Legal Shorts 03.02.17 including MiFID II: FCA creates new Long Form A and ESMA publishes opinion on UCITS share classes

Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

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 

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MiFID II: FCA creates new Long Form A

The FCA has introduced a Long Form A – UK and Overseas Form (not Incoming EEA) for MiFID authorisation applications , which should be used by all non-MiFID firms applying for permission to carry out activities under MiFID from 30 January 2017. The FCA notes that the Regulated Activities Order has not yet been amended to include new MiFID II activities. In the light of this, authorisation applications from firms applying to undertake activities brought into the scope of regulation by MiFID II, including operating an organised trading facility (OTF) or carrying out activities in relation to the new proposed investment types of structured deposits, binary bets and emission allowances, will be treated as drafts until the HM Treasury’s proposed changes to the RAO have come into force. The Long Form A can be found at the following link: https://www.fca.org.uk/markets/mifid-ii/applications-notifications.
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ESMA publishes opinion on UCITS share classes

ESMA has published its opinion on UCITS share classes, which sets out certain principles that UCITS must follow when setting up different share classes: (i) a common investment objective reflected by a common pool of assets; (ii) non-contagion amongst share classes; (iii) all features of the share class should be pre-determined before the fund is set up; and (iv) differences between share classes of the same fund should be disclosed to investors when they have a choice between two or more classes.  ESMA also states in its opinion that share classes should never be set up to circumvent the rules of the UCITS Directive, particularly those on diversification, derivative eligibility and liquidity. The UCITS Directive recognises the possibility for a UCITS to offer different share classes to investors, but it does not prescribe whether, and to what extent, share classes of a particular fund can differ from one another. Share classes that were established prior to the issuance of the opinion and which do not comply with these principles should be allowed to continue to operate, subject to being closed to new investors within six months of publication of the opinion i.e. 30 July 2017, and for additional investment by existing investors within 18 months of publication i.e. 30 July 2018.
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EMIR: ESMA review of EMIR and CRA Regulation and Commission’s proposed revisions

ESMA has published its letter to the European Commission about elements of the review of EMIR and its advice on credit ratings and credit rating agencies (CRAs) required under the CRA Regulation. The primary scope of the letter is to advise the Commission about elements of the EMIR review, in particular those related to ESMA’s supervisory and sanctioning powers under EMIR. The letter also emphasises similar issues relating to CRAs, which ESMA believes would benefit from a joint analysis. The European Commission has since published a speech by Valdis Dombrovskis, Commission Vice President, which, amongst other things, reported on the outcome of the Commission’s November 2016 review of EMIR. As a result of the review and feedback received, the Commission intends to revise existing technical standards to make reporting standards simpler and clearer in response to comments that rules and reporting obligations should be more proportionate, particularly for non-financial counterparties. The Commission will publish its legislative proposal to revise EMIR in spring 2017.
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EMIR: ESMA consults TR transfer of data

ESMA has published a consultation paper on guidelines which provide additional clarification on the transfer of data between trade repositories under EMIR. The proposed guidelines will apply to counterparties to derivatives and CCPs that report derivatives under EMIR and to TRs registered or recognised by ESMA. The guidelines recognise that the need to transfer data to another TR can arise for various reasons. They address separately the situations where the transfer is due to a withdrawal of registration of the TR from the cases in which the transfer is done on a voluntary basis and under normal market conditions. Comments are invited by 31 March 2017.
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MiFID II: ESMA updates Q&As

ESMA has updated two Q&A documents on implementation issues relating to transparency and market structures requirements under the MiFID II. The Q&As on transparency have been updated with four new questions and answers clarifying issues on the new systematic internaliser (SI) regime in respect of calculations. The Q&As on market structures have been updated with three new questions relating to MTFs, trading venues and market makers.
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MAR: ESMA updates Q&As

ESMA has updated its Q&As on the Market Abuse Regulation to include new Q&As, namely: (i) a new Q&A (question 6) relating to managers’ transactions; and (ii) new Q&As (questions 9 to 11) relating to investment recommendation and information recommending or suggesting an investment strategy. The Q&As were previously updated in December 2016.
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FCA chief calls for regulatory global standards

Andrew Bailey has called for regulatory global standards to act as a basis for market access for financial institutions. Mr Bailey set out a framework, which includes the following points: (i) the standards should apply to internationally active firms and activities. Smaller firms that choose not to trade across borders would not be subject to the global standards; (ii) the standards should cover core prudential requirements, the resolution of failed firms where necessary and market practices where those present a sufficient threat to financial stability; and (iii) NCAs authorities should be transparent about the standards they set for governance, remuneration and other areas that affect the culture within firms. Although Mr Bailey did not refer to Brexit, his comments on market access follow on from the likelihood that UK firms will lose passporting rights following Brexit.
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FCA should specify duty of care owed by financial services providers

The Financial Services Consumer Panel (FSCP) has proposed that the FCA should be required to make rules specifying what constitutes a reasonable duty of care that financial services providers should owe to their customers. The FSCP does not propose a fiduciary duty, but a duty of care requiring providers of financial services to avoid conflicts of interest and act in the best interests of their customers. Although the FCA would decide the exact scope of the duty, the FSCP envisages that the rules would be flexible and depend on the complexity and risk of the product being sold i.e. the more complex or risky the product, the more stringent the provider’s duty would be to ensure the product was suitable. The FSCP believes that the FSMA principle that firms should treat customers fairly (TCF) fails to remove conflicts of interest and so does practically nothing to deter firms from mis-selling products and services.
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FCA review on consumer credit update

The FCA has published its 2017 regulatory roundup, which includes an update on its February 2016 call for input on its review of the retained provisions of the Consumer Credit Act 1974 (CCA). The FCA is planning to publish a summary of the responses to the call for input in the first half of 2017. The FCA has analysed the responses and identified key themes, which will help to scope its review and it is planning to outline this scope and approximate timelines going up to 1 April 2019.
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FX global code of conduct update

The Bank for International Settlements has published a speech by Guy Debelle, former chair of the FX Working Group (FXWG), on the global code of conduct for the foreign exchange (FX or forex) market. The FXWG was established by the BIS in May 2015 to strengthen the code of conduct standards and principles in the FX market. The FXWG has been working to develop a global code and phase 1 was launched in May 2016. The speech notes that the FXWG will shortly be sending out a “fatal flaw” version of the complete code for comment and that the complete code will be released in London at the end of May 2017, as planned. The FXWG also outlines its overall approach to adherence to the code, which comprises three dimensions, and points out that the process does not end with publication of the complete code; as the FX market continues to evolve, the code will need to evolve with it.
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FCA and HMRC agree MoU on exchange of information

The FCA has entered into a MoU with HMRC setting out a high level agreement governing the exchange of information needed to better deliver their businesses. The MoU relates to the overall exchange of information between HMRC and FCA and does not replace certain process level MoUs that cover agreements relating to one or more specific information exchanges. This includes the MoU on exchange of information and conducting of joint visits under the Money Laundering Regulations 2007 and Payment Services Regulations 2009.
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Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
2 February 2017