The Private Equity Reporting Group (PERG) (formerly "The Guidelines Monitoring Group"), has published its ninth annual report (the "Report") on the private equity industry's conformity with "The Guidelines for Disclosure and Transparency in Private Equity", (the "Walker Guidelines" or "Guidelines").

The Report notes that:

  • there had been a slight fall in the number of portfolio companies covered by the Guidelines from the previous report;
  • the quality of disclosure by portfolio companies had fallen substantially in 2016 with only 57 per cent of the review sample achieving good/excellent ratings (compared to 95 per cent in 2015). This is attributed to a higher proportion being new to the process and continued improvement in the quality of reporting among FTSE 350 companies, which constitutes the benchmark against which the reporting of participant portfolio companies is judged;
  • portfolio companies had not significantly improved the quality of disclosure in any one criterion of the Guidelines. In particular, weakness was noted in "review of financial position", "balanced and comprehensive analysis of development and performance during the year and position at the year end" and "financial and non-financial key performance indicators", among several others;
  • 20 per cent of portfolio companies had not published audited reports and accounts on their website, at the time of the report, as well as a greater proportion which had not published accounts within six months of year end. The Report further states that these companies will be publicly named if this is not rectified by the next report; and
  • almost 50 per cent of companies reviewed were lacking human rights / gender diversity disclosures in their annual reports. These instances have been largely rectified by supplemental disclosures on companies' websites however, the Report notes, this reflects a need for increased awareness of the requirements of the Guidelines.



Verena Ross, Executive director of the European Securities and Markets Authority (ESMA) has delivered a speech at the 2016 Global Capital Markets Conference about the importance of capital markets in financing the future and how ESMA's role will contribute towards achieving this objective.

In particular, Ross discussed ESMA's agenda on the asset management side in certain key work streams:

  • Asset Segregation under AIFMD and UCITS - ESMA is focussing on how best to ensure investor protection when tackling questions of legal interpretation and how pieces of legislation interact. ESMA is considering addressing the EU institutions through a formal opinion suggesting clarifications of the AIFMD/UCITS legislative frameworks.
  • PRIIPs - The European Supervisory Authorities (ESAs, being ESMA, the European Banking Authority and the European Insurance and Occupational Pensions Authority) are currently working to prepare a response to the Commission's letter, dated the 9th November 2016, proposing amendments to the draft PRIIPs Regulatory Technical Standards (RTS). ESMA has started preparatory work on guidance in the form of Q&As on the PRIIPs Regulation within the Joint Committee of the ESAs, which it plans to develop once the situation with the RTS has stabilised. The guidance is aimed at facilitating the implementation of PRIIPs rules by firms and ensuring convergent practices across the EU.
  • The role played in international work on asset management regulation - ESMA plans to follow closely the work of the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) as it develops, following the FSB's consultation paper in June on Structural Vulnerabilities form Asset Management Activities. IOSCO plans to operationalize the paper's recommendations to address potential sources of systemic risk. ESMA has also been involved in European Systemic Risk Board work in the European context on leverage, liquidity and stress testing of investment funds with a view to allowing the specificities of the asset management sector, and the existing regulatory framework, to be fully taken into account as recommendations are developed.
  • How asset management activities are contributing to the European Commission's Capital Markets Union (CMU) initiative -ESMA published an opinion earlier this year regarding a number of elements of a common framework for this activity including organisational requirements, eligible investors and eligible debtors. The Commission is now considering the next steps in light of ESMA's opinion. ESMA has additionally been working towards increasing the volume of funds marketed and sold across the EU by gathering information on practices of national competent authorities in this respect, and providing it to the Commission.

Other topics discussed by Ross included the revised rules for ensuring quality of execution for client orders; the new transparency regime for bonds under MiFID II; and how ESMA's supervisory convergence work supports the growth of CMU.


The FCA is inviting views on the future funding of the Financial Services Compensation Scheme (FSCS) and has also launched a consultation (CP16/42) on a number of specific changes to the FSCS's rules. For some authorised firms, the scale and impact of FSCS levies has risen sharply in recent years.

The FCA is inviting responses on a number of options for changing both the funding of the FSCS and the coverage it provides to consumers. These options include:

  • asking for feedback on the professional indemnity insurance (PII) market and the coverage that it provides. The FCA is considering proposals to make PII more effective through the introduction of mandatory terms;
  • introducing product provider contributions towards intermediation claims;
  • changing the FSCS funding classes for intermediation activities;
  • updating limits on consumer coverage in light of the pension freedoms; and
  • exploring the potential for FSCS levies to better reflect the risks posed by particular practices.

The FCA is also consulting on a number of specific proposals to change rules affecting the scope and operation of FSCS funding, including:

  • amending payment arrangements so that firms may be asked to pay a proportion of the levy on account;
  • introducing FSCS coverage for debt management firms;
  • extending coverage in respect of fund management, to include enabling the FSCS to "look through" a claim by a fund against an authorised fund manager or depositary in default, in order to enable the FSCS to compensate the underlying fund participants. This may mean fund managers and depositaries paying higher FSCS levies;
  • applying FSCS protection to advice and intermediation of structured deposits; and
  • ensuring that FCA rules include Lloyd's of London appropriately, in circumstances where they could be called on to contribute.

The FCA is asking for responses to CP 16/42 by 31 March 2017 before publishing final rules and a further Consultation Paper on proposed rule changes in Autumn 2017.


The FCA has released a consultation paper (CP16/40) which proposes stricter rules for firms selling `contract for difference' (CFD) products to retail customers in order to improve standards across the sector and to ensure consumers are appropriately protected.

Retail CFDs, such as spread bets and rolling spot foreign exchange products, are complex, leveraged derivative financial instruments that investment firms offer, often through online platforms.

Following an increase in the number of firms in the CFD market, including those operating on a cross-border basis, the FCA has concerns that more retail customers are opening and trading CFD products that they do not adequately understand. Based on a sample of client data, the FCA found that 80 per cent of clients lost money on CFDs over a year with an average loss of 2,200. Other European Union jurisdictions have seen similar figures.

This has created significant conduct concerns. In particular:

  • retail clients are offered smaller minimum account sizes and order sizes combined with higher leverage, often in excess of 200:1;
  • high levels of leverage, combined with firms' use of automatic margin closeout (whereby trading positions are closed if a client's available margin falls below a certain level), can result in a high probability of trades being closed at a loss due to ordinary intra-day market volatility; and
  • retail clients' attention is increasingly drawn towards gambling-style promotions, such as the ability to win bonuses through trading or the offer of account opening bonuses or gifts.

The consultation paper also discusses possible policy approaches for the regulation of binary bets once these products are brought into scope. Binary bets allow a client to `bet' on whether the price of a financial instrument will be higher or lower than a fixed threshold at a future point in time. Binary bets are often marketed in a similar way to CFDs and the short duration of a binary bet can lead to potentially addictive `trading' behaviours more associated with gambling.

The FCA's proposed package of reforms includes the following measures:

  • introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to better illustrate the risks and historical performance of products;
  • setting lower leverage limits for inexperienced retail clients who do not have 12 months or more experience of active trading in CFDs, with a maximum of 25:1;
  • capping leverage at a maximum level of 50:1 for all retail clients and introducing lower leverage caps across different assets according to their risks; and
  • preventing providers from using any form of trading or account opening bonuses or benefits to promote CFD products.

The FCA is asking for feedback on the proposals to be sent by 7 March 2017. The FCA will then consider the feedback and aims to publish a Policy Statement confirming final FCA Handbook rules in spring 2017, with a view to these rules coming in to force shortly afterwards.