Regulatory Insights Autumn 2015...Capital Markets Union initiative is a unique opportunity. It,...

Quarterly overview

Regulatory developments

European Union

Regulatory InsightsAutumn 2015

Sven Kasper Senior Vice President

Director EMEA

Regulatory, Industry &

Government Affairs

State Street

ForewordWelcome to the Autumn edition of the State Street Regulatory Insights1 newsletter, our quarterly overview of important legislative and regulatory developments in the European Union (EU).

The last months have been heavily

influenced by non-regulatory

developments. In particular,

the most recent terrible terrorist

attacks in Paris that shocked

not only France but the whole of

Europe and beyond. While at the

time of writing, the response to the

attacks hasn’t been determined

yet, but it will have significant

and long-term ramifications

for the whole of the EU.

Europe also witnessed the refugee crisis and the dramatic scenes in the Mediterranean Sea over the last months. This humanitarian crisis raises fundamental questions about Europe’s approach to immigration and to the free movement of persons. One of the critical issues now facing Europe is whether immigration should be addressed at a national level or at European level.

The choices that will be made in responding to the Paris attacks and to the immigration crisis will influence and determine the future direction of the European Union.

With regards to financial regulation, the publication of the European Commission’s long expected Capital Markets Union (CMU) Action Plan was one of the key events. CMU is the Commission’s flagship initiative to unlock new sources of non-bank funding for the economy. Its wider significance is that it could signal a shift in the focus of the European Commission from reactive post-crisis regulation towards an approach that will stimulate economic growth and create jobs in the EU. Given the rele-vance and importance of the CMU to the industry, as a whole, this edition’s feature article is dedicated to it.

The CMU Action Plan is built around four key principles:

• Creating more opportunities for investors

• Connecting financing to the real economy

• Fostering a stronger and more resilient financial system

• Deepening financial integration and increasing competition.

1 Published in November 2015.

ii REGULATORY iNSiGHTS AUTUMN 2015

The Commission also published a new regulatory framework for simple, transparent and standardised securitisation, which is one of the key priorities for the plan. The plan also includes a cumulative impact assessment of financial regulation and proposes the creation of a pan-European Pension Product.

The other significant announcement that occurred just before the publication of this edition of Regulatory Insights was the European Commission sugges-tion to considering delaying the appli-cation date of MiFID II/MiFIR or at least of parts of it. This happened during an exchange of views with the European Parliament’s Economic and Monetary Affairs Committee. The details of the possible delay are still unclear. As next steps, there will be meetings between the Commission, ESMA, European Parliament and Member States to look into the issue of the delay, its likely duration and scope. Until we have seen the details of such a delay, it is too early to say what its impact is going to be. But it could provide the industry with some needed additional time to prepare and get ready for MiFID II.

In other developments, the European agenda is still heavily influenced by ongoing implementation work. The European Markets and Securities Authority (ESMA), in particular, has been very prolific. It has published important technical standards related to the second Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR); revised market

abuse rules; and the Central Securities Depositories Regulation (CSDR). The implementation work on these and other files, such as Undertakings for Collective Investment in Transferable Securities (UCITS V), is not complete yet. The challenge for the industry will be to prepare for these new rules and requirements, while some implementing measures are yet to be finalised and published.

At the same time, negotiations are continuing on pending pieces of legislation, such as the European Benchmarks Regulation and the new Regulation on Data Protection. Trialogue negotiations (between the EU Parliament, the European Commission and the Council (Member States)) are ongoing. Negotiations are also continuing on the introduction of a Financial Transaction Tax (FTT) in 11 EU Member States. Although there seems to be growing conver-gence on some of its core aspects, it is not clear yet if an agreement can be achieved by the end of 2015.

This is a busy agenda for

Luxembourg – which is

approaching its EU Presidency

term. Luxembourg will be

succeeded by the Netherlands

in January 2016.

We hope you will find this overview of ongoing developments and changes both helpful and useful.

iii REGULATORY iNSiGHTS AUTUMN 2015

ContentsFeature Article 1Capital Markets Union – a Plan for Creating a Single Market in Capital 1

Europe 3MiFID II, Final Draft Technical Standards Released 3MiFID II, French, German, UK Letter on Level 2 Measure 4MiFID II, ESMA ITS Consultation Published 4Central Securities Depositories Regulation 5Market Abuse Directive/Market Abuse Regulation 6EMIR: ESMA Publishes Discussion Paper on EMIR Standards Relating to

CCP Client Accounts 7EMIR: Equivalence Decisions 7EMIR: Delegated Regulation on Pension Scheme Arrangements Published 8EMIR: Updated Q&A Published 8Institutions for Occupational Retirement Provision Directive 9AIFMD 9Benchmarks 10Shareholder Rights Directive 11EU Parliament Report on Post-financial Crisis Legislation 12

Channel islands 13ESMA Advice on AIFMD Passport 13

France 14FATCA Updates under French Regulation 14

ireland 16Investor Money Regulations 16Central Bank of Ireland Guidance on Delegate Oversight 18Regulation of Lobbying Act 19Consultation on Funding the Cost of Financial Regulation – Consultation Paper 95 20New SPV Reporting Requirements 21Central Bank of Ireland UCITS Regulations 2015 22

italy 24Italian Migration Completed 24FATCA Legislation Finally Implemented 25

iv REGULATORY iNSiGHTS AUTUMN 2015

Luxembourg 26Law on Electronic Archiving 26Circulars on FATCA Application 27Law of 23 July 2015 28CSSF Circular 15/615 28

United Kingdom 29HMT Policy Paper on Extending the Senior Managers Regime 29UCITS V 30Financial Advice Market Review 31Automatic Exchange of Financial Account Information 32

Abbreviations 33

Regulatory Timeline 35

v REGULATORY iNSiGHTS AUTUMN 2015

Susan Dargan

Executive Vice President

Head of Global Services

Offshore

State Street

Capital Markets Union – a Plan for Creating a Single Market in Capital

Feature Article

On 30 September, the European

Commission unveiled one of its

flagship policy initiatives – the CMU

and the related action plan.

