Fund News - Issue 102 - April 2013

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financial services / Regulatory and Tax / Issue 102

developments in April 2013 Investment Fund Regulatoryand Tax developments in selected jurisdictions

2 / Fund News / Issue 102 / Developments in April 2013

Regulatory Content

european union 3 European Parliament consults onways to further

enhance the coherence of EU financial services legislation

3 ESMA issues peer review on Money Market Fund rules

france 4 AMF opens AIFM pre-authorisation desk

and publishes Q&A

Luxembourg 5 CSSF issues circular 13/564 and BCL issues

Circular 2013/231 on the statistical data collection for money markets funds and investment funds

switzerland 6 Consultation on FINMA Circular “Distribution of

collective investment schemes”

uK 6 FCA publishes its Annual Funding Requirement

for 2013/14 8 FCA publishes policy and rules for platforms

and cash rebates

International 10 IOSCO Consultation Paper – Principles for

Financial Benchmarks 11 IOSCO Consultation – Regulation of Retail

Structured Productsw

Contents

Fund News / Issue 102 / Developments in April 2013 / 3

Regulatory news

european union

The questionnaire can be downloaded using the following link.

http://www.europarl.europa.eu/document/activities/cont/201303/ 20130314ATT63250/20130314ATT63250EN.doc

esMA issues peer review on Money Market fund rules

On 15 April 2013 ESMA issued a “peer review report” (ESMA/2013/476) examining whether EU securities supervisors correctly apply ESMA’s guidelines on money market funds (MMFs) issued in 2010 (CESR/10-049). The review, covering the situation up to 30 June 2012 and 30 jurisdictions across the European Economic Area (EEA), compared the application of the guidelines and the supervisory practices within the 20 jurisdictions that had transposed the guidelines in their national regulation at that time. ESMA’s review highlighted that although more than two thirds of the 20 jurisdictions have implemented the guidelines on MMFs nationally as mandatory provisions, the general supervisory and enforcement approaches relating to MMFs significantly vary across the Member States. Key findings of the report are:

• 10 EEA Member States have not transposed the guidelines by the end of the review period; since then, 4 additional countries have transposed them.

• 20 countries have included the guidelines within their national supervisory tasks during the authorization process and/or the ongoing supervision of MMFs (UCITS/non-UCITS).

Divergences include inter alia:

• Some Member States pre-approve some or all fund documentation while others rely mostly on ex-post monitoring;

• Several Member States rely on risk-based approaches for their ongoing supervision of MMFs. Countries with a limited number of authorized MMFs rather follow a compliance-based approach;

• The risk-based approaches implemented vary significantly and more specifically in relation to the type and frequency of the MMFs periodic reporting required, the parameters triggering alerts to identify risks and prioritize actions, and the level of reliance on external auditors/depositaries monitoring;

• Varying types and level of information are also used in these reviews, ranging from the annual and semi-annual reports only to a wider set of quantitative and qualitative information from different sources , periodic reporting of supervised entities, investor complaints and information from other authorities and other public sources.

european Parliament consults on ways to further enhance the coherence of eu financial services legislation

The European Parliament’s Economic and Monetary Affairs Committee has recently launched a public consultation on the “coherence of EU financial services regulation”. This initiative comes in the context of the transition to a single rule book in financial services across the EU and the willingness of the EU legislator to have legislation covering all financial products, actors and markets.

The consultation gives the financial sector an opportunity to formally suggest how the law making process could be improved within the EU institutions institutions; to propose practical steps to better ensure coherence between the detailed rules in the delegated acts and technical standards and the core principles that are set out in the directives; to suggest how stakeholder participation could be enhanced; to spell out the specific areas of overlapping rules and requirements and describe if these have arose from how the texts have been transposed into national law; and, to give their views on what should be the priorities of parliament for the rest of the current mandate as well as the priorities of the new parliament from 2014 – 2019.

The consultation will close on 14 June 2013 and the completed questionnaire must be sent by e-mail to the following address:

[email protected].


