Issue 97 – Regulatory and Tax Developments in November 2012

FUND NEWS November 2012 Investment Fund Regulatory and Tax developments in selected jurisdictions Issue 97 – Regulatory and Tax Developments in November 2012 Regulatory Content European Union UCITS V Update Page 1 ESMA Opinion on UCITS portfolio investments Page 2 Ireland Central Bank consultation on implementing the AIFMD Page 2 Proposed changes to the regulatory reporting obligations of Irish funds Page 3 Dear CEO letter on Anti-Money Laundering (AML) Page 3 Luxembourg CSSF Press Release on UCITS portfolio investments Page 3 UK FSA commences consultation on implementing the AIFMD Page 4 Regulatory News European Union UCITS V Update On 9 November 2012 the European Parliament`s ECON Committee published a draft report on the Commission’s proposal to amend the UCITS Directive (UCITS V) in the areas of custody, liability, remuneration and sanctions. The draft report contains a number of amendments, including: • Remuneration of management companies should be aligned with investor interests and therefore the remuneration rules should also apply to fees paid by the UCITS to the Management Company. Any variable remuneration paid by the UCITS to the Management Company should depend on the size of the fund or the value of the assets under management. • The scope of personnel subject to remuneration rules should be extended to cover all decision-making and influencing staff of the UCITS. International FSB consultation on Shadow Banking Page 5 Tax Content European Union Advisory services can constitute exempt VAT management – the GfBk opinion Page 6 Luxembourg Tax Treaty Update Page 7 Aberdeen E-Alerts Page 7 1 Fund News – November 2012 • The maximum amount of variable remuneration should not exceed 50% of total remuneration (in line with CRD revision). • The share of variable remuneration to be deferred should be 60%, up from 40% (in line with CRD revision). • The remuneration committee should include employee representatives. • ESMA, in collaboration with the national authorities should supervise the implementation of remuneration policies. • The possibility to ban members of management for breaches of obligations of the Directive. • Administrative sanctions of legal persons up to 20% of total annual turnover and unlimited sanctions for natural persons. • The possibility to impose sanctions of up to 10 times the amount of profits gained or losses avoided because of a breach, where this can be determined. • Common standards and channels for whistleblowers. requirements can act as a UCITS depositary. • Extending the remuneration provisions to amounts paid directly by the UCITS itself, including carried interest. • Allowing Member States to provide for higher levels of sanctions than those set in the Directive. ESMA Opinion on UCITS portfolio investments On 20 November 2012 the European Securities and Markets Authority (ESMA) issued an Opinion on Article 50(2)(a) of the UCITS Directive 2009/65/EC that deals with the types of portfolio investments that are eligible for the ‘other 10%’ bucket. According to ESMA article 50(2)(a) refers only to investments in transferable securities and money market instruments and not to units or shares of collective investment undertakings. Therefore, ESMA’s opinion is that UCITS may only invest in units or shares of collective investment undertakings as defined in Article 50(1)(e) of the UCITS Directive. Ireland Central Bank consultation on implementing the AIFMD The Central Bank of Ireland has issued consultation paper 60 on how it proposes to implement the Alternative Investment Fund Managers Directive (AIFMD). The consultation paper which is over 300 pages long sets out in detail how the Central Bank proposes to amend its current rules by replacing them with a single ‘AIF Handbook’. The consultation paper 60 gives the Central Bank an opportunity to rationalise its Non UCITS notices and Guidance, and create one set of rules ‘AIF HandBook’ which would give advantage of no overlapping of issues, and avoid confusion and cost to investors and issuers alike. The AIF Handbook with evolve and change overtime. The AIF Handbook will be divided into the following 6 chapters:- 1 Retail investor AIF requirements The draft report is available via the following web link: On 16 November 2012 the Council of the European Union released the first Cypriot Presidency compromise text on the UCITS V proposal. The document contains new provisions: • Prohibiting the re-use of financial instruments held in custody by the depositary for its own account or by ESMA expects that any portfolio adjustments required to ensure compliance with this opinion will be made taking into account the best interests of investors and at the latest by 31 December 2013. 