The CMU is the foundation for a single market for capital across all of the EU’s 28 member states. The European economy is currently financed mostly through bank credit. The aim of the CMU is to broaden the funding of the economy, by unlocking non-bank sources of finance and channelling this finance to infrastructure projects and companies, including Small and Medium Enterprises (SMEs) who need funding to expand and create jobs.

The Action PlanThe CMU Action Plan is not a single directive or regulation. It is a collection of short and long-term initiatives, both legislative and non-legislative, spread across a five-year time frame.

Alongside the announcement of the CMU Action Plan in September, a number of short term initiatives were published. These include a package on an EU model for securitisation, aimed at revitalising the European securitisation market; a legislative proposal to review the Prospectus Directive; and a Green Paper on Retail Financial Services and Insurance.

In the medium term, the EU Commission plans to introduce a number of measures, including pro-visions to increase the accessibility of venture capital funding; the standardi-sation of the bond market; the creation of a standardised pan-European pension product and a legislative proposal for a Common Consolidated Corporate Tax Base (CCCTB).

Longer-term CMU actions include a proposal for a legislative initiative on in-solvency law and a review of securities law legislation. These are both of seen as crucial barriers to tackle if the true potential of the CMU is to be realised.

Perhaps most interestingly of all, the Commission has issued a call for evidence on the cumulative impact of financial reform. This could see some of the new regulations being reviewed and re-calibrated over the long-term.

More to be done?While all of these measures will go a long way towards realising the ambition of the CMU, we believe there is scope for further reform.

The steps needed to update the current UCITS framework and create a truly single market for capital include measures to facilitate the cross-border distribution of investment funds; reform of the current master-feeder arrangements; and the abolition of outdated arrangements, such as the need to appoint a paying agent.

1 REGULATORY iNSiGHTS AUTUMN 2015

Feature Article

To complement a UCITS framework fit for the 21st century, State Street supports exploring the development of a depositary passport. This has the potential to create a more competitive marketplace for depositary services across the EU, to facilitate the domiciling of investment funds in countries that currently lack depositary services and, ultimately, to lower costs for millions of end investors.

How can our clients benefit from the CMU?

While the aim of the CMU is to achieve growth for the EU economy and to focus particularly on helping SMEs, the CMU also offers opportunities to the financial services sector, as a whole.

The CMU has the potential to offer new investment opportunities and more cost effective management of investments. This could help to drive down the cost of investment. Proposed calibrations to Solvency II will help to ensure that insurance companies are subject to a regulatory treatment, which better reflects the risk of infra-structure and European Long-term Investment Funds (ELTIFs) investments.

As part of the CMU, a study of discriminatory tax obstacles to cross-border investment by life insurance companies and by pension funds, as well as proposals for a pan-EU pension product, would offer the ability to market and distribute products across borders and put EU savings to better use. Possible reform of UCITS and the Prospectus Directive offers the opportunity for more efficient product offerings. New investment vehicles such as ELTIFs and a new model for EU securitisation will also create new opportunities in alternatives.

At State Street, we believe the

Capital Markets Union initiative

is a unique opportunity. It, rightly,

emphasises the importance of

capital markets in generating

growth and creating jobs in

Europe. As a leading provider of

investment services, we have a

unique perspective on what steps

are needed, in order to realise this

opportunity and our experience

in areas such as private equity,

loans servicing and pension funds

will allow us to support the needs

of our clients as CMU legislation

evolves. We look forward to

working with regulators and our

clients to shape the CMU and

help to achieve its objectives.


MiFID II, Final Draft Technical Standards Released

Europe

The ESMA has submitted its

MiFID II final draft technical

standards to the EU Commission

for endorsement. ESMA’s report

contains 28 draft technical

standards and follows on from the

May 2014 discussion paper and

consultation papers, published in

December 2014 and February 2015.

The technical standards cover a number of areas, including transparency requirements; data publication and access arrangements; requirements applying to trading venues, commodity derivatives, transaction reporting and investor protection. The proposed rules include a liquidity assessment for non-equity instruments; a trading obligation for shares and certain derivatives; limits to dark trading; as well as reporting requirements for commodity derivatives.

Among other things, the standards set out the criteria to determine whether non-financial firms should be subject to MiFID II; position limits for commodity derivatives; rules governing high-frequency trading and access to central counterparties (CCPs); and trading venues and benchmarks.

The EU Commission has three months to decide whether to endorse the technical standards. If the Commission endorses them, the EU Council and the EU Parliament will have an objection period.


Europe

MiFID II, French, German, UK Letter on Level 2 MeasureIn August, a letter to the European Commission and ESMA, signed by France, Germany and the UK, regarding the Level 2 measures implementing MIFID II and MiFIR, featured in media reports. The three Member States concerned have identified a number of areas where the Level 2 measures, proposed by the European Commis-sion and ESMA, appear to be incon-sistent with the provisions agreed in

the Level 1 texts. These areas cover, amongst others, the liquidity test for bond instruments, inducements and investor research. The letter requests that the European Commission and ESMA address the concerns, prior to the adoption of the Delegated Acts (DA) and Regulatory Technical Standards (RTS) and their submis-sion to the Council for approval.

