Summary of new EU rules from Clifford Chance

On 17 January, Clifford Chance published a report on the progress of certain legislative and regulatory initiatives within the European Union. Below is a list of the most significant areas of progress; however a copy of the full report for further reference is available here.

·      Several new authorities including the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have been established and are now operational;

·      Several consultation papers were issued including EU Crisis Management, Securities Law Directive principles, Markets in Financial Instruments Directive and UCITS V, many with a 31 January 2011 deadline. Consultation conclusions will probably be issued in the second half of 2011;

·      In the first half of the year it is expected that a legislative proposal for disclosure rules relating to Packaged Retail Investment Products (PRIPs) will be finalised; 

·      There is ongoing work with regard to Basel III and Capital requirements;

·      EU Short selling regulations proposed in September 2010, look likely to be effective from July 2012.

·      EU AIFM directive to be implemented within member countries by 2013. The directive itself has been adopted by EU parliament; implementation is now being discussed with consultation and evidence on technical standards implementation being due later this month.

·      UK Retail Distribution Review, which commenced in 2006 and focused on commission fees, is now in final conclusion stages regarding the process for implementation. The RDR requirements will be effective from the end of 2012.

·      EU Corporate Governance review to make recommendations in May 2011 as a result of consultations on the Green Paper.

Clifford Chance produce very good ongoing summaries of this information from time to time and you can subscribe to their feed on their website.

Clifford Chance takes a look at the AIFM Directive

Leading global law firm, Clifford Chance, has produced a paper looking at the likely effect of the proposed EU AIFM Directive.  Clifford Chance have been closely covering this topic since it raised its ugly head and here is a link to the paper they have produced.

Time to give thanks?

It is of course Thanksgiving in the United States and we wish our American cousins a very nice weekend with family and friends.  I was lucky enough to experience a US family Thanksgiving a few years ago when I was in stuck in the US on business.  My colleague had no hesitation in welcoming me to his home and I got the turkey and pumpkin etc.  Its a great thing for a foreigner to experience and is really at the heart of the American ethos of welcoming friends and respecting what has come before you.

But in financial services outside of the US things are not looking great on the regulatory front and I could not say that it is a time to give thanks.

Last night I attended a very good seminar that Ernst & Young hosted on the hedge fund industry.

James Walker from Clifford Chance gave an update on the European directive that has been causing so much angst.  The current game of ping pong between the moderately pro business Swedish President of the EU Council and the pro taxes and pro big government French rapporteur to the EU Parliament continues with changes back and forth on issues like whether firms need a presence in the EU to market, what types of tax arrangements will be in place with offshore centers (including Hong Kong and Singapore), whether short selling and borrowing will be contrained and whether compensation will be dictated by Brussels. 

The directive is simply a protectionist and tax grab attacking an industry that is poorly understood by the general populace in the EU.

Probably the only bright light is that European politics are such a joke that it may well take them quite a while to get anything done (my view, not James').

AIMA continues to try and represent the interests of the alternative community in relation to this issue and they are to be commended for doing so.  The proposed rules are nonsense and do neither the European voting public nor the international financial sector any service.

On the US side, Sharon Hartline from White & Case spoke about the current state of US financial services legislation and in particular that legislation from the point of view of foreign fund managers.  Many bills have been put before the US Congress over the last 12 months but two are most relevant, one from Rep Kanjorski and one from Sen Dodd.

Rep Kanjorski's bill gives a lot of discretionary power to the SEC that will affect foreign fund managers.  If it becomes law, and that is not certain at all, then we would hope that the SEC exercise some constraint in rules interpretation in so far as defining things like 'client'.  It would be easy for the SEC to define client in such a way as to compel literally hundreds of overseas firms to register with them or provide other data to them.  This is very costly to those firms and indeed presents a considerable risk to the SEC that they will be regulating entities that they practically have no control (or very little control) over due to the bulk of their presence being outside the USA.  Careful common sense is needed here and a proper cost benefit analysis should be undertaken.

Sen Dodd's bill is more complex than simply dealing with fund manager registrations and it would seem logical that his bill may take some time to move through the legislative process whatever its merits or otherwise.

Lastly Stephen Po, the SFC Director of Intermediaries Supervision and the recently appointed Chairman of the IOSCO Standing Committee 3 (SC3) on Regulation of Market Intermediaries, spoke on the regulatory outlook for Hong Kong.  Stephen talked about the current system working well and there being no desire to change the existing system in any material way.  For that we do give thanks.

However as this writer expressed during the seminar, the issues with Hong Kong regulation are more granular.  The rules and laws are good, they are not ideal.  There are 'quirks' to the rules.  Definitions that could be refined, forms that could be reviewed, processes that are not relevant to some firms.  Just because the system is broadly good does not mean that it cannot be improved.

Hong Kong has an opportunity to enhance its global attractiveness to financial industry players.  As various parts of the world become less attractive, Hong Kong can leverage its rule of law, its proximity to the rest of China and the hard working nature of its work force to take a greater slice of the global financial pie.

Now speaking of pie, Happy Thanksgiving.