Sunday, April 28, 2013

UK Regulator Sets Out New Rules for the Fund Platforms Industry

The Financial Conduct Authority (FCA), UK has published rules to make the way that investors pay for platforms more transparent. In the future, platforms, in both the advised and non-advised market, will not be allowed to be funded by payments (commonly described as ‘rebates’) from product providers. Instead, a platform service must be paid for by a platform charge which is disclosed to and agreed by the investor. 

Currently, providers of investment products, such as investment managers, generally pay a rebate to some platforms in order to have their products included on a platform. This rebate comes from the annual management charge (AMC) which is paid by the investor to the fund manager. As a result, some platforms are able to give the impression that they are offering a free service, which means that the investor may not understand the true cost of the service provided by the platform.

It can be difficult for investors to compare prices and products available on different platforms. There is also a risk that these payments could lead to product bias in the investment market, as products offered by providers who are unwilling or unable to pay a rebate to the platform from their product charges may not have their products available to the investors using that platform.

The FCA is making changes to ensure that investors can make fully informed choices if they wish to use a platform and understand what they are paying for the service the platform provides. These changes include:
  • making the cost of the platform service clear to investors by ensuring that the platform service is paid for by a platform charge which is disclosed to and agreed by the investor
  • banning cash rebates for non-advised platforms to prevent these payments being used to disguise the costs of the platform charge
These rules will come into force on 6 April 2014 but platforms will have two years to move existing customers to the new explicit charging model. At the end of the two year transitional period (6 April 2016) platforms will have to charge its customers a platform charge for both new and existing business. 

Christopher Woolard, director of policy, risk and research, said: "Platforms provide a valuable service but investors are often unclear on what that service costs.  These rules ensure that platforms put customers at the heart of their business. Customers will know what they are paying and the service that they can expect. These changes will allow both investors and advisers to compare the costs of investing through different platforms and make an informed decision on whether using a platform represents good value for money. 

"We have listened to industry concerns and have introduced rules that are proportionate, recognise how the industry works in practice and the competitive role platforms play in the market. We are encouraged to see signs that the market has already started to move to products which have transparent charging structures that help consumers in anticipation of this change."

Korean Regulator Introduced National Happiness Fund

In gloomy international financial market, The Financial Services Commission (FSC), South korea has given a reason to cheer to common investor through unveiling details about the National Happiness Fund, which has been officially launched on March 29, 2013. The Fund aims to help credit recovery of delinquent borrowers and heavily-indebted low-income earners with programs including restructuring debt, easing debt servicing burden on student loans, and converting high-interest loans to lower-interest ones.

Those programs will need a total of KRW 1.5 trillion over the next 5 years. The Fund will initially raise KRW 800 billion through the KAMCO-controlled fund, loans and bond issuance. The remaining KRW 700 billion will be funded by the Fund’s proceeds and guarantee fees. Financial institutions and non-bank lenders which sign an agreement for credit recovery assistance will be obliged to sell overdue loans to the Happiness Fund if their borrowers apply for debt restructuring.

PROGRAMS TO BE FUNDED BY THE NATIONAL HAPPINESS FUND

1. Credit Recovery Assistance Program

Debt restructuring for overdue loans will be operated with two tracks:

(1) Debt restructuring by borrowers’ prior application
 
The fund will purchase overdue loans by prior application of debtors who borrowed from the enlisted financial institutions.

(2) Debt restructuring by borrowers’ later consent

For overdue loans without borrowers’ application for debt restructuring, the fund can first purchase the loans from the enlisted financial institutions and then conduct debt restructuring by obtaining borrowers’ later consent.

2. Debt Restructuring for Student Loans

eligible applicants - Individuals who give later consent to debt restructuring for overdue loans that the Fund purchased from the Korea Student Aid Foundation (KOSAF)

- Individuals with student loans overdue for 6 months or longer as of end-February 2013 from the enlisted financial institutions benefits -Debt can be written-off or rescheduled depending on applicants’ ability to repay.

-Debt repayment can be deferred until the applicant finds a job. Nullification of benefits If the applicant did not faithfully fulfill their debt restructuring obligation, or hidden assets were detected, all the benefits would be nullified.

how to apply After July 2013, the Fund or the KOSAF individually contact eligible beneficiaries to
confirm their consent to debt restructuring.

3. Conversion of Outstanding Loans into Lower-interest Loans

eligible applicants - Individuals who borrowed loans at 20% or higher from financial institutions or registered non-bank lenders; diligently repay their debt for the last 6 months or longer as of end-February 2013; and earn less than 40 million won a year 

benefits -Outstanding loans with 20% interest rate or higher can be converted to loans with lower-interest rates above 10%. For each borrower, up to 40 million of outstanding loans can be converted.

Saturday, April 27, 2013

Bermuda Prepares To Sign AIFMD Cooperation Agreement With European Securities And Markets Authority

The Bermuda Monetary Authority announced that they are advancing preparations to sign a cooperation agreement with Europe under the Alternative Investment Fund Managers Directive (AIFMD).

