Latest Level 3 ESMA Q&As related to MiFID II/MiFIR – July 2017

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant ESMA Q&As from 7 July and 10 July 2017 listed below.

PwC provides you with this newsletter an overview of the latest questions related to the following topics:

  1. Investor protection and intermediaries topics (10 July 2017)
  • Best execution
  • Recording of telephone conversations and electronic communications
  1. Market structures topics (7 July 2017)
  • Direct Electronic Access (DEA) and algorithmic trading
  • Multilateral and bilateral systems
  • Access to CCPs and trading venues
  1. Data reporting (7 July 2017)
  • Field 14 and Field 17 – Total issued nominal amount
  • Field 30 – Quantity
  • Reference data for financial instrument
  • Transaction reporting
  • Order record keeping
  1. Commodity derivatives topics (7 July 2017)
  • Position limits
  • Position reporting

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR.

Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory & Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory & Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Orkan Sahin
Senior
PwC Legal FS Regulatory & Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com

New Swiss FinTech rules

Switzerland adopts revised banking regulations in order to facilitate the business activities of “FinTech” companies

On February 1, 2017 the Federal Council initiated a public consultation suggesting modifications to Swiss banking regulations. The purpose of the proposed revision was to create appropriate regulations for FinTech companies operating outside the traditional financial sector, taking into account the specific risk potential of their respective business models. The proposed revision included amendments to both the Banking Act (“BA”) and the Banking Ordinance (“BO”). The public consultation lasted until May 2017.

On July 5, 2017 the Federal Council finally adopted the new Swiss regulatory framework with regard to the BO. The new regime will formally enter into force on August 1st, 2017 so that FinTech companies will be able to benefit from these new rules as quickly as possible.

The amended rules provide for the following:

  1. Settlement account exemption: An exemption for settlement accounts will be created. This will allow companies to hold funds in a settlement account for 60 days without the operation of such account being deemed an acceptance of public funds subject to licensing under the BA (Art. 5 para 3 let. c BO). The BO in its current version did not contain a 60-day period of this kind, thereby creating some uncertainty.
     
  2. Innovation space (“sandbox”): Companies are allowed to hold public deposits of up to CHF 1 million without having to obtain a banking license (“sandbox”). Consequently, holding public funds of less than CHF 1 million does not qualify as “operating on a commercial basis”, which is a requirement in order to fall within the scope of the BA and the BO (Art. 6 para 2 let. a BO). According to the BO in its current version, taking public funds from more than 20 persons is deemed as “operating on a commercial basis”. Under the revised version of the BO, the number of persons providing funds is irrelevant as long as the threshold of CHF 1 million is not exceeded. Furthermore, the funds raised may neither be invested nor be subject to interest payments (Art. 6 para 2 let. b BO). Finally, the persons providing the funds must be informed that the respective business model is not subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA) and that the rules on deposit insurance do not apply (Art. 6 para 2 let. c BO). This new innovation space will enable FinTech companies to try out experimental new business models without immediately having to obtain a banking license.

All in all, these innovative amendments to the BA and the BO will substantially facilitate the operation of FinTech business models in Switzerland. Moreover, the revision of the BA and the BO is further evidence of the Swiss government’s commitment to constantly improving and redesigning the regulatory environment in order to boost Switzerland as a major FinTech hub.

Your contacts:

Guenther Dobrauz
Partner|Leader PwC Legal Services Switzerland
Tel. +41 58 792 1497
guenther.dobrauz@ch.pwc.com

Tina Balzli
Director|Legal FS Regulatory & Compliance Services
Tel. +41 58 792 1554
tina.balzli@ch.pwc.com

Simon Schären
Manager |Legal FS Regulatory & Compliance Services
Tel. +41 58 792 1463
simon.schaeren@ch.pwc.com

EU conflict minerals legislation

EU conflict minerals legislation will enter into force on 7 July 2017 and affect all EU importers of gold, tin, tungsten and tantalum (metals and ores).

The new EU conflict minerals regulation (“CMR”) was officially published on 9 May 2017 and will enter into force on 7 July 2017. The CMR introduces new compliance rules for EU importers of gold, tin, tungsten and tantalum, as well as their ores (“metals and minerals”), which stem from conflict-affected and high-risk areas, among others. The CMR is based on the OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high-risk areas (“OECD Due Diligence Guidance”), including the annexes and supplements thereto. The USA have already introduced their version of a conflict minerals regulation in Section 1502 of the Dodd-Frank Act. This memorandum provides an overview of the key features of the CRM.

