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Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

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


HMRC guidance on taxation of individuals who have cryptoassets

On 19 December 2018, HMRC published guidance on how HMRC will tax individuals who use cryptoassets such as cryptocurrency or bitcoin The guidance, which is subject to an avoidance caveat and considers only exchange tokens, such as bitcoin (not utility or security tokens), confirms HMRC's position is that cryptoassets are assets but not currency or money. The buying and selling of cryptoassets is not considered to be the same as gambling.

The guidance explains HMRC's view of:

  • When capital gains tax (CGT) may be triggered (such as on exchange of one cryptoasset for another, gifts and using cryptoassets to pay for goods or services), the consequences of losing public and private keys and that being defrauded is not a disposal. It also covers issues relating to the calculation of CGT, including the operation of the share pooling rules (such as on airdrops and blockchain forks), which costs are considered deductible (costs of mining activities are not) and when negligible value claims can be made.

  • Potential income tax charges on receipts of cryptoassets and fees (for example, from mining). Only in exceptional circumstances would HMRC expect individuals to be trading in cryptoassets, drawing on the factors that determine whether an individual is trading in shares. Taxing such receipts as miscellaneous income, or employment income, (with subsequent movements in value being within CGT) limits the scope for relief for any losses.

The guidance is high-level and the tax treatment in any case will, as the guidance notes, depend on the facts rather than terminology.


ICO publishes detailed guidance on controllers and processors

ICO has published detailed guidance to help organisations decide if they are acting as a controller, processor or joint controller when processing personal data. Controllers are the main decisionmakers, exercising overall control over the purposes and means of the processing of personal data. UK controllers must also pay a data protection fee unless they are exempt. Processors act on behalf of, and only on the instructions of the relevant controller. Controllers have new data protection obligations under the GDPR, and processors now have statutory obligations in their own right under the GDPR. Individuals and supervisory authorities can hold both controllers and processors to account if they are non-compliant. The guidance includes numerous practical examples, and contains lists of the decisions which can only be taken by controllers, and decisions which may be taken by processors in relation to the data processing. In certain circumstances, where allowed for in the contract, a processor may have discretion over how the processing takes place using its own expertise. The ICO recognises that it can be difficult to apply the definition of processor in the complexity of modern business relationships. The key is to determine each party's degree of independence in determining how and in what manner the data is processed as well as the degree of control over it. The GDPR includes explicit requirements directed at joint controllers and they must enter into a transparent arrangement setting out their roles and responsibilities regarding GDPR compliance, in particular individuals' rights. The ICO recommends including this in the privacy information.


FCA directs fund operators to make temporary permissions notifications

On 7 January 2019, the FCA published the following directions it has given under regulation 64(1) of the Collective Investment Schemes (Amendment etc) (EU Exit) Regulations 2019 and regulation 78A(6) of the Alternative Investment Fund Managers Regulations 2013 (as amended, in particular by the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019):

  • A Direction to operators of collective investment schemes that are EEA UCITS.

  • A Direction to operators of alternative investment funds (AIFs), European venture capital funds (EuVECA), European social entrepreneurship funds (EuSEF) and certain EEA alternative investment fund managers (AIFMs).

The FCA directs the fund operators to notify it if they intend to operate under the temporary permissions regime (TPR). The Regulations create a temporary marketing permissions regime that enable the above funds to be marketed in the UK on the same terms and subject to the same conditions as they were able to before exit day for a limited period. Notifications must be made by the end of 28 March 2019, by submitting the temporary permission notification form using the Connect system. The TPR will come into force when the UK leaves the EU, if there is no transition period.


Notification window for temporary permissions regime opens

On 7 January 2019, the FCA published a press release announcing that the notification window for firms and funds wishing to enter the temporary permissions regime (TPR) is now open.
The FCA has also published:

  • A document explaining how inbound passporting EEA firms should notify the FCA if they wish to enter the regime.

  • A notification form for MiFID tied agents.

  • A notification form for e-money institution agents.

  • A notification form for payment institution and registered account information service provider agents.

  • A questionnaire for firms that receive or hold client assets in connection with investment business or insurance mediation.

The notification window closes at the end of 28 March 2019. Once it has closed, firms that have not submitted a notification will not be able to use the TPR. The TPR will allow EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for a limited period, while they seek full FCA authorisation, if the UK leaves the EU on exit day without a transition period. It will also allow EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK. For more information, see Practice note, Brexit and financial services: temporary permissions and recognition regimes.


Draft Commission Delegated Regulations under MiFID II and IDD on sustainable finance

On 4 January 2019, the EC published the following draft Delegated Regulations designed to ensure investment firms and insurance distributors take ESG issues into account when advising customers:

  • Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards the integration of ESG considerations and preferences into investment advice and portfolio management under the MiFID II Directive (2014/65/EU).

  • Delegated Regulation amending Delegated Regulation (EU) 2017/2359 as regards the integration of ESG considerations and preferences into investment advice for insurance-based investment products (IBIPs) under the Insurance Distribution Directive ((EU) 2016/97) (IDD).

The EC is convinced of the urgency of moving ahead with its sustainable finance proposals, and believes the proposed timeline for application of the draft Delegated Regulations provides sufficient flexibility. (Although each explanatory memorandum states that the draft Delegated Regulations provide for an 18-month transition period, the draft legal texts state that they will apply 12 months after they come into force.) The Commission has made a number of amendments to the draft Delegated Regulations in response to other comments received.


Joint Committee of ESAs report on regulatory sandboxes and innovation hubs

On 7 January 2019, the Joint Committee of the European Supervisory Authorities (ESAs) (that is the EBA, EIOPA and ESMA) published a report on regulatory sandboxes and innovation hubs. In the report, the ESAs set out a comparative analysis of the innovation facilitators established to date in the EU, further to the mandate specified in the European Commission's FinTech action plan. The ESAs also set out best practices regarding the design and operation of innovation facilitators, informed by the results of the comparative analysis and the experiences of the national competent authorities in running the facilitators. The best practices are intended to provide indicative support for competent authorities when considering the establishment of, or reviewing the operation of, innovation facilitators.

In addition, the ESAs set out options to promote co-ordination and co-operation between innovation facilitators and support the scaling-up of FinTech across the EU. The options comprise of the development of joint ESA own-initiative guidance on co-operation and co-ordination between innovation facilitators, and the creation of an EU network to bridge innovation facilitators established at the member state level. The ESAs will continue to monitor national developments regarding innovation facilitators and take such steps as are appropriate to promote an accommodative and common approach towards FinTech in the EU. In particular, the ESAs will explore the options available for enhancing cross-border co-ordination and co-operation between national innovation facilitators, in conjunction with the Commission's and the ESAs' further work on FinTech and define further steps, as appropriate, in 2019.


ESMA updates MiFID II Q&As on transparency topics

On 4 January 2019, ESMA published an updated version of its Q&As on transparency topics (ESMA70-872942901-35) under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (600/2014) (MiFIR).

The new Q&As provide clarification on the following topics:

  • Publication of request for market data (RFMD) transactions.

  • The default transparency regime for equity instruments.

  • Default large-in-scale (LIS) and size-specific-to-the-instrument (SSTI) transparency thresholds for bonds.

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19 06 2019

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