Issue 90 – Regulatory and Tax Developments in March 2012

FUND NEWS March 2012 Investment Fund Regulatory and Tax developments in selected jurisdictions Regulatory Content Issue 90 – Regulatory and Tax Developments in March 2012 European Union European Commission publishes Green Paper on Shadow BankingPage 1 EMIR adopted by Parliament Page 3 ESMA final report on Short Selling Technical Standards Page 4 ESMA updates Guidelines on risk measurement for certain types of structured UCITS Page 4 Ireland New Irish Corporate Structure for Funds (SCIAV) Page 4 UCITS Notice 14 and non-UCITS Notice 2 – Disclosure of related party transactions Page 4 Luxembourg Specialised Investment Fund law amendments voted Page 4 Regulatory News European Union Shadow Banking European Commission publishes Green Paper estimated that shadow banking activities were worth around €46 trillion in 2010. The European Commission is keen to UK FSA consults on a new contractual legal form of Authorised Fund Page 5 International IOSCO consults on exchange traded funds regulation Page 7 Tax Content There has been an explosion in shadow banking activities over the past decade and the Financial Stability Board (FSB) impose tougher requirements on shadow banking and published a Green Paper on 19 March 2012 outlining the Luxembourg Aberdeen Case E-Alerts Page 7 The Netherlands 1 CAA with Norway re closed FGR Page 7 Fund News – March 2012 broad range of issues that require action at EU level to address the threats posed by shadow banking activities and entities. This comes in advance of the G20 meeting of Finance Ministers and Central Bank Governors in Washington D.C. on 20 April 2012. The paper focuses on the following entities and activities:  In banking regulation, the Commission is considering extending the scope of financial institutions and entities covered by current banking law and may extend certain provisions in the CRD IV to non-deposit taking finance companies, thus capturing non-banks under stricter banking regulatory regimes. The reinvestment of cash collateral, re-hypothecation and improved transparency for markets and supervisors. Firms should prepare for tighter rules coupled with improvements to market infrastructure in this area. For securitizations, the Commission will examine the effectiveness of measures already taken in CRD II  Securitization Special Purpose Vehicles (SPV)  Finance companies providing credit and securities entities falling outside banking regulation  Money Market Funds (MMF) and investment funds that are leveraged or provide credit, including Exchange Traded Funds (ETF)  Insurance and reinsurance firms that issue or guarantee credit products  Securities lending, repurchase transactions and securitization. Commission is investigating how to ensure that bank-sponsored shadow banking entities are appropriately consolidated and fully subject to Basel III rules, which will impact banks’ risk based capital and liquidity ratios. Options are also under consideration regarding bank exposures to shadow banking entities, and include extending the look-through to account for leverage of investments in funds and applying the CRD II capital rules to the treatment of liquidity lines for securitization vehicles to all shadow banking entities.  For asset management regulation, the Commission raises valuation and CRD III and consider extending measures to other sectors. Work is also underway in relation to resolution planning for non-banks. The Green Paper is available via the following web link and is open for consultation until 1 June 2012. http://ec.europa.eu/internal_market/bank /docs/shadow/green- paper_en.pdfShadow Banking Options being considered by the EU include increasing the capital requirements of shadow banks, or forcing them to comply with oversight rules that were originally intended for hedge funds. Clients will need to be aware of the impact that new regulations could have on their off balance sheet activities. Progress has already been made in the EU on many of the issues raised, either through direct or indirect regulatory initiatives but work is set to follow in the following areas: and liquidity issues in constant NAV MMFs, and issues regarding collateral and conflicts of interest in securities lending and swaps transactions in ETFs, although many of these issues are being addressed by new ESMA rules.  The Commission is actively contributing to FSB work in relation to securities lending and repurchase agreements, an area also highlighted as a key concern. The specific issues to be addressed include collateral management, 2 Fund News – March 2012 EMIR adopted by European Parliament On 29 March 2012 the European Parliament approved at first reading the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories, also known as the European Market Infrastructure Regulation (EMIR). The new Regulation meets the G20 commitment in September 2009 at Pittsburgh that "all standard Over-The-Counter (OTC) derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest." Furthermore, they acknowledged that "OTC derivative contracts should be reported to trade repositories and that non-centrally cleared contracts should be subject to higher capital requirements." The main aspects of the regulation are as follows: • Obligatory clearing for standardised OTC derivatives through central counterparties; • Reporting for all derivatives (listed and OTC derivatives) to trade repositories, which would have to regime of the third country in question provides for an effective equivalent system for recognition; • A "light touch" regime has been awarded to pension schemes with regard to the clearing obligation. For these schemes, the obligation would not apply for three years, extendable by another two years plus one, subject to proper justification. • risk mitigation standards for contracts not cleared by a CCP (e.g. exchange of collateral). Which contracts have to be cleared? To have as many OTC contracts as possible cleared through a CCP, the Regulation introduces two approaches to determine which contracts must be cleared: • a `bottom-up` approach: In this case when a competent authority has authorised a CCP to clear a class of derivatives, it will inform ESMA who will assess whether a clearing obligation should apply to that class of derivatives in the EU, and develop draft Regulatory technical standards which will have to be adopted by the Commission. managers and to alternative investment funds managed by alternative investment fund managers (AIFM). Before the EMIR rules are implemented, the European Supervisory Authorities (ESAs) first need to develop technical standards. The ESAs must submit these standards to the Commission by 30 September 2012. In line with G20 commitments, these new standards should be fully adopted by the Commission by the end of 2012. Central counterparties will have to apply for authorisation under the new European regime at the latest six months after the adoption of the technical standards by the Commission. In the meantime, CCPs must continue to comply with national rules on authorisation. The