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CESR consultation paper - Risk measurement and the calculation of global exposure and counterparty risk for UCITSThe Committee of European Securities Regulators (CESR) has published, for consultation, proposed guidelines on risk measurement and the calculation of global exposure and counterparty risk for Undertakings for Collective Investment in Transferable Securities (UCITS). The guidelines will accompany the level 2 implementing measures for the revised UCITS Directive (2009/65/EC) that should be adopted by the European Commission by July 2010. CESR has emphasised that the calculation of the global exposure represents only one element of the UCITS’ overall risk management process. It remains the responsibility of the UCITS to select an appropriate methodology to calculate it - in that context CESR proposes detailed methodologies to be followed by UCITS when they use the commitment or the Value at Risk (VaR) approach. For the commitment approach, CESR sets out proposed guidelines on: - the conversion of financial derivatives into the equivalent position in the underlying assets of those derivatives;
- the methodologies for netting and hedging arrangements and principles to be respected when calculating global exposure; and
- the calculation of global exposure when using Efficient Portfolio Management Techniques.
For the VaR approach, CESR proposes guidelines on: - the principles to be applied for the choice between Relative and Absolute VaR;
- the criteria to be used in the selection of the reference portfolio for use in the Relative VaR calculation;
- the methodology for the computation of the global exposure when using Relative and Absolute VaR with a set of quantitative and qualitative requirements to be respected; and
- additional safeguards which UCITS should put in place when calculating the global exposure with the VaR approach.
In these guidelines, CESR also defines a set of high-level principles relating to assets used as collateral to reduce counterparty risk and cover rules for transactions in financial derivative instruments. CESR invites responses to this consultation paper by 31 May 2010. http://www.cesr.eu/popup2.php?id=6567 Back to top CESR publishes feedback statements in terms of UCITS IV level 2 measuresOn 19 April 2010, CESR published three feedback statements concerning the responses received to its technical advices to the European Commission on the level 2 measures. In particular, the documents concern (i) the UCITS management company passport (http://www.cesr.eu/popup2.php?id=6566) (ii) the format and content of KID disclosures for UCITS (http://www.cesr.eu/popup2.php?id=6565) and (III) mergers of UCITS, master-feeder UCITS structures and cross-border notification of UCITS (http://www.cesr.eu/popup2.php?id=6564). A complete overview of the background is included at the beginning of the different documents. Back to top CESR consults on its technical advice relating to MiFID reviewThe Committee of European Securities Regulators (CESR) has published three consultation papers on its technical advice to the European Commission in connection with the review of the Markets in Financial Instruments Directive (MiFID). The consultation papers relate to the following: - Investor protection and intermediaries. The consultation covers six main policy lines: (i) requirements for recording telephone conversations and electronic communications; (ii) execution quality data; (iii) complex vs non-complex financial instruments; (iv) the definition of personal recommendation; (v) supervision of tied agents and related issues; and (vi) MiFID options and discretions.
- Equity markets. This paper was developed on the basis of CESR’s continued work on the issues identified in its previous report on the impact of MiFID on equity secondary markets functioning. The main points addressed in this consultation are: (i) retaining the pre-trade transparency regime for organised markets; (ii) reviewing the definition of, and obligations for, systematic internalisers; (iii) enhancing the post-trade transparency regime; (iv) improving the application of transparency obligations to equity-like instruments; (v) the regulatory framework for consolidation and cost of market data; (vi) addressing regulatory boundaries and requirements; and (vii) eliminating certain options and discretions in MiFID.
- Transaction reporting. This paper contains CESR's proposal for amending and clarifying the transaction reporting regime under MiFID. The main purpose behind the proposed amendments is to enhance market supervision and ensure greater market integrity. The proposed amendments focus on: (i) the introduction of a third trading capacity (riskless principal); (ii) collection of, and standards for, client and counterparty identifiers; (iii) client ID collection when orders are transmitted for execution; and (iv) transaction reporting by market members not authorised as investment firms.
