Issue 89 – Regulatory and Tax Developments in February 2012

FUND NEWS February 2012 Investment Fund Regulatory and Tax developments in selected jurisdictions Regulatory Content Issue 89 – Regulatory and Tax Developments in February 2012 European Union ESMA Discussion Paper on key concepts of the AIFMD and types of Managers Page 1 ESMA consults on draft technical standards for the EU Short-Selling regulatory regime Page 2 ESMA consults on draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories (EMIR) Page 2 European Commission issues White Paper on Pensions Page 3 ESMA updates its Q&A paper on European Money Market Funds Page 3 France Catalogue of French statutory and regulatory measures applicable to the marketing of foreign UCITS in France Page 3 Switzerland FINMA paper on distribution rules Page 4 Regulatory News European Union concepts of the Alternative Investment Fund Managers Directive (AIFMD). The purpose of this DP is to assist ESMA in determining different types of Alternative Investment Fund Managers International (IOSCO) Consultation CIS Valuation principles Page 4 Consultation on Suitability for distribution of complex financial products Page 5 IOSCO consults on Ongoing Disclosures for Asset Backed Securities Page 5 IOSCO recommendations on OTC derivative mandatory clearing Page 5 Tax Content ESMA Discussion Paper on key concepts of the AIFMD and types of Managers (AIFM), and thus ensure uniform application of the Directive. The DP is structured in four broad sections:  Definition of an Alternative Investment Fund Manager, France Tax on Financial Transactions Page 6 Germany New draft tax scheme for Investments in funds Page 6 On 23 February 2012 the European Securities and Markets Authority (ESMA) published a Discussion Paper (DP) (Ref: ESMA/2012/117) on key  Definition of an Alternative Investment Fund,  Treatment of UCITS Management Companies, Ireland Irish Finance Bill Page 7 Irish Treaty Update Page 7 Luxembourg 1 Aberdeen Case E-Alerts Page 7 UK New anti-avoidance legislation for Authorised Investment Funds Page 8 Fund News – February 2012  Treatment of MiFID firms and Credit  Section III sets out advice on cases ESMA consults on draft Technical Institutions The DP contains 14 specific questions relating to the topics outlined above and ESMA will accept responses up until 23 March 2012, to assist them in drafting regulatory technical standards. The 18 page DP is available via the following web link: http://www.esma.europa.eu/consultatio n/Key-concepts-Alternative-Investment-Fund-Managers-Directive-and-types-AIFM ESMA consults on draft technical standards for the EU Short-Selling regulatory regime On 15 February 2012 ESMA published a Consultation Paper (CP) containing draft technical advice (Ref: ESMA/2012/98) on possible Delegated Acts concerning the in which a CDS transaction is considered to be hedging against a default risk, and the method of calculating an uncovered position in a CDS for group entities and for fund management activities.  Section IV defines the initial and incremental levels of the notification thresholds to apply for the reporting of net short positions in sovereign debt.  Section V specifies the parameters and methods for calculating the liquidity threshold for sovereign debt for suspending restrictions on short sales of sovereign debt.  Section VI sets out what constitutes a significant fall in value for various financial instruments and also specifies the calculation method.  Section VII specifies the criteria and factors to be taken into account by competent authorities and ESMA in determining when adverse events or developments arise, as referred to in the Regulation. Standards for EMIR On 9 February 2012 the European Parliament, the Council and the European Commission reached political agreement on the Regulation of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories (EMIR). In the wake of this agreement ESMA issued a Discussion Paper (DP) (Ref: ESMA/2012/95) on 16 February 2012 containing draft technical standards that will accompany the Regulation. The DP follows the structure of EMIR:  The first section focuses on OTC derivatives and in particular the clearing obligation, risk mitigation techniques for contracts not cleared by a Central Counterparty (CCP) and exemptions to certain requirements.  The second part focuses on CCP requirements, where a number of provisions need to be specified through technical standards.  The third part deals with trade Regulation on Short Selling and certain aspects of Credit Default Swaps (CDS) that will apply from 1 November 2012. The draft technical advice is structured as follows:  Section I provides a definition of when a natural/legal person is considered to own a financial instrument for the purposes of the definition of short sale.  