2 Qualifying investor AIF requirements 3 AIFM requirements 4 AIF management company requirements 5 Fund administrator requirements 6 AIF depositary requirements any third party to whom custody has been delegated. • Foreseeing that in addition to banks and investment firms, other legal entities subject to prudential supervision and minimum capital The Central Bank has also sought industry views on a range of issues including abolishing the promoter regime, discontinuing the professional investor fund (PIF) structure, removing Irish specific prime broker requirements and removing the existing property fund 2 Fund News – November 2012 rules. • the Financial Derivatives Luxembourg The deadline for submission of responses is 11 December 2012 but worth noting that the final AIF handbook will not be effective before July 2013. AIF Interim Handbook will be published in January, and by consulting early with the industry it allows the Central Bank and the funds industry to be aligned, and allows the fund industry of Ireland to provide constructive input on a new regulatory framework. The industry will be able to rely on this handbook while the final AIFMD framework is put in place in Ireland. The consultation paper is available via the following web link: Proposed changes to the regulatory reporting obligations of Irish funds In June 2012, the Central Bank of Ireland issued a consultation paper (CP 59) proposing changes to the regulatory reporting requirements for Irish funds including a requirement to file: • the annual and interim financial statements • the auditor statutory duty confirmation Instruments report • the Key Investor Information Document (KIID) • two new regulatory returns. The Central Bank has now published a Feedback Statement on the submissions it received on CP 59. While the Central Bank has made some specific changes, in general the Central Bank intends to proceed as set out in the consultation paper. At this stage, the Central Bank is considering introducing this new regime in the first quarter of 2013. However, this date may be subject to change. Dear CEO letter on Anti-Money Laundering (AML) In the last year, the Central Bank of Ireland has carried out a range of inspections to monitor compliance by financial services firms with their AML obligations. As a result, the Central Bank has just issued a letter to all Irish regulated firms including funds, fund administrators and custodians. In this letter the Central Bank provides an overview of its key findings and asks firms to consider these findings in the context of their own AML control environment. CSSF Press Release on UCITS portfolio investments On 23 November 2012 the Commission de Surveillance du Secteur Financier (CSSF) issued a Press Release to draw to the attention of Luxembourg UCITS to the ESMA Opinion (see page 2) on the eligibility of instruments under article 41(2)a) of the law of 2010 on Undertakings for Collective Investment. Luxembourg UCITS will have until 31 December 2013 to liquidate any current non-compliant fund holdings, and are not permitted to make any new investments in non-compliant funds. The Press Release is available via the following link: 3 Fund News – November 2012 UK FSA commences consultation on implementing the AIFMD On 14 November 2012 the Financial Services Authority (‘FSA’) issued a Consultation Paper (‘CP12/32’) on the proposed rules and guidance for transposing the Alternative Investment Fund Managers Directive (‘AIFMD’) into UK law. It is the first of two instalments and takes important policy positions on a wide variety of areas that will impact how the Directive applies in the UK to managers of traditional investment funds, hedge funds, investment trusts, private equity, infrastructure & real estate. The second instalment is expected to be published in Q1 2013 and will explain in more detail the AIFMD’s ‘regulatory perimeter’, clarifying which firms will need to seek authorisation as an AIFM, reflecting that areas will need to be clarified after the EU level 2 technical provisions are released. The key highlights are: • The FSA does not expect to be in a position to receive AIFM applications or Variation of Permissions (‘VoPs’) before 22 July 2013. • It will create a new section of its Handbook, entitled FUND, containing requirements for AIFs and UCITS funds, and the companies that manage them. • The FSA reiterates key points from the Directive regarding the interaction of UCITS/MiFID/AIFMD and the different combinations of firms and the capital and authorisation requirements of each. The FSA is of the view that MiFID activities of AIFMs should be passportable in the EU, however the FSA recognises that this view is not shared by fellow competent authorities in Europe. • Investment managers structured as limited partnerships subject to the law of England and Wales will not be able to become AIFMs. This is because limited partnerships subject to the laws of England and Wales, unlike some other jurisdictions, do not have separate legal personality. • HM Treasury doesn’t intend to require the External Valuer to be an authorised person. • The FSA does not intend to give firms the option of using contractual guarantees in lieu of regulatory liability risk. They have not commented on the extent to which they will use this discretion. • New reporting forms will