Issue3 – June 2013
P1
VIEWPOINT
MIF – Structural changes
in the bank’s distribution
model following the ban
on inducement
DASHBOARD
Overview of the main
ongoing regulations
P2
REFORM NEWS
Regulatory authorities
clear some of the fog
around EMIR
Mastering regulatory
programs in global
banks: FATCA
Custodians are facing
dramatic changes due to
the coming UCITS V
Trialogues
between the European Commission, the European Council and the
European Parliament on the second edition of the Market in Financial Instruments Directive
(MIFID) are scheduled to start now for an implementation by 2015. Amongst the items
reviewed in the proposal are investor protection and more specifically a ban on inducements for
independent financial advisory and portfolio management services. This ban would mean that
financial service providers are no longer allowed to receive inducements for acting as an
intermediary or advisor for certain investment products. An intermediary or advisor will no
longer receive what was said to be a perverse stimulus (in the form of third party inducements)
to act in his own interests, and will be able to provide truly objective advice. The ban on
inducement covers fees that investment firms receive for allowing fund providers to use their
distribution channel. These fees are usually deducted of the net asset value returned to the
client.
Certain local regulatory authorities have anticipated the ban and drafted local measures. As it
stands, local regulations vary greatly from one country to another. Italy introduced a ban on
inducements restricted to portfolio management services in 2007, the United Kingdom did the
same for financial advisory services and the Netherlands introduced a complete ban, both as of
January 2013. The local authority in France favors a complete ban on inducements, however, it
is not expected to implement any measures before the MIFID II deadline.
Financial institutions have started to anticipate the new regulations by reviewing their business
model in anticipation of the different regulations. Short term responses such as a review of their
pricing policy, the introduction of an upfront advisory fee as well as the introduction of new
clean share-classes have been taken. However, it seems unlikely that these measures will suffice
to compensate the potential losses. Financial institutions will have to find more structural and
long term solutions further impacting their distribution model, organization and processes.
By Yvette Roozenbeek & Christophe Combes
News from the Regulator
News from the Market Place
Consultation => Proposition
Final phase with adoption by the EP plenary in
April. The translation completion date will define
the implementation date: 01/14 or 07/14
MIFID II (EU)
Proposition => Adoption
A few technical issues to solve. Votes of the EP in
10/2013.
European banks are confident with rules
compliance, but they fear the US and Asian
competition on the remuneration limits
UK Foresight report rejects regulation on
HFT: minimum resting time, circuit
breakers…
AIFMD (EU)
Adoption => Implementation
National legislators are preparing the
implementation for July 2013
Asset Managers are checking and adapting
their business models in the light of
changes at the market place
EMIR (EU)
Adoption => Implementation
Last reporting technical standards to be
implemented by Q3/Q4 2013
According to ESMA timeline , the first TR
registration will not begin before 08/2013
Current and next stages
US on
going
EU main on going regulations
Basel III (Int’l) / CRD
IV (EU)
Directive on credit
relating to residential
property (EU)
Proposition => Adoption
Indicative date of votes of the EP in 07/2013.
After adoption, transposition in French law for
implementation in 2015
Intermediaries bank operations, brokers
and Agents in credits are concerned
Central Securities
Depositories (EU)
Proposition => Adoption
Votes of the EP in 11/2013.
After adoption, implementation in 2015
ICSD should separate pure custody services
from other ancillary banking services
Implementation date 01/2014; IGA negotiations,
first IGAs Type 2 signed (Switzerland)
FFIs face challenge to register all their legal
entities worldwide and the implementation
approach requires additional efforts
FATCA (US)
Adoption => Implementation
For
more than two years, the financial industry
struggles to grasp the specific implications of EMIR on
their business model. To most institutions, the entire
scope and impact of EMIR is still vague at best.
Regulatory authorities yet have to deliver more
specifics that can finally provide the additional
transparency and further control mechanisms for the
OTC derivatives markets.
However, there is light at the end of the tunnel: the
European Securities and Markets Authority (ESMA) has
published a timeline that provides an overview of next
steps until Q3 2014. Two statements can be pointed
out here:
First, implementation of reporting requirements will be
of primary focus in Q2 and Q3 2013. After ESMA has
completed the registration process of trade
repositories scheduled for July 2013, financial (FC) and
certain non-financial counterparties (NFC) will be
required to report newly initiated, changed and closedout derivatives positions by September 2013, the
earliest. Corresponding reporting requirements (e.g.
data fields to be reported) are outlined in the
regulatory technical standards (RTS) and are available
for implementation. We recommend that financial
institutions act quickly and take the necessary steps
soon to adapt their regulatory reporting processes and
systems to become compliant in Q3 2013.
Second, the more complex RTS on clearing
requirements will be developed by March 2014, the
earliest. The clearing obligation will apply to relevant
financial counterparties, yet also to non-financial
counterparties that exceed certain thresholds (e.g.
notional value of 1 billion EUR for credit and equity
derivatives contracts). Especially larger financial
institutions will face significant costs to update their
operations
to
become
EMIR-compliant.
We
recommend that financial institutions ramp up their
activities significantly to prepare for effective
implementation.
Even though there are still numerous open issues in
OTC derivatives regulation, e.g. the collateralisation of
bilateral OTC contracts, the reporting requirements
mark the first step to a gradual implementation of
EMIR, to the benefit of more transparent and wellfunctioning financial markets.
By Kristian Buric
Starting January 2014 the US government will use FATCA
to fight tax evasion. Financial institutions globally will
have to report clients with certain US indicia to the IRS to
avoid a 30% withholding tax. Banks have to adapt their
operating model, processes etc. to become FATCA
compliant. Later on they will be required to set-up a
client reporting to the IRS and implement tax withholding
for clients staying recalcitrant to US disclosure.
EGC supports its clients to become FATCA compliant by
setting up a tailored program management approach to
ensure efficiency and effectiveness in all areas concerned
incl. tracking, reporting, risk and quality management,
communication and training. Regulatory experts help
translating frameworks into tangible generic business
requirements so that businesses can derive specific
requirements based on global standards. EGC advises on
how to best integrate regulatory requirements into
operations and systems locally whilst closely monitoring
local legislation.
By Matthias Greiller
UCITS V aims at improving investor protection and will
impact Custodian Banks especially. We consider an
impact on market-structure very likely: the depository
function can only be executed by credit institutions or
investment firms under UCITS V; that leaves the
possibility of buyouts for some and the threat of it for
others. Besides, we expect an impact on offer: possibly
an examination and adjustment of product portfolios will
take place. This is due to tightened reporting and recordkeeping standards, complicating doing business in certain
markets or funds that invest in highly complex assets.
Furthermore, an impact on costs is almost certain: costs
will likely increase due to increased accountability of
Custodians regarding carelessness or deliberate
malpractice (also regarding third-party depositories).
Although the regulation has not been finalized, yet, it is
likely to come into force by the end of 2014. Custodians
are well advised to keep an eye on the developments to
be able to implement the necessary changes in time.
By Laura Zdrzalek
Regulation Wire is published by EUROGROUP CONSULTING Network whose members are:
EUROGROUP CONSULTING France, Germany, Austria, Italy, Belgium, Netherlands, Portugal, Luxembourg, Morocco as well as Altair Management Consultants in Spain, Karlöf
Consulting in Scandinavia, Ensight Management Consulting in Romania, Azimutus in Poland, Forté Consultancy Group in Turkey, Prospectus in Ireland and Talos Management
Consultants in Switzerland
Issue3
1
-– June
October
20132012