FUND NEWS

Financial Services / Regulatory and Tax / Issue 119

Developments in September 2014 Investment Fund Regulatoryand Tax developments in selected jurisdictions

2 / Fund News / Issue 119 / Developments in September 2014

Regulatory Content

European Union 3 ESMA consults on depositary rules under UCITS V 4 ESMA updates Q&A on AIFMD 5 ESMA issues Consultation Paper on implementing

measures of EuVECA and EuSEF Regulations

Ireland 6 Central Bank introduces new regulatory

framework for funds directly originating loans 6 Central Bank issues Consultation Paper on fund

management company effectiveness 7 Central Bank’s thematic review of regulatory

returns 7 Updated list of pre-controlled functions for the

purpose of fitness and probity 7 Update to Reporting Guidance for Alternative

Investment Managers 7 Key Dates Reminder

Luxembourg 8 CSSF introduces new application questionnaire

for UCITS

Switzerland 9 Structured Products: Increased Transparency

UK 10 FCA issues Quarterly Consultation Paper

International 10 FSB issues Report on “Jurisdictions” ability

to defer to each other’s OTC derivatives market regulatory regime”

12 IOSCO consults on Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives

12 OTC Derivatives Regulators Group (ODRG) publishes Report on Cross-Border Implementation Issues

Contents

Accounting Content

UK 13 Remuneration disclosures in the annual reports

of funds 13 IMA member meetings – Fund Accounting

Seminars

Fund News / Issue 119 / Developments in September 2014 / 3

Regulatory News

ESMA suggests rules that would apply to all delegates regardless of their location. Firstly they would be required to inform the depositary of the insolvency rules applicable to them. In addition they would be required to maintain records and accounts that provide detailed information on the fund assets (amount, location, nature, ownership); regularly provide information on the assets to the depositary and put in place arrangements to protect the funds’ rights and minimise the risk of loss and misuse, especially with regard to re-use of the assets and enforcement of pledges.

Where the delegate is subject to insolvency rules of a third country, it shall make all reasonable efforts to verify that the applicable rules recognise the segregation of the assets of the fund from the assets of the delegate and from the assets of the depositary, and that those rules provide for the UCITS’ assets to be unavailable to satisfy creditors in case of insolvency. To that end, the verification can be supported by recourse to independent legal advice. It is also the delegate’s responsibility to ensure that these conditions are fulfilled both upon at the commencement of the delegation and throughout the duration of the contract. It must further alert the depositary in the case of change to the the insolvency rules.

ESMA recommends that the depositary due diligence process should take account of the rules applying to the delegate that could negatively affect the UCITS rights both during day-to-day business and in the case of insolvency of the delegate, as well as the financial health, expertise and reputation of the delegate and the

extent of the protection offered by its regulatory status. When the delegate is located in a third country, the depositary should ensure that the contract includes the possibility of immediate termination in case the national insolvency rules change and no longer guarantee the segregation of assets. In that case, the depositary shall immediately inform the fund or the management company.

Independence requirements

The critical links that are likely to impact independent performance of functions are:

1. Common management or supervision of the management/investment company and the depositary;

• For these specific circumstances ESMA makes the following proposals

• Disallow members of the managing body of the management/ investment company from being a member of the managing body of the depositary;

• Disallow members of the managing body of the management/ investment company from being an employee of the managing body of the depositary and vice versa;

• Foresee flexibility where the management body of the management/investment company or the management body of the depositary are not in charge of the supervisory functions.

ESMA consults on depositary rules under UCITS V

On 26 September 2014 the European Securities and Markets Authority (ESMA) released a Consultation Paper to provide technical advice to the European Commission for the drafting of delegated acts on depositaries required under UCITS V. ESMA will provide advice on the following specific new aspects that do not form part of the AIFMD depositary framework, on which the UCITS V regime is broadly inspired:

• Insolvency protection of UCITS assets when delegating safekeeping: in case of insolvency of a delegate of the depositary, the assets it holds in custody shall be unavailable for distribution among or for the benefit of the delegate’s creditors;

• Independence requirements: the management company/investment company and the depositary shall carry out their respective functions independently.

