Complying with new regulations is a continuous effort and may challenge organizations and management ‘adaptive intelligence’ capabilities. Regulatory environment with evolving requirements may be considered by industry players as a moving target and in some industries volatility and speed for evolutions may appear to be high. UCITS IV, for instance, was enforced in July 2011, 16 months ago, and last July the European Commission adopted a proposal for a UCITS V directive (amending the current UCITS rules related to depositary functions, remuneration policies and sanctions) which may apply by the end of 2014, in 2 years time. In the case of Insurance industry, the Directive Solvency II, which has been under pressure from the industry and the governments for quite a long time, is now envisaged for 2016 and give the illustrative example of a long delivery process which give more time to adapt and transform organizations and operations. In both cases, regulatory watch and impacts anticipation are key enablers for an ‘adaptive intelligence’.
UCITS IV – Union’s fourth directive on Undertakings for Collective Investment in Transferable Securities
- Context: UCITS funds are a worldwide brand, renowned for their adaptability and dependability. UCITS IV is the new regulatory framework for European asset management sector and an important step towards the single European market in financial services – likely to transform the asset management industry as MiFID did for broker-dealers and investment banks. The Directive has been transposed into national legislation across all EU countries by July 1st 2011. Further to the transposition in France in October 2011, the AMF proposed various amendments of its General Regulation published on Oct. 25th 2012.
- Legal instruments and scope: European funds labeled as Ucits, distributed to retail or institutional investors, Asset managers managing UCITS funds.
- July 3rd 2012: the European Commission adopted a proposal for a UCITS V directive amending the current UCITS rules as regards depositary functions, remuneration policies and sanctions.
- Q4 2014: the new rules could apply by the end of 2014.
Update: on July 26th 2012 the European Commission issued an in-depth consultation on issues arising in the area of investment funds (securities lending/repos, OTC derivatives and systemic and liquidity issues regarding Exchange Traded Funds, Money Market Funds), this consultation is the first step toward UCITS VI.
Foreign Account Tax Compliance Act (FATCA)
- On Nov. 14th 2012, U.S. Department of the Treasury published a second model Intergovernmental Agreement (IGA) for Cooperation to facilitate FATCA implementation. The first IGA model published in July 2012 exempted foreign banks from signing a legal agreement with the US Internal Revenue Service (IRS) or implement the FATCA withholding tax system, if they passed full information on individual American accountholders to their own governments for subsequent forwarding to the IRS. The second IGA model requires foreign banks to register directly with the IRS by Jan. 1st 2014.
- On Nov. 8th 2012, the U.S. Department of the Treasury announced that it is engaged with more than 50 countries and jurisdictions to enter into Intergovernmental Agreements (IGAs) for compliance with the FATCA tax provisions. It is in the process of finalizing additional IGAs for the following countries by the end of 2012: France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, Netherlands and Norway.
Short Selling Regulation
- Reminder: The European Commission published on March 24th 2012 the Regulation (EU) N°236/2012 on short selling and certain aspects of Credit Default Swaps, which shall apply from Nov. 1st 2012. Its objectives are to create a European harmonized framework, to avoid regulatory arbitrage and ensure coordination between regulators, increase transparency and reduce risks of naked short selling.
- News: The European Commission adopted on July 5th 2012 a Delegated regulation (EU) N°918/2012 supplementing Regulation (EU) N°236/2012, with regard to regulatory technical standards in order to ensure consistent compliance by market participants and enforcement by competent authorities.
- Timing: The Delegated Regulation shall apply from Nov. 1st 2012, except for the provisions on the principal trading venue which shall apply from July 6th 2012.
Markets in Financial Instruments Directive (MiFID)
- The Autorité des Marchés Financiers (AMF) published on Nov. 26th 2012 its Position 2012-17 which integrates July 6th 2012 ESMA guidelines on Markets in Financial Instruments Directive (MiFID I) compliance function requirements (ESMA/2012/388). The AMF applies all the guidelines published by ESMA on MiFID I, transposed into national Law in 2007. Those guidelines on compliance function requirements aim notably at specifying responsibilities requirements (non-compliance risk, control, declaration and advice roles), organizational requirements and regulators evaluation terms.
- Timing: Position 2012-17 implementation scheduled on Jan. 28th 2013.
French Internal Control regulation – CRBF 97-02 and Financial Security Law 2003-706
- Reminder: French credit institutions and investment firms are subject to the Banking and Financial Regulations Committee (CRBF) 97-02 regulation published on Feb. 21st 1997. The articles 42, 43 and 43-1 of CRBF 97-02 details requirements regarding Internal Control, notably on the Internal Control report to be sent at least once a year to the Autorité de Contrôle Prudentiel.
- News: The Autorité de Contrôle Prudentiel (ACP) published on Nov. 15th 2012 its Structure of Internal Control report to give guidelines to impacted firms to facilitate their own Internal Report structure definition.
- Reminder: Companies listed in France are subject to the Financial Security Law (2003-706) published on Aug. 1st 2003 aiming at strengthening corporate governance legal provisions. The LSF law notably requests company board presidents to detail through a report implemented Internal Control framework and procedures in their company.
- News: The Autorité des Marchés Financiers (AMF) published on Nov. 26th 2012 its yearly Internal Control study based on the analysis of 106 listed companies board reports including Finance and insurance companies.
Contact : Adlen Bouchenafa