Navigating Regulatory Compliance Investment Management Update - October 2016

Navigating Regulatory Compliance October Investment Management Update October 2016 Navigating Regulatory Compliance Investment Management Update – October 2016 1. What were September’s highlights? 1.1 European Parliament rejects PRIIPs RTS On 14 September the European Parliament voted in plenary session, by a vote of 602 to 4 (12 abstaining), to approve a resolution objecting to the European Commission’s proposed Delegated Regulation supplementing the Regulation on Key Information Documents (PRIIPs KID Regulation). The proposed Delegated Regulation contains regulatory technical standards (PRIIPs RTS) on the presentation, content, review and revision of KIDs. The European Parliament has sustained the 1 September 2016 vote by the European Parliament Economic and Monetary Affairs Committee (ECON) to unanimously approve the motion rejecting the PRIIPs RTS. The ECON Committee rejected the RTS, describing them as “misleading” and “flawed.” The Parliament explains that the Commission will now have to propose new RTS for implementing the PRIIPs KID Regulation, which is due to apply from 31 December 2016. See our briefing for more information. 1.2 HM Treasury Consultation Paper: Amending the definition of financial advice On 20 September 2016, HM Treasury published a consultation paper “Amending the definition of financial advice.” HM Treasury and the FCA published the final report on the financial advice market review (FAMR) in March 2016 following the launch of FAMR in August 2015. One of the recommendations of the final report was that the government should consult on amending the definition of regulated advice in article 53 of the RAO, to bring it in line with the definition set out in the Markets in Financial Instruments Directive (MiFID). The proposed change would mean that only advice that makes a personal recommendation would be regulated. This amendment would provide firms with greater certainty by:  creating a single definition for regulated advice based upon the MiFID definition of a personal recommendation  removing some of the regulatory barriers constraining the content of current guidance services The consultation paper sets out the government’s proposed approach in addition to the amended text for article 53 which is set out in part 8 of the consultation paper. It is also worth noting that in response to the FAMR, the FCA plans to produce new guidance to support firms offering services that help consumers to make their own investment decisions without a personal recommendation. This guidance will set out the FCA’s view on what providers of guidance services need to do in order to treat customers fairly. This will complement the change to the definition of advice. The consultation closes on 15 November 2016. Navigating Regulatory Compliance Investment Management Update – October 2016 1.3 Duty of Responsibility for Senior Managers On 28 September 2016, the FCA published a consultation paper (CP16/26) to give guidance on how it will enforce the duty of responsibility under the senior managers regime (SMR). On 4 May 2016, Parliament passed the Bank of England and Financial Services Act 2016, which introduced the duty of responsibility. The duty of responsibility came into force on 10 May 2016. It currently applies to persons performing senior management functions at UK banks, building societies, credit unions, PRAdesignated investment firms, and incoming branches of overseas firms. However, from 2018, the SMR will be extended to all regulated financial services firms. The FCA previously consulted on guidance on how it would enforce the presumption of responsibility, which was subsequently replaced by the duty of responsibility. In developing the proposed guidance, the FCA has sought to address relevant responses to those consultations, and it summarises, at pages 9 and 10 of CP16/26, its position on those responses. See our briefing for more information. 1.4 FCA Published Third MiFID II Consultation Paper On 29 September 2016, the FCA published its third consultation paper (CP16/29) on the UK implementation of the MiFID II Directive. Comments on CP16/29 are requested by 4 January 2017, with the exception of proposals in chapter 16 relating to the FCA's Supervision manual (SUP), authorisation and approved persons, for which the deadline is 31 October 2016. The consultation paper is split into two parts:  Part 1 deals with conduct of business issues  Part 2 deals with other matters, covering a range of issues not covered by the FCA’s previous two consultation papers The FCA points out that that implementation of MiFID II also requires changes to UK legislation and PRA rules. It clarifies that the proposals in CP16/29 are based on the draft statutory instruments that HM Treasury consulted on in March 2016 which may be subject to change. The PRA will publish in due course a policy statement following on from its proposals relating to passporting and algorithmic trading set out in its March 2016 consultation (CP9/16). In addition, the FCA will continue to analyse all consequential changes that need to be made to the Handbook, including the specialist regimes. It believes this will lead to a further consultation later in 2016. The FCA is expected to publish a policy statement covering all aspects of MiFID II implementation in the first half of 2017. Navigating Regulatory Compliance Investment Management Update – October 2016 Impact # Topic Type Headline Date Summary Link to more information 1. General FCA: Fine FCA fines and prohibits