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
AIFM partnership tax changes
Amendments have been made to the Offshore Funds Regulations 2009 (SI
2009/3001) to reflect tax changes relating to AIFMs operating as
partnerships. The Finance Act 2014 changes to the taxation of AIFM firms
permit AIFM firms to elect for all or part of a partner's "relevant restricted
profit" to be allocated to the AIFM firm rather than form part of the partner's
profit share. As such, the partner is not subject to tax on the profit, but the
AIFM is treated as a partner instead and is subject to income tax at the
additional rate (currently 45%) on the allocated amount. The partner is
subsequently subject to tax on the amount that vests, but will receive a tax
credit for the tax paid by the AIFM firm.
AIFMD: FCA update on AIFMD applications
The FCA has updated its AIFMD webpage on the current status of
applications for authorisation, which coincides with the AIFMD deadline of
22 July 2014. The FCA reminds firms that they should ensure that they are
aware of how the AIFMD impacts on them and ensure that they are fully
compliant with all relevant AIFMD requirements from 22 July 2014. This

2. applies even if firms took advantage of the extension of the one-year
transitional period which expires on that date. The FCA also reminds firms
that those using the extended transitional period will not be required to
comply with the marketing provisions in the AIFM Regulations 2013 (SI
2013/1773), as they will not be able to market their funds into the EEA until
they are authorised. According to a report by AIMA this week, a number of
EU and EEA countries have yet to transpose the AIFMD, which is hindering
AIFMs' ability to do business. These are Iceland, Lithuania, Norway,
Poland, Portugal, Romani, Slovenia and Spain.
AIFMD: ESMA updates Q&A
ESMA has updated its Q&As on the application of the AIFMD. The new
Q&As relate to reporting to national competent authorities under Articles 3,
24 and 42, depositaries and calculation of leverage. The aim of the Q&As is
to promote common supervisory approaches and practices in the application
of the AIFMD and its implementing measures. The answers are also
intended to help AIFMs by providing clarity on the content of the AIFMD
rules.
UCITS V adopted
The Council of the EU has announce that it has adopted the UCITS V
Directive based on the text it published on 16 July. UCITS V will enter into
force on the twentieth day following the date of its publication in the
Official Journal and Member States will have 18 months to transpose the
Directive into national law. Depositories will be given an additional 24-
month transition period after the transposition deadline.
EMIR clearing and UCITS
ESMA has published a discussion paper on the calculation of counterparty
risk by UCITS for OTC transactions subject to clearing obligations under
EMIR. The paper (ESMA/2014/876) seeks views on (i) how the limits on
counterparty risk in centrally cleared OTC transactions under UCITS IV
should be calculated and (ii) whether the same rules for both OTC
transactions that are centrally cleared and for exchange-traded derivatives
should be applied. UCITS IV permits investment in both ETDs and OTC
derivatives, but only investments in OTC derivatives are currently subject to
counterparty risk exposure limits Responses are requested by 22 October

3. 2014.
CRD IV
The FCA has published a new webpage containing guidance for directors of
firms that are subject to CRD IV relating to the new limits on the number of
directorships that they may hold which took effect on 1 July 2014. The
guidance states that directors of firms that are deemed "significant" who
wish to hold one additional non-executive directorship beyond the limits laid
down in rule 4.3.A.6 of SYSC will need to apply for a modification. The
information supporting the application for modification should include a
description of other roles (non-executive and executive roles, but not limited
to directorships) held by the individual to whom the application relates, the
nature, size and complexity of each firm where the individual currently has a
role, a record of committee/board attendance and role in each such firm and
any conflicts of interest between the individual's directorships.
HM Treasury report on financial services
HM Treasury has published a report on the balance of competences between
the UK and the EU on financial services and the free movement of capital,
and whether the balance is appropriate to the national interest. According to
the report, evidence suggests that in the areas covered, the balance of
competences is broadly appropriate although it is often undermined by poor
policy-making. The report suggests that for the balance to be fully
appropriate in the future, the EU should undertake significant reform of the
existing EU policy-making framework and processes, take a more
proportionate approach to legislation in all sub-sectors, and give greater
consideration to the principle of subsidiarity in retail market sectors. The
report is split into 5 chapters, the final one considering in particular the
implications of the international regulatory framework and global markets,
the impact of the euro area and the banking union on the UK's future
national interest, and how to improve the quality of EU-level rules.
OECD global standard for automatic exchange of tax information
The OECD has released the full version of a global standard for automatic
and multilateral exchange of financial information between tax authorities.
The standard provides for annual automatic exchange between governments
of financial account information reported to governments by financial

4. institutions, which include custodial institutions, depository institutions and
investment entities. It covers accounts held by individuals and entities,
including trusts and foundations. The standard will be presented by the
OECD to the meeting of G20 finance ministers due to take place in
Australia on 20 and 21 September 2014. The OECD has asked for public
comments on how voluntary disclosure could be further encouraged. The
deadline for responses is 12 September 2014.
FSB report on benchmark reform
The Financial Stability Board has published a report by the Official Sector
Steering Group (OSSG) on reforming major interest rate benchmarks. In the
report, the OSSG recommends a multiple-rate approach that involves
strengthening existing global benchmark rates and other potential reference
rates based on unsecured bank funding costs by underpinning them to the
greatest extent possible with transactions data, as well as developing
alternative, nearly interest-risk free reference rates. The FSB has endorsed
these recommendations and mandated the OSSG to monitor and oversee the
implementation of the reforms. The report sets out timelines for
implementing the OSSG's recommendations.
Update on financial sanctions and FCA suspension powers
HM Treasury has published a revision to its financial sanctions policy to
comply with recent ECJ case law. The revised policy means that any funds
arriving in the UK, or in a UK bank anywhere in the world, which have
come from or via a designated person based outside the EU, must be frozen
in a suspense account, or other separate account, on arrival in the UK bank.
A licence from HM Treasury will be needed to release the funds to the
intended recipient. The new rules will come into force at midnight on 31
July 2014. Meanwhile, the Serious Fraud Office has announced that that it
has opened a criminal investigation into allegations of fraudulent conduct in
the forex market. The FCA has already commenced investigations,
alongside several other agencies, into a number of firms relating to trading
on the forex market. Finally, the FCA has used its suspension power for the
first time, suspending two subsidiaries of the Financial Group from
recruiting new appointed representatives and individual advisers for 126
days. Tracey McDermott, FCA Director of Enforcement and Financial
Crime, commented that this was the first time the FCA had used its
suspension or restriction powers to punish a firm for serious misconduct.
She said that this case was a direct intervention by the FCA in the way the
firm runs its business. The sanction was intended to send a message of

5. deterrence to the rest of the industry and serve as a reminder that the FCA
takes systems and controls failings very seriously and is able to respond with
sanctions to target the specific revenue streams of different types of
businesses.
GUEST SHORTS
Our Guest Short this week is provided by Branden Jones, head of marketing
at Liquid Holdings Group, a cloud-based technology and managed services
provider, as follows:
“Liquid Holdings Group has published a summary on the impact a sound
data management and operations model has on a hedge fund’s ability to
attract and raise capital. The consultation paper details how hedge funds
‘built to last’ highlights operations as a differentiator, one that not only
governs transparency, but allows the business to tackle performance
reporting, risk projections, disaster planning and service its investors better.
To read the paper in its entirety, please visit
http://liquidholdings.com/whitepapers/newreality.html.”
If you would like more information on the above or about Liquid Holdings
Group in general, please contact Branden Jones at:
bjones@liquidholdings.com.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
25 July 2014