The AIFMD is due to be implemented across Europe by 22 July 2013. The Authority has been in discussions with the European Securities and Markets Authority (ESMA), and is aiming to sign the co-operation agreement required for third country regulators under the Directive before the July deadline.

“Bermuda’s existing regulatory framework for investment funds already provides the foundation to support the level of cooperation ESMA is seeking,” said Jeremy Cox, CEO of the Authority. “Therefore, we are in a good position to facilitate Bermuda-based funds and fund managers who want to conduct business in Europe once the AIFMD is implemented.”

Bermuda can satisfy the three core conditions that are most relevant to third countries under the AIFMD, namely that:
1.There is in place a cooperation agreement with the third country fund domicile and home member state;
2.Third countries (manager domicile or fund domicile) are not on the Financial Action Task Force list of noncooperative jurisdictions;
3.Agreements for exchange of information for tax purposes are in place between European Union (EU) States andnon-EU jurisdictions.

“We will be working on confirming details under the agreement in the coming weeks,” explained Mr. Cox. “This means Bermuda can still offer significant benefits for new and existing funds and fund managers seeking access to Europe, while also servicing those looking to operate in non-EU markets.”

Mr. Cox added that the Authority has also been actively engaged with the Bermuda Government and market practitioners in the jurisdiction to consider stakeholder input on the AIFMD. “Bermuda is a sophisticated funds jurisdiction with considerable expertise and the professional services infrastructure to support fund business with global scope,” he said. “It is clear that there is a collective effort to ensure Bermuda is appropriately aligned with the AIFMD, so that our funds sector can continue to operate from this jurisdiction successfully.”

BERMUDA REFINES DISCLOSURE REQU IREMENTS FOR COMPANY FORMATIONS

The Bermuda Monetary Authority (the Authority or BMA) announced that Bermuda is taking another step forward in its review and administrative procedures for company or partnership formations.
Specifically, there will be a refinement to the beneficial owner information companies must submit to the Authority as part of the formation process, and under exchange control requirements. 
 
Currently in the formation process, all entities must submit to the Authority a personal declaration form on beneficial owners of the partnership or company who own 5% or more of voting interests or rights.

Jeremy Cox, CEO of the BMA said, “This filing has been in effect for several years and the Authority has managed this process on behalf of the Government. The authorities in Bermuda have received further clarification on recent revisions to the international standard for identifying and disclosing information on beneficial owners, which has established the disclosure threshold at 10% or more of voting rights.”

Bermuda was already well ahead in moving towards adopting this standard, the most recent example
being the Corporate Service Provider Act 2012 which took effect on 1 January 2013,” added Mr. Cox. “We are now in a position to apply this standard across the board in Bermuda. This means that the disclosure threshold will change and entities will now be required to provide personal declaration forms for persons who own or control 10% or more of voting rights in a company or partnership, rather than the previous 5% level.” 
 
Mr. Cox said that the new 10% threshold will also apply for companies that are subject to exchange
control seeking approvals from the BMA to transfer securities. “Under the Exchange Control Act 1972 the BMA is in fact the Controller and has to date reviewed all persons who own 5% or more of securities in these entities when they request securities transfer permissions,” he said. “The threshold will now also change to 10% for such requests.” 
 
For persons submitting securities transfer requests who own less than 10% of an entity, the Authority will still provide approvals under its current general permission policy. So basically there is no change in this context for those who do not meet the revised threshold,” Mr. Cox stated. 
 
Mr. Cox advised that the policy shift from 5% to 10% will take effect immediately both for company formation applications and exchange control permissions.

Cayman Regulator Statement on AIFMD

The Cayman Islands Government passed an amendment on 15 March, 2013, which will allow the Cayman Islands Monetary Authority (CIMA) to enter into memoranda of understanding with its EU counterparts, using a model MoU developed by the European Securities Markets Authority (ESMA).

The amendment was a response to the European Union’s Alternative Investment Fund Managers Directive (AIFMD), which will require certain conditions to be met before non-EU countries can market alternative investment funds – such as hedge funds – in the EU.

Minister, the Hon. Rolston Anglin, who has responsibility for the Cayman Islands financial services sector, stated in the Legislative Assembly that the amendment was necessary to enable the continued marketing of Cayman Islands funds in the European market. The AIFMD is to be implemented across Europe from 22 July, 2013. With the amendment, Cayman is now compliant with the three AIFMD conditions that are of particular relevance to this jurisdiction. Since early 2012, CIMA has been in discussion with ESMA on the model requirements. The Authority has now taken all necessary steps to enable the signing of the agreement with ESMA and has indicated its ability and willingness to enter into cooperation agreements with the EU securities regulators based on the ESMA model MOU.

Guernsey Regulator Introduced Consultation on the Proposed Introduction of the AIFMD (Marketing) Rules, 2013

Guernsey Financial Services Commission introduced consultation paper is the first of two planned Commission consultations to facilitate the requirements of Directive 2011/61/EU on Alternative Investment Fund Managers (“the Directive”) into the local regulatory regime so as to enable regulated entities flexibility in their product strategy with respect to fund management and marketing business within the European Union or any state in the European Economic Area in which the Directive has been implemented.