financial adviser for failing to act with integrity and for failing to be open and honest with the regulator 01/09 The FCA has banned Elizabeth Anne Parry from performing any function in relation to any regulated financial activity and fined her £109,400 for lying repeatedly to the regulator when asked about her qualification status. Miss Parry made six misleading statements to the FCA between January 2013 and September 2015, with the intention of making the FCA believe that she had attained the appropriate qualifications to provide investment advice. Miss Parry also submitted a fabricated Statement of Professional Standing to the FCA. FCA fines and prohibits financial adviser for failing to act with integrity and for failing to be open and honest with the regulator 2. General FCA: Update FCA launches consultation into Pension Wise standards: changes for secondary annuity market guidance: CP16/22 06/09 The FCA has launched a consultation regarding proposed changes to the standards applied to Pension Wise designated guidance providers. The changes are required as a result of the Government’s decision to extend access to Pension Wise to individuals considering selling their annuity income and to contingent beneficiaries with an interest in these annuities. The FCA has identified asset management firms as one of the groups to which the consultation is most relevant. The consultation is due to close on 4 October 2016 with a Policy Statement scheduled to be published in Q4 2016. FCA launches consultation into Pension Wise standards: changes for secondary annuity market guidance: CP16/22 £109,400 Fines 0 New Directives 0 High Impact Announcements 1 Speeches 0 Finalised Policy Brexit 1 Navigating Regulatory Compliance Investment Management Update – October 2016 Impact # Topic Type Headline Date Summary Link to more information 3. General FCA: Update FCA publishes Decision Notice for Andrew Tinney, former Barclays Wealth senior director 14/09 The FCA has published a Decision Notice in respect of Mr Andrew Tinney, formerly Chief Operating Officer of Barclays Wealth and Investment Management. The FCA’s has found that Mr Tinney should be publicly censured and banned from carrying out any senior management or Significant Influence Functions in any regulated financial service provider. Mr Tinney has disputed the FCA’s decision and has referred the matter to the Upper Tribunal. Accordingly, the FCA’s Decision Notice has no effect pending the determination by the Tribunal. FCA publishes Decision Notice for Andrew Tinney, former Barclays Wealth senior director 4. General FCA: Update FCA publishes Occasional Paper No. 21: Asymmetries in Dark Pool Reference Prices 15/09 The FCA has published an Occasional Paper (i) analysing the prevalence of trades at stale reference prices, their costs and their impact on different market participants and (ii) investigating questions concerning the choice of reference price: to what extent are participants implementing best execution practices when a dark pool references a worse price than the lit market and is this influenced by conflicts of interest within dark pools and participant sophistication? FCA publishes Occasional Paper No. 21: Asymmetries in Dark Pool Reference Prices 5. MiFIR ESMA: Update ESMA consults on trading obligation for derivatives 20/09 ESMA has published a discussion paper regarding the trading obligation under the Markets in Financial Instruments Regulation (MiFIR). The consultation is open for comments until 21 November 2016. ESMA will use the feedback received to continue working on implementing MiFIR’s trading obligation and, if deemed appropriate, draft technical standards specifying which derivatives should be subject to the trading obligation. ESMA publishes discussion paper regarding trading obligation under MiFIR 6. Passporting House of Commons: Update FCA data on UK authorised firms holding single market passports 20/09 The House of Commons Treasury Select Committee published a letter (dated 17 August 2016) from Andrew Bailey, Chief Executive of the FCA, to Andrew Tyrie, Treasury Committee Chairman, which provides information on the number of UK authorised financial services firms that currently hold single market passports. In a related press release Mr Tyrie comments that "efforts to secure an appropriate arrangement for UK-based firms will be one of the most challenging aspects of the negotiations about the UK’s future relationship with the EU" and that the issue of passporting should be a priority in those negotiations. FCA data on UK authorised firms holding single market passports 7. Financial Advice HM Treasury: Update HM Treasury consults on amending RAO definition of financial advice 20/09 HM Treasury published a consultation paper on amending the definition of financial advice in article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order (SI 2001/544) (RAO). The consultation closes on 15 November 2016. HM Treasury consults on amending RAO definition of financial advice Navigating Regulatory Compliance Investment Management Update – October 2016 Impact # Topic Type Headline Date Summary Link to more information 8. UCITS V, SFTR, CAIFs FCA: Update FCA Handbook Notice 37 23/09 The FCA published Handbook Notice 37 together with a number of related Handbook Instruments which make significant changes to the FCA Handbook concerning among other subjects UCITS V, SFTR and CAIFs. See our recent briefing “Shedding light on changes to the FCA Handbook” for more information. FCA Handbook Notice 37 9. Cyber Security FCA: Speech FCA approach to cyber