Next steps. The deadline for comments on the consultations is 31 May 2010 and CESR will hold a public hearing on these issues on 17 May 2010. It intends to provide its final advice to the European Commission by the end of July 2010 with a view to the Commission reporting to the European Parliament and the Council of the European Union on possible changes to MiFID in early 2011. Read more: http://www.cesr-eu.org/index.php?page=consultation&mac=0&id Back to top IOSCO: Disclosure principles for public offerings and listings of asset backed securitiesThe International Organization of Securities Commission (IOSCO) has published a final report (http://www.iosco.org/library/pubdocs/pdf/IOSCOPD318.pdf) containing principles designed to provide guidance to securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of asset backed securities (ABS). The Technical Committee has developed these ABS Disclosure Principles to enhance investor protection by facilitating a better understanding of the issues that should be considered by regulators in developing or reviewing their disclosure regimes for ABS. Back to top EC report: transfers of assets within a cross-border banking group during a financial crisisThe European Commission has published a report entitled "Study on the feasibility of reducing obstacles to the transfer of assets within a cross border banking group during a financial crisis". The study examines the types of asset transfers that can be implemented quickly in a crisis and deals mainly with interbank lending, financial instruments and transfers of capital. It looks at issues such as: - the limitations imposed on the direction of the transfers, whether it is from the parent to the subsidiary (or vice-versa);
- the practical obstacles to, and the constraints and legal risks of, intra-group asset transfers; and
- proposed solutions for removing obstacles to transfers of assets.
The Commission has also published the various national reports produced as part of the study. Study:
http://ec.europa.eu/internal_market/bank/docs/windingup/200908/final_report20091218_en.pdf National reports:
http://ec.europa.eu/internal_market/bank/windingup/index_en.htm Back to top EP: report on tackling the fiscal, financial and environmental crisesThe European Parliament has published a report entitled "Emergent Global Challenges: what Europe needs to do to tackle the triple crises of tax, finance and climate" which considers, among other things, reform of the financial system. It looks at issues such as the steps that need to be taken to reduce systemic risk, reducing excessive interconnectedness and reducing contagion. The report notes that: - the EU needs to urgently establish a supervisory body that has "an eagle eye system-wide view of the financial system" (at least within the single market). The report notes that: (i) it is necessary to significantly strengthen the European Systemic Risk Board by giving it wide-ranging statutory powers; (ii) the EU should mandate the introduction of national level systemic risk regulators across the Member States; and (iii) the EU should put forward a proposal for setting up a global systemic risk regulator either as a new dedicated institution or under the aegis of an existing institution such as the IMF;
- the current level of authority granted to the European Supervisory Authorities (ESAs) is insufficient - the proposal by the Parliament to, for example, make the proposed European Banking Authority (EBA) the supervisor for large cross border banks is a step in the right direction that needs to be strengthened further and the other agencies also need to have their powers beefed up. The report also comments that the European System of Financial Supervisors (in particular, the EBA) should be given resolution powers over cross border banks;
- although the US plans to introduce restrictions on the maximum size of any particular bank do not quite go far enough, they provide a good model for the EU to replicate at a European level;
- it would be prudent for the EU authorities to seriously consider the merits of separating at least the most risky and volatile parts of the financial business of banks from retail banking - the report comments that "perhaps it is time for the universal bank model to be relegated to history books"; and
- the introduction of levies on bank balance sheets (so they penalise excessive reliance on short term funding) would help increase the resilience of bank liquidity positions and has the potential to generate significant revenue. The report also notes that financial transaction taxes could be a useful prudential tool if different rates are applied to more opaque and complex markets and they can be varied to tackle overheating markets.
Read more:
http://www.europarl.europa.eu/activities/committees/studies/download.do?language=en&file=30653 Back to top ECB: lessons learned from the financial crisis with regard to the functioning of European financial market infrastructuresThe European Central Bank (ECB) has published a report on the lessons learned from the financial crisis with regard to the functioning of the European financial market infrastructures. The report focuses on the challenges that European financial market infrastructures and participating financial institutions faced during the financial crisis with respect to: - information flows following a default;
- default management;
- behavioural factors that affected market liquidity conditions adversely; and
- issues relating to over-the-counter markets.
