Legal shorts 29.11.13 including dealing commissions, dark pools and gold price fixing


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Legal shorts 29.11.13 including dealing commissions, dark pools and gold price fixing

  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 consults on dealing commission The FCA has published a consultation paper on the use of dealing commission rules for investment managers (CP13/17). CP 13/17 specifically addresses the exemption allowing the use of dealing commission to purchase research and the FCA is proposing to make certain changes to COBS 11.6, including: (i) defining corporate access and adding it to the list of goods and services which are not exempt; (ii) clarifying the perimeter of the regime by introducing a presumption of a breach of the rules if the cumulative criteria set out in 11.6.4E and 11.6.5E are not met; and (iii) clarifying in a new guidance provision (COBS 11.6.8AG) how investment managers might approach judgements around their duty to act in the customer's best interests and passing charges to the customer through dealing commission. The use of dealing commission rules in COBS 11.6 therefore also apply to the investment management activities of AIFMs, as well as MiFID and UCITS investment managers. Comments are invited by 25 February 2014 and the FCA intends to publish a policy statement in spring 2014.
  2. 2. MiFID II The European Parliament, the European Commission and the EU Council met last week to negotiate and progress discussions on MiFID II. An outline deal was reached to cap off-exchange trading in dark pools, such that trading in a stock anonymously will be capped at 8% of the total traded of that stock in the EU and dark pool trading in a stock on an individual platform would be restricted to no more than 4% of the total EU market for that stock. ESMA would be responsible for collating data on share trading gathered by national authorities. According to the IMA, the capping would ultimately hit end investors as it poses a restriction on the industry’s ability to get the best price for their clients. FCA reviewing gold price fixing It has been reported that the FCA is conducting a review into price-setting in the London gold market. Question marks have been raised that traders involved in the price-determining process can glean knowledge which could give them an unfair advantage when buying and selling gold. The London fix, the benchmark rate used by mining companies, jewellers and central banks, is published twice daily after a call between five major banks and the price-determining process can take from a few minutes to more than one hour, which means that participants have knowledge which is unavailable to other market participants. There is, however, no reported evidence of any actual manipulation of the London fix. EMIR IOSCO has published a letter regarding its concerns about the recognition of non-EU central counterparties (CCPs) under EMIR. IOSCO has received feedback that further guidance would be useful to provide greater clarity about the process of non-EU CCP recognition, including detailed information on the contents, effect and purpose of the ESMA MoU and the approach to equivalence assessments for jurisdictions that are not currently covered by reports of technical advice on third country regulatory equivalence under EMIR published by ESMA. IOSCO is also concerned that the due process for the non-EU CCP equivalence assessment may not be completed by 15 June 2014, which means there is a risk that non-EU CCPs will not be qualified as qualifying CCPs for the purposes of CRD IV. The European Commission is urged to exercise its discretion to adopt an implementing act to extend the transitional relief by an additional six months so that non-EU CCPs continue to qualify as QCCPs up to 15
  3. 3. December 2014. ESMA demands protocol for CCPs ESMA has noted that there is no clear protocol about how to save or resolve international CCPs in the event of a financial meltdown. This will become more important from 2014 onwards and ESMA is pushing for this to be resolved. While international regulators have pressed banks to prepare contingency plans, the systematically critical CCPs have failed to keep up and ESMA plans to set out technical standards in early 2014 for approval by the European Commission shortly thereafter. FCA: Broker-operated systems The FCA has published a statement about broker-operated systems trading physically settled gas and power forwards. This statement follows a previous statement issued in September 2013, in which the FCA explained that brokers offering trading services in physically settled gas and power forwards are reviewing the appropriate classification of their systems under MiFID. The reviews are focusing on interpretation of the multilateral trading facility (MTF) category under MiFID. The FCA advised that it expected brokers to make the changes necessary to differentiate clearly between their MTF and non-MTF services by 16 December 2013. Final implementation should take place no later than 12 February 2014, as the FCA considers that this will help maintain efficiency and liquidity in gas and power markets by facilitating an orderly transition to the new systems. MLD4 Regulation The UK has issued a paper relating to the Fourth Money Laundering Directive (MLD4). In the paper, the UK welcomes the MLD4 proposal, but considers that there are a number of important outstanding issues relating to MLD4 that merit discussion at ECOFIN. The most important issue is that of transparency of company beneficial ownership and making this information publicly accessible is core to the UK's commitment to openness. The UK strongly encourages other Member States to follow its lead, and encourages the Council to consider mandating publicly accessible central registries of company beneficial ownership. The UK also agrees that it is important to ensure that trusts are not misused for illicit purposes and comments that through the automatic exchange of information pilot that the UK, France,
