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
FCA updates its MiFID II webpage
The FCA has updated its MiFiD II webpage to inform firms that it is
working towards meeting the legislative deadlines of 3 July 2016 for
transposing MiFID II into UK laws and regulations, including changes to the
FCA Handbook, and 3 January 2017 for MiFID II and MiFIR to take effect.
As part of this, the FCA acknowledges that it needs to communicate
effectively with firms about the changes that MiFID II will bring. It sets out
key dates for MiFID implementation in its update, including that it intends
to publish its main consultation paper on implementing the MiFID II in
December 2015. It will then publish the subsequent policy statement and
final rules in June 2016.
FCA consulting on changes to FUND
The FCA has published its eighth quarterly consultation paper (CP15/8) in
which it is seeking views on certain changes to the FCA
Handbook. Included in the consultation are changes to its AIFMD rules and
guidance as set out in FUND, as follows: (i) to make non-EEA AIFMs and
small registered UK AIFMs, which do not submit their AIFMD Annex IV
reports to the FCA on time, subject to the same administrative fee that
applies to full-scope UK AIFs and small authorised UK AIFMs; (ii) to
address potential risks to its objectives when AIFMs perform certain
activities under the exclusion in article 72AA(2) of the Financial Services
and Markets Act 2000 (Regulated Activities) Order 2001 (RAO); and (iii) to
incorporate some of the AIFMD section of the FCA website within
Handbook guidance. Responses are invited by 5 May 2015.

2. ESMA publishes revised opinion on draft RTS on IRS clearing under
EMIR
ESMA has published a revised opinion on draft RTS on the clearing for
interest rate swaps under EMIR. This opinion amends ESMA’s January
2015 opinion, which was issued in response to the European Commission’s
notification in December 2014 that it intended to amend ESMA’s draft RTS
submitted to the Commission in October 2014. In its January 2015 opinion,
ESMA stated, amongst other things, that it supported the Commission's
intention to postpone the start date of the frontloading obligation, as this
should give counterparties sufficient time to determine whether their
contracts are subject to frontloading. It also proposes to incorporate the
Commission's suggestion to deal with the application of the eight billion
threshold of investment funds for the definition of types of counterparties as
a specific provision in the text of the RTS. ESMA’s revised March 2015
opinion incorporates practical issues raised by the Commission’s December
notification, but does not introduce any material changes compared to the
original opinion and the draft IRS RTS have not been modified.
ESMA publishes list of responses to MiFID II consultation
ESMA has published a list of responses it has received to its December 2014
consultation paper (ESMA/2014/1570) on MiFID II. The paper included
draft RTS and ITS and ESMA will use the input received from the
consultation to finalise the draft RTS. These will be sent to the European
Commission for endorsement by mid-2015. ESMA will send its draft ITS to
the Commission by January 2016. The consultation closed on 2 March 2015.
ELTIF Regulation adopted by European Parliament
The European Parliament has announced that it has adopted the Regulation
on European Long-Term Investment Funds (ELTIF Regulation). The
adopted text has not yet been made publicly available. ELTIFs are vehicles
designed to boost non-bank investment in the real economy across the EU
and it is envisaged that they will also help build the capital market union
(CMU). ELTIF investment funds will have to apply for authorisation, have a
regulated structure and comply with uniform rules to ensure that they offer
long-term and stable returns. The ELTIF Regulation now needs to be
formally adopted by the Council of the EU and is expected to apply six
months after it has entered into force.

3. CCP stress testing review
IOSCO has announced that it will undertake a joint review of stress testing
by CCPs, with the Committee on Payments and Market Infrastructures
(CPMI). The Principles for financial market infrastructures (PFMI)
published by the CPMI and IOSCO in April 2012 require CCPs to carry out
rigorous stress testing to determine the financial resources they need to
manage both credit and liquidity risk, including a wide range of stress
scenarios covering a variety of extreme market conditions. The CPMI and
IOSCO believe that, due to the growing systemic importance of CCPs, a
review of CCP stress testing is timely to identify how the PFMI standards
are being implemented and whether additional guidance is needed.
ESMA signs MoU on CCPs with Singapore
ESMA has signed a memorandum of understanding with the Monetary
Authority of Singapore (MAS) under EMIR. The MoU sets out the co-
operation arrangements between the two authorities regarding CCPs that are
established in Singapore and have applied to ESMA for recognition under
Article 25 of EMIR. As well as establishing these arrangements, the MoU
will provide ESMA with adequate tools to monitor the on-going compliance
by the CCPs with the recognition conditions in Article 25.
FCA will regulate seven additional benchmarks
The FCA has announced that it will bring seven additional financial
benchmarks into its regulatory and supervisory regime following its
consultation in December 2014. The FCA has decided to proceed with the
policy proposals outlined in the consultation paper and has made one change
based on feedback, namely to provide further clarity on who is or is not a
benchmark submitter, in particular with regards to auction participants. The
benchmarks being brought into scope are: Sterling Overnight Index Average
(SONIA), Repurchase Overnight Index Average (RONIA), WM/Reuters
(WMR) 4pm London Closing Spot Rate, ISDAFIX, London Gold Fixing
(soon to be replaced by the LMBA Gold Price), LMBA Silver Price and ICE
Brent Index. Currently, the FCA only regulates LIBOR.

4. ESMA publishes Q4 risk dashboard
ESMA has published its risk dashboard for the last quarter of 2014, which
analyses liquidity, market, contagion and credit risks in European financial
markets. ESMA has also published a report on trends, risks and
vulnerabilities in the EU securities markets covering the second half of
2014. Amongst the potential issues identified by ESMA is the monitoring of
systemic risks in the hedge fund industry. ESMA proposes indicators for
monitoring these risks based on aggregate sector-wide individual
interdependencies of performance rates between individual hedge funds and
the entire industry. The results obtained demonstrate that the proposed
indicators identified almost all of the financial crises included in the
reporting sample. The methodology can be applied to both the global and
the EU hedge fund industry.
BoE annual report on supervision of FMIs
The Bank of England has published its annual report on the supervision of
financial market infrastructures (FMIs). According to the report, the
priorities the Bank intends to focus on for 2015 include: (i) credit and
liquidity risk, including CCPs stress-testing practices; (ii) the European
Commission proposal on CCP recovery and resolution, which may extend to
other FMIs, which the Bank considers should fully implement the CPMI-
IOSCO and FSB international guidance published in October 2014; and (iii)
CCP disclosures. The report also sets out the Bank’s priorities relating to
operational risk management, governance, EMIR and mandatory clearing,
payment system landscape changes and the proposed Regulation on
securities financing transactions (SFTs).
Senior managers regime
The FCA and the PRA have each responded to queries from the House of
Commons Treasury Select Committee relating to transitional arrangements
for individuals moving into the senior managers regime (SMR). Points of
interest made by them include: (i) there is a balance to be struck between
ensuring the new regime represents a genuine improvement on the FSA's old
approved persons regime and avoiding a large and costly administrative
exercise that could delay full implementation of the SMR; (ii) the current
understanding is that the HM Treasury order will provide for automatic
grandfathering and the PRA and FCA support this approach; (iii) once the
SMR is live, supervisors will need to formally evaluate firms' governance
arrangements and confirm that the individuals managing firms have the
appropriate skills and experience. The statements of responsibility will be
used in the ongoing oversight of firms.

5. Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
13 March 2015