MiFID II, ESMA ITS Consultation PublishedIn August, ESMA launched a consul-tation on several draft Implementing Technical Standards (ITS) under MiFID II. The draft ITS relate to the suspension and removal of financial instruments from trading; the noti-fication and provision of information for data reporting service providers (DRSPs), in particular applying for authorisation and notifications relating

to membership of a DRSP’s manage-ment body; and procedures for sending weekly aggregated position reports for commodity derivatives and emission allowances to ESMA, at a specified time. Comments on the consultation were due by 31 October 2015 and a final report to the EU Commission is due for endorsement by 3 January 2016.


Europe

Central Securities Depositories RegulationESMA has submitted its final

draft technical standards

under the CSDR to the EU

Commission for endorsement.

The final report contains both draft RTS and ITS and follows the consultation exercise, conducted in December 2014. The draft technical standards cover Central Securities Depositories (CSD) requirements and internalised settle-ment reporting. ESMA’s proposals in

relation to the operation of the buy-in process, which ESMA consulted on in June 2015, have been delayed. This was in order to consider respons-es to the consultation, issued over the summer and to continue discussions with the EU Commission about the legal viability of the options. The EU Commission has three months to decide whether to endorse the final draft technical standards. The EU Council and EU Parliament would then have granted an objection period.


Europe

In September, ESMA has submitted final draft technical standards under the Market Abuse Regulation (MAR) to the EU Commission for endorse-ment. The final report sets out ESMA’s approach to its final draft RTS and ITS, and follows proposals first outlined in earlier consultation papers.

The draft technical standards cover rules relating to notifications of financial instruments, conditions for buy-back programmes, market soundings, accepted market practices, the reporting of suspicious orders and transactions, disclosure of inside information, insider lists and notification of managers’ trans-actions. The EU Commission will have three months to formally endorse the draft rules. Then the EU Parliament and EU Council will have an objection period before the final draft standards are adopted.

Market Abuse Directive/Market Abuse Regulation


Europe

EMIR: ESMA Publishes Discussion Paper on EMIR Standards Relating to CCP Client Accounts

EMIR: Equivalence Decisions

In August, ESMA published a discussion paper on the review of Article 26 of its RTS under the European Markets Infrastructure Regulation (EMIR). The paper considers whether it would be appropriate to revise the current Level 2 rules under Article 26 with respect to client accounts, in order to

allow CCPs authorised under EMIR to apply a one-day liquidation period for financial instruments, other than over-the-counter (OTC) derivatives, only where margins on client accounts are calculated on a gross basis. The consultation closed on 30 September 2015.

The European Securities Committee, which assists the Commission in adopting implementing measures for EU Directives and provides advice on policy issues in the securities field, has approved draft EU Commission Implementing Decisions on positive equivalence under the EMIR for Canada, Mexico, South Africa, South Korea and Switzerland. This allows for recognition under EMIR of CCPs based in these countries.


Europe

EMIR: Delegated Regulation on Pension Scheme Arrangements Published

EMIR: Updated Q&A Published

A Commission Delegated Regulation of 5 June 2015, covering the extension of the transitional periods relating to pension scheme arrangements, has been published in the Official Journal (OJ). The Delegated Regulation extends the existing exemption under EMIR for pension scheme arrangements until 16 August 2017.

ESMA has published updated questions and answers (Q&A) on the implemen-tation of EMIR. The update provides guidance on the procedure to be followed by counterparties and trade repositories (TRs), in order to update a counterparty’s identifier, in cases where the counterparty obtains a Legal Entity Identifier (LEI), or its LEI changes, due to a merger or acquisition.


Europe

Institutions for Occupational Retirement Provision DirectiveIn September, the EU Parliament’s

Economic and Monetary Affairs

(ECON) Committee discussed

Rapporteur Brian Hayes’

Draft Report on the proposed

revision to the Institutions

for Occupational Retirement

Provision Directive (IORP II).

MEP Hayes’ report was welcomed as more balanced and was consid-ered to be significantly improved over the original Commission approach to revising the Directive. Cross-border activity was the key issue of debate, with the Rapporteur underlining that the EU had the opportunity to promote a real single market for pensions.

A specific definition of cross-border activity has been provided in the draft report for the first time, as have definitions of ‘home’ and ‘host’ Member States. However, this focus was questioned by Members of EU Parliament (MEPs) who contend that the national administration of pensions differs from country to country and that pooling them will not necessarily lead to improvement. The deadline for amendments was 1 October. They were considered on 9-10 November 2015. The ECON Committee vote is now expected on 1 December, ahead of a vote in plenary envisaged in January 2016.

AIFMDESMA has published updated Q&A on the application of the Alternative Investment Fund Managers’ Directive (AIFMD). This update includes a new answer relating to central securities depositories under Article 21 of the Directive.

The Q&A document is intended to encourage common supervisory practices in the application of the AIFMD and is aimed at National Competent Authorities (NCA).


Europe

BenchmarksOn 28 October, the European

Parliament and Council held

a sixth trialogue meeting on

the Benchmarks Regulation.

Reports suggest an agreement has been reached between the European Parliament and the Council on the three main categories of bench-mark – non-significant (the majority), significant and critical bench-marks. A compromise agreement seems to have emerged on how to distinguish significant from non-significant benchmarks, with the threshold set at €50 billion and the possibility for national competent authorities (NCAs) to upgrade benchmarks from category to category. Consensus was also reportedly reached on elements of proportionality (e.g. lifting the auditing needed for non-significant benchmarks) and the ‘special’ treat-ment for commodity benchmarks, whereas interest-rate and regu-lated-data benchmarks would fall into the ‘general’ category.

There is a pending political debate on whether NCAs should waive or add-on obligations for significant benchmarks (e.g. the code of conduct). This issue is expected to be discussed at the next political trialogue, together with a European Parliament proposal on the mechanisms for endorsement and recognition of third country bench-marks. Regarding all the other issues, such as definitions, the Luxembourgish Presidency hopes to receive a mandate to negotiate in technical trialogue in order to circumvent political gridlock and reach an agreement before the end of its Presidency. Following technical trialogues on the 9-10 November, a compromise text was circulated by the Luxembourgish Presidency. Members held discussions on the text ahead of the political trialogue on 24 November.