  4. 4. Italy, Spain and Germany are leading, the EU is already at the forefront of tackling tax evasion and the potential misuse of trusts and that the EU therefore has the same opportunity to set the global standard on transparency of company ownership and control through central registries of company beneficial ownership. ETFs and UCITs Q&As ESMA has published an updated version of its Q&As paper on its guidelines on exchange traded funds and other UCITS-related issues. The Q&A, which are intended to promote common supervisory approaches and practices in the regulation of UCITS, focus specifically on ESMA's December 2012 guidelines on ETFs and other UCITS issues. New questions and answers have been added to the sections of the Q&A dealing: with collateral management issues (Q&A 6m) and with financial indices (Q&A 7i). Although the Q&A are aimed at competent authorities, they are also intended to help UCITS management companies by providing clarity as to the content of the UCITS rules. FPC review into leverage ratio The Financial Policy Committee is to undertake a review of the role for the leverage ratio within the capital framework for UK banks, building societies and large investment firms. The review will consider the leverage standard required, assess how the leverage standard should apply to ring-fenced banks and assess the impact of leverage standards on lending generally. The Basel Committee on Banking Supervision needs to agree exact definitions for the leverage ratio under Basel III before the terms of reference for the FPC's review can be finalised. Such agreement is expected early in 2014. The FPC is expected to complete the leverage ratio review within the requested 12 month timeframe. GUEST SHORTS This week, David Heathfield, general counsel at Baronmead Partners LLP, reports on professional indemnity policies under the AIFMD, as follows: “AIFMs are having to spend a significant amount of time on getting their house in order before the year-long transition period for AIFMD compliance expires on 22 July 2014. The AIFMD gives an AIFM the option of covering
  5. 5. professional liability risks resulting from the negligent performance of activities, for which the AIFM has legal responsibility, by holding own funds or by purchasing a professional indemnity policy. If the AIFM chooses to purchase a professional indemnity policy, it must be compliant with Articles 12 and 15 of the Level 2 Regulation dated 19th December 2012. Articles 12 and 15 are prescriptive in nature and do not seek to reinvent the wheel in terms of what is required by a professional indemnity policy; that said, there are certain aspects that need to be understood clearly in order to ensure compliance. Article 15 in particular deals with the structure of cover that is required, but certain key questions about how policies must work in practice remain unanswered. The focus for the insurance industry will be providing guidance on the financial impact that purchasing policies, with a raft of exclusionary language, will have on AIFMs. It will also look to advise AIFMs on ensuring that their policies provide exclusivity of cover for “AIFMD losses” where in the instance that their policies also provide protection against claims which fall outside the scope of the AIFMD. As a provider of risk management solutions to the investment management industry, Baronsmead is spearheading the development of compliant professional indemnity policies. We are advising our clients on the most cost effective way of putting measures in place to deal with their exposures to professional liability risks.” If you would like to discuss the above or receive further information regarding AIFMD compliant insurance, please contact David Heathfield at We have taken great care to ensure the accuracy of this version of Legal Shorts. However, Legal Shorts is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication. If you would like to be removed from the mailing list of this publication please click unsubscribe below. Authorised and regulated by the Solicitors Regulation Authority. Please contact us if you would like to arrange a meeting. This message (including any attachments) from the law firm of Cummings is confidential and may contain information which is
  6. 6. proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you are not the intended recipient, please do not read, copy, distribute, disclose or otherwise use or place any reliance on any information in this message or any attachments; and please alert the sender by return e-mail, delete this message and any attachments from your system and destroy any hard copies. Neither Cummings nor the sender accepts liability for any corruption, interception or unauthorized amendment of messages or attachments transmitted by e-mail. It is your responsibility to scan this message and any attachments for computer viruses in accordance with good working practice. The firm is not authorised by the Financial Conduct Authority, but is authorised and regulated by the Solicitors Regulation Authority (for the code of conduct please see and undertakes certain activities in relation to investments which are limited in scope and incidental to its legal services or which may reasonably be regarded as a necessary part of its legal services. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 29 November 2013