date of application of the reporting obligation and clearing obligations will be determined in the new technical standards to be developed by 30 September 2012. publish aggregate positions by class of derivatives; • The work of trade repositories will be monitored by the European Securities and Markets Authority (ESMA), which would be responsible for granting or withdrawing their registration; • Stringent rules for Central Counterparties (CCPs) regarding capital, organisation and conduct of business standards; • CCPs from third countries will be recognized in the EU only if the legal • a `top-down` approach: In this case, ESMA, on its own initiative and in consultation with the European Systemic Risk Board, will identify contracts that should be subject to the clearing obligation but for which no CCP has yet received authorisation. The rules on clearing OTC derivatives, reporting on derivatives transactions and risk mitigation techniques for non-centrally cleared OTC derivatives will apply, among others, to UCITS and their 3 Fund News – March 2012 Short Selling ESMA final report on technical standards On 28 March 2012 the European Securities and Markets Authority (ESMA) published their final report to the Commission containing draft technical standards on the Regulation 236/2012 on Short Selling and certain aspects of Credit Default Swaps. The draft standards were submitted to the European Commission and the Commission has three months to decide whether to endorse ESMA’s draft technical standards. The report, which includes a cost-benefit analysis, is available via the following web link: http://www.esma.europa.eu/content/Dra ft-technical-standards-Regulation-EU-No-2362012-European-Parliament-and-Council-short-sel ESMA updates Guidelines on risk measurement for certain types of structured UCITS ESMA published additional guidelines (Ref: ESMA/2012/197) on the requirements on the calculation of global exposure relating to derivative instruments, to provide certain types of structured UCITS with an optional regime for the calculation of the global exposure using the commitment approach. The Guidelines are available via the following web link: http://www.esma.europa.eu/page/Invest ment-management-0 Ireland New Irish Corporate Structure for Funds (SCIAV) Currently, Irish funds structured as corporate funds are set up under Irish company law and therefore are subject to standard requirements imposed on all Irish companies. The Irish Minister for Finance has agreed to introduce a new corporate structure designed specifically for the funds industry. The main advantages of the new structure are that it will meet US check-the-box requirements and reduce administrative costs. Existing Irish funds will be able to convert to this new structure. The new legislation should be in place by the end of 2012. UCITS Notice 14 and non-UCITS Notice 2 – Disclosure of related party transactions The Irish regulator has issued an information note on these regulatory rules. The note clarifies the type of parties and the types of transactions which should be set out in the related party disclosure report. Luxembourg Specialised Investment Fund (SIF) law amendments voted by Parliament The law of 26 March 2012 that amends the Specialised Investment Fund (SIF) law of 13 February 2007 introduces some important changes to the hugely successful SIF regime. The main amendments are as follows: 1. Requirement for regulatory approval of the SIF before the launch of activities The new law abolishes the option of launching a SIF prior to obtaining the required regulatory approvals from the Commission de Surveillance du Secteur Financier (CSSF). In practice very few fund promoters embraced this facet of the law that made possible the prior launch of a SIF, and the subsequent submission of the application file within one month of launch. Nevertheless the old regime gave leave to fund promoters to quickly launch a new SIF, once an informal go-ahead from the CSSF had been secured, and the new rules are expected to have a negative impact on the "time to market" of some new SIFs. 4 Fund News – March 2012 In addition, the SIF approval requirements have been extended to require CSSF approval of those persons who will perform the intellectual portfolio management, requiring that they are honorable and have sufficient experience and expertise in the type of SIF managed. The law also foresees new rules dealing with the appointment of independent asset managers that will need to be licensed or registered asset managers, and subject to prudential supervision. The SIF will be required to conduct a detailed due diligence on the asset manager prior to their selection. The SIF regime has been brought into UK FSA consults on a new contractual 2. New rules on Risk Management and Conflicts of Interest line with the UCITS regime by allowing sub-funds in the same umbrella structure to invest in one or more sub- funds in the umbrella, subject to some legal form of Authorised Fund On 6 March 2012, within its quarterly consultation paper (“CP 12/5”), the In line with the forthcoming Alternative Investment Fund Managers Directive (AIFMD) requirements, the SIF will be obliged to implement appropriate risk management systems to monitor, measure and manage the risks in the portfolio. The SIF will need to be structured and organised in such a way as to minimise the risk of conflicts of interest, and have in place a policy to manage any conflicts that may arise. It is foreseen that the CSSF may issue further detailed regulations defining the precise requirements in relation to risk management and conflicts of interest management. specific conditions. This new feature opens up the possibility of creating fund of funds within the same umbrella structure as well as providing opportunities to generate other management and operational efficiencies, and has been keenly awaited by the funds industry. The law was published in the Mémorial (Official Journal) on 30 March 2012 and came into effect on 1 April 2012. The full text of the law (in French) is available via the following web link: http://www.legilux.public.lu/leg/a/archive s/2012/0063/index.html Financial Services Authority (”FSA”) set out its proposals to extend the eligible legal forms of UK Authorised Funds to include co-ownership schemes and limited partnership schemes. The consultation and proposed rules are aligned to the proposed tax regulations intended to enable the UK to have a tax transparent authorised fund suitable as a UCITS IV master fund and generally as a tax efficient pooling vehicle. Currently the FSA can only authorise funds that take the legal form of a unit trust (“AUT”) or an open-ended investment company (“OEIC”), neither 3. Possibility to cross-invest between sub-funds in same umbrella structure an AUT nor an OEIC provide an appropriate legal form for a tax transparent fund. It is generally the case that for a UCITS Master fund to be tax efficient for a wide range of prospective investors, including UCITS Feeder funds, and also for the UK to have a tax 5 ... - tailieumienphi.vn