Further to the recently highlighted Opinion on Arch Cru, FSA has published this “Dear CEO” letter noting that since FSA published its CP on the Arch Cru consumer redress scheme it has been contacted by IFAs who are concerned that their PII cover may not operate as they expected it to, ie. that when they come to renew their policies, cover for Arch cru claims will be excluded and that the IFAs will therefore face significant liabilities to consumers without the benefit of any insurance cover. Concerns as to types of PII covered and the costs incurred were also raised. FSA states that it is “not our intention to dictate what risks insurers should cover, nor are we seeking to require insurers to go beyond the cover as described in the relevant PII policies, but we are certainly prepared to consider taking action where insurers seek to breach or avoid their obligations to the detriment of consumers. We would remind insurers of their contractual and/or common law duty to act with due regard to the interests of their insured” and has asked firms to respond to questions in this letter within 21 days.

There are two consultations contained within this paper. Chapter 2 (Clarifying the CASS firm classification and operational oversight regime) and Chapter 3 (Changes to the Client Money and Assets Return (CMAR) and guidance) should be read concurrently. Chapter 4 sets out proposals on the mandate rules (CASS 8). FSA notes that, since introducing the CF10a controlled function, it has noticed some shortcomings in the CASS firm classification and operational oversight requirements (CASS 1A) and is proposing some additional amendments to CASS 1A in this CP to address these. There are also proposed changes based on feedback received on the language and presentation of a number of the questions within the CMAR as well as the CMAR guidance notes. With regard to CASS 8, FSA says that it has identified that there is now a large degree of inconsistency in understanding among firms and their auditors which could lead to customer detriment or increased costs to firms. It is proposing to clarify the scope of the mandate rules, but does not propose to change the purpose of the mandate rules or the internal controls required by the mandate rules. Responses should be received by 30 September 2012. FSA plans to issue a PS in November 2012, with the final rules coming into force on 1 January 2013.

This paper sets out ESMA’s guidelines on ETFs and other UCITS issues. The guidelines are adapted to the type of UCITS, management technique or financial instrument in question and are detailed in Annex III of the document. For index-tracking UCITS and index-tracking leveraged UCITS, ESMA details the information that should be communicated to investors in relation to the index tracked, such as the replicating model and the associated risks or the anticipated tracking-error. With regard to UCITS ETFs, ESMA’s guidelines provide a clear definition of these products together with a recommendation on the use of the specific identifier “UCITS ETF” in the name of the UCITS to enable investors to differentiate these funds from other UCITS. The guidelines also detail the circumstances under which UCITS ETFs should be open for direct redemptions at the level of the UCITS for investors that have acquired units or shares in the secondary market. With regard to efficient portfolio management techniques (securities lending, repo and reverse repo activities), ESMA’s guidelines provide clarification on the information that should be communicated to investors when UCITS enter into such arrangements. ESMA also sets out clear rules on securities lending arrangements, how risk persification limits of the UCITS Directive should be calculated and applied and sets out qualitative and quantitative criteria to be respected by collateral received by UCITS in the context of OTC financial derivative transactions and efficient portfolio management techniques. Annex IV comprises a consultation on the treatment of repo and reverse repo arrangements on which ESMA is seeking feedback from stakeholders. The feedback to this further consultation will be used by ESMA to finalise its position on this specific issue, which will be incorporated into the rest of the guidelines already adopted. Responses are required by 25 September 2012.

ESMA’s updated document includes new measures taken by Spain and Italy (as mentioned in today’s FT).

The Bill has now received Royal Assent.

These Regulations amend regulation 12 of the Child Trust Funds Regulations.1450 ((qualifying investments for an account), so that a deposit account or share account which is a qualifying investment will not be connected with another investment for the purposes of regulation 12(8) of the CTF Regulations where both are held in an ISA account, junior ISA account or a child trust fund. (Date in force: 8/08/12)

This HoC standard note considers the EC proposals for a Financial Transactions Tax and compares it to the UK bank levy.

FSA has published the text of an Opinion by Charles Flint QC on any consumer redress scheme it proposed to make under s404 FSMA. The issues addressed concern the following: whether the proposed scheme is properly based on requirements applicable to firms which made personal recommendations to consumers to invest in Arch cru Funds; whether those requirements constitute legal standards which would be applied by a court in considering whether consumers have suffered loss or damage in respect of which a remedy would be available in legal proceedings; whether in the rules examples of things done, or omitted to be done, that are to be regarded as a failure to comply with requirements would be held by a court to constitute a failure to comply with such requirements and whether in the rules matters which are required to be taken into account by relevant firms for the purpose of assessing evidence as to a failure to comply with a requirement, or determining whether such failure caused loss, are matters which would be taken into account by a court.

SFO notes reporting restrictions have now been lifted with respect to this matter. In the first trial, which concluded in July 2011, an inpidual was convicted of conspiracy to defraud for his involvement in the misuse of pension scheme funds managed by GP Noble Trustees Limited, a UK based pension trustee company (which is now in liquidation). He was sentenced to eight years imprisonment. Another defendant, the former operations manager of the firm, was acquitted of any criminal involvement. Another inpidual was convicted in September 2011 of fraud and forgery offences and has been sentenced to 15 months' imprisonment. A further trial concluded today – two men were acquitted on all counts.

These Regulations amend the Authorised Investment Fund (Tax) Regulations 2006 (S.I. 2006/964, “the principal Regulations”) to make provision for certain transactions undertaken in relation to property AIFs. (Date in force: 1/08/12)