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Welcome to Euro Shorts, a short briefing on some of the week’s developments in
the financial services industry in Europe.
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
claire.cummings@cummingslaw.com
www.cummingslaw.com
1406
AIFMD: ESMA updates MoU table
ESMA has updated its table showing the current state of play of memoranda
of understanding (MoUs) signed by EU national supervisors with non-EU
regulators worldwide in respect of the AIFMD. The AIFMD MoUs are cooperation agreements that allow the exchange of information between EU
and non-EU supervisors, enabling non-EU fund managers to market
alternative funds within the EU. According to the table, the FCA has entered
into MoUs with all non-EU regulators listed in the table.
AIFMD: FCA update on NPPR
The FCA has updated its webpage on the national private placement regime
under the AIFMD. The FCA considers that the references to non cooperative country and territory (NCCT) in the AIFMD should be interpreted
as a reference to a jurisdiction that appears in either part of the FATF list of
high-risk and non co-operative jurisdictions. The private placement regime
broadly allows the marketing of AIFs that are not allowed to be marketed
under the AIFMD domestic marketing or passporting regimes. However, to
be able to market under the regime, a number of conditions need to be met,
including a condition about AIFs and AIFMs not being established in an
NCCT.

2. Bank bailouts
EU lawmakers have proposed a draft law requiring bondholders and large
savers to make good losses incurred by a failing European bank. This
follows the hardline approach taken earlier this year in respect of big
depositors in Cyprus, where the country’s bailout inflicted huge losses on
wealthy savers. It was also agreed to accelerate the introduction of the
regime by two years to 1 January 2016. The law now goes to EU ministers
for approval next week. If approved, the regime will lay down clear rules for
closing a bank in any of the EU Member States, with the aim of sparing
taxpayers from further bailouts.
Derivatives markets rebound in 2013
A panel of industry experts meeting in London this week consider that 2013
has seen an upturn in the derivatives markets and that participants can
expect even better in 2014. Volumes have risen and increasing flows of
business has been seen and it is thought that the recovery is due in part to
improved clarity surrounding regulations. It was noted that, while 2013 has
been a good year, trade reporting requirements being introduced under
EMIR are a pressing issue moving into the New Year. Most institutions had
apparently expected there to be a delay in the introduction of reporting and it
is believed that many of them will not be ready by the implementation date
in February.
CRD IV
The government has published the Capital Requirements (Country-byCountry Reporting) Regulations 2013, which implement provisions of CRD
IV in the UK. The Regulations implement Article 89 which requires firms to
disclose certain information annually on a consolidated basis by each
country where they have an establishment. This information includes the
nature of the firms' activities, the number of their employees, their turnover,
profit or loss before tax and tax on profit and loss. The PRA will enforce the
Regulations for PRA-authorised firms and the FCA will enforce them for all
other firms within the scope of the CRD IV Directive. The Regulations
come into force on 1 January 2014.

3. UCITS V
The Presidency of the EU Council has published an addendum to its note to
COREPER relating to the EC’s legislative proposal on UCITS V. The note
related to the EC’s general approach to UCITS V and was originally
published on 3 December 2013. The addendum includes the UK’s concern
that Article 52(1) of UCITS V could artificially discriminate against the use
of OTC derivatives that are cleared through central counterparties (CCPs).
This issue is of concern because EMIR introduces clearing obligations
requiring standardised OTC derivatives to be cleared through CCPs. This
could discriminate in favour of exchange-traded derivatives and noncentrally cleared derivatives.
CIMA corporate governance statement
The Cayman Islands Monetary Authority released its Statement of Guidance
for Regulated Mutual Funds last week. According to the Statement, CIMA
has now formally adopted fund governance standards based on the
Weavering principles and other international standards. The most important
development is that CIMA has now imposed a minimum requirement for
board meetings to be held "at least twice per year"; previously, there was no
legal minimum requirement for the frequency of board meetings.
IMA on outsourcing by managers
The Investment Management Association has published a response from the
Outsourcing Working Group (OWG), which was formed in response to the
FSA’s CEO letter on asset managers’ outsourcing arrangements. The OWG
sets out guiding principles and considerations that asset managers should
take into account depending on the nature, size and scope of their
outsourced arrangements, requiring firms to: (i) have a full understanding of
arrangements so that they can manage and oversee the relationship with
service providers; (ii) have a comprehensive exit plan to enable the
transition from one outsourcing service provider to another; and (iii) focus
on terminology and documentation, data interfaces and testing
methodologies.

4. Financial Transaction Tax
The 11 EU Member States who have signed up to the tax met this week to
consider narrowing the FTT’s scope to shield pensions, government debt
and other markets instrumental in keeping the economy going. The meeting
will also consider conflicting opinions on the legality of the original
proposal, which is being challenged by the UK in the EU courts. According
to an EU document prepared by the Lithuanian presidency, several key
issues are slated for discussion to provide ‘guidance for further work on the
proposal’, indicating that any tax which emerges from the negotiations is
likely to be less ambitious than originally planned.
ISDA standard margin calculations
ISDA is progressing with plans to standardise initial margin calculations
which should provide greater transparency around uncleared swaps to
regulators. ISDA has identified five important assumptions requiring
agreement: (i) the general structure of margin calculations; (ii) the
requirement for margin to meet a 99% confidence level over a 10-day
standard margin period of risk; (iii) model validation; (iv) the use of
portfolio risk sensitivities; and (iv) the use of collateral haircut calculations.
The model would also have to meet several general criteria, such as
efficiency, speed, transparency, non-procyclical, be governable and not
restrict market access.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
13 December 2013