Whilst recognising that some entities will fall outside the scope of the Directive, from July 2013, local entities will be permitted to market non-EU funds to investors in Member States through the Member States’ private placement regimes, as long as they fulfil certain transparency requirements and disclosures and regulatory co-operation arrangements are concluded between the Commission and the EU securities regulators in accordance with Article 42 of the Directive.
 
The AIFMD (Marketing) Rules, 2013 are proposed, to ensure that collective investment schemes and fund managers established in the Bailiwick of Guernsey who wish to market into the EEA meet the requirements of Articles 42 and 43 of the Directive. 

ASEAN Regulators Implement Cross Border Securities Offering Standards

1 April 2013... The ASEAN Capital Markets Forum (ACMF) announced today that the securities regulators in Malaysia, Singapore and Thailand have implemented the ASEAN Disclosure Standards Scheme (Scheme) for multi - jurisdiction offerings of equity and plain debt securities in ASEAN. 
 
The Scheme aims to facilitate fund raising activities as well as to enhance the investment opportunities with in ASEAN capital markets.
 
Issuers offering equity and plain debt securities in multiple jurisdictions within ASEAN will only need to comply with one single set of disclosure standards for prospectuses, known as the ASEAN Disclosure Standards , bringing about greater efficiency and cost savings to issuers. 
 
The Scheme operates on an opt-in basis and ASEAN members will adopt the Scheme as and when they are ready to do so. Malaysia, Singapore and Thailand are the first three ASEAN jurisdictions to implement the Scheme.
 
The Scheme replaces the ASEAN and Plus Standards Scheme that was announced on 12 June 2009 and is one of the capital market initiatives undertaken by the ACMF as part of the regional capital market integration plan endorsed by the ASEAN Finance Ministers in April
2009 in Pattaya, Thailand. 
 
Mr. Lee Chuan Teck, Chairman of the ACMF and Assistant Managing Director of the Monetary Authority of Singapore, said “The implementation of the Scheme is another significant achievement in the ACMF’s continuing efforts to foster ASEAN capital market integration. With the Scheme in place, issuers will only need to prepare one set of prospectus for a multi-jurisdiction offering in the region. The ACMF hopes that this will encourage more companies to offer securities across ASEAN and help promote ASEAN as integrated capital market for fund-raising.”
 
“The initiative represents a significant milestone towards creating a more efficient environment for access to capital across the region, and is a key initiative by ASEAN capital market regulators to promote greater cross-border investment flows and grow the region’s capital markets. The fully harmonised disclosure standards will allow issuers more seamless access to financing opportunities within the region while facilitating investors’ decision making in multi-jurisdiction offerings,” said Ranjit Ajit Singh, Chairman of the Securities Commission Malaysia. 
 
“I am proud of this achievement. The arrival of the fully harmonized set of disclosure standards simply proved that ACMF is determined to make fund raising process most efficient for companies looking to expand their businesses. It creates more opportunity for ASEAN to channel our savings to promote growth of our own region. I hope that, in the near future, more ASEAN securities regulators will join Malaysia, Singapore and Thailand in adopting the ASEAN Disclosure Standards, yet enlarging the impact of this Scheme.” said Mr Vorapol Socatiyanurak, Secretary-General, the Securities and Exchange Commission, Thailand.
 
Further information on the Scheme is available in Appendix I. Details on the implementation of the Scheme can be found on the websites of the Securities Commission Malaysia ( www.sc.com.my), the Monetary Authority of Singapore (www.mas.gov.sg) and the Securities and Exchange Commission, Thailand (www.sec.or.th).

New Zealand's Directors’ Guide Aimed at Sharpening Up Corporate Governance

The Financial Markets Authority (FMA) and the Institute of Directors in New Zealand (IoD) have released ‘A Director’s Guide’: a must-read for all current and aspiring directors.

The guide sets out the essentials of being an effective director and includes: questions to ask before you take up a directorship; decision making; legal requirements for signing off financial statements; and what you should do when things go wrong.

FMA CEO, Sean Hughes, said being a director is more than just a title and that ‘A Director’s Guide’ will help directors understand their obligations, particularly first time directors of small and medium-sized companies, and directors of family businesses.

“Being a director can be challenging but it can also be incredibly rewarding. This guide will act as a useful roadmap for directors to turn to,” said Mr Hughes.

“If directors keep their feet on the ground, and are alert to the risks and realities of what is happening around them, then they should feel confident that they are performing the most important duties and responsibilities of a director.”

IoD CEO, Ralph Chivers, said this guide is part of the IoD’s commitment to increasing the standard of governance in New Zealand. Good governance is ultimately a framework for making good decisions and this guide will assist aspiring directors to understand that framework.