Summary

The EU Conflicts Minerals Regulation covers gold, tin, tungsten and tantalum, as well as their ores, which stem from conflict-affected or high-risk areas, among others. The CMR will affect all EU importers (or third parties acting on their behalf) of gold, tin, tungsten and tantalum, and those involved in the EU supply chain of the import of these metals and minerals. EU importers or third parties acting on their behalf must comply with the following key obligations: the creation of management and risk management systems, third party audits, disclosure obligations and ex-post checks. Non-EU importers must ensure that EU importers can fulfil their obligations by providing the required information and data for supply chain traceability. The CMR will enter into force on 7 July 2017. Its key obligations will however only come into effect on 1 January 2021.

Who is affected?

The obligations of the CMR will mainly affect EU importers of metals and minerals. An “EU Importer” is any natural or legal person declaring metals or minerals for release for free circulation, or any natural or legal person on whose behalf such declaration is made. Non-EU goods intended to be put on the EU market or intended for private use or consumption within the customs territory of the EU shall be placed under release for free circulation. Release for free circulation entails:

  1. the collection of any import duties due
  2. the collection, as appropriate, of other charges, as provided for under relevant and effective provisions relating to the collection of such charges
  3. the application of commercial policy measures and prohibitions and restrictions insofar as they do not have to be applied at an earlier stage
  4. the completion of other formalities established in respect of the import of goods.

Release for free circulation shall confer the customs status of EU goods on non-EU goods.

It is important to note, however, that EU importers sourcing metals and minerals not stemming from areas deemed to be “conflict-affected or high-risk” must maintain their responsibility to comply with the due diligence obligations of the CMR. In other words, all EU importer of metals and minerals must comply with the requirements of the CMR. Commodities traders who are not EU importers of metals and minerals are still affected by the CMR because they are part of the supply chain. These traders must ensure that EU importers can fulfil their traceability obligations and other duties under the CMR.

Which metals and minerals are affected?

The CMR impacts gold, tin, tungsten and tantalum and their ores (“metals and minerals”) if they exceed a certain threshold volume. EU authorities have outlined the affected metals and minerals in their “Combined Customs Nomenclature”. Please find below an indicative table of the affected CN codes and exempted volumes.

Affected minerals

Description EU CN code TARIC subdivision Exempted threshold volume (kg)
Tin ores and concentrates 2609 00 00 5,000
Tungsten ores and concentrates 2611 00 00 250,000
Tantalum or niobium ores and concentrates ex 2615 90 00 10 To be communicated
Gold ores and concentrates ex 2616 90 00 10 To be communicated
Gold, unwrought or in semi-manufactured form, or as a powder with a gold concentration lower than 99.5% that has not passed the refining stage ex 7108 100

Affected metals

Description CN code TARIC subdivision Threshold volume (kg)
Tungsten oxides and hydroxides 2825 90 40 100,000
Tin oxides and hydroxides ex 2825 90 85 10 To be communicated
Tin chlorides 2827 39 10 10,000
Tungstates 2841 80 00 100,000
Tantalates ex 2841 90 85 30 To be communicated
Carbides of tungsten 2849 90 30 10,000
Carbides of tantalum ex 2849 90 50 10 To be communicated
Gold, unwrought or in semi-manufactured form, or as a powder with a gold concentration of 99.5% or higher that has passed the refining stage ex 7108 100
Ferrotungsten and ferro-silico-tungsten 7202 80 00 25,000
Tin, unwrought 8001 100,000
Tin bars, rods, profiles and wires 8003 00 00 1,400
Tin, other articles 8007 00 2,100
Tungsten, powders 8101 10 00 2,500
Tungsten, unwrought, including bars and rods obtained by simple sintering 8101 94 00 500
Tungsten wire 8101 96 00 250
Tungsten bars and rods, other than those obtained by simple sintering, profiles, plates, sheets, strips and foil, and other 8101 99 350
Tantalum, unwrought including bars and rods, obtained by simple sintering; powders 8103 20 00 2,500
Tantalum bars and rods, other than those obtained by simple sintering, profiles, wire, plates, sheets, strips and foil, and other

 Which jurisdictions are concerned?

