1. 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 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
UK Budget 2014
The Chancellor delivered the 2014 Budget this week and the following changes
are of particular interest to the financial services industry in the UK, namely
measures relating to the bank levy, offshore funds and annuities. Whilst bank
levy rates remain unchanged, a new basis for setting bank levy charges is to be
trailed in a consultation document next week. With regard to offshore funds,
under the current legislation a company can be designated as eligible for UK
taxes if its central management and control functions are exercised in the UK,
but this will no longer be the case. The government is to widen the scope of
section 363A of the Taxation International and Other Provisions Act 2010
(TIOPA) to remove the risk that offshore funds managed from the UK could be
deemed UK resident for tax purposes. Non-UK UCITS funds were already
exempt and the budget will now extend that treatment to all alternative
investment funds. As regards pensions, all tax restrictions on access are to be
removed, which will end the requirement to buy an annuity.
EMIR
NASDAQ OMX Clearing became the first EU-based central counterparty to be
authorised as EMIR-compliant this week. ESMA has since published
information about NASDAQ OMX and the contracts it is authorised to clear. The
information is published in the form of a list of authorised CCPs, which includes
the classes of financial instruments covered by NASDAQ’s authorisation (as the
sole CCP to date), and a public register which lists the classes of OTC derivative
contracts that CCPs have been authorised to clear by their national competent
authority. Again, these only relate to NASDAQ at present.

2. EMIR Q&As
ESMA has published an updated version of its Q&A on EMIR which includes a
table of questions on pages 6 and 7, detailing which questions have been updated
as at 20 March 2014. They deal with: intragroup transactions; notional amounts;
risk mitigation techniques for OTC derivative contracts not cleared by a CCP;
reporting of outstanding positions following the entry into force of EMIR
(backloading); and various issues relating to TR reporting requirements. The
Q&A were originally published in March 2013 and were last updated in
February 2014.
Bonuses withheld due to alleged FX manipulation
According to reports, some major banks have frozen bonuses in their FX trading
teams amid internal investigations into possible manipulation of currency
benchmarks. The major banks include Barclays, RBS and Citigroup. The alleged
manipulation has led to a number of suspensions at several banks and the Bank
of England launched its own internal inquiry last week. A number of regulators,
including the FCA, have extended their global investigation into FX rigging to
include 15 banks and ESMA has started collecting information from the FX
market, although it has no direct powers regarding any enforcement issues.
EU Savings Directive update
The European Commission's proposals for a draft directive aimed at
strengthening EU rules on the taxation of savings income were on the ECOFIN
agenda for its meeting last week, but ECOFIN was unable to reach political
agreement on the proposals. Nevertheless, Commissioner Šemeta released a
positive post-meeting statement stating that the text was near to being finalised.
The statement further noted his confidence that the EU leaders will endorse the
EUSD before the end of the month. The proposed amendments represent
material changes in scope to the EUSD as payments to legal entities and
payments of interest equivalents will be brought within the regime.
Britain unlikely to regain AAA status in the near future
The debt rating agency Fitch said that Britain's public sector net debt will need to
fall before it can regain its AAA-sovereign debt rating. Fitch currently rates
Britain AA+, one notch below triple-A, with a stable rating, down from its AAA
rating last April. Britain's public sector net debt is expected to rise over the
coming years and is not forecast to fall below its current level until the 2018/19
financial year. Standard & Poor’s still has the UK on the top rating, but on
“negative outlook”. In the meantime, Fitch has re-affirmed the US AAA rating
this week.

3. UCITS V
The EU Council has announced that COREPER has approved an agreement with
the European Parliament on the proposed text of UCITS V. The compromise text
results from the provisional agreement on the text reached in February 2014. The
Council explains in the press release that COREPER's agreement will enable
UCITS V to be adopted at first reading before the Parliament adjourns for
elections at the end of May 2014. According to the press release, Member States
will have 18 months to transpose UCITS V into national law and depositories
will be given an additional 24-month transition period after the transposition
deadline.
UK interest rates to rise sooner than expected?
Martin Weale, a BoE policymaker, has warned that UK interest rates could rise
within a year and rise sharply if inflationary pressures begin to build. The Bank
has estimated spare capacity in the economy between 1 – 1.5% of GDP and
believes this will be absorbed by 2017. Mr Weale, however, estimates the
capacity at 0.9%, which could be absorbed by 2016, which means that interest
rates could rise sooner and more quickly than market expectations if the Bank is
forced to raise rates to keep inflation close to its 2% target. The Governor, Mark
Carney, has nevertheless made it clear that rates will not start to rise until the
UK’s recovery is more sustainable and broader-based.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
21 March 2014