Europe

Shareholder Rights DirectiveThe first trialogue meeting on

the proposal for the revision of

the Shareholder Rights Directive

(SHRD) took place on 27 October.

Negotiations in the European Parliament and Council started with discussions on the inclusion of the country-by-country reporting (CBCR) requirements that the European Parliament added to the proposal to enhance tax transparency of large undertakings. While the inclusion of CBCR provisions in the SHRD proposal is seen as crucial by the European Parliament nego-tiating team, the Council’s position remains firm that no decision shall be taken before the Commission finalises its impact assessment (IA) on the application of mandatory CBCR in the first quarter of 2016.

Given this, and until a political agreement is found, the Council and European Parliament agreed that negotiations would continue on the other aspects of the proposal. The remaining provisions are seen as broadly agreeable, despite the existence of divergences between the two texts on other topics. It remains to be seen how the Council’s stance will be formulated once the Commission’s impact assessment becomes available. In the short-term, an agreement on CBCR does not seem to be feasible, thus the negotiation process is expected to be slow.


Europe

EU Parliament Report on Post-financial Crisis LegislationIn August, the EU Parliament’s

ECON Committee published a draft

report entitled ‘Stocktaking and

Challenges of the EU Financial

Services Regulation: Impact

and the way forward towards a

more efficient and effective EU

framework for Financial Regulation

and a Capital Markets Union’.

The non-legislative report is authored by Burkhard Balz MEP and contains 45 considerations and non-binding recommendations. Rapporteur Balz was tasked with taking a holistic view of post-crisis financial services leg-islation. Notable recommendations are put forward on third-country regimes. Balz recommends that the Commission should always adopt equivalences via delegated acts and regulate third-country access with EU global competitiveness in mind.

Further to this, the report calls on the Commission and the European Supervisory Agencies (ESAs) to conduct yearly consistency and proportionality checks of financial legislation. It also calls for a quantitative and qualitative cumulative impact assessment every five years from the end of 2016.


ESMA Advice on AIFMD PassportChannel islands

On 30 July, ESMA provided written

advice to the EU Parliament,

Council and Commission on

the functioning of the AIFMD

EU Passport and National

Private Placement Regimes.

The opinion included advice on the extension of AIFMD passports to non-EU jurisdictions and specifically Jersey, Guernsey, Hong Kong, Singapore, Switzerland and the US. Of those six, ESMA’s advice concluded that Jersey and Guernsey were the only two jurisdictions with no current barriers to the extension of the passport regime. Although this is potentially subject to further written advice from ESMA and also to the formal approval of the European Commission, the advice is an important vote of confidence in the Channel Islands’ funds industry and its ability to meet EU requirements.

If it is ultimately approved, it will give promoters of Channel Islands funds the flexibility to market into the EU – either via the AIFMD pass-porting route or via the private placement regime (until removed).


FATCA Updates under French Regulation

France

Decree No. 2015-907 of 23 July

2015 lays down detailed rules for

the collection and transmission

of information by financial

institutions, pursuant to the

Agreement between the French

Republic and the United States

of America Governments, with a

view to implementing the law on

tax compliance regarding Foreign

Accounts Tax Compliance Act

(FATCA) and Section 1649 AC

of the General Tax Code.

The decree came into force on 27 July, the day after its publication. This decree is intended to lay down conditions and limits within which the declaration under Article 1649 AC of the General Tax Code is filed. It contains details on which French financial institutions are required to comply with the reporting obligation and clarifies the nature of elements which should be reported, as well as the declaration subscription terms.

The DecreeFinancial institutions mentioned in Article 1649 AC of the General Tax Code must sign a statement indi-cating the information required for the application of FATCA agreement, before 31 July every year. Reporting institutions include institutions man-aging deposits of securities, de-positary institutions, investment entities and insurance agencies.


France

For each reportable account the declaration should include:

• The identification elements of the financial institutions and, if appropriate, those of the third party provider when loaded by the registrant to fulfil its reporting obligations: company name, address and registration number assigned by the US tax authorities

• The holder identification reportable account:

– For US individuals: family name, first name, address, tax identification number assigned by the US authorities (hereinafter ‘American National Ignition Facility (NIF)’) and, in the accounts opened by 30 June 2014 and failing the American NIF, date of birth, if it appears in the records of the financial reporting institution

– For US corporations: the legal name, address and US Taxpayer Identification Numbers (TIN)

– For non-US entities whose control is held by US persons: the legal name, address and, if applicable, the American NIF of the entity and, for each of the American people determined:

– Surname, first names, address and TIN US or, failing that, for accounts opened on 30 June 2014, the date of birth if it appears in the records of the financial institution reporting to the individual

– The legal name, address and the American NIF for legal entities.

• The account number or the contract number or the unique identification number used to identify the account holder or the beneficiary of an insurance contract.

The amounts to be reported include:

• From 1 January 2015: The balance of the account or the value shown on the account, including in the case of an insurance contract or a contract or capitalisation bond, the redemption value, and in the case of an annuity contract, the capitalisation value at 31 December of the calendar year immediately preceding the closing or if the account was closed during the year

• From 1 January 2016: The total gross amount of interest, dividends and other income generated by the assets held in a custody account, paid or credited in respect of such an account, including the total of all amounts refunded to or redeemed by the holder during the calendar year

• From 1 January 2017: The total gross amount of the sale or redemption of assets held in a custody account during the calendar year.


Investor Money Regulationsireland

Overview

The Investor Money Regulations

(IMR) are being introduced to

strengthen the safeguards around

client assets and investor money

and to ensure that investment

firms and fund service providers

have a process in place, which

will facilitate the expeditious

return of client assets or investor

money in the event of insolvency.