Protection of the assets in case of insolvency of the delegate

ESMA considers the principle of segregation outlined in the UCITS V Directive to be the most appropriate instrument to achieve the objective of protection of the assets in case of insolvency of the third party to which safe-keeping has been delegated, especially where that entity is located in a third country, and will require that the delegate play an active role in this respect.

European Union

4 / Fund News / Issue 119 / Developments in September 2014

2. Cross-shareholdings between the entities or members of a group.

For cross-shareholdings and group entities, ESMA suggest the following two options:

Option 1:

• the management/investment company shall put in place a robust decision-making process including objective pre-defined criteria for the choice of the depositary;

• the management/investment company shall not have a qualifying holding in the depositary’s capital (10% or more of capital or voting rights, or ability to otherwise exercise significant influence);

• the depositary shall not have a qualifying holding in the management or investment company’s capital;

• the management company and the depositary shall not be part of the same group for the purposes of consolidated accounts.

Option 2:

• the management/investment company shall put in place a robust decision-making process including objective pre-defined criteria for the choice of the depositary;

• where (i) the management company has a qualifying holding in the depositary’s capital, or (ii) the depositary has a qualifying holding in the management company’s capital, or (iii) the management company and the depositary are part of the same

group for the purposes of consolidation, safeguards at the entities or group level shall be put in place to avoid conflicts of interest, or – where conflicts of interest are identified – manage, monitor and disclose these. Furthermore, investor may request justification of the choice of the depositary;

• where the group structure is applicable, further independence requirements at the level of management bodies of the management/investment company and of the depositary shall apply.

Stakeholders will have only until 24 October 2014 to provide feedback to this Consultation. ESMA is expected to provide its final advice to the European Commission by the end of November 2014.

The Consultation Paper is available at the following web link.

http://www.esma.europa.eu/system/files/2014-1183.pdf

ESMA updates Q&A on AIFMD

On 30 September 2014 ESMA issued an update of its Q&A on the application of the AIFMD, focusing on reporting to National Competent Authorities (NCAs) under Articles 3, 24 and 42, and introducing a new section regarding delegation under AIFMD.

The Q&A’s clarify the following points:

1. Non-EU AIFMs marketing their AIF in the EU under Article 42 shall continue to report to the NCAs

after the marketing period has ended unless they confirm that no investors in the jurisdiction of the authority concerned are invested in the AIF. The reporting obligation does not depend on the actual marketing period of the AIF. Additionally, non-EU AIFMs shall take into account all the EU AIF they manage and AIF they market in the EU to calculate a unique reporting frequency and consequently apply the same reporting frequency to all Member States where they market their AIF.

2. AIFMs should not use the NAV when reporting information under Questions 48 and 86 to 93 of the consolidated reporting template for AIF-specific information. Instead, they should use the total value of Assets under Management (AuM). If the NCAs to which they report apply ESMA’s opinion on the collection of information under Article 24(5), AIFMs should also use the total value of AuM for questions 86 to 93.

3. The value of the five main instruments in which the AIF is trading should be calculated according to Article 2 of the Implementing Regulation and not according to Article 3 of the AIFMD.

4. With regard to fund of funds AIFMs shall use estimates of the NAV of its AIF if the final NAV of the AIF for which they report is not available by the deadline or is no longer representative. AIFMs should send updates afterwards in case of differences between the estimated and final NAV.

Regulatory News

Fund News / Issue 119 / Developments in September 2014 / 5

5. It is further clarified that in case of derivative instruments, the position type should be determined by reference to the exposure to the underlying of the derivative instrument. As such, a long position on a put option should be reported as “Short” whereas a short position on a put option should be reported as “Long”. AIFMs should also report information on turnover of financial derivative instruments based on both market values and notional values.