“There is now and has always been a very high standard of care and diligence expected of directors, especially in matters relating to the management of other people’s money. Having the right knowledge and skill set to execute those responsibilities is essential for directors,” said Mr Chivers.

“It is also vital that directors are committed to on-going personal development to ensure that their knowledge and skills remain current and that they are doing the best job possible.”

A copy of ‘A Director’s Guide’ can be found here.

Bank of England News Release - Closure of Cyprus Popular Bank Public Co Ltd (Laiki Bank UK) and Transfer of All Deposits to Bank of Cyprus UK

Cyprus Popular Bank Public Co Ltd operating in the UK under the trading name ‘Laiki Bank UK’ has today reached an agreement with Bank of Cyprus UK Ltd to transfer all deposits to Bank of Cyprus UK, a UK subsidiary fully regulated by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) and covered by the UK Financial Services Compensation Scheme (FSCS) up to £85,000 per depositor.

The agreement does not affect access to bank accounts and therefore all customers who had an account with Laiki Bank UK will be able to access funds as normal and do not need to do anything.

Under the legal decree setting out the arrangements put in place by the Cypriot authorities a number of customers whose accounts are in overdraft will not be transferred to Bank of Cyprus UK. These accounts are now frozen at Laiki Bank UK and customers in overdraft will no longer have banking facilities at Laiki Bank UK. Customers in overdraft will need to contact Laiki Bank UK if they have any questions about what this means for them. Customers who had an overdraft facility but were in credit need to be aware that this facility has been cancelled. They will need to contact Bank of Cyprus UK if they want to apply for a new overdraft facility.

Additionally, mortgages and loans that customers have will not be transferred to Bank of Cyprus UK. These services have been transferred to the Bank of Cyprus, Cyprus and customers will be contacted directly in due course. However, customers should continue to make repayments as normal.
 
All other deposits, such as current accounts, will transfer to Bank of Cyprus UK. For further information customers should contact Bank of Cyprus UK.
 
Existing customers of Bank of Cyprus UK have not been impacted by the measures outlined above and the firm continues to operate as normal.  
 
Notes

1.  Until today, there were two Cypriot banks operating in the UK:

a)     Cyprus Popular Bank Public Co Ltd (CPB) which operated in the UK under the trading name ‘Laiki Bank UK’ as the UK branch of an EEA bank under the European Banking Consolidation Directive.  The Central Bank of Cyprus was the home state regulator of this firm, not the UK authorities.  As is the case with other EEA operations customers were covered by the home state deposit guarantee scheme up to 100,000 Euros per eligible depositor.

b)    Bank of Cyprus Public Limited Company operates in the UK through its subsidiary  Bank of Cyprus UK Limited (Bank of Cyprus UK) which is incorporated in the UK and fully regulated by the PRA and FCA.  Eligible deposits with the Bank of Cyprus UK are covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per eligible depositor and £170,000 for joint accounts.
 
2.  Details regarding the UK Financial Services Compensation Scheme (FSCS) are available on the FSCS website
 
3.  On 1 April 2013 the Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. In total the PRA regulates around 1,700 financial firms.
 
The PRA’s role is defined in terms of two statutory objectives to promote the safety and soundness of these firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.
 
The PRA was created by the Financial Services Act (2012) and will be part of the Bank of England.

4.  On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of 26,000 financial firms. The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.

The FCA was created by the Financial Services Act (2012).

Reserve Bank of India states Core Investment Companies – Guidelines on Investment in Insurance

At present NBFCs venturing into insurance are guided by the circular DNBS(PD).CC.No.13/02.01/99-2000 dated June 30, 2000 on amendment to NBFC Regulations which contains the ‘Guidelines for entry of NBFCs into Insurance’. In view of the unique business model of Core Investment Companies (CICs), Reserve Bank of India (RBI) has decided to issue a separate set of guidelines for their entry into insurance business.

While the eligibility criteria, in general, are similar to that for other NBFCs, no ceiling is being stipulated for CICs in their investment in an insurance joint venture. Further it is clarified that CICs cannot undertake insurance agency business. The Guidelines are enclosed for meticulous compliance.

CICs exempted from registration with RBI do not require prior approval provided they fulfil all the necessary conditions of exemption as provided under/ in CC No.206 dated January 05, 2011. Their investment in insurance joint venture would be guided by IRDA norms.

Guidelines for Entry of CICs into Insurance

1. Any Core Investment Company (CIC) registered with RBI which satisfies the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a CIC can hold in the joint venture company will be as per IRDA approval.

2. The eligibility criteria for joint venture participant will be as under, as per the latest available audited balance sheet.
  1. The owned funds of the CICshall not be less than Rs. 500 crore;
  2. The level of net non-performing assets shall be not more than 1% of the total advances;
  3. TheCIC should have registered netprofit continuously for three consecutive years;
  4. The track record of the performance of the subsidiaries, if any, of the concerned CIC should be satisfactory;
  5. The CIC shall comply with all applicable regulations including CIC Directions, 2011. Thus CICs-ND-SI are required to maintain adjusted net worth which shall be not less than 30% of aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items.
3. No CIC would be allowed to conduct such business departmentally. Further, an NBFC (in its group / outside the group) would normally not be allowed to join an insurance company on risk participation basis and hence should not provide direct or indirect financial support to the insurance venture.

