Financial Services Quarterly Report - Asia
June 25, 2015
A review of recent developments in the international financial services industry, including:
- Countdown to 1 July 2015: Accessing China and Australia via Hong Kong's Mutual Recognition Schemes
- Incentive-Based Compensation: Dodd-Frank and the Example of Europe
- U.S. FSOC and Global FSB Signal Continued Scrutiny of Financial Stability of the Asset Management Industry
- Is the Long Wait Worth it? European Long-Term Investment Funds (ELTIFs) Finally Take Shape
- Luxembourg CSSF Issues Circular on Information to be Submitted in Relation to Unregulated AIFs and/or Regulated Non-EU AIFs
- OECD Discussion Draft on BEPS: Funds’ Treaty Access under Threat
- French AFG Publishes Guidelines on Use of Stress Tests by Management Companies
- Dechert's World Compass
- AIFMD Resources: Cutting Through the Noise
- Living with the Volcker Rule
Countdown to 1 July 2015: Accessing China and Australia via Hong Kong's Mutual Recognition Schemes
On 1 July 2015, two significant developments in the Asian funds space will come into effect. Hong Kong's Mutual Recognition of Funds Scheme with the PRC will – for the first time – allow international managers to distribute their funds to domestic Mainland Chinese retail investors, after such funds have been registered by the local Chinese Securities Regulatory Commission. Also, the existing (low profile) Hong Kong-Australia Mutual Recognition Scheme will receive a shot in the arm.
Incentive-Based Compensation: Dodd-Frank and the Example of Europe
After a four-year hiatus, some of the more controversial elements of the executive compensation rules mandated by the U.S. Dodd-Frank Act are back on the table. Parallels can be drawn with EU rules (including principles set forth in the AIFM Directive, ESMA guidelines and domestic regulation in the Member States) and their evolution from draft to final stage, where certain concepts were unexpectedly introduced or expanded in spite of industry opposition.
U.S. FSOC and Global FSB Signal Continued Scrutiny of Financial Stability of the Asset Management Industry
In recent months, both the U.S. Financial Stability Oversight Council and the international Financial Stability Board have taken actions signaling their continued interest in evaluating the potential for investment funds and asset managers to be deemed systemically important financial institutions (SIFIs) by the FSOC, or non-bank non-insurer (NBNI) global systemically important financial institutions (G-SIFIs) by the FSB.
Is the Long Wait Worth it? European Long-Term Investment Funds (ELTIFs) Finally Take Shape
The long-awaited regulation on European long-term investment funds, now published in the Official Journal of the EU, will offer fund managers a new label for collective investment vehicles with a long-term investment horizon. Following an, at times, rather contentious legislative process, the ELTIF Regulation came into force on June 8, 2015. Several points in the ELTIF Regulation have been amended since its initial draft, and numerous other amendments that would have imposed unnecessary regulatory burdens have fortunately been avoided.
Luxembourg CSSF Issues Circular on Information to be Submitted in Relation to Unregulated AIFs and/or Regulated Non-EU AIFs
The Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF), issued on 5 May 2015 circular 15/612 regarding the information to be submitted to the CSSF by alternative investment fund managers in relation to: (i) unregulated alternative investment funds established in Luxembourg, another EU Member State or a third country; and/or (ii) regulated AIFs established outside of the EU. The circular was issued to help the CSSF comply with its obligations to provide certain information to ESMA.
OECD Discussion Draft on BEPS: Funds’ Treaty Access under Threat
The OECD published a revised discussion draft on 22 May 2015 in relation to the BEPS measures to address treaty abuse. Given the extensive submissions made by various parties on behalf of the fund industry, it was hoped that the revised discussion draft would contain measures to address the special requirements of funds and provide a clear path to treaty access post-BEPS. Unfortunately, the discussion draft provides no comfort that these concerns will be addressed and raises the prospect that funds will face increased tax leakage in the future.
French AFG Publishes Guidelines on Use of Stress Tests by Management Companies
The AFG (the association representing French management companies) published guidelines on 7 May 2015 regarding the use of stress tests for risk valuation by management companies. The guidelines are aimed at helping the AFG’s members set out the regulatory stress tests applicable to collective investment schemes, which have been implemented by EU regulators under their national laws. The AFG’s principles concerning stress testing practices focus on proportionality, correlation, tolerance level, thresholds for reverse stress tests, and disclosure of results.
Dechert's World Compass
World Compass is a web-based subscription service that offers investment firms 24/7 access to concise global marketing and distribution guidance in more than 100 jurisdictions worldwide, updated regularly to ensure accuracy, and covering funds, managed accounts and beneficial ownership reporting.
AIFMD Resources: Cutting Through the Noise
Dechert has established a web page that provides tools for navigating the EU Alternative Investment Fund Managers Directive, including reference guides, legal updates and video briefings. The AIFMD affects a wide range of asset managers, whether they are based within or outside the EU.
Living with the Volcker Rule
Banking entities have until July 21, 2015 to conform their activities and investments to the requirements of the Volcker Rule, adopted by five U.S. agencies. Dechert has established a web page to help clients respond to issues that the Volcker Rule will raise, as well as the opportunities it may provide.
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