6. When reporting information on the total number of open positions AIFMs should take into account all cash accounts that exists. Bank overdrafts should be treated as short positions in “Cash and Cash Equivalent”.

7. In case AIFMs report information on the value of securities borrowed for short positions the market value of the securities borrowed should be applied.

8. Managers of AIF should adopt a conservative approach when reporting information on portfolio liquidity. Where the time delay for having the proceeds of a sale available on a cash account has a non-negligible impact on the liquidity profile of the AIF, this should be taken into account.

9. Finally, with regards to delegation, if an AIFM manages multiple AIFs the assessment of whether any delegation of portfolio management and/or risk management by the AIFM results in the AIFM becoming a letter-box entity should be carried out at the level of each individual AIF.

Regulatory News

The updated Q&A are available via the following web link.

http://www.esma.europa.eu/system/files/2014-1194_qa_on_aifmd.pdf

ESMA issues Consultation Paper on implementing measures of EuVECA and EuSEF Regulations

On 22 July 2013 the European Venture Capital Funds (EuVECA) and the European Social Entrepreneurship Funds (EuSEF) Regulations became applicable. The EuVECA Regulation intends to support venture capital by facilitating the cross-border fundraising activity and increasing the amount of funds available for venture capital in the EU. The aim of the EuSEF Regulation is to support the provision of finance to social business in the EU by facilitating their fundraising activities. Both Regulations have developed a voluntary passport mechanism to overcome the fragmentation of the legal framework for venture capital and social funds in the EU. Eligible investors are restricted to professional clients and the Regulations apply to Managers that are below the AIFMD €500 million threshold.

In May 2014, the EC requested the European Securities and Markets Authority (ESMA) to provide advice on the Level 2 measures as foreseen in the Regulations and on 26 September 2014 ESMA issued a Consultation Paper on its “Technical Advice to the European Commission on the implementing measures of the Regulations on European Social Entrepreneurship Funds and European Venture Capital Funds (ESMA/2014/1182)”.

The consultation is addressed to social entrepreneurs, impact investors, EuSEF and EuVECA fund managers, business angels, venture capitalists and other relevant stakeholders and their associations in the area of social entrepreneurship and venture capital all across the EU. The topics covered are the types of goods and services embodying a social objective; the measurement of social impact; the types of conflicts of interest that EuSEF and EuVECA managers should avoid; and the information that EuSEF managers should provide to their investors.

Next steps

The deadline to reply to the Consultation Paper is 10 December 2014. Based on the feedback received, ESMA is expected to provide its Technical Advice to the EC by the end of April 2015.

The Consultation Paper is available at the following web link.

http://www.esma.europa.eu/system/files/2014-1182.pdf

6 / Fund News / Issue 119 / Developments in September 2014

Regulatory News

Central Bank introduces new regulatory framework for funds directly originating loans

Following a period of consultation throughout the summer, the Central Bank announced on 18 September 2014, that qualifying investor alternative investment funds (QIAIFs) are permitted to engage in the single investment strategy of granting loans, including loan issuance and loan participation. As well as being subject to AIFMD, these funds will also have to comply with additional requirements, which have been designed to ensure investor protection and financial stability. This development means that Ireland is the first jurisdiction in Europe to have a regulatory framework in place to allow funds to directly engage in corporate lending activity, providing the market with a valuable source of alternative funding.

These loan originating QIAIFs have to comply with the requirements of AIFMD and further safeguards are imposed on them in the form of additional rules in the AIF Rulebook. Under these additional rules obligations have been imposed in respect of credit assessment, diversification, liquidity, due diligence, leverage, reporting and stress testing. The loan originating QIAIFs can benefit from the Marketing passport available under AIFMD.