The CMR will affect all metals and minerals coming from areas in a state of armed conflict or fragile post conflict, as well as those areas witnessing weak or non-existent governance and security (such as failed states) and widespread and systematic violations of international law, including human rights abuses. It will be left to the discretion of the respective EU importer whether areas should be deemed “conflict-affected” or “high-risk”. An indicative, non-exhaustive, regularly updated list of conflict-affected and high-risk areas will be provided. This list will however not provide absolute clarity on the countries that are considered “conflict-affected” or “high-risk”. The authorities will prepare non-binding guidelines in the form of a handbook for economic operators, explaining how best to apply the criteria for the identification of conflict-affected and high-risk areas.

What are the obligations under the EU conflict minerals regulation?

EU importers of metals and minerals must comply with the supply chain due diligence obligations set out in the CMR, and keep documentation demonstrating their compliance with these obligations, including the results of independent third-party audits. The key obligations are the implementation of:

  1. Management system: A supply-chain policy for metals and minerals stemming from conflict-affected and high-risk areas must be created, adopted and overseen by senior management, and communicated to suppliers. A grievance mechanism as an early-warning risk-awareness system must also be implemented. A chain-of-custody or supply-chain traceability system must be developed that provides the following (and its respective documentation):
      • description of the metal or mineral, including its trade name and type
      • name and address of the supplier to the EU importer
      • name and address of the smelters and refiners in the supply chain of the EU importer
      • in the case of metals – records of the third-party audit reports of smelters and refiners, if available, or evidence of conformity with a supply chain due diligence scheme recognised by the European Commission
      • in the case of minerals only – the country of origin of the minerals and if available, the quantities and dates of extraction, expressed in volume or weight
      • in the case of metals or minerals originating from conflict-affected and high-risk areas – additional information in accordance with the specific recommendations for upstream economic operators, as outlined in the OECD Due Diligence Guidance.

     

  2. Risk management obligations: Identify and assess the risks of adverse impacts in the mineral supply chain on the basis of information provided on the standards of their supply chain policy. Implement a strategy to respond to identified risks, one that prevents or mitigates adverse impacts by:
    • reporting findings of the supply chain risk assessment to senior management
    • adopting risk management measures consistent with the OECD Due Diligence Guidance
    • implementing a risk management plan and tracking its performance
    • undertaking additional fact and risk assessments for risks requiring mitigation, or after a change of circumstances.

     

  3. Third party audit obligations: EU importers of metals or minerals shall have audits performed by an independent third party (‘third-party audit’). EU importers of metals shall be exempt from the obligation to carry out third-party audits provided they provide substantive evidence, including third-party audit reports, which demonstrate that all smelters and refiners in their supply chain comply with the CMR or that they source exclusively from smelters and refiners found on the “Globally-Responsible Smelters and Refiners” list (see below, “Acknowledged refiners and smelters”).
     
  4. Disclosure obligations: EU importers of metals and minerals shall provide reports of any third-party audits to the competent authorities, and provide their immediate downstream purchasers all information gained and maintained pursuant to their supply chain due diligence with regard to business confidentiality and other competitive concerns. Each year, they shall report as thoroughly as possible on their supply chain due diligence policies and practices for responsible sourcing, including on the Internet.
     
  5. Ex-post checks: The competent authorities will carry out appropriate ex-post checks in order to ensure that EU importers of metals and minerals comply with the established obligations. This includes the examination of the EU importer’s implementation of supply chain due diligence obligations, the examination of documentation and records demonstrating proper compliance and the verification of audit obligations. Ex-post checks will include on-the-spot inspections, such as those done on the premises of the EU importer.
     

What are the applicable exemptions?

There are multiple applicable exemptions, such as:

  1. Recycled metals: Where an EU importer can reasonably conclude that metals are derived only from recycled or scrap sources, and when it has, with due regard for business confidentiality and other competitive concerns, publicly disclosed its conclusion and described in reasonable detail the supply chain due diligence measures it exercised in reaching that conclusion.
  2. Stocks of affected minerals: When stocks were created in their current form on a verifiable date prior to 1 February 2013.
  3. Recognised due diligence schemes of industry associations and groups: Industry associations and groups may request recognition of their due diligence schemes from the European Commission.
  4. Acknowledged refiners and smelters: A list will be provided that contains the names and addresses of globally-responsible smelters and refiners.

When will the EU conflict minerals regulation and its obligations take effect?

The CMR will take effect on 9 July 2017. Its key provisions will however only enter into force on 1 January 2021. These key provisions are:

  • Compliance with supply chain obligations
  • Management systems obligations
  • Risk management obligations
  • Third-party audit obligations
  • Disclosure obligations
  • Ex-post checks on EU importers

What will be the impact?

