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.

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.”

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. 

Please click here for the Consultation Paper; The AIFMD (Marketing) Rules, 2013 and Form AIFM.

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.

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.