4. Within the group, CICs may be permitted to invest up to 100% of the equity of the insurance company either on a solo basis or in joint venture with other non-financial entities in the group. This would ensure that only the CIC either on a solo basis or in a joint venture with the group company is exposed to insurance risk and the NBFC within the group is ring-fenced from such risk.

5.In case where a foreign partner contributes 26 per cent of the equity with the approval of insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one CIC may be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, onlythose CICs which satisfy the criteria given in paragraph 2 above, would be eligible.

6. CICs cannot enter into insurance business as agents. CICs that wish to participate in insurance business as investors or on risk participation basis will be required to obtain prior approval of the Reserve Bank. The Reserve Bank will give permission on case to case basis keeping in view all relevant factors. It should be ensured that risks involved in insurance business do not get transferred to the CIC.

Notes:
  1. Holding of equity by a promoter CIC in an insurance company or investment in insurance business will be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This will include compliance with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed period of time.
  2. CICs exempted from registration with RBI in terms of the Core Investment Companies(Reserve Bank) Directions, 2011 do not require prior approval provided they fulfil all the necessary conditions of exemption.


Reserve Bank of India Clarifies Rules for Overseas Direct Investment

Attention of the Authorised Dealers (AD) is invited to Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 notified by the Reserve Bank vide Notification No. FEMA 120/RB-2004 dated July 07, 2004 and as amended from time to time.

It has been observed that eligible Indian parties are using overseas direct investments (ODI) automatic route to set up certain structures facilitating trading in currencies, securities and commodities. It has come to the notice of the Reserve Bank that such structures having equity participation of Indian parties have also started offering financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.). It is clarified that any overseas entity having equity participation directly / indirectly shall not offer such products without the specific approval of the Reserve Bank of India given that currently Indian Rupee is not fully convertible and such products could have implications for the exchange rate management of the country. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999.

AD - Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

Thailand Regulator Lays Down New rules for Multi-Class Structure For Existing Mutual Funds

The Securities and Exchange Commission (SEC), Hong Kong allows existing mutual funds to offer multiple classes of investment units to investors and allows classification of investment units by currency.

SEC Secretary-General Vorapol Socatiyanurak said: the SEC has allowed mutual funds to offer multiple classes of investment units either they are existing or newly-established mutual funds while only the latter are permitted under existing regulations. In addition, asset management companies could offer multiple classes of investment units classified by currency to investors. The revision aims to facilitate more flexibility for asset management business; broaden business opportunities; and provide a wider variety of investment choices for investors which contribute the development in Thai capital market.

In this regard, the multi-class structure offered by existing mutual funds must not prejudice the right of existing unit holders.  Details of the proposed structure must be defined in the amended investment fund scheme, such as classes of investment units, right and return of each class, fees or other expenses payable by unit holders of each class, which must conform to each class of investment units.

Due to the fact to Thai investors are not allowed to invest in foreign-currency investment units offered in Thailand. The asset management companies, therefore, must clearly clarify that the products are offered only to foreign investors.

“The SEC promotes private sector’s operational flexibility and expansion of business opportunity amidst the dynamic financial environment. This will help serving investors’ demands,” concluded Mr. Vorapol.

Hong Kong Regulator Concludes Consultation on Proposals to Enhance Regulation of Non-Corporate Listed Entities

The Securities and Futures Commission (SFC) has published conclusions on proposals to enhance the regulatory regime for non-corporate entities that are listed on The Stock Exchange of Hong Kong Ltd (SEHK). 

Respondents in general supported the proposals, with comments on technical issues. They agreed that the proposals would help enhance investor protection as well as market transparency for all listed entities, whether they are companies or other types of business organisation.

The SFC will proceed with the proposals and make appropriate recommendations on the legislative amendments to the Government.

The main points of the consultation conclusions are as follows:
  • extend the SFC’s supervision and investigation powers under Parts VIII and X of the Securities and Futures Ordinance (SFO), the market misconduct provisions under Parts XIII and XIV of the SFO, the requirement to disclose price sensitive information under Part XIVA of the SFO and the disclosure of interests provisions under Part XV of the SFO to expressly cover non-corporate listed entities (Note 1);
  • clarify that, for listed depositary receipts, the overseas issuer whose shares/units are the underlying shares/units (and not the relevant depositary bank) is the “issuer”; and
  • exclude entities whose only listed securities are debentures from the Part XV disclosure of interests regime.

Hong Kong Regulator Releases Consultation Conclusions on Regulation of Electronic Trading

The Securities and Futures Commission (SFC), Hong Kong published a consultation conclusions paper on proposals to enhance the regulatory framework for electronic trading (Note 1).

