This document provides a summary of recent legal and regulatory developments in the financial services industry from the law firm Cummingslaw: - The FCA published final guidance on the AIFM Remuneration Code for alternative investment fund managers. - The FCA finalized new rules requiring investment managers and advisers to report complaints and referral arrangements to ensure transparency. - An IOSCO report found that crowdfunding poses some investor protection risks but does not currently represent a systemic risk. - The Guidelines Monitoring Group updated its guidelines on good practice reporting by private equity portfolio companies.

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 http://vimeo.com/cummingslaw
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
AIFMD Remuneration Code
The FCA has published its final guidance on the AIFM Remuneration Code
following its consultation paper issued in September 2013 (CP13/9). The
guidance is directed at full-scope AIFMs and the FCA expects firms to
implement the AIFMD remuneration regime for new awards of variable
remuneration to relevant staff for performance periods following that in which
the firm becomes authorised. Among other things, the guidance covers: (i)
applying proportionality to AIFMs; (ii) how to treat payments to partners or
members of an AIFM; (iii) remuneration in the form of units and shares; and (iv)
minimum retention periods. The annex to the guidance contains example of how
to apply proportionality. The guidance took effect on 31 January 2014.
FCA policy on investment manager and adviser complaints reporting
The FCA has published a policy statement setting out its final rules on referrals
to discretionary investment managers and adviser complaints reporting. The FCA
consulted on draft rules in July last year and no changes have been made to those
in the final rules. The new rules are intended to ensure clear adviser and

2. discretionary charges and will come into force on 31 December 2014.
Crowdfunding
IOSCO has published a working paper on the risks and benefits of crowdfunding
i.e. peer-to-peer lending and equity crowdfunding. The report provides a global
overview of the crowdfunding industry, together with a mapping exercise of the
global regulatory landscape. It seeks to identify investor protection issues and to
determine whether crowdfunding poses a systemic risk to the global financial
sector. The main risks set out in the report are: default risk, platform risk, fraud
risk, illiquidity risk, risk of cyber attack, lack of transparency and disclosure
risks and the risk of investor inexperience. The report concludes that FR
crowdfunding does not currently present a systemic risk to the global financial
sector, although it does pose problems for investor protection that need to be
addressed. The paper states that the views expressed in it are those of IOSCO's
research department and do not necessarily reflect the views of IOSCO or its
members.
PE guidelines for good practice reporting
The Guidelines Monitoring Group published an updated version of its guidelines
on good practice reporting by private equity portfolio companies under the
Walker Guidelines. The substantive content of the guidelines remains unchanged
from the version issued in March 2012, but do, however, include updated
examples of reporting drawn from portfolio companies' accounts over the last
two years that the GMG considers to represent good practice. The group notes
that the annual report when taken as a whole should be considered fair, balanced
and understandable to a user of the accounts. In relation to the definition of a
portfolio company for the purposes of the reporting guidelines, the group is
currently reviewing whether the transaction size criteria should be lowered to
bring more portfolio companies into scope and any changes will be announced
during 2014.
Government response to failed ECJ challenge on short selling
The UK government has responded to the ECJ judgment on its challenge to
ESMA’s powers under the Short Selling Regulation. It states that it is
disappointed that the ECJ has not upheld the UK's legal challenge, as the
government has consistently said it wants tough financial regulation that works,
but powers conferred on EU agencies must be consistent with the EU treaties,
and ensure legal certainty. It confirmed that the ruling bears no impact on the
day-to-day application of the Short Selling Regulation and that it has no

3. implications for other legal challenges made by the UK relating to financial
services regulation.
European Parliament votes to adopt CSMAD
The European Parliament has voted to adopt the proposed Directive on criminal
sanctions for insider dealing and market manipulation (CSMAD). The CSMAD,
together with the proposed Regulation on insider dealing and market
manipulation (MAR), make up the MAD II legislative proposals that will replace
the Market Abuse Directive (MAD). The European Commission has published a
set of FAQs on CSMAD. The Council of the EU will now formally adopt the
text of the CSMAD proposal at a future meeting. Member States will have two
years to implement the Directive after publication in the OJ, which is expected in
June 2014.
EC DG MARKT management plan for 2014
The European Commission has published the management plan for 2014 of its
Internal Market and Services Directorate General (DG MARKT). The three main
priorities of DG MARKT during 2014 relating to financial services are: (i)
establishing the banking union; (ii) completing financial reform; and (iii)
improving the way in which the financial system contributes to growth. The
management plan contains detailed information on the expected timings for the
adoption of Commission documents relating to financial services, including
delegated acts, implementing acts, RTS, ITS and reports.
Financial Transaction Tax
Germany's top two governing parties have indicated that they are prepared to
accept a tax on stock trades as part of a move toward a broader FTT. The move
could bolster Germany's goal of partnering with France to get Spain and Italy to
implement the tax. The SDP has said that it would accept a phased-in FTT,
provided that there was a commitment at the start to the timing of all later stages
and that derivatives are included in any such plan.

4. EU and US to co-operate on derivatives reform
The EU and the US regulators have pledged to work more closely together on
reforming the derivatives market. The EU and US are putting into effect a host of
measures to reform the financial industry and have agreed to try to minimize the
divergence on margin requirements, particularly once new international
standards have been widely adopted. They also agreed on the need for effective
resolution of large cross-border banks, as well as to co-operate on supervising
audit providers and resolving differences in accounting standards. The next such
meeting will take place in Brussels in July.
ISDA overview of OTC derivatives reform
ISDA has published an overview of US and EU OTC derivatives regulatory
reforms. The overview takes the form of a table and compares requirements of
the CFTC and the SEC in the US, derived from the Dodd-Frank Act, with EU
requirements primarily under EMIR. ISDA has also published a chart addressing
the relevance of ISDA protocols and other documents for derivative transactions
for market participants in non-US/EU jurisdictions.
LIBOR code of conduct
ICE Benchmark Administration (IBA), the new Libor administrator, has
published a Libor code of conduct and whistleblowing procedure. The code of
conduct sets out practice standards for contributing banks i.e. banks carrying out
the regulated activity of providing information in relation to a specified
benchmark. The code covers issues including governance arrangements,
submission methodology, conflicts of interest, record-keeping and compliance.
The FCA's Market Conduct sourcebook (MAR) requires the LIBOR
administrator to produce this code, which has been confirmed as industry
guidance by the FCA. It is assumed that the code and whistleblowing procedure
will supersede the LIBOR code and whistleblowing policy published in July
2013 by BBA LIBOR Ltd, the former administrator.

5. Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
7 February 2014