opinion, ESMA notes that that the trading obligation under MiFIR relating
to trading obligation for derivatives is designed to apply at the level of a financial
instrument and not at the level of the package. Accordingly, only components of a
package are subject to the trading obligation, but not the package as such. ESMA
therefore suggests a tailored approach, ensuring that, only where it is feasible to
trade components of a package that are subject to the trading obligation on a
trading venue without creating undue operational or execution risk, do those
components need to be concluded on a trading venue.
FATF report to G20 ministers and central bank governors
FATF now has a mandate to examine anti-money laundering and counter
terrorism financing and meets three times a year in a FATF Plenary to make
decisions on further measures to adopt. The FATF has developed standards which
are recognised as the international standards for combatting money laundering
and the financing of terrorism. In its March 2018 report to the G20 the FATF has
announced the following measures: (i) it will regularly review and report on its new
Operational Plan regarding its work to combat terrorist financing; (ii) it is
continuing with its work to understand better the risk of abuse of corporate
vehicles, legal arrangement and professional intermediaries with regard to
transparency and beneficial ownership; (iii) it intends to publish a report in June
2018 on the challenges and good practices required to improve the effectiveness of
the criminal justice system in fighting money laundering and terrorist financing;
(iv) it will consider if further action is necessary to exploit the opportunities
presented for digital identification to improve the efficiency and effectiveness of
customer due diligence measures; and (v) it is updating its knowledge on the
financial flows associated with human trafficking, including identified links with
money laundering and terrorist financing.
Complaints Commissioner invites FCA and FOS to consider producing
information sharing guidance
The Office of the Financial Regulators Complaints Commissioner recently
published the final report of the Commissioner relating to a complaint made
against the FCA, which alleged. that the FCA improperly influenced the FOS in
respect of a decision of the FOS in relation to a firm. The Commissioner did not
uphold the complaint, on the basis of insufficient evidence. However, it found the
absence of a contemporaneous documentary explanation of the FCA's purpose in
sharing the information to be unsatisfactory. The Commissioner was also
concerned about the apparent absence of published information about how and in

4. what circumstances information about live FOS cases may be shared between the
FCA and the FOS and about any limitations on the use of that information.
Based on these concerns, the Commissioner invites the FCA to consider discussing
with the FOS whether (i) there should be clear guidance about the circumstances in
which information may be shared between the FOS and the FCA in advance of final
FOS decisions; (ii) there should be clear guidance about any limitations on
information sharing between the FCA and the FOS or within them; and (iii) where
the FCA is sharing information with the FOS, this should normally be made known
to the parties and the reasons for any exceptions should be recorded. The FCA has
published its response to the decision in which it states that, in conjunction with
the FOS, it will consider the Commissioner’s suggestion concerning guidance on
information sharing.
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26 03 2018