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

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


FCA warns firms not to use authorisation status in a promotional way

The FCA has published its regulatory round-up for July 2018. Among other things, the FCA provides feedback following a review by its financial promotions team after it received intelligence that some firms were using their FCA-authorised status in a promotional way, which is against the FCA's rules.


ESMA updates MiFID II Q&As on temporary product intervention measures: 30 July 2018

On 30 July 2018, ESMA published an updated version of its Q&As on temporary product intervention measures on the marketing, distribution or sale of contracts for differences (CFDs) and binary options to retail clients under Article 40 of MiFIR. The updated Q&As now provide clarification on the scope of the temporary product intervention measures relating to securitised derivatives and structured finance products. ESMA first published the Q&As in June 2018.


Government publishes White Paper on legislating for the withdrawal agreement between the UK and EU.

The government has published a White Paper, Legislating for the Withdrawal Agreement between the United Kingdom and the European Union. The White Paper confirms that a forthcoming European Union (Withdrawal Agreement) Bill will be the primary means by which the rights of EU citizens will be protected in UK law, will legislate for the transition period and will create a financial authority to manage payments to be made under the financial settlement between the UK and the EU.


AIM Regulation publishes update on preparation for corporate governance changes

AIM Regulation has published an Inside AIM update to address some of the questions it has received from nominated advisers as part of its engagement in preparation for the corporate governance changes that take effect from 28 September 2018. From that date, an AIM company will be required to disclose details of the recognised corporate governance code that it has decided to apply, how the company complies with that code and, where it departs from its chosen code, an explanation of the reasons for doing so.


FATF publishes report on professional money laundering.

The Financial Action Task Force (FATF) has published a report on professional money laundering, looking at the techniques and tools used by professional money launderers (PMLs), to help countries identify and dismantle them.

The report makes the following points:

  1. PMLs provide services to criminals and organised crime groups by laundering the proceeds of their illegal activities. The main purpose of PMLs is to facilitate money laundering, providing expertise to disguise the nature, source, location, ownership, control, origin and/or destination of funds to avoid detection, rather than to be involved in the substantive offending.

  2. PMLs do not differentiate between drug dealers, fraudsters, human traffickers or any other criminals with a need to move or conceal ill-gotten gains

  3. PMLs operate under a number of business models and may be individuals; criminal organisations with a clear structure and hierarchy; or networks of loosely affiliated members. They may be professionally qualified individuals.

  4. Effective dismantling of PMLs requires focused intelligence collection and investigation of the laundering activities, rather than the associated predicate offences of the groups using the services of the PMLs. The dismantling of PMLs can impact the operations of their criminal clients and can be an effective intervention strategy against numerous criminal targets.


FCA papers on cost benefit analyses and field trials

On 24 July 2018, the FCA published two papers on its approach to measuring the impact of its policies before it intervenes with rule-making powers:

  • How we analyse the costs and benefits of our policies. This paper sets out the FCA's approach to cost benefit analysis (CBA).

  • When and how we use field trials. The paper sets out principles for when the FCA is more likely to use field trials, including feasibility, impact and proportionality. It also sets out the typical stages of FCA field trials.

  • The FCA has also published an occasional paper on estimating the benefits of interventions that affect consumer behaviour. This paper discusses how to estimate and assign monetary values to the benefits resulting from regulatory interventions aimed at addressing behavioural distortions and informational asymmetries.

  • On a webpage relating to these papers, the FCA states that it welcomes views from stakeholders at any point about its approach and techniques for measuring the likely impacts of policies.


Financial Conduct Authority responds to Environment Audit Committee recommendations on green finance

On 6 July 2018, the FCA published its response to the recommendations the Environment Audit Committee made to it in its June 2018 report, Greening Finance: embedding sustainability in financial decision making. The FCA's comments include that it will: (i) consult on rule changes requiring independent governance committees (IGCs) to report on their firm's policies on evaluating environmental, social and governance (ESG) considerations and take account of members' ethical concerns; (ii) highlight to issuers the need to make adequate disclosure on materially important information, including on ESG, however, it will not amend the listing rules to require climate-related financial disclosures; and (iii) publish its approach on climate-related issues and green finance later in 2018.


ESMA peer review on guidelines on ETFs and UCITS issues

On 30 July 2018, ESMA published a final report about its peer review on the guidelines on ETFs and other UCITS issues. ESMA launched a peer review on the guidelines in September 2017. The level of compliance of the assessed NCAs with the guidelines depends heavily on the individual topics covered by the guidelines. The UK's regulatory framework on collateral requirements breaches the guidelines (because of exemptions where efficient portfolio management (EPM) is engaged in via a securities lending programme maintained by central securities depositories (CSDs)). The UK is also only partially compliant with disclosure, internal risk management and compliance with the investment mandate requirements. ESMA calls for NCAs to:

  1. Ensure a more systematic and formalised review of the required EPM disclosures, allowing investors to better understand funds' EPM engagement, the risks involved and the cost and fee policy concerning EPM.

  2. Provide more comprehensive internal supervisory guidance on costs, fees and revenues regarding EPM.

  3. Ensure that all net revenues from EPM are returned to investors.

  4. Revise existing national exemptions to the guidelines on collateral requirements so that fund assets can only be used for EPM purposes where UCITS receive high-quality and liquid collateral.

A number of findings require follow-up action by the FCA (including enhancing its supervisory tools and practices, reassessing its authorisation process, follow-up work on fees and costs, and assessing whether more people are needed in the UCITS supervision team). The report also contains recommendations for ESMA policy work, where there are diverging interpretations of the guidelines, as well as inconsistencies between the guidelines and the UCITS Directive.


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Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

25 05 2019

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