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Legal Shorts 03.03.17 including Government confirms change to definition of investment advice under RAO and FCA clarifies change to definition of investment advice under RAO

posted 7 years ago

Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.
If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers. 
 
Claire Cummings
020 7585 1406
[email protected]
www.cummingslaw.com

 

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Government confirms change to definition of investment advice under RAO

HM Treasury has confirmed that it will amend the definition of financial advice under Article 53 RAO to bring it in line with the definition of personal recommendation set out in MiFID. For regulated firms, the definition of financial advice will be amended so that these firms will only be giving advice where they provide a personal recommendation. This means that regulated firms will be able to provide more advanced guidance services (which would previously have been caught by the RAO definition of advice as “advising on investments”) without being subject to the higher regulatory requirements associated with regulated advice. For unregulated firms, the existing wider RAO definition of advice as “advising on investments” will remain in place. This means that unregulated firms will not be able to provide the more detailed and tailored guidance on the merits and disadvantages of investment products, and will be limited to providing factual information about products. The new definition is intended to come into effect on 3 January 2018.

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FCA clarifies change to definition of investment advice under RAO

The FCA has provided clarification on its website of the implications for regulated and non-regulated firms in light of HM Treasury’s decision to amend the definition of regulated advice as set out above. The FCA points out that the change will not affect regulated firms already holding permission to advise under Article 53(1) or unregulated individuals and firms not authorised by the FCA, but summarised the change for other regulated firms holding other permissions.  The FCA confirms that firms do not need to take any action for the time being, and that firms will not need to re-apply for existing permissions for advising on investments or agreeing to do so. The FCA intends to consult later in 2017 on changes to the FCA Handbook and Regulatory Guides, which will come into effect in January 2018, the same time as the changes to Article 53. The FCA webpage can be found at:  https://www.fca.org.uk/firms/financial-advice-market-review-famr/changes-regulated-activities-order.

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EMIR: Variation margin deadline update

The Joint Committee of the European Supervisory Authorities (ESAs) has responded to industry requests relating to operational challenges in meeting the deadline of 1 March 2017 for exchanging variation margin which is being experienced, in particular, by smaller counterparties. The ESAs explain that neither they nor national competent authorities have the power to disapply directly applicable EU legal text and that any further delays of the application of the EU rules would formally need to be implemented through EU legislation, which is not possible due to the lengthy process for adopting EU legislation. As a result, transactions concluded on or after 1 March 2017 remain subject to the obligation to exchange variation margin.

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EMIR: FCA sets out approach to VM deadline

The FCA has welcomed the above approach by the ESAs and acknowledges that some firms may not yet be in compliance with the variation margin regime by 1 March 2017 despite their efforts to date. The FCA states that it will take a risk-based approach and use judgement as to the adequacy of progress, taking into account the position of particular firms and the credibility of the plans they have made. Where a firm has not been able to comply fully, the FCA will expect it to be able to demonstrate that it has made best efforts to achieve full compliance and be ready to explain how it will achieve compliance in as short a time as practicable for all in-scope transactions entered into from 1 March 2017.

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EMIR: Amending Delegated Regulation on VM published in OJ

The amending Delegated Regulation on risk mitigation techniques for uncleared OTC derivative contracts has been published in the Official Journal. The correcting Delegated Regulation adds two new paragraphs to the phase-in schedule for variation margin requirements with the result that, where an intragroup transaction takes place between an EU entity and a third country entity, the exchange of variation margin will not be required until three years after entry into force of the Regulation where there is no equivalence decision for that third country. Where there is an equivalence decision, the requirements will apply on the later of four months after the entry into force of the equivalence decision, or according to the general timeline. The Delegated Regulation has applied since 4 January 2017 and came into force on 25 February 2017.