The Central Bank has indicated that it will accept applications for the authorisation of loan originating funds from 1 October 2014. The additional requirements, which these funds are subject to, have been incorporated into the AIF Rulebook. A final version of the AIF Rulebook was published on

Ireland

18 September 2014 and is available on the Central Bank’s website.

http://www.centralbank.ie/regulation/industry-sectors/funds/aifmd/Pages/WhatsNew.aspx?ListID=46617278-a24e-4edd-87ee-2aae638c96b4&ListItemID=5

Central Bank issues Consultation Paper on fund management company effectiveness

In another significant policy development in September, the Central Bank issued CP 86 – Consultation on Fund Management Company Effectiveness – Delegate Oversight. This paper sets out proposed measures to improve the oversight of delegates by Irish fund management companies, which include UCITS management companies, AIFMs and self-managed investment companies (UCITS and AIFs). It is becoming apparent that ensuring governance and control within fund management companies is a priority for the Central Bank.

The proposed measures include:

1. the issuance of guidance, rather than rules, on what constitutes good practice in relation to delegate oversight;

2. the streamlining of designated managerial functions into six tasks: risk management, investment management, regulatory compliance, distribution, capital and financial management and also organisational effectiveness;

3. a revision of the requirement to have two directors resident in Ireland;

Fund News / Issue 119 / Developments in September 2014 / 7

4. a new requirement for the board to document the rationale for its composition, to ensure it has the necessary skills and expertise available to it.

The consultation closes on 12 December 2014. The text of the paper is available at the following web link.

http://www.centralbank.ie/regulation/marketsupdate/Documents/CP86 Fund Management Company Effec-tiveness-Delegate Oversight.pdf

Central Bank’s thematic review of regulatory returns

On 12 September 2014, the Central Bank issued a letter to industry regarding the outcome of a thematic review of data integrity of regulatory returns submitted to the Central Bank by investment firms, fund service providers and stockbrokers.

The review was very comprehensive, covering 35% of authorised investment firms, fund service providers and stockbrokers and included both a desk-based review of the regulatory returns and an on-site inspection of the finance function of a number of firms. In particular it examined the structure of the finance function and the production and reporting of management information within the firm. It also looked at board and senior management oversight of financial and regulatory returns, including FINREP accounts, audited financial statements and regulatory capital returns. In that regard the Central Bank was satisfied with the level of controls placed on the production of financial accounts but

was less satisfied with the production of regulatory returns. The letter contains a number of recommendations to improve the quality of data contained in regulatory returns.

The letter is available at the following web link.

http://www.centralbank.ie/regula-tion/marketsupdate/Documents/Thematic Review of data integrity of regulatory returns.pdf

Updated list of pre-controlled functions for the purpose of fitness and probity

The Central Bank of Ireland has published an Amending Regulation [S.I. 394 of 2014], accompanied by Guidance on the Fitness and Probity Amendments 2014 which introduces a number of changes to the fitness and probity regime, the main one being the addition of six roles to the PCF category:

• The office of Chief Operating Officer (PCF-42) for all regulated financial service providers;

• Head of Claims (PCF-43) for Insurance Undertakings;

• Signing Actuary (PCF-44) for Non-Life Insurance Undertakings and Reinsurance Undertakings;

• Head of Client Asset Oversight (PCF-45) for Investment Firms;

• Head of Investor Money Oversight (PCF-46) for Fund Service Providers;

• Head of Credit (PCF-47) for Retail Credit Firms.

Regulatory News

The changes come into effect from 31 December 2014. Persons in situ in any of the six new PCFs on 31 December 2014, may continue in those positions and do not require the approval of the Central Bank to continue to perform the role.

Please find details, of this and the other changes involved, at the following link.

http://www.centralbank.ie/regula-tion/processes/fandp/serviceprovid-ers/Documents/Guidance on Fitness and Probity Amendment 2014.pdf

Update to Reporting Guidance for Alternative Investment Managers

In relation to regulatory reporting, the Central Bank issued an update to its reporting guidance for alternative investment managers, first published in August 2014. The updated document contains minor revisions in relation to the format of returns and the procedure for submitting returns.