Regulatory news

As a result ESMA emphasizes the need of convergence in supervisory and enforcement practices regarding MMFs, since this is also considered an issue of great relevance in the current debate on the reform of the MMF sector worldwide towards proper investor protection and level playing field. ESMA believes that the practices analyzed in its report could be the starting point for the identification of a common supervisory approach for competent authorities (“good practice”), including guidelines for:

• internal organization and supervisory tools,

• ex-ante review of MMFs documentation (prospectus, marketing material),

• ex-post review of MMFs documentation (prospectus, marketing material),

• on-going supervision of MMFs, and

• off-site and on-site inspection cycles.

The good practices identified could then be further analyzed by the relevant ESMA Standing Committees, in order to assess the merits of their adoption across the EU.

As part of its regular activities, ESMA will review the application of the guidelines in the next year taking into consideration any legislative proposal from the Commission in relation to MMFs.

The full report is available via the following web link.

http://www.esma.europa.eu/news/Press-Release%E2%80%93ESMA-finds-divergence-national-supervision-money-market-funds

AMf opens AIfM pre-authorisation desk and publishes Q&A

On 16 April 2013, the Autorité des Marchés Financiers (“AMF”) published a Q&A document with a view to helping asset management companies to prepare for the implementation of the AIFMD. From the date of release of the document, asset management companies may file with the AMF an application for AIFM authorization so that they can offer their services to professional investors throughout Europe as soon as the AIFMD comes into force.

Asset managers may ask questions to the AMF either through their AMF advisor or via a dedicated e-mail address:

[email protected].

france


Regulatory news

The main points addressed by the Q&A are as follows:

• Scope of managers concerned;

• Applicable thresholds to existing asset management companies and their calculation.

• Presentation of the opportunities offered by the AIFMD

• Details on new obligations as implemented by the Directive;

• Detailed list of the investment activities and services authorized under the directive;

• Calendar for the AIFM authorization process.

An additional Q&A should be released in the coming weeks with more details on the funds governed by the AIFM Directive.

The Q& A document is available in French via the following web link.

http://www.amf-france.org/documents/general/10799_1.pdf

Cssf issues circular 13/564 and BCL issues Circular 2013/231 on the statistical data collection for money markets funds and investment funds

The Circulars advise of a change in the system applied by the Luxembourg Central Bank (“BCL”) for the collection of statistical data for investment funds. The changes compared to the current requirements relate to the repeal of the existing following exemptions:

• Derogations currently granted to sub-funds of modest-sized investment funds for the reports S 1.6 “Information on valuation effects on the balance sheet of investment funds”, S 2.13 “Quarterly statistical balance sheet for undertakings for collective investment”, as well as for the “Security by security report (SBS)”;

• Derogations currently granted to sub-funds of modest-sized money market fund for the report S 1.3 “Monthly statistical balance sheet for money market funds”, as well as for the “Security by security report (SBS)”;

These derogations are repealed with effect from the reference period of June 2013 and as a consequence:

• All sub-funds of money market funds are invited to submit reports

S 1.3 and SBS for the reference period of June 2013 at the latest on 12 July 2013.

• All compartments of investment funds are invited to submit reports

S 2.13 and SBS for the reference period of June 2013 at the latest on 26 July 2013 and report S 1.6 from the reference period of July 2013. Report S 1.6 is however not mandatory if the Fixed assets or Financial derivatives represents less than 5% of the total assets.

The CSSF circular may be obtained in French from the following web-link

http://www.cssf.lu/fileadmin/files/Lois_reglements/Circulaires/Hors_blanchiment_terrorisme/cssf13_564.pdf

and in English from the following web-link.

http://www.bcl.lu/fr/publications/circulaires/2013/Circulaire_2013_231_CSSF13_564/Circulaire_BCL_2013_231_EN.pdf

Luxembourg


Regulatory news

These businesses are “sole-regulated” by the FCA; they are not also regulated by the PRA. The FCA explains that the largest increases in fees will be seen by the largest firms, those firms that are “dual-regulated” by both the PRA and FCA.