They will apply to Fund Service Providers (FSP), including Alternative Investment Funds Managers (AIFMs), UCITS Managers, Depositaries and Administrators, and the collection accounts operated by them.

The regulations will take effect on 1 April 2016.

The regulations are set out under six headings, which the Central Bank of Ireland (CBI) regards as the six core Investor Money Principles of an investor money regime:

• Segregation A FSP should physically hold investor money separate from non-investor money (or arrange for its separate physical holding). It should maintain accounting segregation between the FSP’s money and investor money

• Designation A FSP should ensure that investor money is clearly identified in its internal records and in the records of third parties. The investor money must be identifiable and separate from all non-investor money

• Reconciliation A FSP should keep accurate books and records to enable it, at any time and without delay, to provide an accurate record of the investor money held by a FSP for each investor and the total amount held in the collection account. A FSP should conduct a daily reconciliation between its internal records and those external records of any third party with whom investor money is held


ireland

• Daily Calculation For each working day, a FSP should ensure that the aggregate balance of all collection accounts (investor money resource), as at the close of business on the previous working day, is equal to the amount it should be holding on behalf of investors (investor money requirement)

• Risk Management A FSP should ensure that it applies appropriate systems and controls to identify risks in relation to investor money and should put in place measures to counteract these risks. A FSP should appoint a person to be Head of Investor Money Oversight (HIMO) and document and maintain an Investor Money Management Plan (IMMP). The risk management processes of the FSP should take account of the nature, scale and complexity of its business model

• investor Money Examination A FSP should engage an external auditor to report at least annually on the FSP’s safeguarding of investor money.

industry EngagementState Street is part of an industry group that is currently engaged with the CBI on the treatment of sub-scription and redemption monies.

IMR specifically excludes subscription monies received on or after the fund dealing date from its remit. Such monies should be treated instead as a fund asset. The fund’s industry has engaged with the CBI around the fund asset model that would apply to subscription and redemption monies.

Discussions are ongoing and expected to conclude over the coming weeks. Until the engagement concludes, it is not certain what impact these regulations will have on current operating models. Engagement with the CBI, to date, has included the key issues of umbrella level sub-scription and redemption accounts, insolvency situations and the treat-ment of blocked redemptions.


ireland

Central Bank of Ireland Guidance on Delegate OversightOn 5 November, the CBI issued guidance for directors on delegate oversight which is largely based on the good governance practices outlined in Consultation Paper 86 issued by the CBI in September 2014. The Delegate Oversight Guidance focuses on the role of boards where significant tasks are delegated externally and sets out a framework for good practice in relation to the monitoring and oversight of delegates, delegated tasks and tasks to be retained.

The guidance makes general observa-tions about the relationship between fund management and delegates noting the requirement for clarity of allocation of roles and responsibilities between the board and its delegates through documented procedures in order to facilitate the exercise by the board of its ultimate responsibility for, and control over, the management of that fund management company. It encourages the relationship between parties to be built on openness, en-gagement, co-operation and dialogue.

The guidance clarifies those tasks that should always be retained by the board, being those related to all major strategic and operational decisions affecting the fund manage-ment company and any investment fund it manages. The guidance lists examples of such key responsibilities and includes issue of the prospectus, review and approval of the financial statements and investment fund

documentation, investment approach, launch/closure of funds, distribution strategies, adoption/review of policies and procedures, internal governance.

In relation to delegated tasks, the guidance stresses that while delegation is permitted, responsibility is retained and the board should satisfy itself that the manner of dele-gation is such that the relevant board responsibilities can be discharged, that management roles delegated internally can be effectively performed and that the external delegate performs the relevant task to an appropriate standard. It goes on to highlight con-siderations for the board’s appointment and ongoing monitoring of its delegates through the receipt of periodic reports, covering the following functions:

• Investment management

• Distribution

• Risk management

• Investment operations and administration

• Support and resourcing.

This part also includes a section on boards of externally-managed investment companies and how they should conduct their relationships with the investment company itself, considering the specific roles of each of the parties in such a model.


ireland

Regulation of Lobbying ActThis new regulation is effective

since 1 September 2015.

The first filing deadline in

respect of activity between

1 September and 31 December

2015 is 21 January 2016.

Lobbying is defined as communication by a person within the scope of the act on relevant matters with Designated Public Officials (DPOs). Persons with more than 10 employees; represent-ative bodies and advocacy bodies with at least one employee; and third party lobbyists (who are paid by a client to lobby on the client’s behalf) are all within the scope of the Act. Relevant matters are defined as the initiation, development or modification of any public policy, or of any public policy programme, or the preparation of an enactment. DPOs include members of the Irish parliament, Irish MEPs and senior civil and public servants.

There are exemptions for matters of a technical nature; for the provision of strictly factual information; for consul-tations where responses are published; and for Working Groups/Task Forces, which include DPOs and operate subject to a transparency code. There is no requirement to make a filing on the lobbying register for these activities.

On registration, information must be provided on, among other things, the organisation’s name and business address; the person with primary responsibility for lobbying; the main business activities, contact details as well as the Company Registration Office Number. Returns must be submitted on a four-monthly cycle within 21 days of the return date. They must include information on who was lobbied, the subject matter of lobbying activity and the results intended to be secured, as well as the type and extent of activity.


Consultation on Funding the Cost of Financial Regulation – Consultation Paper 95In early July, the CBI and the

Department of Finance published

a joint consultation paper

(CP) 95 entitled ‘Funding the

Cost of Financial Regulation’.

The paper outlines a number of proposed changes to the current funding structure and addresses a number of topics including:

• The case for full industry funding

• The current regulatory cost model

• The future cost of financial regulation

• International comparisons

• Domestic comparisons

• The regulatory landscape for each of the regulated sectors.