Please find the revised document available at the following link:

http://www.centralbank.ie/regula-tion/industry-sectors/funds/aifmd/Documents/AIFMD Reporting Guid-ance Note v1.1.pdf

Key Dates Reminder

1 October 2014

First date of acceptance of applications for authorisation as loan originating QIAIFs.

8 / Fund News / Issue 119 / Developments in September 2014

companies from relying solely on credit ratings provided by credit rating agencies when assessing investment risks.

31 December 2014

The Amending Regulation prescribing the six new pre-controlled functions for the purpose of fitness and probity comes into effect.

1 January 2015

Fund service providers adopting the IFIA’s voluntary industry corporate governance code to disclose compliance with the code in their annual report or on their website etc.

1 January 2015

Reporting of compliance with the variable remuneration rules to the Central Bank in advance of the remuneration period commencing on 1  January 2015.

CSSF introduces new application questionnaire for UCITS

With effect from 1 September 2014 the Commission de Surveillance du Secteur Financier (CSSF) introduced a new application questionnaire to set up an UCITS which applies to UCITS only. With the use of this questionnaire the CSSF aims at collecting all information necessary to evaluate compliance of the UCITS with the Law of 17 December 2010. The forms for all other Undertakings for Collective Investment forms remain unchanged.

The new questionnaire (only available in English) is an Excel document in which each tab contains a number of footnotes and drop-down lists to support the applicant during the filling procedure. Applicants are advised to file the application only once all components are fully available and stable. The transmission of incomplete applications may prevent either the start or the swift progress of the approval process and/or cause unexpected delays.

Luxembourg

Regulatory News

1 October 2014

Effective date of the new Central Bank Handbook for certain investment intermediaries.

17 October 2014

Closing of the Central Bank’s Consultation (CP 84) on the adoption of ESMA’s revised guidelines on ETFs and other UCITS issues. See Issue 117 of Fund News (July 2014).

12 December 2014

Closing of the Central Bank’s consultation (CP 86) on new measures to improve the effectiveness of fund management companies’ oversight of delegates, as discussed in this issue.

15 December 2014

Effective date of the Credit Ratings Agencies Directive which will restrict Irish AIFM, UCITs investment companies and management

Fund News / Issue 119 / Developments in September 2014 / 9

CSSF introduces new application questionnaire for UCITS

With effect from 1 September 2014 the Commission de Surveillance du Secteur Financier (CSSF) introduced a new application questionnaire to set up an UCITS which applies to UCITS only. With the use of this questionnaire the CSSF aims at collecting all information necessary to evaluate compliance of the UCITS with the Law of 17 December 2010. The forms for all other Undertakings for Collective Investment forms remain unchanged.

The new questionnaire (only available in English) is an Excel document in which each tab contains a number of footnotes and drop-down lists to support the applicant during the filling procedure. Applicants are advised to file the application only once all components are fully available and stable. The transmission of incomplete applications may prevent either the start or the swift progress of the approval process and/or cause unexpected delays.

Luxembourg

Regarding the electronic process for the submission (by E-file or e-mail to setup.uci@cssf.lu), the CSSF has not foreseen any changes, except for applications filed via e-mail for which a nomenclature specified in the “Documents” tab has to be followed to indicate the e-mail and documents attached.

The new process is applicable immediately, but any request in preparation using the previous application form will be accepted until 30 September 2014. After this date, the new application form is mandatory.

The CSSF Press Release 14/47 including the questionnaire is available at the following link.

http://www.cssf.lu/fileadmin/files/Publications/Communiques/Com-muniques_2014/PR1447_OPCVM_Application_questionnaire_010914_EN.pdf

Structured Products: Increased Transparency

The Swiss Bankers Association (SBA), in close cooperation with the Swiss Structured Products Association (SSPA), has amended its “guidelines for informing investors about structured products”. The revised guidelines take account of the amendments made to the Federal Act on Collective Investment Schemes (CISA) and increase transparency regarding fees associated with the distribution of structured products. The Swiss Financial Markets Supervisory Authority (FINMA) has already approved the amended guidelines which will come into effect on 1 March 2015.

