HM Treasury Responds to Consultation on Transposing AIFM Directive
On May 13, HM Treasury published its response to its January 2013 consultation on transposing the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFM Directive or AIFMD). HM Treasury also published a revised draft version of the Alternative Investment Fund Managers Regulations. The response mainly provides information about HM Treasury’s approach to sub-threshold managers and transitional arrangements. Response.
FSA Second Consultation Paper on Implementing AIFM Directive: Consultation Period Ends
On May 10, the consultation period ended for the FSA’s second consultation paper on the implementation of the Alternative Investment Funds Managers Directive (2011/61/EU) (AIFM Directive) (CP13/9, also known as CP2). Final rules will not be published until June, but the Financial Conduct Authority is meant to confirm some of its final policy positions before then to give firms marginally more time to factor these positions into their implementation plans. The key policy question is whether the FCA will accept AIFM and depositary authorisation or variation applications before July 22.
AIFM Directive Implementing Regulations Published in OJ
On May 16, the texts of two European Commission Implementing Regulations required under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFM Directive or AIFMD) were published in the Official Journal of the European Union (OJ). Text One. Text Two.
On May 13, the European Securities and Markets Authority (ESMA) published a letter (dated April 22, 2013) from Jonathan Faull, European Commission Director General of Internal Market and Services, to Steven Maijoor, ESMA Chair. The letter relates to the regulatory technical standards which are set out in articles 4(4) and 11(14) of EMIR (the Regulation on OTC derivatives, central counterparties and trade repositories (Regulation 648/2012)). Articles 4(4) and 11(14) of EMIR deal with the application of EMIR to transactions between non-EU entities with a direct, substantial and foreseeable effect within the EU.
ESMA postponed the development of these technical standards in June, in light of discussions which were ongoing with international regulators on the coordination of the implementation of OTC derivatives market reforms. The letter requests that ESMA deliver the two draft regulatory technical standards by September 25. Letter.
On May 16, the European Commission published a consultation paper on reforms to the structure of the EU banking sector, which focuses on policy options for structural separation. The Commission is seeking views on policy options relating to the scope of banks potentially subject to separation. The deadline for responses to the consultation is July 3. Consultation Paper.
On May 14, the UK Prospectus Regulations 2013 and an accompanying explanatory memorandum were published. These regulations amend sections of the Financial Services and Markets Act 2000 (FSMA) as part of the implementation of the Directive amending the Prospectus Directive and Transparency Directive (2010/73/EU).
The most significant amendment is to section 86(1A) of FSMA, which sets out the circumstances in which a further prospectus is not required in the context of a retail cascade. Section 86(1A) of FSMA now provides that, in the case of certain non-equity securities issued in a continuous or repeated manner by credit institutions, this condition is satisfied if the securities have not ceased to be issued in a continuous or repeated manner. The Prospectus Regulations 2013 will come into force on May 31. Prospectus Regulations 2013. Explanatory Memorandum.
On May 6, the European Commission published a roadmap for legislative changes. This follows the October 2012 publication of the Liikanen report, which provided a set of recommendations on banking reform sponsored by the Commission.
The initiative seeks to address issues in the EU banking sector, including moral hazard, excessive leverage, lack of market discipline and competition distortions. Accordingly, the roadmap lays down a framework for anticipated EU directives covering which banking activities should be separated from each other or be subjected to separation requirements, the nature and extent of the separation and the de minimis exceptions available for smaller banks.
Although the proposals are expected to have a profound effect on the structure of banks, the Commission states that the “vast majority” of EU banks will not be affected by the initiative. Roadmap. Liikanen Report.
On May 1, the FCA published a press release stating that it expects firms to review their regulatory status disclosures as a priority and ensure that they are up to date and accurate following the creation of the FCA and PRA and the renaming of the public Financial Services register. The FCA has stated that it recognises that there are exceptional circumstances where it may not have been possible to make all the required disclosure updates immediately upon the relevant change. However, the FSA, except for where transitional provisions are available, requires firms to be able to demonstrate that they intend to make the necessary updates at the earliest opportunity.
On May 2, the Enterprise and Regulatory Reform Act 2013 (ERRA) was published. The ERRA amends the Companies Act 2006 and introduces the following key changes to the legal framework for directors’ remuneration in quoted companies: the directors’ remuneration report must include a separate forward-looking policy part, the policy part must be approved by ordinary resolution at least every three years, the policy section must be approved before the expiry of the three-year period if the company wishes to change the policy or the shareholders did not approve the advisory vote on the non-policy section of the directors’ remuneration report at the company’s previous AGM, the company is prohibited from making a remuneration or loss of office payment, unless it is consistent with the most recently approved remuneration policy, any payment which is inconsistent with an approved policy will be held by the recipient in trust and can be recovered by way of a derivative action. Directors who authorised the payment will be liable for any loss to the company unless they can demonstrate that they acted honestly and reasonably.
These provisions are expected to come into force on October 1, with the provisions applying to quoted companies with financial years beginning on or after that date.
On April 25, the Serious Fraud Office (SFO) announced that it has opened a formal criminal investigation into London-listed ENRC, following allegations of fraud, bribery and corruption surrounding its assets in Kazakhstan and Africa.
The probe will come as no surprise to many as it follows recent claims by a whistleblower, which led to the suspension of a manager in Mozambique and the initiation of an internal investigation led by a law firm. The SFO had already made a formal demand for documents from that law firm, meaning that they had reasonable grounds to suspect an offense involving serious or complex fraud or corruption. Announcement.
On March 25, the EU’s Official Journal published the regulation on European venture capital funds (VCFs), which will become applicable throughout the EU on July 22, 2013.
The purpose of the regulation is to make it easier for venture capitalists to raise funds across Europe. Supplementing the AIFMD regime, it creates a special “European VCF” designation for qualifying VCF funds, which will enable them to be marketed under that label across the EU, sidestepping member states’ national offering and marketing rules. It is hoped the designation will also act as a quality brandmark.
To be a “qualifying VCF,” a fund must invest a minimum of 70% of its aggregate capital contributions and uncalled committed capital in SME equity or quasi-equity instruments and fulfill various conditions and obligations relating to its structure, investor base and management. Regulation.
On April 19, the FCA and PRA (who together have taken over the powers of the FSA) published their respective approaches to investigating and reporting on regulatory failure, as required under the Financial Services Act 2012 (FS Act).
Part 5 of the FS Act outlines the tests for determining when each regulator must carry out an investigation into possible regulatory failure and provide reports of its findings and recommendations to HM Treasury. The tests are different for each regulator and will relate to their respective statutory objectives. The FCA and PRA statements of policy satisfy the FS Act which requires each regulator to explain how it will meet its statutory requirement to investigate possible occurrences of regulatory failure and to produce a report. PRA Approach. FCA Approach.