• Deposit acceptors (fee block A1) and General Insurers (fee block A3) both see fees increase of 20% to £206 million and £46.4 million respectively;

• fees for Life Insurers (fee block A4) increase 14% to £67.5 million; and

• the largest increase in fees is for Firms dealing as principle (fee block A10) where the increase is 24% to £59.8 million.

These increases are explained as reflecting: the risks presented by systemically important firms; the ongoing LIBOR investigation and enforcement; and the work to be done as the FCA seeks to raise the standard of market conduct and take action against market abuse.

Where are the increased in resources being spent?

The FCA explains that there will be a 6% increase in front line staff at an additional cost of 15%. However, the larger part of the increase will be in support costs which are set to rise by 30%. The result where front line staff was 42% of the cost of regulation in 2012/13 this declines to 39% for 2013/14.

Consultation on fInMA Circular “distribution of collective investment schemes”

The Swiss Financial Market Supervisory Authority FINMA is fully revising FINMA Circular 2008/8 on “Public advertising – collective investment schemes” and is opening a consultation to this purpose. The new Circular will now be entitled “Distribution of collective investment schemes” and will take account of the revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013. The consultation will run until 3 June 2013 and is available via the following web link.

http://www.finma.ch/e/aktuell/Pages/mm-rs-vetrieb-kka-20130415.aspx

fCA publishes its Annual funding Requirement for 2013/14

On 9 April the Financial Conduct Authority (“FCA”) published CP 13/1, its consultation on the rates of regulated fees and levies for 2013/14 referred to as the Annual Funding Requirement (“AFR”). The headline is that the cost of the FCA and its co-regulator, the Prudential Regulation Authority (“PRA”), is set to rise by 15% to £646.3 million.

However the actual the increase in the fees to be paid by firms will be 24%. This is as result of the change in legislation which means that penalties, net of enforcement costs, will be paid to the Treasury rather than abating the cost paid by firms through the Financial Penalties Rebate. As a result, financial penalties collected in 2012/13 of £381.8 million net of enforcement costs of £40.6 million were paid to the Treasury in April.

What are the proposed increases?

• Fund managers (fee block A7) 15.7% to £41.8 million;

• Operators, Trustees and Depositaries of collective investment schemes (fee block A9) 9.3% to £11.7 million; and

• Collective Investment Schemes (fee block C) an 11.6% increase to £32.2 million.

However due to the reduction in schemes authorised and recognised by the FCA the fee increase per collective investment scheme will be over 22%.

switzerland uK


Regulatory news

The paper explains that pay increases at the PRA and FCA have been limited to 2.5% and that the PRA and FCA will be subject to a Value for Money audit by the National Audit Office.

Other concerns regarding future funding of the FCA?

The FCA indicates that there is, notwithstanding an additional contribution of £22 million to the inherited FSA defined benefit pension scheme, an expectation the scheme will be £200 million in deficit at the next scheme valuation, 31 March 2013. So there is a risk that this deficit will hang over future fees and levies that have to be raised from firms.

How has the cost of regulations changed?

Casting back 10 years, the FSA’s AFR for 2003/2004 was budgeted at £230.7 million so the intervening 10 years has seen an almost threefold increase in regulation. Inflation adjusted, the cost of regulation has more than doubled in the last ten years. It has increased at a compound annual real rate of over 7% per annum.

In summary the FCA and PRA are a very substantial cost, “Regulation” is an expensive business and it seems, from the information in the recently published AFR, that dual-regulation is that bit more expensive.

CP 13/1 FCA Regulated fees and levies (102 pages) is available via this web link.

http://www.fca.org.uk/your-fca/documents/consultation-papers/cp13-01


The intention is that fund platforms, including non-advised platform business, so called “white labeled platforms”, will have to be transparent about the services they provide and justify their cost to consumers.

The rules banning cash rebates via platforms to consumers will not prevent cash rebates to platforms that are passed on in full to the consumer in additional units.