Summary of amendments

In compliance with the revised CISA, the guidelines now stipulate that a so-called “preliminary” simplified prospectus must be offered to any interested person free of charge prior to subscription and before conclusion of the contract. This duty is in addition to the already existing obligation of offering the “final” simplified

Switzerland

Regulatory News

prospectus upon issue or upon conclusion of the contract.

In order to simplify the information for investors, the revised guidelines stipulate that the simplified prospectus must be structured into the following three categories: “product description”, “profit and loss prospects” and “important risks for investors”.

Additionally, the amended guidelines shall provide increased transparency of fees associated with the distribution of structured products. According to the guidelines all fees for the distribution of a product that are included in the issue price or in an up-front fee by the issuer at the time of issue of a structured product now have to be indicated as a percentage of the nominal value of the individual structured product. The obligation to disclose also includes sales commissions that are paid to distribution partners.

The amended “guidelines for informing investors about structured products” are available via the following web link.

http://www.swissbanking.org/en/home/publikationen-link/shop.htm

10 / Fund News / Issue 119 / Developments in September 2014

FCA issues Quarterly Consultation Paper

In the Quarterly Consultation Paper (CP14/18: Quarterly consultation No.6) the Financial Conduct Authority (FCA) stated that, as a result of an omission in the previous amendments to the custody rules and the statutory instrument setting out which activities need to be regulated (Regulated Activities Order – RAO) when transposing the AIMFD, a number of small AIFMs were currently not be required to appoint a depositary to hold AIF assets. This is because the rules as drafted result in such small AIFMs falling outside of the scope of the custody rules in CASS 6, even though they are carrying on activities which would otherwise constitute safeguarding and administering investments.

As a result, and in order to address the previous omission, the FCA is proposing to amend the relevant rules in the CASS sourcebook to require small AIFM to comply with the custody

UK

rules  when it in fact does safeguard and administer investments while managing an AIF.

In addition, the FCA noted that the custody rules may not apply in respect of all the non-AIF assets that may be held by a depositary of an authorised AIF. This gap in the application of the rules was also unintended and the FCA is proposing to amend CASS 6 to ensure that all assets held by a depositary of an authorised AIF are subject to the relevant protections.

Finally the amendments outlined above would necessitate, where applicable, that small AIFMs will need to complete a Client Money and Asset Return (CMAR), and report to the FCA on the Firm’s compliance with the CASS sourcebook rules.

The Consultation Paper can be found via the following web link.

http://www.fca.org.uk/news/cp14-18-quarterly-consultation-no6

Regulatory News

FSB issues Report on “Jurisdictions” ability to defer to each other’s OTC derivatives market regulatory regime”

On 18 September 2014 the Financial Stability Board (FSB) published a Report to the G20 Finance Ministers and Central Bank Governors outlining the conditions under which FSB member jurisdictions offer the possibility to pay deference to the OTC derivative requirements applicable in another jurisdiction. It provides a summary of the responses received from all 19 FSB member jurisdictions on the question of whether they have a framework for deference implemented, and if so, how it works.

Against the background that jurisdictions are moving forward in implementing regulatory reforms to the OTC derivatives markets, the report shall assist authorities and market participants in understanding the legal capacities and processes throughout jurisdictions with regards to deference.

International

Fund News / Issue 119 / Developments in September 2014 / 11

The main FSB findings can be summarized as follows:

• Although the approaches to the application of “deference” are broadly similar between jurisdictions, differences still exist.

• Authority, decision making standards and the process for deference determinations vary across and sometimes even within jurisdictions.