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MiFID II: ESMA final report on packaged orders

ESMA has published its final report on draft RTS on the treatment of package orders under MiFIR, together with a draft Delegated Regulation based on ESMA’s final draft RTS, in response to the feedback to its November consultation. ESMA is required under MiFIR to draft RTS to establish a methodology for determining whether there is a liquid market for a package order as a whole, assessing in particular whether packages are standardised and frequently traded. ESMA’s chosen approach identifies package orders that are liquid as a whole based on general criteria (i.e. criteria that identify standardised and liquid package orders across asset classes) as well as asset-class specific criteria (i.e. criteria that reflect specificities of package orders traded in different classes of derivatives). The European Commission has three months to decide whether to endorse the draft RTS.

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MAR: FCA policy statement on delaying disclosure of inside information

The FCA has published feedback received on its consultation paper on changes to DTR 2.5 (delaying disclosure of inside information). The policy statement confirms that the FCA will proceed with its proposals to amend DTR 2.5 on the basis outlined in the consultation paper with exception of certain changes, including (amongst others)  the inclusion of the word “indicative” in DTR 2.5.1BG to clarify that the ESMA guidelines on delay in disclosure of inside information (ESMA 2016/1478) contain a non-exhaustive and indicative list of the legitimate interests of issuers to delay disclosure of inside information and situations in which delayed disclosure is likely to mislead the public. The changes come into force on 24 February 2017.

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FCA letter to firms operating crowdfunding platforms

The FCA has published a ‘Dear CEO’ letter to firms that operate loan-based crowdfunding platforms to highlight that if a lending business borrows through a platform and then lends that money to others, it may be accepting deposits under Article 5 of RAO. If a borrower accepts deposits without the correct regulatory permission, this is a breach of the general prohibition under s.19 FSMA. The letter states that the FCA expects firms to: (i) establish whether they have been facilitating loans, via their platform, to lending businesses who have lent money to others without authorisation; (ii) if they have, to stop facilitating the acceptance of deposits by such borrowers; (iii) consider what action to take to ensure this does not happen in the future; and (iv) consider what action to take in cases where a borrower has already been accepting deposits via the platform and does not hold the correct permission. Firms must forward details of the actions taken under the above, including nil returns, to the FCA by 14 March 2017.

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CMU report

The European Commission has published a report as part of its capital markets union initiative on addressing national barriers to capital flows. The report includes initial findings on national barriers to cross-border capital flows and the steps that the Commission expects Member States to take to address them. The issues highlighted include: (i) disparities in national rules concerning the marketing of funds (particularly in relation to pre-marketing and reverse solicitation), administrative arrangements imposed on UCITS and AIFs and regulatory fees for cross-border marketing; (ii) differences in investor protection rules have led many crowdfunding platforms to refuse to provide their services to non-residents and have made extensions to new markets possible only through new establishments; and (iii) the Commission invites Member States to remove residence requirements on managers of companies in the financial sector residing in the EU where they are not justified, suitable or proportionate. It suggests a deadline of the fourth quarter of 2017 for this step.

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Commission publishes assessment of EU equivalence decisions

The European Commission has published a draft staff working document containing an assessment of EU equivalence decisions in financial services policy. In the document, the Commission states that its overall experience with equivalence as a mechanism to deal with cross-border regulatory issues may be considered as “broadly satisfactory”. However, it considers that a few areas may require increased attention as regards its continued use by the EU, such as the coherence of existing equivalence provisions, which are developed individually for each specific act, and the fact that monitoring should concern relevant market developments as well as legal requirements and supervision.

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MLD5

The European Parliament’s Economic and Monetary Affairs (ECON) and its Civil Liberties, Justice and Home Affairs Committee (LIBE) have voted to adopt an amended version of their November draft report on MLD5, which amends MLD4. According to the press release, the Parliament must now give the go-ahead in its March plenary session for MEPs to start trialogue discussions with the Council of the EU and the European Commission. The text of the adopted report has not yet been made publicly available.

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Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
03 March 2017 

 

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