News

Jan2

How are you getting on with………..?

Posted by admin

 

Apparently 2014 is the year of the horse, or so I have heard. It seems more likely that the City will come to regard it as the year of the hearse, come to take away the remains of a once loved financial services industry, sadly now regulated to death. That might not be the most up-beat note on which to start the year, but there are many ways in which this year will be pivotal to the future of the industry. We still have a chance to save ourselves, but it is a long way from certain that we will do so.

You will, I am sure, be looking forward to the full implementation of AIFMD. Getting the application in is now an urgent priority. Yes, you don’t need to be AIFMD-authorised until 22 July; no you can’t leave it any longer before you make the formal application to FCA. If you have not yet been brave enough to look at the application form, lose no time in enjoying a preview. There’s plenty to do to keep you amused over the coming months, but actually it is more urgent than that. If you haven’t viewed the FCA’s recent comments, you should look at Alternative Investment Fund Managers Directive (AIFMD) – Financial Conduct Authority.

It may well be that you have not been able to look at AIFMD because you have been tackling EMIR. Clearly EMIR is very important otherwise the European Commission would not have rejected ESMA’s advice for a postponement of reporting of transactions in exchange traded derivatives. And ESMA would not have taken so long to authorise trade repositories. So, it begins in earnest on 12th February. EMIR – Financial Conduct Authority. Luckily you have not got anything else pressing over the next couple of months. Except AIFMD, that is.

For an investment firm, its capitalisation is hardly the most pressing concern of its customers. Much to the firm’s chagrin, customers are more concerned with their own well-being than the firm’s; it does not really matter to them if you go under, provided that you have done the right thing by CASS. So they won’t ask you how you are getting on with CRD IV – they will leave that to the regulator, the regulator who was made to care because the EU believes that it is good for the soul of the investment firm that it should be capitalised as if it were a bank. So unless you are lucky enough to be a new-look BIPRU firm, you will have spent your Christmas adjusting for a standard which will mean that if you were a bank and the crisis hit again, you would survive. If, on the other hand, you spent Christmas enjoying mince pies, you have some urgent work to do. CRD IV – Financial Conduct Authority. Luckily you have not got anything else pressing over the next couple of months. Except EMIR, that is. Oh, and AIFMD.

So it is, as I mention to you the FCA consultation on the use of dealing commission, that I imagine myself playing with fire. Actually, I can already hear the sniggering as I dare to mention new rules that won’t be in place for many months. That’s tomorrow’s problem. Well, only sort of. You see, FCA is just clarifying what it always intended and now that it is clear, we can’t credibly claim we did not understand. CP13/17 – Consultation on the use of dealing commission rules – Financial Conduct Authority. So, as you have not got much else on, you may as well look at how you measure up against the revealed truth.

As feelings of helplessness envelope the industry, there actually is something you can do about it – you can respond to the government’s Balance of Competences survey and tell them what they can do with the European regulators. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251514/PU1568_BoC_FSFMC_CfE_proof4.pdf. Pity you won’t have time.

Oh, and FCA is taking a particular interest in outsourcing. Are you?

Happy New Year.

 

 

Posted in: AIFMD, CRD, EU, FCA
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Dec30

The Sad Case of The Dog Who Did Not Bark

Posted by admin

Those who have already enjoyed the FCA’s Policy Statement on CRD IV (PS 13/10) will have noted that FCA is sticking to its proposed treatment of BIPRU firms, voluntarily applying ICAAPs, Pillar 3 disclosure and the Remuneration Code. Disappointing, but unsurprising, you may think. But had you anticipated the responses that FCA received? Of the estimated 1000 firms affected, just a dozen responded, although others were, of course, represented in the responses from trade bodies. Of that dozen, only one was bold enough to suggest that FCA might not have got this quite right.

When FCA published the consultation (CP 13/6), I pointed out that

  1. Other EU countries may drop all these requirements and therefore be more attractive locations for new start-ups
  2. Any relaxations emerging from the 2015 review will be unlikely to come into force before 2018, leaving a super-equivalent regime in place for 5 years
  3. Firms that are wary of two changes – one now and one in 2018 – could retain their own ICAAP, Pillar 3 etc. even if FCA drops the obligation, without messing about those who prefer to drop them
  4. The FCA makes no bones about the fact that the CRD regime was designed for banks – it is implementation of Basle III (a banking accord) – and is therefore OTT for investment firms (in fact it is an example of massive gold-plating at the EU level)
  5. The FSA made plain that it disapproved of the application of the remuneration controls to investment firms when they were introduced
  6. If FCA applies these measures voluntarily to these 1000 firms, it will be difficult for them to argue in the 2015 review that this is an OTT regime.

 

While the FCA’s excuses for taking this position consist of a series of questionable assertions and admissions of poor preparedness, the industry reasoning that I have heard is no less regrettable. I have yet to find anyone who knows what the competition in Dublin and Luxemburg is doing. In fact it is pretty clear that the maintenance of barriers to entry is a proposition that the industry supports and the regulator accepts. But let’s not overlook the fact that, if an easier ride becomes available elsewhere in the EU, new competition may well emerge in those jurisdictions and passport its way across the EEA. Five years may be long enough for critical mass to develop outside this country. Should we care? It seems we don’t.

Oliver Lodge

December 2013

 

 

Posted in: CRD, EU, FCA, Remuneration Code
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Dec10

EU Reform

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Unless you have been on Mars for the last two years, you will be aware that the government is planning to hold a referendum after the general election on whether the UK should remain in the EU. That is now in legislation and is quite likely to go ahead even if we see a change of government.

The referendum choice will be between a reformed relationship with the EU and negotiating the county’s departure. The polls indicate that opinion is finely balanced at this stage; however that seems likely to tip towards the No vote next year when immigration from Bulgaria and Romania will receive huge media attention. Most of the financial services industry takes the view that remaining in the EU is valuable, but, unless negotiated reform is credible, a No vote cannot be ruled out. For that reason, the government wants to be able to deliver credible reform; similarly, to a considerable extent, that will also motivate EU countries and institutions to listen to UK concerns as well as consider what reform they want to see.

At this stage, the government is consulting on the ‘balance of competences’ between the EU and UK. What this means is who holds which powers to make and enforce legislation and regulation. The consultation is segmented and the financial services segment is currently open, looking for input by 17th January. This consultation will form a major element of the government’s approach to EU reform in this sector of governance.

The views of some, which we do not share, are that the industry has no wish to see any financial services regulatory activity repatriated. That is certainly not consistent with what we hear from the many firms that we speak to. Is it also true that the industry wants a single European rulebook? One set of rules would obviously be ideal, especially if the rest of Europe chose to comply with ours, but is handing over control of all regulatory policy to the EU an attractive proposition? Is it desirable that ESMA should determine how supervision is done in the UK? Will they be better targeted than a national regulator seeking – imperfectly, to be sure – to address emerging problems? What will happen if the EU becomes even less sympathetic to the financial services industry? Are we ready to hand over the keys permanently? For some, the single standard is all. For many, the content, the cost, the flexibility and the resultant international competiveness are the important features.

Whatever your viewpoint, it would be very good news if firms responded to the government’s consultation. In the consultation document (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251514/PU1568_BoC_FSFMC_CfE_proof4.pdf) at p41 is a list of questions, which can be pasted into a new document and annotated with answers to any questions that you consider important. It is then sent to:

balanceofcompetences@hmtreasury.gsi.gov.uk

 

 

Posted in: EU
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