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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HM consultation on amending RAO definition of financial advice

Following the City of London Law Society (CLLS)’s response to HM Treasury’s September consultation on amending the definition of financial advice in article 53 RAO last week, the Law Society has now published its response. In its response, as well as commenting on the specific questions raised in the consultation, the Law Society calls for reconsideration of the regulatory perimeter under FSMA in the light of the legislative changes needed to implement Brexit. The Law Society also argues that there may be scope for reconsidering and simplifying certain areas of the current regulatory perimeter, such as: (i) the “by way of business” test; (ii)  the regulated activities of dealing as principal, dealing as agent and arranging deals in investments, as specified in the RAO, and the extent to which they provide meaningful additional investor protection; (iii) the definition of a CIS and whether this definition, and the restriction on promoting CISs in section 238 of FSMA, is necessary given the EU concepts of UCITS and AIFs; and (iv) the financial promotion regime. The Law Society comments that there is no clear exemption for reverse solicitation or to allow the solicitation of expatriates by regulated businesses from their home jurisdictions.

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EU work programme to June 2017

The Maltese Presidency has published the EU Council’s work programme for 1 January to 30 June 2017. Items of interest include the following: (i) the Maltese Presidency will continue to push forward discussions on the CMU, particularly on the common rules on securitisation; (ii) revisions will be made to the EuVECA and EuSEF Regulations; (iii) review of EMIR, which is expected in the first quarter of 2017; and (iv) the Maltese Presidency will seek to conclude negotiations on MLD5 and reach political agreement.

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ESMA review on best execution under MiFID

ESMA has published a follow-up report to its peer review on best execution under MiFID which assesses whether deficiencies identified therein in respect of 15 national competent authorities (NCAs) had been addressed. ESMA published the peer review report in February 2015 which found that the level of implementation of best execution provisions and the level of convergence in the supervisory practices by NCAs was relatively low. In the follow-up report, ESMA concludes that there have been improvements in the level of attention paid by the NCAs to the supervision of best execution requirements, although a number of deficiencies have not yet been addressed. The report contains a detailed assessment of the follow-up actions taken by each NCA.

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MiFID II: IT outsourcing

The Futures Industry Association has published a due diligence questionnaire for MiFID II investment firms that outsource IT software and hardware. MiFID II requires investment firms engaged in algorithmic trading to ensure that all software and hardware used in algorithmic trading meets certain standards. This will mean that firms will also have to ensure that any third party vendors to whom they have outsourced software or hardware, or from whom they have procured it, also meet those standards. The aim of the questionnaire is to assist those firms in seeking such information from their IT vendors.

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MiFID II: responses to ESMA consultations

ESMA has published a list of the responses it has received to its October 2016 consultation paper on the guidelines on the suitability of the management bodies of market operators and data reporting services providers (DRSPs) under MiFID II. ESMA has also published the responses to its November 2016 consultation on draft RTS required under Article 9(6) of MiFIR. Respondents include the European Association of Co-operative Banks, European Banking Federation, ISDA and FIA and the London Stock Exchange Group.

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EMIR: ESMA publishes methodology for CCP peer reviews

ESMA has published the methodology for mandatory peer reviews relating to CCPs’ authorisation and supervision under EMIR, which is based on the existing methodology. The methodology sets out information relating to the legal basis and scope of the review, the topics covered, the assessment specifications and the approach taken to the questionnaire and report. The review will be conducted on at least an annual basis.

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MLD4

The European Parliament’s Committee on Economic Affairs (ECON) and its Committee on Civil Liberties, Justice and Home Affairs (LIBE) have objected to the proposed Delegated Regulation amending the European Commission’s list of high-risk third countries under MLD4, which was adopted by the European Commission in November 2016. Whereas the European Commission’s view is that it is obliged to identify high-risk countries exclusively on the grounds listed in Article 9(2), namely AML and CTF deficiencies, the Committees’ view is that the list of criteria in Article 9(2) is non-exhaustive and that predicate offences to money laundering, such as tax crimes, fall under these criteria. The Committees have called on the Commission to submit a new delegated act that takes account of LIBE’s concerns. The EU Council has already confirmed in December last year that it would not object to the amending Delegated Regulation.

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FCA policy update on crowdfunding

The FCA has updated its policy development webpage which sets out information on the FCA’s recent and future publications schedule.  The FCA previously published its publications schedule on 2 December 2016 and this week’s update summarises the FCA’s proposed publications and highlights the changes made to the original schedule.  Amongst the various changes, the FCA confirms that it will publish a consultation paper on new rules for firms running crowdfunding platforms in the first quarter of 2017.