be required for different categories of manager. • The FSA has in general reiterated much of the ESMA advice but has said that it will consult on how the transparency provisions (annual report, disclosure to investors) of the AIFM interact with current requirements for NURS and QIS in their second instalment. Both regimes will continue, but the AIFMs of these AIFs will need to comply with the additional areas of the Directive. It is difficult to read between the lines and understand if the FSA expect the Authorised Corporate Director or the Investment Manager to be the AIFM, but it appears to suggest both are a possibility. • The FSA makes clear that the definition of marketing within the Directive is different from the current definition of a financial promotion. It intends to transpose that definition into the Handbook but have not at this stage issued additional guidance in this area. • HM Treasury will decide upon the application of the AIFMD to smaller AIFMs (paper to be published in January 2013). • The FSA confirmed that firms seeking authorisation between 22 July 2013 and 22 July 2014, who meet the definition of an AIFM, must be fully compliant at the point of authorisation. capital. Article 9(6) allowed a Member State to let an AIFM provide up to 50% of the additional own funds required under Article 9(3) with a guarantee from a credit institution or insurance undertaking. • The FSA noted that they expect the level 2 regulation will also allow them to ask a firm to hold additional own funds if they are not satisfied the current level is sufficient to cover appropriately professional • It is not proposing to increase the private placement obligations above those within the Directive. • The FSA has opened the door for administrators to act as depositaries to certain private equity funds and real estate funds. They have set a minimum capital requirement (£125,000) for these firms which may limit the number of firms providing these services. It has 4 Fund News – November 2012 indicated that there may also be some changes to CASS as a result of the Directive, but has not provided detail. • The FSA recognises that the extent to which investment trusts can delegate activities to investment managers will be decided at level 2, if they do not delegate then the investment trusts will need to have more substance to be compliant particularly in relation to investment decisions. International Developments FSB consultation on Shadow Banking On 18 November, the Financial Stability Board (FSB) published for public consultation a set of recommendations to strengthen oversight and regulation of shadow banking. The FSB has focused on the following five areas: 1 to mitigate the spill-over effect between the regular banking system and the shadow banking system; other than MMFs (other shadow banking entities); and 3 a report entitled ‘Policy Recommendations to Address Shadow Banking Risks in Securities Lending and Repos’ that sets out 13 recommendations to enhance transparency, strengthen regulation of securities financing transactions, and improve market structure. The main proposals are: • to establish minimum standards under which market participants The FSA’s introduction to CP 12/32 is available via this link: http://www.fsa.gov.uk/library/policy/cp/2 012/12-32.shtml This link includes a link to a pdf of CP12/32 (232 pages). 2 to reduce the susceptibility of money market funds (MMFs) to ‘runs’; 3 to assess and mitigate systemic risks posed by other shadow banking entities; 4 to assess and align the incentives associated with securitisation; and 5 to dampen risks and pro-cyclical incentives associated with secured financing contracts such as repos, and securities lending that may exacerbate funding strains in times of ‘runs’. would calculate haircuts, in order to limit the extent to which haircuts are reduced in benign market environments. • improve regulatory reporting and market transparency (in particular through the establishment of trade repositories); • improve corporate disclosures for financial institutions’ securities lending, repo and wider collateral management activities; The consultative documents comprise: • improve reporting by fund managers to end-investors; 1 a report entitled ‘An Integrated Overview of Policy Recommendations’ which sets out the FSB’s overall approach to shadow banking issues and provides an overview of its recommendations across the five specific areas; 2 a report entitled ‘Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities’ which sets out a high-level policy framework to assess and mitigate bank-like systemic risks posed by shadow banking entities • limit liquidity risks associated with cash collateral reinvestment; • address risks associated with the re-hypothecation of client assets. Financial intermediaries should provide sufficient disclosure to clients in relation to re-hypothecation of assets so that clients can understand their exposures in the event of a failure of the intermediary; only entities subject to adequate 5 ... - tailieumienphi.vn