State Street provided input to the Irish Funds’ response (formerly known as IFIA Irish Fund Industry Association). In summary, this supports both the concept and practice of the funds industry contributing to the cost of financial regulation. However, the State should retain partial responsibility for funding the cost of financial regulation. The response did not support funding mechanisms which omit clear respon-sibility and oversight of cost discipline, effectiveness and value for money.

ireland


ireland

New SPV Reporting RequirementsPursuant to Section 18 of the

Central Bank Act 1971, the CBI

considers it necessary, for the

proper performance of its

functions under the Central Bank

Act 1942, that Special Purpose

Vehicles (SPVs) provide it with

quarterly balance sheets and

annual profit and loss data.

The CBI believes this information is necessary for the proper performance of its functions under financial services legislation, particularly those relating to the collection and study of data on the stability of the financial system. State Street is analysing the reporting requirement and the data to be returned. The first reporting return was due on 20 November 2015 for the period from 1 July to 30 September 2015.


Central Bank of Ireland UCITS Regulations 2015On 5 October 2015, Statutory

Instrument No. 420 of 2015

(the CBI UCITS Regulations)

was issued by the CBI.

The CBI UCITS Regulations, which are to be read in conjunction with the Irish UCITS Regulations transposing the European UCITS Directive, are the final outcome of a process which began with CP77. This originally issued in January 2014 and sought feedback on the CBI’s intention to issue a UCITS Rulebook. The CBI ultimately opted to issue this in the form of a statutory instrument, which, unlike the UCITS Notices and Guidance Notes that it replaces, has legally binding effect. The CBI has also simultaneously issued an updated UCITS Q&A and has published additional guidance to accompany the new legislation.

As contemplated in CP77, the CBI has introduced a number of changes to the Irish UCITS regime. The CBI has removed the requirement for it to approve a promoter for each UCITS. This mirrors the approach taken by the CBI for Alternative Investment Funds (AIFs), following the introduction of the AIF Rulebook in July 2013.

The CBI has also withdrawn its Guidance Note 1/96, which set out the CBI’s requirements for assessing the eligibility of markets on which a UCITS intends to trade. The guid-ance note also included a list of exchanges and markets which were pre-approved by the CBI. With the removal of this guidance, the rules provide scope for each UCITS to determine whether the markets in which it intends to invest meet the requirements, imposed by the UCITS Directive: of being regulated, recog-nised, operating regularly and open to the public. In this assessment, the UCITS should have regard to whether a particular market meets ‘any or each’ of the criteria specified in Schedule 1 of the new CBI UCITS Regulations.

The relaxation of the diversification rules for collateral received by a UCITS, introduced by ESMA in its updated Guidelines on ETFs and other UCITS issues, in August 2014 has been adopted by the CBI in the new legislation. An Irish UCITS can now hold all of its collateral pool in sovereign debt of a single government, regardless of the size of the collateral pool in relation to its Net Asset Value (NAV), provided that there are at least six issues and no single issue exceeds 30% of the NAV of the UCITS.

ireland


ireland

Other new rules include the require-ment on UCITS depositaries and management companies to issue half-yearly accounts for the second six months of the year. These are in addition to the half-yearly accounts already required for the first six months of the year and the audited accounts for the full year. A UCITS will need to ensure that its fund documentation has been updated to permit it to avail of this derogation.

There are detailed rules included covering the obligations of depos-itaries. These rules include a new requirement to report ‘non-material’ breaches to the CBI, where such breaches have not been resolved within four weeks of being identified.

The CBI has proceeded with a stream-lining of the managerial functions largely in the manner proposed in CP86. In relation to transitional arrangements, the CBI stated in their publication on Management Company Effectiveness in June 2015 that it was mindful of the fact that many fund management companies have recently undertaken significant revisions to their business plans/programmes of operation, as a result of regulatory changes. The CBI would prefer if fund management companies took their time to consider how to revise their managerial functions to best suit their needs, rather than rush to revise documentation within a short timeframe. Accordingly, the CBI has stated that it will require existing fund management companies to update business plans/programmes of operation, to reflect the revised managerial functions and the organisational effectiveness role, by 30 June 2016. Newly authorised fund management companies will need to implement this straight away.

The CBI UCITS Regulations came

into force on 1 November 2015.


Italian Migration Completeditaly

The Italian CSD, Monte Titoli, successfully migrated to the TARGET2-Securities (T2S) platform at the end of August 2015. Italy joins Switzerland, Greece, Romania and Malta which have been operating on the platform since the end of June. T2S is a Eurosystem infrastructure initiative which is designed to promote better market integration and facilitate cross-border investments.

The initiative provides European CSDs with single platform for processing settlement of securities in European central bank money. T2S is operated by the Eurosystem on a cost-recovery basis, to the benefit of all users.


italy

FATCA Legislation Finally ImplementedOn 13 August, the implementation decree of the Italian Ministry of Economy and Finance (MEF), relating to the FATCA agreement between Italy and the USA, was published in the Official Gazette. The date for the first report-ing was 31 August 2015, as clarified by the Italian Revenue Services. The decree also covers the increase in the exchange of information among EU countries (Common Reporting Standard) which starts from 2016 and further clarifications around require-ments are expected in due course.


Law on Electronic ArchivingLuxembourg

The Law on Electronic

Archiving came into force on

25 July 2015 (the “Law”).

The law aims at updating Luxembourg Law in the field of digitisation and electronic storage in light of the market needs and the strong techno-logical advances that have occurred since the law of 22 December 1986.