The SFC received 34 written submissions from industry associations, brokerage firms, investment banks and individuals in response to the proposals contained in the consultation paper.  Respondents generally supported the proposals.  Most of the initiatives have been adopted in the conclusions. 

“The initiatives are intended to provide clarity to intermediaries on the standards that they are expected to meet when they conduct electronic trading.  They must have appropriate policies, procedures and controls in place to ensure their electronic trading activities will not pose undue risks to the market,” the SFC’s Chief Executive Officer Mr Ashley Alder said.

“These standards, which are in line with regulations in major international markets and the principles published by the International Organization of Securities Commissions, will help maintain integrity as well as confidence in the market,” he added.

Key aspects of the regulatory regime include:
  • Management and supervision- The responsibility to ensure compliance rests with the responsible officers or executive officers and the management of the intermediaries. 
  • Adequacy of system- Intermediaries should ensure their electronic trading systems are subject to testing and meet regulatory standards with respect to reliability, controls, security and capacity and that contingency measures in place.  
  • Record keeping- Intermediaries should keep, or cause to be kept, proper records on the design, development, deployment and operation of their electronic trading systems.
  • Risk management - Intermediaries should put in place risk management and supervisory controls to monitor orders and trades, including automated pre-trade controls and regular post-trade monitoring. 
The new regime which includes amendments to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Fund Manager Code of Conduct will come into effect on 1 January 2014.  The Guidance Note on Internet Regulation issued in March 1999 will be repealed on the same date.

"The Financial Holding Companies Bill 2013" - Second Reading Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister, Minister in charge of MAS

This is an official speech published on Monetary Authority of Singapore website.

The Financial Holding Companies Bill introduces a regulatory framework for the Monetary Authority of Singapore (MAS) to regulate financial holding companies (FHCs) and their financial groups. For the purpose of the Bill, an FHC is a non-operating holding company which is incorporated in Singapore and holds a Singapore bank or insurance subsidiary, or both.

The FHC Bill will provide greater clarity to the industry and other stakeholders on the rules and standards applicable to financial groups organised under FHCs in Singapore. It is common for internationally active financial groups to be organised under holding companies. As Singapore develops as an international financial centre, more global banks and insurance companies are locating parts of their global operations in Singapore. At the same time, our domestic financial institutions are growing regionally and some may find a holding company structure more suited to their purpose.  

The Bill will clarify and ensure appropriate MAS’ prudential oversight of financial groups in Singapore. Group-wide supervision allows MAS to assess the impact that a financial institution’s relationships with other entities in the group may have on its safety and soundness. The concept of group supervision is of course not new. Financial groups in Singapore are mostly headed by banks, and are already subject to group-wide supervision by MAS. The Bill extends group-wide supervision by MAS to an FHC and its financial group. It is aimed at mitigating intra-group contagion risks, preventing the multiple use of capital within the group, and limiting concentration risks at the group level.

The FHC Bill is in line with international regulatory developments. Key international supervisory committees such as the Joint Forum have called for greater oversight of unregulated entities in financial groups, in particular the parent FHC.2 The IMF has also cited the limited legal authority over FHCs of cross-sector financial groups as a weakness in some financial systems. Many regulators are therefore widening their scope of group-wide supervision to include FHCs, either directly through an FHC regulatory framework or indirectly through a regulated entity like a bank or insurance subsidiary. Australia, Canada and the US are among the countries that have established legal frameworks for FHCs. The EU is moving in the same direction of strengthening regulatory authority over FHCs. 

However, the introduction of this Bill does not mean that MAS is advocating a holding company structure for financial institutions in Singapore. Whether a financial group organises itself under an FHC or is held directly by a bank or insurance company is a business decision. MAS, as the financial regulator, needs to ensure that all financial groups in Singapore, regardless of their holding structure, can be effectively regulated and supervised under an appropriate regulatory framework.

MAS has consulted the industry on the FHC regulatory framework. The first consultation in February 2012 sought views on the broad policy and regulatory principles underpinning the framework. The second consultation in October 2012 invited comments on the draft FHC Bill. MAS has considered the views and feedback received and taken them into account in refining the FHC Bill, where appropriate. 

Mdm Speaker, let me expand on the key provisions of the Bill.

KEY PROVISIONS IN THE FHC BILL

FHC Bill Complements Banking and Insurance Acts

The FHC Bill draws upon the same regulatory toolkit as in the Banking Act (BA) and Insurance Act (IA). These tools will include requiring regulatory approval for acquiring or holding of major shareholdings in an FHC; putting in place limits on an FHC’s credit and investment exposures, and giving MAS powers relating to key appointments, supervision, and inspection.

Scope of Regulation

The Bill does not require every FHC in Singapore to be regulated by MAS. Unlike banks and insurance companies, an FHC is a non-operating holding company, and will not engage in financial transactions directly with the public. It may also not be exposed to the same risks that a bank or insurance company may encounter in the course of business. In deciding which FHCs to regulate, MAS will consider how the regulation of the FHC and its financial group can enhance the effectiveness of prudential oversight of the financial group. 

