Central Securities Depositories Regulation (CSDR) Update
On July 23, the Council of the EU published a press release announcing that it had adopted the CSDR on improving securities settlement and regulating central securities depositories.
The European Commission published a letter on July 23 (dated June 23, 2014) to ESMA setting out a provisional request for technical advice concerning possible delegated acts relating to certain settlement discipline measures and aspects relating to supervisory co-operation under the CSDR.
The letter attaches two formal mandates for technical advice to assist the Commission in preparing delegated acts as required by Articles 7 (penalties for settlement fails) and 14 (supervisory co-operation) of the CSDR.
The commission has requested ESMA to provide its technical advice nine months after the CSDR enters into force. Press Release. Letter. Formal Mandates.
ESMA Discussion Paper on Calculation of Counterparty Risk by UCITS for OTC Derivatives Subject to EMIR Clearing
On July 23, ESMA published a discussion paper on how the limits on counterparty risk in centrally cleared OTC derivative transactions under the UCITS IV Directive should be calculated, and whether the same rules for both OTC transactions that are centrally cleared and for exchange-traded derivatives (ETDs) should be applied.
The UCITS IV Directive allows UCITS to invest in both ETDs and OTC derivatives, but only investments in OTC derivatives are currently subject to counterparty risk exposure limits.
The consultation closes on October 22, 2014. ESMA will use the feedback to determine its final views on the appropriate way forward, including a possible recommendation to the European Commission on a modification of UCITS IV. Discussion Paper.
Reviews into LIBOR, EURIBOR and TIBOR
On July 22, the International Organisation of Securities Commissions (IOSCO) published a Web page on its review of the implementation of IOSCO's principles for financial benchmarks by administrators of the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR). IOSCO found that the three administrators have made significant progress in implementing most of the principles. However, further work is needed on implementing the principles on benchmark design, data sufficiency and transparency of benchmark determinations.
Also on July 22, the Financial Stability Board (FSB) published a report prepared by the Official Sector Steering Group (OSSG) of regulators and central banks on reforming major interest rate benchmarks. The report was based on the March 2014 report of the Market Participants Group, a group of private sector experts asked by the OSSG to identify additional benchmark rates and to analyze transition issues arising from a move to an alternative rate. It was also based on the IOSCO review.
In the report, the OSSG recommends a multiple-rate approach that involves: (i) strengthening the existing IBORs (the collective term used by the FSB for each of LIBOR, EURIBO and TIBOR) and other potential reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data; and (ii) developing alternative, nearly interest-risk free reference rates. Web Page. FSB Report. Market Participants Group Report.
Amendments to Offshore Fund Rules to Reflect Finance Act 2014 AIFM Partnership Tax Changes
Regulations amending the Offshore Funds Regulations 2009 (the 2009 Regulations) to reflect the Finance Act 2014 changes to the taxation of alternative investment fund managers operating as partnerships (AIFM firms) were made on July 21 and have effect for disposals made on or after August 12, 2014. The 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 from part of the partner's profit share. Accordingly, the partner is not subject to tax on the profit. Instead, the AIFM is treated as a partner in the AIFM firm and is subject to income tax at the additional rate (currently 45 percent) 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. Regulations.