Section II specifies the concept of holding a net short position and the method of calculation, including when different entities in a group have long or short positions, or for fund management activities related to separate funds. The consultation is open for comments until 9 March 2012 and ESMA expects to publish their final report and submission of the draft advice on Delegated Acts to the European Commission by mid-April 2012. The consultation paper is available at the following web link: http://www.esma.europa.eu/page/Short- selling repositories and in particular the content and format of the information to be reported to trade repositories, the content of the application for registration to ESMA and the information to be made available to the relevant authorities. ESMA will consider all comments received by 19 March 2012. The DP is available at the following web link: http://www.esma.europa.eu/page/Post- trading-documents 2 Fund News – February 2012 European Commission issues White Paper on Pensions The European Commission issued a White Paper on Pensions on 16 February 2012. This Paper provides the following interesting insights into areas of pension reform at EU level:  The complementary retirement savings will need to play a greater role in the future and that Member States will have to find ways of improving the cost-effectiveness, safety and equitable access to these pension schemes.  The Institutions for Occupational Retirement Provision (IORP) Directive will be reviewed with the ESMA publishes an Update of its Q&A Paper on European Money Market Funds On 20 February 2012 ESMA published an update of its Q&A document on the practical application of the requirements of CESR’s guidelines on a Common Definition of European Money Market Funds. This latest update gives guidance on how a management company should assess the credit quality of instruments with ratings, and on the corrective actions to be taken when an instrument no longer complies with the criteria set out in the guidelines. The document is available via the following web link: France Catalogue of statutory and regulatory measures applicable to the marketing of foreign UCITS in France On 10 January 2012 the Autorité des Marchés Financiers (AMF) released a catalogue of French statutory and regulatory measures applicable to the marketing of foreign UCITS in France. The AMF lists all the provisions applicable to distributors of foreign UCITS in France. However, it does not refer to the provisions already covered by UCITS IV, particularly where a UCITS is subject to the rules of its home country. The following are the main topics covered by the catalogue: aims of further facilitating the cross-border activity for IORPs and modernising their supervision, taking into account the different types of IORP in Member States.  There is a need to improve the quality of financial products for individual retirement savings, such as third pillar schemes. Improving consumer information and protection is necessary to enhance workers` and investors` confidence in financial products for retirement savings. http://www.esma.europa.eu/content/Qu estions-and-Answers-Common-Definition-European-Money-Market- Funds-updated-February-2012  Relations between foreign UCITS and the AMF: notification procedure for marketing foreign UCITS in France; appointment of a centralizing correspondent for UCITS authorised and set up under foreign law; fees payable to the AMF; how to send information to the AMF.  Soliciting, establishing a relationship with and informing investors: direct marketing of banking or financial products and services; content and dissemination of advertisements; information about investor The full Paper is available at the following web link: http://ec.europa.eu/social/BlobServlet?do cId=7341&langId=en compensation; distance marketing of consumer financial services; language used in information documents; information made available after investment.  Supply of investment services by an investment services provider authorized in France or operating under the right of establishment 3 Fund News – February 2012 when marketing shares or units of foreign UCITS.  Remuneration of UCITS distributors: prohibition of rebates of Switzerland FINMA Position Paper on distribution rules International IOSCO consults on revised CIS Valuation principles management fees or subscription/redemption fees.  Specific provisions for certain collective investment schemes: marketing shares or units in complex collective investment schemes; admission to trading on a regulated market of shares or units in a collective investment scheme with an index-based investment objective; collective investment schemes with categories of units or shares reserved for a specific investor category.  Monitoring investor relations. Distributors of UCITS are responsible for determining, under the supervision of the competent authorities and courts, whether they are actually engaged in marketing activities in France. The full text is available via the following web link: On 24 February 2012 the Swiss Financial Market Supervisory Authority, FINMA, issued a position paper proposing the following measures to improve client protection:  Implement new rules of business conduct for financial services providers, with a focus on the obligation to inform all clients about the content of a service or the characteristics and risks of financial products.  