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Legal Shorts 03.03.17 including Spring Budget 2017 and FCA concerns regarding best execution

Published: 10 Mar 2017

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




Spring Budget 2017

The Chancellor delivered the Spring Budget 2017 this week, which was perceived as relatively low-key and targeting the self-employed. Key points include: (i) the government is to review tax reliefs aimed at encouraging investment and entrepreneurship, such as EIS and entrepreneurs’ relief, with a view to ensuring that high growth businesses have access to long-term capital; (ii) non-UK resident companies may become subject to corporation tax on gains that are currently subject to the non-resident CGT charge. However, gains on other assets appear to be excluded from the government's proposals to bring non-resident companies within the scope of corporation tax; (iii) the tax-free allowance for dividends will reduce from £5000 to £2000 with effect from April 2018; and (iii) the rate of self-employed (Class 4) NICs will increase from 9% to 10% in 2018-19, and to 11% in 2019-20. As announced in the 2016 Autumn Statement, the Budget will henceforth be delivered in the Autumn rather than in March or April of each year.


FCA concerns regarding best execution

The FCA has published a press release in which it expresses concern about how investment managers are failing to ensure effective oversight of best execution. In particular, the FCA is concerned about: (i) how poor practices have not been addressed since its 2014 thematic review on the topic; (ii) poor use of management information on execution costs and an inability to evidence any improvement to execution process based on cost data; and (iii) compliance staff not being empowered to provide effective challenge on execution quality. The FCA will be revisiting best execution in 2017 and if it finds that firms are still not fulfilling their best execution obligations, it will consider appropriate action.


FCA expectations regarding use of dealing commission

The FCA has also published a press release about firms failing to meet expectations on their use of dealing commission. In particular, the FCA is concerned about poor practices for paying for research, research budgets, research polls, systems and controls and conflicts of interest. Due to the FCA's findings and the implementation of MiFID II, the FCA will continue to focus on the use of dealing commission. Where the FCA identifies breaches of its rules or principles, it will consider appropriate action.


IA publishes updated guidance on authorised funds

The Investment Association has published an updated version of its guidance for members on authorised funds. The IA invites authorised fund managers to use the guidance, supplemented with fund and management company specific information, to inform potential investors. Alternatively, members may choose to use relevant parts of the guidance with their own literature. The updated version can be found at the following link: http://www.theinvestmentassociation.org/assets/files/industry-guidance/20170306-authorisedfundsaregulatoryguide.pdf


FCA publishes quarterly consultation paper

The FCA has published its 16th quarterly consultation paper (CP17/6), which seeks views on the FCA’s proposed changes to a number of different parts of the FCA Handbook.  The changes include the following: (i) changes to the Markets Conduct Sourcebook (MAR) to align the FCA Handbook with ESMA's guidelines on information relating to commodity derivatives markets or related spot markets for the purpose of the definition of inside information on commodity derivatives; (ii) the coming into force of the proposed new Prospectus Regulation; (iii) liquidity incentive schemes; and (iv) changes to clarify and improve the data requirements in the Handbook, most of which are set out in the SUP, specifically in relation to regulatory reporting returns and supporting guidance. Comments are invited by 3 May 2017.


MMF Regulation

The European Parliament will consider the proposed Regulation on Money Market Funds (MMF Regulation) during its plenary session to be held from 13 to 16 March 2017. Political agreement on the MMF Regulation was finally reached in November 2016 and it is expected that the MMF Regulation will be approved by the Parliament at first reading. The MMF Regulation is a result of the European Commission’s work on shadow banking and investment funds and, if adopted, the MMF Regulation will introduce a general framework of requirements to enhance the liquidity and stability of MMF funds.


ICE LIBOR update

ICE Benchmark Administration has published feedback on its additional consultation in January on the evolution of LIBOR. IBA was seeking input on one aspect of the roadmap methodology being implemented by LIBOR panel banks. IBA proposed to refine the waterfall it has designed, which contains three levels of submission methodologies to ensure that LIBOR panel banks use funding transactions where available. In response to feedback, IBA has removed parallel shift from Level 2 of the waterfall, but to allow it to be used at Level 3 (expert judgement). IBA also confirmed that it will move the publication time of LIBOR from 11.45 to 11.55 London time with effect from 27 March 2017.


Changes to ICMA buy-in procedures

The International Capital Market Association has sent a letter to the European Commission relating to changes to the ICMA buy-in procedures. In the letter, ICMA informs the Commission of changes being made to its rules and recommendations for the secondary market, specifically related to the buy-in and sell-out procedures. The ICMA buy-in and sell-out procedures provide ICMA members with an efficient remedy to deal with settlement fails by introducing common securities settlement standards across the EU. They are widely used by both buy-side and sell-side firms active in the international bond markets. The changes to the ICMA buy-in and sell-out procedures follow an extensive consultation of the ICMA membership to ensure that the rules provide an effective and efficient remedy available to fixed income market participants.



In a recent speech by Olivier Guersent, Director General DG FISMA, in the context of ongoing work being carried out by the Commission's FinTech Taskforce, the European Commission has indicated that it is considering its current approach to FinTech, which can largely be described as based on three principles: neutrality, proportionality and soundness (in terms of financial stability, integrity and security). However, the Commission is now considering whether the EU regulatory and supervisory framework should become more supportive and encourage firms to harness the opportunities of FinTech. The Commission believes that all financial services providers should be able to offer on-line services easily and across borders in compliance with AML requirements and will propose initiatives in this area in its forthcoming action plan.


Brexit update

The House of Commons International Trade Committee has published a report on UK trade options beyond 2019, which covers the UK's relationship with the World Trade Organization, the proposed free trade agreement (FTA) between the UK and the EU and the implications of the UK trading with the EU under WTO rules only. Among other things, the committee recommends that, in the FTA, the government should seek the nearest achievable approximation to the existing passporting framework and provide clarity on how complex disputes in the financial services sector will be resolved without the involvement of the EU Court of Justice.



Tel: + 44 20 7585 1406

Mob: + 44 7734 057 327


10 March 2017

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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