security in financial services firms 21/09 The FCA published a speech by Nausicaa Delfas, FCA Director of Specialist Supervision, on the FCA's supervisory approach to cyber security in financial services firms. The key emerging risks the FCA will be focusing on are ransomware, data storage and outsourcing, and the skills gap in cyber. In future, the FCA will be engaging with a much wider range of firms than previously in relation to cyber resilience. It intends to focus on those firms where a successful attack might pose the greatest risk to the FCA's objectives. FCA approach to cyber security in financial services firms 10. AIFMD/ UCITS V ESMA: Update ESMA publishes the responses to the Call for evidence on asset segregation 27/09 ESMA published, on a webpage, the responses it has received relating to its call for evidence on asset segregation and custody services under the Alternative Investment Fund Managers Directive and the UCITS V Directive. ESMA published the call for evidence in July 2016. ESMA publishes the responses to the Call for evidence on asset segregation 11. SMCR FCA: Update FCA proposes new measures to further strengthen Senior Managers’ and Certification Regime 28/09 The FCA issued a press release stating it is consulting on new rules to reinforce the importance of individual accountability at the most senior level of organisations and providing feedback on the implementation of the SMCR so far. The FCA has also published a policy statement confirming final rules on regulatory references. FCA proposes new measures to further strengthen SMCR 12. MiFID II FCA: Update FCA publishes third MiFID II consultation paper 29/09 The FCA has published its third consultation paper (CP16/29) on implementation proposals for the revised Markets in Financial Instruments Directive (MiFID II). The third consultation is open until 4 January 2017, except for comments on Chapter 16 - Supervision manual, authorisation and approved persons - which should reach the FCA by 31 October 2016. A fourth consultation paper is likely to be published towards the end of 2016. FCA publishes third MiFID II consultation paper Navigating Regulatory Compliance Investment Management Update – October 2016 Impact # Topic Type Headline Date Summary Link to more information 13. General FCA: Update Former Investment Portfolio Manager charged with insider dealing by FCA 29/09 The FCA has instituted criminal proceedings against Mark Alexander Lyttleton, a former Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. Mr Lyttleton is charged with three counts of insider dealing, contrary to Section 52(1) of the Criminal Justice Act 1993. Former Investment Portfolio Manager charged with insider dealing by FCA 14. Benchmarks ESMA: Update ESMA consults on future rules for financial benchmarks 29/09 ESMA has published a consultation paper regarding its draft regulatory and implementing technical standards (RTS/ITS) which will implement the Benchmarks Regulation. ESMA is asking stakeholders to comment on its proposed RTS/ITS applicable to benchmark contributors, administrators and national competent authorities. ESMA will consider the feedback to the consultation and finalise the draft RTS/ITS in order to submit them to the European Commission by 1 April 2017. ESMA consults on future rules for financial benchmarks 15. General ESMA: Update ESMA consults on future reporting rules for securities financing transactions 30/09 ESMA has issued a consultation paper on draft technical standards implementing the Securities Financing Transaction Regulation (SFTR), which aims to increase the transparency of shadow banking activities. ESMA also proposes certain amendments to existing technical standards implementing requirements relating to TRs under EMIR. ESMA explains that the amendments are needed to ensure a level playing field for market participants relating to registration and access rules. The consultation is open for feedback until 30 November 2016. ESMA will use the feedback received to finalise its draft technical standards which are to be submitted to the European Commission for endorsement by the end of Q1/beginning Q2 2017. Consequently, the finalised SFTR implementing measures would then be expected to become applicable from 2018. ESMA consults on future reporting rules for securities financing transactions 16. General ESMA: Update ESMA issues final guidelines on inside information and commodity derivatives 30/09 ESMA has issued final guidelines on information relating to commodity derivatives that is to be disclosed under the Market Abuse Regulation (MAR). Within two months of the issuance of the different language versions of these guidelines, national competent authority (NCA) will have to confirm whether or not they intend to comply with them. In the event that a NCA does not comply or does not intend to comply, it will have to inform ESMA, stating its reasons. ESMA issues final guidelines on inside information and commodity derivatives Contact details: Andrew Henderson Partner D: +44(0) 20 7919 0898 M: +44(0) 7747 795 049 AndrewHenderson@eversheds.com Michaela Walker Partner D: +44(0) 20 7919 0541 M: +44(0) 7881 804 075 MichaelaWalker@eversheds.com David Saunders Partner D: +44(0) 20 7919 4685 M: +44(0) 7557 847 402 DavidSaunders@eversheds.com eversheds.com © Eversheds LLP 2015 Eversheds LLP is a limited liability partnership Melanie Panzone Legal Director D: +44 (0) 20 7919 4567 M: +44 (0) 7342 708 154 MelaniePanzone@eversheds.com Mike Booth Regulatory Director D: +44 (0) 20 7919 0843 M: +44 (0) 7464 906 192 MichaelBooth@eversheds.com