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 January deadline
The FCA deadline for applications for authorisation or variation of permission
for firms currently relying on the transitional period expired this week on 22
January 2014. While the Treasury did makes its own comments in December,
the FCA had advised firms to apply by this time on the basis that it may need a
full six months to determine the application. In the meantime, firms which have
already submitted applications are waiting for up to eight weeks to be assigned a
case officer.
UK loses short selling challenge
The EU Court of Justice has ruled against the UK’s attempt to limit the authority
of the EU to ban short selling. In 2012, the EU passed a law giving ESMA the
power to ban short selling if it considers that the practice threatens the stability
of the EU financial system. The UK had challenged ESMA’s authority as a
restraint on trade and argued that such measures interfered with the efficiency of
the markets. The ECJ said the powers were “compatible with EU law” and
dismissed the UK’s legal case in its entirety.

2. EMIR dispute
The FCA and the European Commission are at odds over a loophole that allows
swap users to leave certain FX derivatives unreported for the purposes of EMIR.
In its national implementation of MiFID, the FCA excluded FX forwards, nondeliverable currency forwards and spot transactions for FX and commodities
from the definition of a financial instrument. EMIR refers to the definition in
MiFID when defining which derivatives need reporting under EMIR. This means
that in the UK, these FX transactions are not considered derivatives for EMIR
purposes. That said, it appears that UK counterparties will not necessarily take
advantage of the loophole, as they do not see anything to gain in not reporting
such trades.
LIBOR
ICE Benchmark Administration Limited (IBA) has announced that it will take
over as the new Libor administrator on 1 February 2014. The IBA recently
received FCA approval to act as administrator. IBA takes over from BBA
LIBOR Limited, which had been performing the role of interim benchmark
administrator for LIBOR since April 2013. The appointment of a new
administrator was one of the key recommendations of the Wheatley Review into
LIBOR manipulation, which was published in September 2012. Meanwhile, two
senior members of Angela Merkel’s party have called for changes to the setting
and supervision of Libor, demanding better oversight and a new system for
setting rates.
Financial transaction tax
The 11 Member States participating in talks on the FTT appear to be considering
excluding sovereign bonds, repos, pension fund transactions and now derivatives
and securitised debt from the levy. Several of the countries are concerned that
the tax could disrupt their debt markets just as the Eurozone is starting to turn the
corner. However, the EU’s top tax official has called on Member States not to
dilute the proposals, suggesting instead that they could implement the plan more
gradually. If bonds and the other asset classes are exempt, the FTT would
effectively shrink to become a type of stamp duty on shares.

3. PRA to consult on remuneration recommendations
The UK government has published an uncorrected transcript on oral evidence
given to the House of Commons Treasury Committee. Mark Carney, Governor
of the BoE announced that the PRA intends to consult in April 2014 on
implementing the remuneration recommendations of the Parliamentary
Commission on Banking Standards (PCBS). Issues that the PRA will consider
will include lengthening the deferral of compensation to more than five years
and the claw back of past compensation as well as deferred compensation. The
BoE stated that the PRA would consult on a revised Remuneration Code in 2014
to implement the PCBS' recommendations.
EU considers proprietary trading ban
Draft plans drawn up by the EU financial services chief suggest that 29 of the
largest banks in the EU could face a ‘narrowly’ defined ban on proprietary
trading from 2018. Those banks identified by regulators as systematically
important at a global level or if they exceeded certain financial thresholds would
be caught by the ban. Mr Barnier has pledged to propose bank structure rules
before the end of his mandate this year, but senior European Parliament
lawmakers have already rejected his approach as too late in the term. Earmarked
lenders would be barred from investing in hedge funds or in other entities that
sponsor hedge funds to prevent them from circumventing the ban.
BBA urges closer ties with EU
The British Bankers Association has recommended the UK to forge closer ties
with, and devote more resources to, the EU to influence market reform and
benefit the economy. This was stated against the backdrop of the government’s
warning that the EU must reform if it wants the UK to remain a member. The
BBA said that membership of the EU enhanced Britain’s ability to influence
international negotiations and that the single market was a significant factor in
London’s success as Europe’s financial centre and therefore of considerable
value to the economy.

4. Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
24January 2014