1. Welcome to Legal Shorts, a short briefing on some of the week’s developments in
the financial services industry.
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Claire Cummings
020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
Draft Finance Bill 2014
HM Treasury and HMRC have published a consultation on draft legislation,
explanatory notes and tax policy updates for the Finance Bill 2014. The
draft legislation implements a number of tax policies announced in the 2013
Budget and 2013 Autumn Statement that are relevant specifically to the
financial services sector, including measures relating to the taxation of
partnerships, offshore non-UCITS funds and bank levy review. Although it
had been widely anticipated that further information around the taxation of
partnerships and LLPs would be made available in the Autumn Statement, in
a surprise move HMRC went ahead last week with some anti-avoidance
measures relating to taxation of partners in ‘mixed partnerships’ with
immediate effect, although the draft legislation does not appear to affect
those profits arising before 6 April 2014. Comments on the draft legislation
are invited by 4 February 2014.

2. 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.
FCA consults on updates to Handbook
The FCA has published its third quarterly consultation (CP13/18) inviting
comments on proposed amendments to the FCA Handbook. The
consultation addresses changes to COLL, in that the FCA is proposing rules
and guidance to extend the ability of authorised fund managers and other
persons, such as depositaries, to communicate electronically with investors,
including by the use of website-based communications, if the investors
agree to it. The FCA is also proposing to amend the procedure it uses when
it receives a waiver application, as set out in Chapter 8 of SUP. Responses
are invited by 6 February 2014.
FCA statement on COLL
The FCA has published a webpage on the implementation of COLL
4.2.5R(3)(ca). This applies where a UCITS scheme or a non-UCITS retail
schemes (NURS) has indicated in its name, investment objectives or fund
literature (including in any financial promotions for the fund), through use
of descriptions such as "absolute return", "total return" or similar, an
intention to deliver positive returns in all market conditions and where there
is no actual guarantee of such returns. In this scenario, additional disclosures
must be made in the prospectus, specifying that capital is in fact at risk, the
investment period over which the fund aims to achieve a positive return and
that there is no guarantee that this will be achieved over that specific, or any,
time period. COLL 4.2.5R(3)(ca) will apply from 26 January 2014, or
earlier if a fund's prospectus is updated prior to that date, following the
expiry of a transitional provision.

3. 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 CRD IV. The Regulations come into force on
1 January 2014.
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.

4. 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.
Financial Transaction Tax
The House of Lords committee has entered the debate on the FTT, urging
the government to cultivate allies and be more closely involved in defending
the single market. The committee has identified serious flaws with the
Commission’s use of enhanced co-operation, including that the tax would
have an adverse impact on non-participating Member States such as the UK,
which could be unfairly required to collect the tax on behalf of other
Member States. The committee stated that the FTT would undermine the EU
market and presents a “real and present danger to the City of London”.
Although few in the industry believe the FTT will be implemented as
currently proposed, given pressure from France and other EU Member
States for a less ambitious tax, the 11 EU Member States who have signed
up to the tax are meeting this week to push ahead with negotiations.
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.

5. GUEST SHORTS
This week, Gary Pitts, managing partner of Tetractys Partners LLP, a
regulatory and governance consultancy, updates us on the approaching
EMIR reporting deadline, as follows:
“The EMIR reporting deadline of 12 February 2014 is fast approaching,
especially given that the period covers the Christmas break and 12 February
falls during the half-term holidays. Indications are that many firms have not
fully appreciated the extent of the work that might be involved in being as
prepared as possible for their obligations. Further ESMA guidance on
reporting is expected before this date.
The reporting obligation applies to all derivatives (including exchangetraded and OTC) which were entered into prior to 16 August 2012 and are
still outstanding or which were entered into on or after 16 August 2012.
Managers should be considering liaising with counterparties to understand
their LEI code status, the universe of existing transactions which need
uploading into the trade repositories and reviewing legal agreements with
trade repositories and with counterparties. Managers should understand they
remain responsible for reporting, even when they are relying on a broker,
and should ensure that they have access to their reports at the trade
repository so that they can monitor the accuracy of the reporting. Managers
that undertake intra-group transactions should also ensure they address the
issue of how these trades will be reported. Firms that are also caught by
Dodd-Frank will need to look at their reporting mechanisms carefully, as the
Dodd-Frank and EMIR reporting obligations are not considered to be
“equivalent.”
While there are indications of some regulatory forbearance in the early days,
firms would be unwise to rely on the uncertainty around some of the
requirements as an excuse for not being as prepared as possible for EMIR.”
If you would like to discuss the above or receive further information
regarding EMIR, please contact Gary Pitts on 07795 830 636 or at
gary.pitts@tetractyspartners.com.

6. Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
13 December 2013