Summary of the key changes:

• The FCA is proceeding with its core proposal that requires a platform service to be paid for by a platform charge that is disclosed to, and agreed by, the consumer. However, following CP 12/12 a number of adjustments have been made to the rules to permit platforms to be paid by firms for the performance of a range of legitimate administration services such as work on:

– correcting a product provider’s pricing error;

– dealing with a corporate action;

– providing the product provider with management information regarding the end consumers investing in their products; and

– advertizing products on the platform.

• The ban on cash rebates has been extended across to non-advised platform business to prevent these payments from being used to disguise the costs of the platform charge.

• However the ban allows for de minimis cash rebates of £1 or less per month per fund held on the platform so that this does not impact the operation of the platform. This is on the basis that such amounts are considered unlikely to offset advisor or platform charges.

• The FCA is considering a read-across of the platform proposals to non-platform markets, particularly in relation to execution only transactions and self-invested personal pensions. Further consultation will be carried out as part of the FCA’s on-going work.

• The platform service definition has been corrected to clarify that those execution-only firms that white-label a platform or also provide custody services are captured by the platform service definition. The FCA will consult on this shortly to ensure there are no unintended consequences as a result of this correction of its earlier error.

fCA publishes policy and rules for platforms and cash rebates

On the 26 April the Financial Conduct Authority (“FCA”) published its long awaited Policy Statement in relation to platforms and cash rebates (“PS 13/1”). This follows on from CP12/12 and PS 11/9. Whilst the final rules are largely unsurprising there are some forward looking statements made within the paper that indicate the FCA’s direction of travel in meeting its objective of a well functioning market in which firms compete effectively with the interests of their customers at the heart of how they run their business.

In summary the rules intend to:

• restrict the influence that product providers, through platforms, have on the promotion of one fund over another. This is in line with its broader RDR objective of limiting any adverse influence product providers have on distribution and aligning the interests of intermediaries to those of their clients;

• promote effective competition in the market by removing product provider influence over the distribution of products; and

• improve the transparency of services delivered to consumers so that the distribution of funds will be not be influenced by cash rebates from product providers via platforms.

Regulatory news


Points to note:

• The FCA does not consider that the changes produce less efficient consumer outcomes from a tax perspective. In March, the tax position on both cash and unit rebates was clarified in a tax bulletin from HM Revenue & Customs (Fund News issue 101). The FCA considers that the tax ruling supports its view that maintaining product cost at a level that results in a rebate, either in cash or units, may lead to undesirable tax outcomes for consumers since any rebates paid to the consumer (in either cash or units), outside a tax wrapper, would be an annual payment subject to income tax.

• The FCA has notified the EU Commission under Article 4 of MiFID in respect of the circumstances in which the rules would apply to MiFID investment firms when they do business in the UK.

Regulatory news

The policy statement also contains a warning from the new regulator and a strong message in relation to fund charges. The FCA does not expect these policy changes to be used as a reason by the industry to increase the fees they receive. If it sees the average total expense ratio across the industry increase as a result of the movement to clean prices with transparent advisor and platform fees this will add to the concerns it has around pricing and competition in the market.

Unfortunately the FCA appears to have disregarded the VAT cost to consumers that could arise from the disaggregation of charges.

Recognising that systems changes will be required that it has been advised could take 12 to 18 months to implement, the FCA requires these rules to be applied to all new business by 6 April 2014. All existing or legacy business must operate in accordance with these rules before 6 April 2016.

The FCA expects firms to move legacy business to operate in accordance with the new rules without undue delay and not at the latest date permitted.

The FCA policy statement (54 pages) is available via this web link.

http://www.fca.org.uk/your-fca/documents/policy-statements/ps-13-01


Regulatory news

International

IOsCO issues Consultation Paper on Principles for financial Benchmarks

On 16 April 2013 IOSCO published a consultation paper on high-level “Principles for Financial Benchmarks”, with the objective to create a comprehensive framework of principles for benchmarks used in financial markets. By introducing guidelines for benchmark administrators and other bodies on governance, benchmark quality, methodology and accountability mechanisms, IOSCO goes a step further to enhance the integrity, liability and oversight of benchmarks, considering also the more than 50 comments received on its first consultation report on “Financial Benchmarks” issued in January 2013.