In favour of financial services providers providing clients with complete and understandable product documentation, in particular a prospectus which will be required for all standardised financial products offered in Switzerland.  All portfolio managers should be subject to supervision and must comply with the rules of business conduct. In addition, all client The IOSCO published a consultation on “Principles for the Valuation of Collective Investment Schemes (CIS)”, setting out principles that can be used to assess the quality of regulation and industry practices concerning the CIS valuation. This report modernizes the original principles developed in 1999. The draft principles are summarised below: 1) The Responsible Entity should establish comprehensive, documented policies and procedures to govern the valuation of CIS assets; 2) The policies and procedures should identify the methodologies that will be used for valuing each type of asset; 3) The valuation policies and procedures should address conflicts of interest; http://www.amf-france.org/affiche_actu.asp?Id_Tab=0&la ng=fr&npos=1#&Id_Tab=0 advisors should prove in a test that they know the applicable rules of business conduct and have the necessary specialist knowledge. The implementation of the proposed measures requires a new law (financial services act) covering all the relevant sectors. In addition, FINMA also regards measures at the level of civil law to implement enforcement of the claims of retail clients against financial services providers. More information, as well as the complete text of the position paper (available in French, English and German) can be found on the FINMA website www.finma.ch 4) The CIS assets should be consistently valued according to the policies and procedures; 5) A CIS should have policies and procedures in place that seek to detect and prevent pricing errors. Pricing errors that result in a material harm to CIS investors should be addressed promptly, and investors fully compensated; 6) The Responsible Entity should provide for the periodic review of the valuation policies and procedures for appropriateness; 7) The Responsible Entity should periodically review the 4 Fund News – February 2012 implementation of valuation policies and procedures for effectiveness; 8) A third-party should review the CIS’s valuation process at least annually; 9) The Responsible Entity should conduct initial and periodic due diligence on third parties that are appointed to perform valuation services; 2) General duty to act honestly, fairly and professionally and to manage conflicts of interest, including through disclosure. 3) Disclosure requirements, including the provision of material information to evaluate the nature, costs and specific risks of a product. 4) The regulatory framework should pools that are actively managed, such as securities issued by investment companies or collateralized debt obligations, or that contain assets that do not by their terms convert to cash. The closing date for responses is 20 April 2012 and the report is available via the following web link: http://www.iosco.org/library/pubdocs/pdf 10) The Responsible Entity should seek to ensure that arrangements in place for the valuation of the assets in the CIS`s portfolio are disclosed appropriately to investors in the CIS offering documents or otherwise made transparent to investors; 11) The purchase and redemption of CIS interests should not be effected at historic NAV; 12) A CIS’s portfolio should be valued on any day that CIS units are purchased or redeemed; and provide adequate investor protection in the case of unsolicited sales. 5) Suitability protections for advisory services. 6) Compliance function and suitability policies and procedures for the selection of complex financial products for customers. 7) Eliminate incentives for the sale of unsuitable financial products. 8) Supervision and enforcement by regulators and self-regulatory organisations. /IOSCOPD372.pdf IOSCO makes recommendations on OTC derivative mandatory Clearing The IOSCO published a final report on “Requirements for Mandatory Clearing”. The report makes recommendations that authorities should follow in establishing a mandatory clearing regime and relate to: 13) A CIS’s NAV should be available to investors at no cost. The consultation is open until 18 May 2012 and the full report is available via the following web link: http://www.iosco.org/library/pubdocs/pdf /IOSCOPD370.pdf IOSCO consults on Suitability requirements for the distribution of complex financial products The closing date for responses is 21 May 2012 and the full report is available via the following web link: http://www.iosco.org/library/pubdocs/pdf /IOSCOPD373.pdf IOSCO consults on Ongoing Disclosure for Asset Backed Securities On 20 February 2012 the IOSCO  Determination of whether a mandatory clearing obligation should apply to a product or set of products;  Consideration of potential exemptions to the mandatory clearing obligation;  Establishment of appropriate communication among authorities and with the public;  Consideration of relevant cross-border issues in the application of a mandatory clearing obligation; and ... - --nqh--