The FHC Bill sets out the following criteria by which MAS will assess whether an FHC should be designated for regulation.  
(a) Ultimate parent of Singapore financial groups MAS will regulate an FHC if it is the ultimate parent of a financial group with a bank or insurance subsidiary in Singapore. In such cases, MAS is the home supervisor of the financial group and has responsibility for group-wide supervision of the financial group.
(b) Intermediate FHCs within financial groupsThere are FHCs that are themselves subsidiaries of a parent FHC or financial institution. For these intermediate FHCs, MAS will assess the importance of the FHC’s bank or insurance subsidiary to Singapore’s financial system, or to the intermediate FHC group, when deciding whether to regulate the FHC. For foreign-owned FHCs, an additional consideration will be the extent to which the parent holding company incorporated overseas is subject to effective group-wide supervision by its home supervisor.

MAS will list the names of FHCs designated for regulation in an order published in the Gazette. 

While FHCs that are not designated will not be regulated under the FHC Bill, MAS may require these FHCs to provide information necessary for MAS’ surveillance and supervision functions. 

Control of Shareholdings

Major shareholders of an FHC may be in a position to exercise indirect influence or control over its bank or insurance subsidiaries through their shareholding interests in the FHC. Hence it is necessary to require shareholders with substantial or controlling interests in designated FHCs to obtain approval for their shareholding interests, just as the BA and IA currently require for significant stakes in Singapore-incorporated banks and insurance companies. The shareholding and control thresholds at which approval will be required will be consistent with existing thresholds under the BA and the IA. MAS will consider whether the shareholders are “fit-and-proper” and the nature of their likely influence over the conduct of the FHC when assessing applications for approval.  

It is also vital that the directors and senior management of the designated FHC carry out their functions in a responsible and prudent manner. The FHC Bill provides for the application of corporate governance regulations on the FHC.

Regulation and Supervision of FHC Groups

Besides regulatory requirements on the designated FHC itself, the FHC Bill sets out requirements at the FHC group level. To achieve alignment in the regulatory approach towards financial groups, whether they are held under a bank, an insurance company or a designated FHC, regulatory requirements under the BA and IA will be mirrored in the FHC Bill, where appropriate. The FHC’s bank and insurance subsidiaries in Singapore will continue to be regulated under the BA and IA, respectively. 

The FHC Bill empowers MAS to prescribe rules to support the safety and soundness of the FHC group. Several of these rules are also present in the BA and IA and will be extended to designated FHCs. The FHC Bill also provides for MAS to conduct on-site inspections and investigations of the FHC and its subsidiaries. 

Administrative Provisions

Further, to support MAS’ administration of the FHC regulatory and supervisory framework, the FHC Bill contains administrative provisions, including powers to:
  • make regulations, and issue directions and notices to designated FHCs;
  • require the submission of annual audited accounts of the FHC and FHC group; and
  • impose penalties on the FHC and individuals for the contravention of FHC regulations.
CONCLUSION

Mdm Speaker, let me conclude. Singapore’s financial system has held up well amid the turbulence of the global financial crisis of the past few years. It is important that MAS continues to have the appropriate and necessary regulatory tools to discharge its responsibilities as the financial landscape evolves. The introduction of the FHC Bill represents the continuous effort by MAS to ensure its regulations stay relevant to developments and challenges in the financial system.

Swiss Regulator Opens Consultation on Fully Revised Circular "Market Conduct Rules"

The Swiss Financial Market Supervisory Authority FINMA can now take action against all persons who use insider information or engage in market manipulation. Following the revision of the Stock Exchange Act and the Stock Exchange Ordinance, FINMA is fully revising Circular 08/38 on "Market conduct rules". Together with the section on general market supervision, the full revision also includes the part on specific organisational provisions for FINMA-supervised institutions. The consultation runs until 13 May 2013.

The revision of the Stock Exchange Act and the Stock Exchange Ordinance with respect to market offences and market abuse provides, for the first time at supervisory law level, specific statutory provisions that prohibits all natural persons and legal entities from engaging in insider trading and market manipulation. This means that Switzerland is moving closer to international standards. Prior to this, FINMA and its predecessor, the Swiss Federal Banking Commission (SFBC), could only enforce market conduct rules against supervised market participants. FINMA is implementing these new provisions as part of its full revision of Circular 08/38.

Clear definition of prohibition standards

The first part (Sections III-V) of the Circular details the general rules on preventing insider information and market manipulation. These rules apply to all natural persons and legal entities active on the financial market. The list provided includes abusive practices such as scalping, spoofing, wash trades, banging the close, etc. and is not conclusive. Moreover, a conceptual change has been made to the Circular: the rules on market conduct have been unbundled from those on the duty of loyalty as prescribed in Article 11 SESTA. The Circular on ‘Market conduct rules’ will thus focus on market supervision in the traditional sense.