The Law aims at boosting the dematerialised of new archiving and electronic service maintaining at the same time a high level of security and confidentiality throughout the following three main objectives:

• Defining the conditions of digitisation of documents and of the storage of digitised documents

• Defining the conditions of legal presumption of conformity of electronic copies to the original documents

• Defining the applicable framework for the new certified activity of Digitisation and Storage Service Provider.

This new legal framework will render Luxembourg more attractive than the other European countries with regard to electronic archiving.


Circulars on FATCA ApplicationOn 31 July 2015, the Luxembourg

Tax Authorities published two

circulars providing guidance

on the application of FATCA.

These below circulars follow the publication, on 29 July 2015, of the law of 24 July 2015 enacting the Intergov-ernmental Agreement (IGA) between the USA and Luxembourg (the “Law”):

• ECHA – n°2: Commenting legal obligations of Luxembourg Reporting Financial Institutions (RFI) and interpreting technical terms from the IGA

• ECHA – n°3: Providing guidance on the transmission of information between Luxembourg and the US.

The main objectives of the Law and the Circulars letters are the following:

• Reconfirmation of certain principles and flexibilities of the Luxembourg-US IGA

• Provide guidance on the classification principles to be applied to Luxembourg Financial Holding Company (Société de Participation Financières, SOPARFIs), Family Wealth Management Company (Société de gestion de Patrimoine Familial, SPF) and securitisation vehicles

• Provide useful examples of how the detection of US indicia should be handled and how changes in circumstances after year end may impact the status of an account

• Clarification in terms of requirements for registration with the Luxembourg tax authorities

• Deadline for reporting and zero reporting

• Information obligations for data protection

• Explicitly mentioned tax audits and sanctions.

Luxembourg


Luxembourg

Law of 23 July 2015

CSSF Circular 15/615

The main purpose of the law is to trans-pose into Luxembourg law the provi-sions of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 (commonly referred to as Fourth Capital Requirements Directive (CRD IV)), as well as to amend the Law of 5 April 1993 on the Financial Sector (LFS) and the law of 12 July 2013 on alternative investment fund managers. Moreover, the law repeals the provisions of the LFS that have not been dealt with in the Directive

but in Regulation (EU) No 575/2013 (commonly referred to as the CRR).

The main changes made to the LFS are the introduction of a new set of supervisory tools, including some of a macro prudential nature, the capital buffer requirements, more dissuasive administrative pecuniary penalties and other administrative penalties, the strengthening of requirements relating to governance and new provi-sions regarding remuneration policies.

ESMA guidelines on the application of the definition of commodity deriv-atives in Section C6 and C7 of Annex I of Directive 2004/39/EC (MiFID).

The goal of the Circular is to ensure a common, uniform and consistent application of MiFID, as well as EMIR and potentially other Directives and Regulations that rely on MiFID definitions of financial instruments.

These guidelines clarify the definitions of commodity derivatives by specifying what is meant by ‘physically settled’ and confirming that the definition also includes ‘forwards’, provided that they are traded on a regulated market and/or a Multilateral Trading Facility (MTF).


HMT Policy Paper on Extending the Senior Managers RegimeIn October, Her Majesty’s Treasury

(HMT) published a paper which

announced the Government’s

intention to extend the Senior

Managers Regime (SMR) to all

financial services sectors.

The proposal includes an approval regime for senior managers, a requirement to certify that individuals performing a function who are in a position to cause harm to the firm or its customers are certified fit and proper. Notably, the paper contains proposals for senior managers to take reasonable steps to prevent misconduct in areas under their responsibility – which signals a shift in government policy away from the reverse burden of proof position whereby senior managers would have had to prove that they had done everything reasonable to prevent a case of misconduct.

The SMR is due to come into force for March 2016, except for the rules on the presumption of responsibility and requirement to notify breaches of conduct rules which are being con-sulted on the paper. The Government intends that the extended regime will be applicable to all sectors of the financial services industry during 2018.

United Kingdom


United Kingdom

UCITS VIn September, the Financial

Conduct Authority (FCA) issued

a consultation on implementing

UCITS V. The consultation

covers management company

requirements, including

remuneration policy and

transparency requirements

towards investors, as well

as changes to the depositary

regime which includes

the related eligibility and

capital requirements.

In the consultation document the FCA advocates an ‘intelligent’ copy out approach in order to avoid imposing requirements on firms that go beyond UCITS V. The consultation also covers changes to FCA handbook resulting from the implementation of the ELTIF Regulation. The paper sets out proposed changes to the depos-itary regime for those depositaries who want to act for an ELTIF as well as the related fees for authorisation and supervision. The deadline for comments relating to the implementa-tion of UCITS was 9 November and the deadline for comments on the ELTIF related provisions was 5 October.

In October, HMT launched a consultation on the implementation of UCITS V. The consultation is generally concerned with changes to primary legislation to enact the transposition of UCITS V. The changes in primary legislation relate to the Financial Services and Markets Act 2000 (FSMA) and relevant secondary legislation. The draft Undertakings for Collective Investment in Transferable Securities Regulations 2016 have been published with the consultation paper. The consultation closes on 17 December 2015.


Financial Advice Market ReviewThe FCA and HMT launched

the Financial Advice Market

Review (FAMR) to examine

how financial advice could

work better for consumers.

The FCA stated that its priority is to ensure that people have the appropriate information and advice, in order to make important financial decisions. It acknowledges that changes in the rules around mort-gages and the introduction of the new pension freedoms mean that more people than ever before are looking for, or need financial advice.

The review is an opportunity to assess how the market is working in this area and has the potential to radically change the advice landscape. This will benefit both firms and consumers.

In the review, the FCA will examine the so called ‘advice gap’, an unin-tended consequence of the Retail Distribution Review (RDR), which was implemented in 2012.

A consultation paper is expected in autumn 2015 and it will close by the end of 2015. The FCA plans to produce proposals ahead of the 2016 UK Budget.

