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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EMIR: Variation margining deadline of 1 March 2017
 
The requirement under EMIR for all AIFMs to comply with variation margin obligations on uncleared OTC derivative transactions will come into force on 1 March 2017. In-scope AIFMs will need to amend or replace their collateral documentation to reflect the new rules before 1 March 2017 to ensure trading is not disrupted, and so need to begin reviewing and negotiating documentation as soon as possible.

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Brexit update

The Prime Minister gave a speech this week on the UK government’s negotiating objectives for exiting the EU. Key points include the following: (i) the UK will not seek to be a member of the single market following its departure from the EU, which is likely to mean the loss of passporting rights, subject to any bespoke deal agreed concerning access to financial markets; (ii) the UK will seek to agree a free trade agreement (FTA) with the EU, which may “take in elements of current Single Market arrangements” in certain areas; (iii) the UK will seek to agree a “phased process of implementation” after the conclusion of the two year process initiated by the triggering of Article 50.

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Government proposes amendments to the Limited Partnership Act 1907

HM Treasury has published a revised draft legislative reform order on proposed amendments to the Limited Partnerships Act 1907 in respect of private investment funds, such as venture capital and private equity funds, following the government’s decision to proceed with the proposals set out in the order, which would establish the private fund limited partnership (PFLP) as a new form of limited partnership. HM Treasury consulted on changes to the LPA 1907 in July 2015, but the revised draft order differs greatly to the 2015 draft order published at the same time as the consultation due mainly to the government’s March 2016 response to comments received in connection with the consultation. A key amendment in the draft order is amending the definition of “collective investment scheme” for the purpose of determining which funds are covered by the PFLP regime i.e. to ignore section 235(5) of FSMA 2000, thereby allowing LPs which would meet the definition but for one of the exceptions to fall under the PFLP structure. The intention is that the order will come into force on 6 April 2017.

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MiFID II: FCA guide to applications and notifications

The FCA has published a MiFID II application and notification user guide. The guide addresses applications for new authorisation as investment firms or data reporting service providers (DRSPs), recognition of investment exchanges, variation of permission (VoPs) and change of legal status. The guide clarifies the notifications required to provide the FCA with regulatory information from firms, recognised investment exchanges (RIEs) and others, including passport notifications.

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MiFID II: ESMA briefing paper on technical data reporting

ESMA has published a briefing paper summarising technical data reporting requirements under MiFIR and which sets out the dates for the start of data collection: (i) ESMA plans to start collection of instrument reference data by July 2017; (ii) ESMA plans to start collection of data for transparency and double volume cap calculations by September 2017; and (iii) national competent authorities (NCAs) plan to start collection of transaction data by 3 January 2018.

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MiFID II: Product governance requirements

ESMA has published the responses it has received to its October 2016 consultation paper on product governance requirements under MiFID II. Respondents include: AIMA and Managed Funds Association (MFA), European Fund and Asset Management Association (EFAMA), Investment Association, Wealth Management Association, Association of Investment Companies (AIC), Securities and Markets Stakeholder Group and  International Capital Market Association (ICMA). ESMA expects to publish a final report in the first half of 2017. The guidelines will apply from 3 January 2018.

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FSB recommendations for asset management activities

The Financial Stability Board has published policy recommendations to address structural vulnerabilities from asset management activities. The FSB sets out 14 recommendations relating to the following structural vulnerabilities: (i) liquidity mismatch between fund investment assets and redemption terms and conditions for fund units. These recommendations apply to all open-ended funds; (ii) leverage within funds. These recommendations apply to all types of funds that may use leverage; (iii) operational risk and challenges in transferring investment mandates or client accounts. These recommendations apply to all asset managers commensurate with the level of risks their activities pose to the financial system; and (iv) securities lending activities of asset managers and funds. These recommendations apply to asset managers that provide indemnifications to clients. The recommendations do not apply to money market funds (MMFs).

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FCA reissues consumer credit information sheets
 
The FCA has updated its consumer credit information sheets which lenders are required to include when notifying a consumer that they are in arrears or default pursuant to section 86A of the Consumer Credit Act 1974. Firms must use the new versions of the information sheets from 14 April 2017. Until then, current versions of the information sheets, which were published in January 2014, must be used. As previously reported in Legal Shorts, the FCA published revised versions of these information sheets in October 2016, but withdrew them in December 2016 after discovering that they contained an error.

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FCA reports first criminal action in relation to its consumer credit powers 

The FCA has announced that it is taking its first criminal action in a case related to its consumer credit powers. Responsibility for the consumer credit regime was transferred to the FCA from the OFT on 1 April 2014 and the licensing regime under the Consumer Credit Act 1974 was replaced with the authorisation regime under FSMA.  The individual involved has been charged with offences under both the Consumer Credit Act 1974 and FSMA as he is alleged to  have entered into and administered regulated credit agreements as a lender while neither in possession of a consumer credit licence from the OFT (prior to 1 April 2014), or equivalent authorisation by the FCA.

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Consultation on reform of corporate fraud

The government has published a call for evidence on the reform of corporate fraud, money laundering and false accounting, seeking views on whether further reform is needed to combat corporate criminal liability. UK prosecutors have argued that it is hard to prosecute companies in the UK because of high legal hurdles. In English law, a corporation is only criminally liable if senior bosses are culpable under the “identification principle”. The government will assess the evidence of the extent of any problems with identification doctrine and the case for change and reform of corporate criminal liability in areas of economic crime other than bribery and tax evasion. The call for evidence seeks views on whether further reform is needed and proposes a number of options. Comments are invited by 24 March 2017.

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Call for review of limited partnership law

The Department for Business, Energy and Industrial Strategy (BEIS) has published a call for evidence in connection with a review of the law of limited partnerships. The call for evidence has been prompted by media reports alleging that some LPs registered in Scotland are being used as vehicles for criminal activity. BEIS is seeking views and evidence on the reasons behind the significant rise in the number of Scottish LPs and, among other things, the types of economic uses to which LPs are put and the legal characteristics of LPs that might act as enablers to criminal activity. The deadline for responses is 17 March 2017.

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

20 January 2017