1. Welcome to Legal Shorts, a short briefing on some of the week’s developments in the
financial services industry.
Listen to this week's Legal Shorts on CLTV by going to:
http://vimeo.com/cummingslaw
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
claire.cummings@cummingslaw.com
www.cummingslaw.com
AIFMD: FCA update on application process
The FCA has published information about the application process on its
AIFMD webpage. The new section explains that when a prospective AIFM
applies to the FCA for authorisation or a VoP, a "triage team" will decide
whether that application contains enough information to be assigned to a case
officer. The FCA carries out this analysis as quickly as possible, but it is
expecting to receive a high volume of AIFM applications in January 2014, so
the assessment could take longer than expected. If an application is deemed to
be incomplete, the FCA will notify the firm and ask the firm to send the
necessary information. The statutory timeframe for determinations will only
start once an application is complete.
MiFID II
The European Parliament has published a press release announcing that
informal political agreement in trialogue has been reached on the proposed
MiFID II Directive and the proposed Markets in Financial Instruments
Regulation (MiFIR). The press release highlights the agreements reached on the

2. following issues: market structure, investor protection, commodities (in
particular, the power of competent authorities to limit the size of a net position
that a person may hold in commodity derivatives), high-frequency algorithmic
trading in financial instruments and the use of an "EU passport" by third
countries whose rules are equivalent to those of MiFID II. The EU plans to
implement MiFID II by the end of 2016.
Taxation of partnerships
The House of Lords Economic Affairs Committee has announced that it has
established the House of Lords Finance Bill Sub-Committee (FBSC) to inquire
into the draft Finance Bill 2014 clauses. The FBSC has announced a call for
evidence on two particular topics, one being the taxation of partnerships. The
FBSC requests evidence on whether the approach of the legislation is
appropriate or whether the provisions, such as those in the draft Finance Bill
2014, are a symptom of underlying problems with that approach. It also invites
evidence on the conclusions in the report that is expected to be published
shortly by the Office of Tax Simplification on the taxation of partnerships. The
deadline for the written evidence is 23 January 2014.
Capital Requirements Regulation: own funds
Further to the implementing Regulation relating to the disclosure of own funds
requirements under the Capital Requirements Regulation (CRR) adopted by the
European Commission last week, draft RTS have been set out in a cover note
published this week. The RTS cover a number of areas, including: common
equity tier 1 capital, additional tier 1 capital, deductions from common equity
tier 1 capital and from own funds in general, transitional grandfathering
provisions for own funds and specification of the concept of gain on sale. The
EBA published a final draft version of these RTS in July 2013.
Basel III proposals endorsed
The BIS has announced that the Basel Committee on Banking Supervision
(BCBS) has endorsed a number of Basel III proposals. These proposals relate to
completion of post-crisis regulatory reforms and include: (i) a common
definition of the leverage ratio; (ii) changes to the net stable funding ratio
(NSFR); (iii) minimum requirements for liquidity-related disclosures; and (iv)
the strategic priorities of the BCBS for the next two years. A common definition
of the leverage ratio has been formulated to overcome differences in national

3. accounting frameworks which had prevented ready comparison and the ratio has
been adjusted following warnings that the rule could penalise low-risk financial
activities and curtail lending. The LCR-related disclosure requirements are
intended to improve the transparency of regulatory liquidity requirements and
enhance market discipline; the liquidity rule was also modified to make it easier
to count a certain type of central bank loan against regulatory standards.
First Renminbi ETF listed on LSE
A new qualified fund has been launched on the London Stock Exchange
enabling investors to invest directly in the Chinese equity markets in Renminbi
(RNB). CSOP Asset Management, a Chinese firm based in Hong Kong, and
Source, a UK firm based in London, are launching the fund, which will be the
first RNB qualified foreign institutional investor (RQFII) exchange traded fund
(ETF) listed in London. The Hong Kong and UK RQFII schemes permit
financial institutions to use offshore RNB to invest in the Chinese mainland
equity markets (that is, investments in shares, bonds and money market
instruments). This development follows steps taken by the Chinese and UK
governments to develop the offshore RNB market in London. The fund will be
available to retail and institutional investors across the EU.
Special Administration Regime for investment banks
HM Treasury has published the final report from Peter Bloxham following his
review of the special administration regime (SAR) for investment banks. The
conclusion of the report is that the SAR should remain in force, but identifies
certain recommendations for reform. These recommendations include: (i)
facilitating transfers of client positions without the need for client consent; (ii)
amendments to the bar date i.e. the cut-off date for claims; (iii) making the
CASS and SAR rules work better together; and (iv) making further
enhancements to the Financial Services Compensation Scheme. The report
concludes with the hope that a combination of CASS reforms, operational
improvements in going concern mode and changes to the SAR will improve the
overall effectiveness of the client asset and SAR regimes when an investment
firm fails.

4. UK to form free trade zone within the EU?
The Chancellor has said that Britain should try to form a free trade zone within
the EU to speed up completion of the single market. Mr Osborne expressed
frustration at the slow pace of EU reform and suggested that the principles of
enhanced cooperation be used i.e. like-minded EU Member States should be
able to create a free trade agreement in the same way as 11 Member States have
signed up for the proposed financial transaction tax.
GUEST SHORTS
This week, James Lasry, partner and head of funds, and Richard Bowry, senior
associate, at Hassans law firm, Gibraltar, report on Gibraltar’s status as a full
signatory to the IOSCO MMoU on regulatory information exchange, as follows:
“The Financial Services Commission of Gibraltar has been approved as a full
“A” signatory under the Multilateral Memorandum of Understanding
Concerning Consultation and Cooperation and the Exchange of Information (the
“MMoU”) of the International Organisation of Securities Commissions
(“IOSCO”). The status enhances the position of Gibraltar as a gateway territory
to the EU for the purposes of the AIFMD.
In the context of AIFMD, the new status means Gibraltar can freely enter into
memoranda of understanding with regulators of non-EU countries in order to
allow Gibraltar fund managers to delegate services outside the EU, a common
practice. By such means, it will be possible for new and existing fund managers
to set up a fund management business in Gibraltar with minimal disruption to
their existing business. Such entities can establish a fund manager in Gibraltar
and delegate the provision of services, such as portfolio and risk management,
to their existing group entities or service providers outside Gibraltar, and
outside the EU. As Gibraltar is within the EU, the Gibraltar manager will be
able to market its EU based funds throughout the EU utilising the EU-wide
marketing passport available under AIFMD. A Swiss fund management group,
for example, can set up a fund management business in Gibraltar, and delegate
portfolio management and other services back to the existing Swiss operation.
The Swiss group, through its Gibraltar manager, will be able to market all its
existing EU funds throughout the EU via the marketing passport.
The MMoU sets out general principles regarding areas such as mutual
assistance and the exchange of information between regulatory authorities. The
MMoU has become the benchmark for IOSCO members for the purposes of
cooperation and exchange of information. By being a full signatory to the
MMoU, Gibraltar joins the ranks of other key international financial centres
who have subscribed to these international standards.”
If you would like to discuss the above or receive further information regarding

5. the investment funds industry in Gibraltar, please contact James Lasry at
james.lasry@hassans.gi.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
17 January 2014