Market abuse on the primary market, with foreign securities and in other markets

In order to assess the proper business conduct of an institution under prudential supervision, the Circular prescribes that not only securities dealing on Swiss stock exchanges is relevant; it now states more precisely what has been in practice for many years, i.e. that securities dealing in the primary market, on a foreign stock exchange and business activities such as the commodities and foreign exchange markets are also of importance when assessing proper business conduct (Section VI).

Revised organisational requirements

Section VII of the Circular that focuses on organisational requirements has also been revised. Here in particular recent experience and, where possible, international standards are taken into consideration; the target group has also been extended. In the revised Circular, organisational requirements are no longer directed exclusively at securities dealers, but also at all institutions under prudential supervision. The requirements specified however, are not the same for every supervised institution: depending on its business activities, size and structure, they are applied on an individual basis. The organisational measures necessary must be defined according to a risk assessment that is conducted regularly.

Legislative framework of the Circular

The revised Stock Exchange Act and Stock Exchange Ordinance are scheduled to come into force on 1 May 2013. The new rules in the Stock Exchange Act provide standards in criminal and supervisory law that capture market abuse on a broader basis and take account of international regulations. In particular, the insider criminal law provision has been newly regulated, the offence for price manipulation defined and universally valid elements for the prudential definition of improper market conduct provided. The Stock Exchange Ordinance sets out behaviour that is allowed in terms of "safe harbours".

Consultation Paper by Swiss Regulator on Circular "Distribution of collective investment schemes"

The Swiss Financial Market Supervisory Authority "FINMA" is fully revising FINMA Circular 2008/8 on "Public advertising – collective investment schemes" and is opening a consultation to this purpose. The new Circular will now be entitled "Distribution of collective investment schemes" and will take account of the revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013. The consultation will run until 3 June 2013.

In its current circular (FINMA-Circ. 2008/8), FINMA defines the term "public advertising" and sets out what cases qualify as public advertising when offering or distributing collective investment schemes in or from Switzerland.

In the revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013, the term "public advertising" has been removed and replaced by the term "distribution". Therefore, since one of the key criteria, i.e. the term "public" is no longer relevant following the revision of the CISA and CISO, it is necessary to fully revise the current circular. The new Circular will replace FINMA Circular 2008/8.

The new Circular will implement the changes made to the revised CISA and CISO with respect to the distribution of collective investment schemes. In particular, it will define the term "distribution" and explain what activities qualify as distribution, as well as setting out the legal consequences entailed.

Key Points

  1. In the partly revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013, the term ‘public advertising’ has been replaced by the broader term ‘distribution’ (Art. 3 CISA; Art. 3 CISO).
  2. Following the revision of the CISA and the CISO, there is no longer a distinction made between ‘public’ and ‘non-public’ advertising. It is therefore necessary to fully revise FINMA Circular 2008/8 ‘Public advertising – collective investment schemes’.
  3. Within the meaning of Article 3 CISA, any form of offering and advertising collective investment schemes is, in principle, considered as distribution of collective investment schemes where (i) it is not directed exclusively at investors under Article 10 para 3 lets a and b CISA and (ii) it is not in- cluded in the exemption clause under Article 3 para. 2 CISA.
  4. The term ‘distribution’ within the meaning of Article 3 para. 1 CISA in particular excludes offering and advertising collective investment schemes that are aimed solely at qualified investors as prescribed in Article 10 para. 3 let. a (supervised financial intermediaries) and let. b (supervised insurance companies). Other exceptions include execution-only transactions and asset management advisory services.
  5. The purpose of the revised circular is to define the term ‘distribution of collective investment schemes’ and explain what activities qualify as distribution. Moreover, the legal consequences entailed where a certain activity qualifies as distribution are set out.

Collective Investment Schemes Bankruptcy Ordinance comes into force in Switzerland

The Swiss Financial Market Supervisory Authority FINMA will put the FINMA Collective Investment Schemes Bankruptcy Ordinance into effect on 1 March 2013 (In German Language). The new ordinance details the provisions of the Collective Investment Schemes Act under bankruptcy law and sets out the procedure for bankruptcy proceedings. It renders the courses of action adopted by FINMA and the procedural steps it takes during the bankruptcy process transparent.

The consultation on the FINMA Collective Investment Schemes Bankruptcy Ordinance (CISBO-FINMA) stirred relatively little interest, and the consultation draft was favourably received. By adjusting the draft document appropriately, account has been taken of the few suggestions made for improvement. Hardly any material changes were made, however, to the draft document. The proposed adjustments concerned the revision of the Collective Investment Schemes Act, which, in the meantime, had been completed and treated in the definitive version of the CISBO-FINMA.

Background

Since 1 September 2011, FINMA has been responsible for opening and conducting bankruptcy proceedings over licence holders of collective investment schemes. By putting the current ordinance into effect, FINMA has invoked its powers to issue specific implementing provisions in this area. The new ordinance is a fully coherent and comprehensive regulatory framework: it includes general provisions under bankruptcy law as well as specific regulations for the various categories of licence holders. This in turn renders the regulatory process transparent and enhances creditor and investor protection.