• Most FSB members have a framework for deference in place with respect to Financial Market Infrastructures (FMIs), whilst fewer have one with respect to market participants.

• The scope of deference varies from full, partial to conditional deference, and may depend on the policy area, the regulator exercising deference and/or the type of entity requesting deference.

• The processes for granting deference are rather similar and

typically include some sort of registration, licensing or application for exemption, to allow jurisdictions to maintain their supervisory authority.

• Whilst most jurisdictions will not look for “identical rules”, they will consider the outcome or impact of the foreign regime, the comparability of oversight and enforcement as well as compliance with the CPMI-IOSCO Principals for Financial Market Infrastructures.

• Many jurisdictions require some sort of information sharing or cooperation arrangements (e.g. Memoranda of Understanding (MoUs)).

• The assessment process, in most times triggered by an application from an entity, may take several months to complete.

The Report is supplemented by Annex A summarizing the responses of jurisdictions regarding the deference to

cross-border OTC derivatives regulatory regimes for TRs, CCPs and exchanges or electronic trading platforms, and Annex B outlining the responses specifically applicable to market participants.

As of July 2014 only Australia, Canada and the US Commodity Futures Trading Commission (CFTC) already had some detailed deference arrangements in place. For the EU, it is expected that the European Commission will propose granting deference to a number of jurisdictions with regards to central clearing.

The Report is available at the following web link.

http://www.financialstabilityboard.org/publications/r_140918.pdf

Regulatory News

FSB issues Report on “Jurisdictions” ability to defer to each other’s OTC derivatives market regulatory regime”

On 18 September 2014 the Financial Stability Board (FSB) published a Report to the G20 Finance Ministers and Central Bank Governors outlining the conditions under which FSB member jurisdictions offer the possibility to pay deference to the OTC derivative requirements applicable in another jurisdiction. It provides a summary of the responses received from all 19 FSB member jurisdictions on the question of whether they have a framework for deference implemented, and if so, how it works.

Against the background that jurisdictions are moving forward in implementing regulatory reforms to the OTC derivatives markets, the report shall assist authorities and market participants in understanding the legal capacities and processes throughout jurisdictions with regards to deference.

International

12 / Fund News / Issue 119 / Developments in September 2014

IOSCO consults on Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives

On 17 September 2014 the International Organization of Securities Commissions (IOSCO) published its Consultation Report “Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives”, which proposes standards aimed at mitigating the risks in the non-centrally cleared OTC derivatives markets. The consultation complements the report on Margin Requirements for Non-Centrally Cleared Derivatives that has been published by IOSCO and the Basel Committee on Banking Supervision in September 2013.

The following areas are captured by the proposed standards:

• scope of coverage (including financial counterparties and non-financial counterparties exceeding a certain threshold);

• trading relationship documentation;

• trade confirmation;

• valuation with counterparties;

• reconciliation;

• portfolio compression;

• dispute resolution;

• implementation by competent authorities; and

• minimisation of cross-border inconsistencies in risk mitigation.

The objectives of the risk mitigation techniques are to promote legal

certainty, to facilitate timely dispute resolution and to ease the management of counterparty credit and other risks. Notably, the nine proposed standards are in line with what ESMA and the US CFTC have implemented for non-centrally cleared OTC derivatives and ISDA standards.

Comments to the Consultation Report may be submitted to IOSCO on or before 17 October 2014.

The Consultation Report is available at the following web link.

http://www.iosco.org/library/pub-docs/pdf/IOSCOPD450.pdf

OTC Derivatives Regulators Group (ODRG) publishes Report on Cross-Border Implementation Issues

In September 2014 the OTC Derivatives Regulators Group (ODRG), consisting of regulators such as ESMA, the European Commission or the US SEC, published a report providing to the G20 countries an update on the progress of resolving OTC derivatives cross-border implementation issues, and identifying cross-border issues that may call for legislative change. The report follows an earlier publication in March 2014 in which the ODRG already listed identified cross-border implementation issues, a summary of their status as well as a timetable for addressing them.