United Kingdom


United Kingdom

In September, Her Majesty’s

Revenue and Customs (HMRC)

published an informal consultation

on the draft Guidance Notes

for the Organisation for

Economic Co-operation and

Development (OECD) Common

Reporting Standard (CRS).

The CRS is imposed in Europe via the European Directive on Administrative Cooperation (DAC). It is this Directive which governs the obligations imposed on Reporting Financial Institutions in the UK.

HMRC accepted comments from stakeholders until November, with a view to publishing a final guidance note in early 2016.

Automatic Exchange of Financial Account Information


AiF Alternative Investment FundAiFM Alternative Investment Fund ManagerAiFMD Alternative Investment Fund Managers DirectiveCBi Central Bank of IrelandCCCTB Common Consolidated Corporate Tax BaseCCP Central CounterpartiesCMU Capital Markets UnionCP Consultation Paper CRD iv Fourth Capital Requirements Directive CRS Common Reporting StandardCSD Central Securities DepositoryCSDR Central Securities Depository RegulationCSMAD Directive on Criminal Sanctions for Market Abuse CSSF Commission de Surveillance du Secteur FinancierCTF Counter Terrorism FinancingCWP Council Working Party DA Delegated ActsDAC Directive on Administrative CooperationDPO Designated Public OfficialDPRK Democratic People’s Republic of KoreaDRSP Data Reporting Service ProvidersEBA European Banking AuthorityECON Economic and Monetary Affairs CommitteeEiOPA European Insurance and Occupational Pensions AuthorityELTiF European Long-Term Investment FundsEMiR European Market Infrastructure RegulationESAs European Supervisory Authorities

(comprised of EBA, ESMA and EIOPA)ESMA European Securities and Markets AuthorityEU European UnionFAMR Financial Advice Market ReviewFATCA Foreign Account Tax Compliance ActFATF Financial Action Task ForceFCA Financial Conduct AuthorityFSMA Financial Services and Markets Act FSP Fund Service ProviderFTT Financial Transaction TaxHiMO Head of Investor Money OversightHMRC Her Majesty’s Revenue and CustomsHMT Her Majesty’s Treasury

Abbreviations


iA Impact Assessment iGA Intergovernmental AgreementiMMP Investor Money Management PlaniMR Investor Money RegulationsiORP Institutions for Occupational Retirement Provision iTS Implementing Technical StandardsLEi Legal Entity Identifier LFS Law of Financial SectorMAR Market Abuse Regulation MEF Ministry of Finance (Italy)MEP Member of European ParliamentMiFiD Markets in Financial Instruments DirectiveMiFiR Markets in Financial Instruments RegulationMMF Money Market Fund MTF Multilateral Trading FacilityNAv Net Asset ValueNCA National Competent AuthorityNiF National Ignition FacilityOECD Organisation for Economic Co-operation and DevelopmentOJ Official JournalOTC Over-the-counterPRiiPs Packaged Retail and Insurance-based Investment ProductsQ&A Questions and answersRDR Retail Distribution ReviewRFi Reporting Financial Institutions RTS Regulatory Technical StandardsSFT Securities Financing TransactionsSHRD Shareholder Rights Directive SME Small or Medium-Sized EnterpriseSMR Senior Managers RegimeSOPARFi Financial Holding Company (Société de Participation Financières)SPF Family Wealth Management Company

(Société de gestion de Patrimoine Familial) SPv Special Purpose Vehicles T2S TARGET2-SecuritiesTiN Taxpayer Identification NumbersTR Trade RepositoriesUCiTS Undertaking(s) for Collective Investment in Transferable Securities


Regulatory Timeline

2012/Q1 2013/Q1 2014/Q1 2015/Q1 2016/Q1Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Post 2016

FTT

Data Protection

Solvency II

IORP II

SFT

Benchmarks

Shareholders Rights Directive

ELTIFs

PRIIPs

MMFs

UCITS V

CSMAD/MAR

MiFID II/MiFIR

CSD

EC Legislative Proposal

EIOPA Report on LTG

Provisional Level 1 Text









Provisional Level 2 Text Application Deadline

Application Deadline

Transposition Deadline Application DeadlineJanuary 2017

Application Deadline2017

Full DematerialisationBy 2023-25

5-year Transitional Periodfor KID Requirement forUCITS Funds

Application DeadlineJuly 2016

Application Deadline

Application DeadlineMarch 2016

Application DeadlineTBC



Application DeadlineQ4 2017/Q1 2018


Application DeadlineSubmission of Set 1 ITSPublication of Set 2 Guidelines






Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 2 Text

Omnibus II Voted on in Parliament

Final Level 2 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text

Final Level 1 Text EC Legislative Proposal








Application DeadlineFinal Level 1 Text EC Legislative Proposal



EC Legislative Proposal – Q4 2011

EC Legislative Proposal – Q4 2011

Final Level 2 Text

Final Level 2 Text EC Legislative Proposal

Submission of Set 2 ITS

Final Level 2 Text

Publication of Set 1 Guidelines

Completed MilestonesFuture MilestonesApplication Date


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Europe

Sven Kasper+44 20 3395 [email protected]

Francis Wood+44 20 3395 [email protected]

Channel Islands

Russell Turner+44 1534 [email protected]

France

Tanneguy Cazin+44 203 395 [email protected]

Angdy Ma+33 44 45 43 [email protected]

Germany

Ines Cieslok+49 69 667745 104

[email protected]

Ireland

Mary McCarthy+353 1 776 [email protected]

Simon Firbank+353 1 776 [email protected]

Italy

Alberta Castoldi+39 02 3211 [email protected]

Stefano Scribanis+39 02 3211 [email protected]

Luxembourg

Sonia Biraschi+352 464 010 [email protected]

United Kingdom

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