Since the universe of benchmarks is quite large and diverse, IOSCO has developed two sets of principles:

• a set of principles applicable to benchmarks generally, and

• a subset of more detailed principles for benchmarks containing specific risks arising from their reliance on submissions and/or their ownership structure.

The principles have been developed in the light of past experience regarding the manipulation or inaccuracy of some benchmarks mainly resulting from vulnerabilities in the content and transparency of methodologies, data submission procedures and governance arrangements.

They should be understood as a set of recommended practices to be implemented by benchmark administrators and should apply to methodologies used for benchmark calculation, ensure credible governance

structures by addressing conflicts of interest in the benchmark setting process, and improve the benchmarking process by providing for an appropriate level of transparency and openness.

The closing date for responses is 16 May 2013.

IOSCO will then issue final principles, and intends to perform a review regarding the extent of their implementation within an 18 months period.

The full consultation report is available via the following web link.

http://www.iosco.org/library/index.cfm?section=pubdocs&year=2013


Publications

FINANCIAL SERVICES

Industry InsightsA snapshot of the key trends, issues and challenges facing

the investment management industry

March 2013

kpmg.com

KPMG INTERNATIONAL

Industry Insights – March 2013

Swiss Financial Services Newsletter – Special Edition Investment Management

An overview of the alternative industry’s preparedness for AIFMD – December 2012

Regulatory news

IOsCO consults on Regulation of Retail structured Products

On 18 April 2013 IOSCO published a consultation report on “Regulation of Retail Structured Products”, with “structured products” being understood as complex products usually embedding a derivative. The report presents an analysis of market trends and developments, and proposes a regulatory Toolkit for IOSCO members to enhance investor protection.

In light of concerns among IOSCO members about the investor protection challenges posed by retail structured products (i.e. investor understanding of these products, design, disclosure, suitability, mis-selling and post-sale product control), IOSCO had set up a working group in 2012 to analyse the markets and regulatory regimes in the IOSCO members’ jurisdictions, and to request feedback from its members on the regulatory challenges in their markets. Both supply- and buy-side behaviour had been of interest, representing the complete value-chain from issuance to distribution of retail structured products.

Out of the results of the survey, and of an additional roundtable held in November 2012 in London with representatives of banks, law firms, derivative associations and consumer groups, the working group prepared its report and developed a draft Toolkit for consultation setting out regulatory options to support its members in their regulation of retail structured products. The Toolkit comprises five sections, covering:

• a potential regulatory approach to retail structured products,

• potential regulation of product design and issuance,

• potential regulation of product disclosure and marketing,

• potential regulation of product distribution, and

• potential regulation of post-sales practices.

The Toolkit ultimately aims at enhancing investor protection, and the regulatory options it provides allow for a wide range of application and adaption in different jurisdictions. No regulatory action is proposed to be mandated by the Toolkit, and regulators in different jurisdictions may choose which options to implement or not in a manner best suited to their circumstances and national legal framework.

The closing date for responses is

13 June 2013. The 60 page consultation report is available via the following web link.

http://www.iosco.org/library/index.cfm?section=pubdocs&year=2013

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2013 KPMG Holding AG/SA, a Swiss corporation, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Zurich

Markus schunkPartnerT: +41 58 249 36 82 e: [email protected]

Christoph GroebliPartnerT: +41 58 249 29 76 e: [email protected]

Geneva

Yvan MermodPartnerT: +41 22 704 16 61 e: [email protected]

Lugano

Lars schlichtingPartner, LegalT: +41 91 912 12 32 e: [email protected]

Astrid KellerPartnerT: +41 58 249 28 82 e: [email protected]

dominik RüttimannPartnerT: +41 58 249 20 56 e: [email protected]

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dr. Armin KühnePartner, LegalT: +41 58 249 28 37 e: [email protected]

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Jean-Luc eparsPartner, LegalT: +41 22 704 17 59 e: [email protected]

Contacts

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Fund News - Issue 102 - April 2013

Documents

Transcript of Fund News - Issue 102 - April 2013