The ODRG continues to develop approaches to resolve the issues which may lead to regulatory arbitrage or overlapping of cross-border regulatory regimes, including potential gaps and duplications in the treatment of

branches and affiliates, and the treatment of organized trading platforms and implementation of the G20 trading commitment. While previous understandings were reached with respect to: (i) equivalence and substituted compliance; (ii) clearing determinations; (iii) risk mitigation techniques for non-centrally cleared derivatives transactions (margin) and (iv) data in trade repositories and barriers to reporting to trade repositories, the group identified further barriers that prevent reporting of counterparty-identifying information to trade repositories. In a letter to the Financial Stability Board (FSB) requesting remediation of this problem, ODRG outlines barriers like data protection laws, blocking statutes, state secrecy laws and bank secrecy laws, which should be removed to allow participants to report trades with foreign counterparties pursuant to their reporting obligation (e.g. under EMIR or Dodd-Frank) and without breaching applicable laws. Scenarios where reporting entities are unable to report were in general such where reporting entities have not received or where it is impracticable to obtain consent from the foreign counterpart (however foreign law requires it), and such where any disclosure of counterparty-identifying information by the reporting entity (even with consent) breaches foreign law.

The ODRG report as well as the letter to the FSB are available via the following web link.

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/oia_odrgreportg20_0914.pdf

Regulatory News

Fund News / Issue 119 / Developments in September 2014 / 13

Remuneration disclosures in the annual reports of funds

In its recent circular 306-14 “Remuneration disclosures in the annual reports of funds” the IMA invited members to participate in the development of a set of questions over which clarification will be sought from the FCA on the practical implications of reporting the remuneration of the fund managers’ staff as required under the AIFM Directive and UCITS V. Members were invited to submit responses by 10 September with a follow up meeting proposed depending on demand. We will provide an update on further developments in future editions of the Fund News.

IMA member meetings – Fund Accounting Seminars

This year’s Fund Accounting Seminars will take place in London and Edinburgh during October and are open to IMA members.

UK

At these events you will be able to hear about the new 2014 SORP for Authorised Funds, the remuneration disclosures required in the annual report under the AIFM Directive and the latest iteration of the UCITS Directive, the ongoing saga about the disclosure of costs and charges, the latest developments stemming from the tax world and the insights and experiences of a depository.

Blackrock host the London event on 7 October (closing date for registration 3 October) with Scottish Widows hosting the Edinburgh event on 24 October (closing date for registration 20 October).

Further details can be found at the IMA website.

http://www.imanet.org/ima_home.aspx

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Swiss FinancialServices Newsletter: Special Edition Investment Management

Accounting News

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2014 KPMG Holding AG/SA, a Swiss corporation, is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name and logo are registered trademarks.

Zurich

Markus SchunkPartnerT: +41 58 249 36 82 E: markusschunk@kpmg.com

Christoph GroebliPartnerT: +41 58 249 29 76 E: cgroebli@kpmg.com

Geneva

Yvan MermodPartnerT: +41 58 249 37 80 E: ymermod@kpmg.com

Lugano

Lars SchlichtingPartner, LegalT: +41 58 249 32 59 E: lschlichting@kpmg.com

Astrid KellerPartnerT: +41 58 249 28 82 E: astridkeller@kpmg.com

Dominik RüttimannPartnerT: +41 58 249 20 56 E: druettimann@kpmg.com

Pierre ZächPartnerT: +41 58 249 64 12 E: pzach@kpmg.com

Pascal SprengerDirector, LegalT: +41 58 249 42 23 E: psprenger@kpmg.com

Grégoire WincklerPartner, TaxT: +41 58 249 34 95 E: gwinckler@kpmg.com

Jean-Luc EparsPartner, LegalT: +41 58 249 37 49 E: jepars@kpmg.com

Contacts

kpmg.ch