Regulation update

This regulatory update covers major new regulatory requirements and substantial developments that affect the investment management industry.

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§ THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)

The European Commission proposed an initial draft of a new directive introducing a harmonised EU regulatory and supervisory framework for Alternative Investment Fund Managers (AIFM) in April 2009. The AIFM Directive was approved by the European Parliament on 11 November 2010, and pending legislative approval, it is expected to take effect early 2013. The AIFM Directive is designed to address a number of risks identified by the EU Commission relating to alternative investment funds, including systemic risk. It will require alternative investment firms above a certain size to register and provide regulators with detailed information on the principal markets and instruments in which they trade. The directive affects all non-UCITS funds: hedge funds, private equity and venture capital funds, real estate funds and investment trusts.

http://ec.europa.eu/internal_market/investment/alternative_investments_en.htm

§ REGULATION ON SHORT SELLING AND CERTAIN ASPECTS OF CREDIT DEFAULT SWAPS

On 15 September 2010, the European Commission adopted a proposal for a regulation on short selling and certain aspects of credit default swaps (CDS). Its main objectives are to create a harmonised framework for coordinated action at European level, increase transparency and reduce risks. The new framework will mean regulators – national and European – have clear powers to act when necessary, whilst preventing market fragmentation and ensuring the smooth functioning of the internal market.

http://ec.europa.eu/internal_market/securities/short_selling_en.htm

§ SOLVENCY II MEDIUM–TERM WORK PLAN

On 19 January 2011, the European Insurance and Occupational Pensions Authority (EIOPA), the authority replacing CEIOPS, issued a Solvency II medium-term work plan. The medium-term work plan will help to realise a shift in attention from the drafting of regulatory advice to the implementation: from regulation to supervision. Until today, the Solvency II project has focused on the development of the regulatory framework. In view of the imminent implementation, EIOPA will increasingly focus on preparing the day-to-day supervision by member states under Solvency II. Therefore, the work plan should ensure a smooth transition to the new framework both from a policy and a supervisory practice perspective, with an appropriate balance between risk sensitivity and practicability of the new regulation. The work plan also highlights the interconnectedness of Solvency II with non-Solvency II-specific areas.

https://eiopa.europa.eu/fileadmin/tx_dam/files/aboutceiops/WorkinProgress/SolvencyII-Medium-Term-Work-Plan-2011-2014.pdf

§ NAIC ADOPTS A NUMBER OF MEASURES FROM HEALTH CARE REFORM TO SOLVENCY RISK ASSESSMENT

The US National Association of Insurance Commissioners (NAIC), whose overriding objective is supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace, passed a number of regulatory initiatives during a special joint conference call on 17 December 2010. The passing of the initiatives is meant to demonstrate the organisation’s commitment to consumer protection within the context of stable markets and effective regulation. Among the initiatives passed were: The American Health Benefit Exchange Model Act, An updated model bulletin on the Use of Retained Asset Accounts, The revised Insurance Holding Company System Regulatory Act and Insurance Holding Company System Model Regulation.

http://www.naic.org/Releases/2010_docs/naic_adopts_key_health_provisions.htm

§ IASB & FASB ISSUE LATEST REPORT ON EFFORTS TO CONVERGE IFRS WITH US GAAP

Since the last progress report was published in June 2010, the boards have jointly issued major exposure drafts on Leases and Revenue Recognition, completed the first phase of the Conceptual Framework project and begun discussions to seek to align their respective Financial Instruments accounting proposals. The boards have also further prioritised board time available to discuss convergence projects.

http://www.ifrs.org/NR/rdonlyres/26FA84E8-631D-44A8-AAAB-AA60F40B647E/0/MoUStatusUpdateNov2010.pdf

§ DISCLOSURE FOR ASSET-BACKED SECURITIES REQUIRED BY SECTION 943 OF THE WALL STREET REFORM AND CONSUMER PROTECTION ACT (DODD-FRANK ACT)

The latest of many provisions to be implemented under the Dodd-Frank Act, the disclosure rules for asset-backed securities (ABS) are set to be enacted on 28 March 2011. The final rules require securitisers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests. The rules also require nationally recognised statistical rating organisations to include information regarding the representations, warranties and enforcement mechanisms available to investors in an asset-backed securities offering in any report accompanying a credit rating issued in connection with such an offering, including a preliminary credit rating.

http://www.sec.gov/rules/final/2011/33-9175fr.pdf

§ FINANCIAL SERVICES REGULATION IN EUROPE TURNED OVER TO THREE NEW SUPERVISOR Y BODIES (ESA) IN ORDER TO HARMONISE REGUL ATIONS ACROSS MEMBER STATES

From January 2011, the regulation of financial services across Europe is now overseen by three European Supervisory Authorities (ESAs). The ESAs work with the newly established European Systemic Risk Board (ESRB) to ensure financial stability and to strengthen and enhance the EU supervisory framework. They will improve coordination between national supervisory authorities, such as the FSA, and raise standards of national supervision across the EU. The ESAs are the European Securities and Markets Agency (ESMA), the European Banking Agency (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).

http://www.fsa.gov.uk/pages/About/What/International/european/esas/index.shtml

§ LUXEMBOURG IS FIRST COUNTRY TO RATIFY UCITS IV

The UCITS brand celebrated its 25th birthday at the end of last year, as the first UCITS directive was formally adopted on 20 December 1985. Almost exactly 25 years later, on 16 December 2010, the Luxembourg Parliament ratified UCITS IV. As was the case in 1985, Luxembourg is the first country in the EU to pass this new regulation into national law. A number of provisions (such as fiscal reliefs) came into effect as soon as 1 January 2011.

http://www.alfi.lu/newsletter/alfi-newsdigest