This draft report prepared by rapporteur Saïd El Khadraoui, sets out the following proposals: imposing capital treatment of liquidity lines to structured investment vehicles and conduits and setting large exposure limit of 25% of own funds to all unregulated entities and potentially extending CRD IV requirements to non-banking entities; considering ways in which to ensure that entities which are not consolidated from an accounting perspective are consolidated for prudential consolidation purposes; an EC legislative proposal for a separation of retail and investing activities of banks; more transparency in the repo and security lending markets; an EC legislative proposal to require money market funds to either become variable asset value with a daily evaluation or to require them to retain a constant value to be submitted to capital requirements; various reforms to securitisation, including a cap on the number of times a financial product can be securitised, and reforms to address ETF risks.

FSA has published proposals to ban the promotion of UCIS and similar products to the vast majority of retail investors in the UK. FSA notes that the CP follows on from extensive work it undertook which found that only one in every four advised sales of UCIS to retail customers were suitable, taking into account the customer’s needs and requirements. FSA found that many promotions breach the restrictions and only a minority of advice is suitable. FSA also raises concerns over new products being brought to the market that employ various legal structures to provide access to the same investment strategies as are often seen in (eg. securities issued by SPVs to used to allow retail investment in TLPIs). FSA proposes to introduce new rules for them intended to create a level playing field and improve standards of consumer protection. Specific measures proposed: ¶ changing the financial promotion rules to limit the type of customer to whom firms may promote financial promotions for UCIS and closely substitutable investments; ¶ Handbook guidance on the effect of the financial promotion rules on advised sales to clarify that personal recommendations generally amount to a financial promotion and, as a result of the marketing restrictions, advice on a non-mainstream pooled investment may result in an unlawful promotion if no valid exemption is available; ¶ a rule requiring firms to maintain a record of the basis on which the promotion has been made and requiring distribution firms to ensure their compliance oversight function (CF10) confirms the compliance of each financial promotion for products within scope of this consultation, including financial promotions in the context of advised sales, with the marketing restriction rules; and; ¶ updating the retail investment product definition to clarify the position on advice on UCIS and substitutable products in relation to RDR independence requirements. ¶ Responses are required by 14 November 2012. FSA intends to publish a PS setting out finalised rules and guidance in Q1 2013.

FSA has published this report which sets out the results of FSA’s latest Hedge Fund Survey (HFS) conducted in March 2012 and the Hedge Fund as Counterparty Survey (HFACS) conducted in April 2012. Key findings include: aggregate assets under management increased in the survey period, the footprint of surveyed hedge funds is modest in most markets when measured by the value of their exposures and by turnover. Possible exceptions are the convertible bond, interest rate derivative and commodity derivative markets; leverage remains largely unchanged and modest for most funds; surveyed hedge funds report that they are able to liquidate their assets in a shorter timeframe than the period after which their liabilities would fall due; counterparty exposures of surveyed hedge funds remain fairly concentrated among five banks and measures of portfolio concentration have remained largely unchanged for most surveyed funds. FSA intends to repeat the HFS in September 2012 and the HFACS in October 2012.

This issue of Market Watch concerns FSA’s approach to transposition of the Short Selling Regulation in the UK (it comes into force on 1 November 2012) and sets out expected procedures.

The FSB Secretariat is seeking views (on a pro bono basis) from legal experts with regard to the appropriate jurisdiction for establishment of the Global LEI Foundation and COU. Responses are required by 10 September 2012.

FSB has published details of the inaugural meeting of the LEI PSPG, which took place on 25 July 2012 in New York. It is noted that work will now be taken forward in three workstreams (governance/legal; operations and ownership/relationship data).

These Regulations further implement Directive 2009/65/EC of the European Parliament and Council (O.J. L 302, 17.11.09, page 32) (“the recast UCITS directive”), which was originally implemented by the Undertakings for Collective Investment in Transferable Securities Regulations 2011 (S.I. 2011/1613) (“the implementing Regulations”). Regulation 3 corrects an amendment made by the implementing Regulations to subsection (3B) of s199 FSMA, to ensure that the requirements set out in subsections (4) to (8) apply in the case of a management company authorised in another Member State in accordance with Article 6 of the recast UCITS directive. Regulation 4 amends s264 FSMA to ensure that a collective investment scheme constituted in another EEA State, which is managed by a body corporate incorporated in a different EEA State, can qualify as a recognised scheme in the UK in accordance with Article 16 of the recast UCITS directive. Regulation 5 corrects an inconsistency of terminology between paragraphs (1) and (4) of regulation 8 of the implementing Regulation. (Date in force: 24/08/12)

This Order amends the Financial Services and Markets Act 2000 (Gibraltar) Order 2001/3084) (“the Gibraltar Order”). Article 2 of the Gibraltar Order is amended to enable management companies, as defined in Article 6 of the Directive of the European Parliament and of the Council 2009/65/EC of 13th July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”) (OJ No. L 302, 17/11/2009, p. 32; “the UCITS directive”), which are based in Gibraltar, to exercise certain rights to establish branches and provide services in the United Kingdom. The rights correspond to the rights of firms authorised in other EEA States under the UCITS directive to establish branches and provide services in the UK. Article 2 is also amended to disapply the obligation in Part 13 FSMA for FSA to notify the EC and ESMA when it intervenes in the affairs of an incoming EEA firm, when the intervention is in respect of a Gibraltar-based firm that is treated as an EEA firm by virtue of the Gibraltar Order. Article 2 is further amended to enable a UCITS constituted under Gibraltar law to be treated as an EEA UCITS for purposes of the merger regime set out in Part 4 of the Undertakings for Collective Investment in Transferable Securities Regulations 2011/1613). Article 3A is inserted to enable collective investment schemes constituted under Gibraltar law to be treated as recognised overseas schemes for the purposes of the Act. Article 4 is amended to provide a corresponding right for UK firms to establish branches and provide services in Gibraltar and to market units of UK-established UCITS in Gibraltar. (Date in force: 24/08/12)

This has been published in the Official Journal.

HMT has published a draft of The Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2012 for technical comment following the consultation on contractual schemes for collective investment that was issued in January 2012. The revisions build on comments received during the consultation, and further discussions with stakeholders including FSA. It now invites written technical comments on these regulations to be received by 3 September 2012. In addition, HMRC has published drafts of The Collective Investment Schemes (Tax Transparent Funds, Exchanges, Mergers and Schemes of Reconstruction) Regulations 2012, The Stamp Duty and Stamp Duty Reserve Tax (Collective Investment Schemes) (Exemptions) Regulations 2012 and The Value Added Tax (Finance) Order 2012 for comment by 3 September 2012. These are available to download via the third link below.