The Eurosystem has identified procedures and rules that might be enhanced so that financial market infrastructures, their participants and relevant public authorities are better equipped to deal with similar events in the future. The Eurosystem also identifies various follow-up actions addressed, in particular, to financial market infrastructures and their participants, such as (i) the enhancement of direct monitoring of critical counterparties’ creditworthiness; (ii) the definition of criteria for, and the identification of, critical participants; and (iii) the enhancement of financial market infrastructures’ stress-testing exercises. Read more:
http://www.ecb.int/pub/pdf/other/reportlessonslearnedfinancialcrisis201004en.pdf?e8448007b6d5504e646254e488d39ed1 Back to top IOSCO: Disclosure principles for public offerings and listings of asset backed securitiesThe International Organization of Securities Commission (IOSCO) has published a final report (http://www.iosco.org/library/pubdocs/pdf/IOSCOPD318.pdf) containing principles designed to provide guidance to securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of asset backed securities (ABS). The Technical Committee has developed these ABS Disclosure Principles to enhance investor protection by facilitating a better understanding of the issues that should be considered by regulators in developing or reviewing their disclosure regimes for ABS. Back to top UK Offshore Funds: List of acceptable GAAPsHMRC have published a list of acceptable GAAPs for Offshore Funds applying to enter the Reporting Fund regime. It is expected that this document will form part of HMRC’s offshore funds guidance. The list currently contains Canada, Ireland, Luxembourg, UK and USA, but some adjustments may be needed to the accounting profit to make the result acceptable to HMRC (as specified in the announcement). The document also mentions that further GAAPs may be added as applications are received from funds wishing to prepare accounts using GAAPs that do not yet appear on the list. Further details on making such an application can be found in the document. Read more: http://www.hmrc.gov.uk/collective/list-gaaps.pdf Back to top LUXFLAG: 9 labelled MIVsLuxFLAG is pleased to announce that all the Microfinance Investment Vehicles (MIVs) that have the LuxFLAG Label have successfully renewed their application in April 2010 and to welcome a new labeled MIV: the BlueOrchard Fund - Microfinance Fund for US investors. A total of 9MIVs representing 18 sub-funds and around EUSD 2.24 billion of assets under management now carry the LuxFLAG Microfinance Label. - Advans SA
- BlueOrchard Fund - Microfinance Fund for US investors
- Dexia Micro-Credit Fund
- European Fund for Southeast Europe (EFSE)
- responsAbility Global Microfinance Fund
- responsAbility SICAV (Lux) – Microfinance Leaders
- responsAbility SICAV (Lux) – Mikrofinanz-Fonds
- Dual Return – Vision Microfinance
- Rural Impulse Fund SA
Details of the nine MIVs are available on LuxFLAG’s website: www.luxflag.org. This site also contains details of eligibility criteria to obtain a Label and a form that can be downloaded by entities wishing to apply for the Label. Back to top Opportunities in Luxembourg for Islamic financeLuxembourg is recognised as one of the leading European centres for Islamic finance with a long track record in the sector. It hosted the first Islamic finance institution more than 30 years ago and was the first European stock exchange to list a sukuk in 2002. Luxembourg for Finance has now published a brochure, Luxembourg Vehicles for Islamic Finance Structures, which contains a broad overview of the legal framework for shariah compliant structures, their tax treatment and the professional services available in the financial centre. Two years ago, the Government set up a task force, charged with identifying obstacles to the development of Islamic finance. The group reported back favourably. Where shariah compliant investment is concerned, Luxembourg can offer a range of vehicles that address the specific needs of both investors and promoters. Today, Luxembourg is the leading non-Muslim domicile for shariah compliant investment funds and can rival any stock exchange in Europe for the number of sukuk issues listed. In this LFF brochure you will find information how to choose the best vehicle for various shariah compliant investment structures. It also includes sections on stock market quotations, takaful, wealth management, philanthropy, Islamic microfinance and tax. Please click here to view the brochure Back to top
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In spring 2010 the Association of the Luxembourg Fund Industry (ALFI) reconvened a swing pricing working group.This group was formed from various ALFI members over a broad spectrum of disciplines including fund auditors, fund promoters, asset managers, legal representatives and third party administrators. The primary goal set by the chairman was to review, and if necessary update, guidance previously issued by ALFI in late 2006. In order to facilitate these objectives a survey was commissioned to research what has happened in the industry since the publication of the original brochure.
This brochure provides you with the main definitions about the legal framework for setting up an investment fund in Luxembourg, the available structures, the main players, the regulatory supervision, the taxation as well as the once-off and ongoing costs at a glance. Have a look at it by clicking here 
This guide has been prepared by the ALFI Promotion Sub-Committee and is targeted at the deciders of financial services institutions.