The experience obtained from the enforcement of the conflict minerals regulations under Dodd-Frank has shown that it will take a considerable amount of time to plan, structure and implement the requirements set forth in the OECD Due Diligence Guidance. These requirements will affect corporate governance, risk management, supply chain and trading activities.

Please contact our experts on this topic for a free consultation.

Contacts

Martin Liebi
Director – Head of Commodities Trading Regulation
Tel: +41 58 792 2886
martin.liebi@ch.pwc.com

Guenther Dobrauz
Partner Tax and Legals
Tel: +41 58 792 1497
guenther.dobrauz@ch.pwc.com

MIFID2: Are you ready for the new era in record-keeping?

With the MIFID2 regulatory regime beginning on 3 January 2018, EU-based financial firms will not only face a new era of heightened record-keeping involving many more records than was previously required, but also the negative effects of new oversight, monitoring, e-discovery and forensics processes for the firm’s clients and regulators. MIFID2 recordkeeping will not just be about expanded content archival – it will deal with its implementation in a way that will help firms best execute processes in a strategic and efficient manner.

The task faced by management teams to ensure their firms are compliant with MIFID2 record-keeping may be daunting given the complexities of the directive and its regulations. We feel this task is best completed by way of an overall approach to record-keeping operations, culminating in the decision to create a firm-level “programme” that is designed to handle all the new requirements posed by MIFID2 – as opposed to ad-hoc, tactically focused processes, which ensure minimal compliance with great risk and little preparation for the processes of oversight, monitoring, e-discovery and forensics. With a strategic programme, firms will have the means to ensure record-keeping compliance and be prepared to effectively deal with the negative effects of MIFID2.

Ultimately, a robust and strategic recordkeeping programme should encompass a process of integrating content archiving into the management of line-of-business applications from the very first day of MIFID2. This process should put operational archiving best practices into place to ensure that records are archived in such a way that their state and inventory are always known – thus making oversight, searching and retrieval easier in the future.

Read the whole article

Contacts PwC:

Guenther Dobrauz
Partner|Leader PwC Legal Services Switzerland
Tel. +41 58 792 1497
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager|Legal FS Regulatory and Compliance Service
Tel. +41 58 792 1087
michael.taschner@ch.pwc.com

Philipp Rosenauer
Manager|Legal FS Regulatory and Compliance Services
Tel. +41 58 792 1856
philipp.rosenauer@ch.pwc.com

Orkan Sahin
Senior |Legal FS Regulatory and Compliance Services
Tel. +41 58 792 1994
orkan.sahin@ch.pwc.com

Contacts KSF Technologies:

Michael Imfeld
Managing Partner, Business Development
michael.imfeld@ksftech.com

Allen Frasier
Director of Compliance
allen.frasier@ksftech.com

Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant June and May 2017 Q&As below.

PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Investor Protection
  • Information on costs and charges
  • Post-sale reporting
  • Appropriateness / complex financial instruments
  1. Transparency
  • None-Equity transparency
  • Pre-trade transparency waivers
  • The systematic internaliser regime
  • Data reporting services providers
  • Third country issues
  1. Market Structure
  • Direct Electronic Access (DEA) and algorithmic trading
  1. Commodity Derivatives
  • Position Limits
  • Ancillary Activity
  • Third country issues

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR. Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Orkan Sahin
Senior
PwC Legal FS Regulatory and Compliance Services
+41 58 792 1994
orkan.sahin@ch.pwc.com

Corporate access: a MiFID 2 sideshow that might yet cause a headache for asset managers

Brokers provide asset managers with trade execution and corporate access. The latter comprises meetings between executives of listed corporate and institutional investors, mostly in the form of so-called non-deal roadshows. Many investment professionals consider these meetings to be a crucial part of their investment process.

Hitherto asset managers paid the brokers for all these services via a ‘bundled’ fee for trades. The trading costs are directly charged to the funds, i.e. paid directly out of the assets of the investors. The sums involved here are significant.

MiFID 2, applicable as of January 2018, generally aims for increased transparency and improved consumer protection. Part of this is a massive push for unbundling, whereby asset managers have to pay separately for trading, research and corporate access. The rules with respect to corporate access are, however, still somewhat murky.

Read the full report

Please do not hesitate to contact us.

Dr. Guenther Dobrauz
Partner
Legal FS Regulatory and Compliance Services
+41 58 792 23 25
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
Legal FS Regulatory and Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Orkan Sahin
Senior
Legal FS Regulatory & Compliance Services
+41 58 792 1994
orkan.sahin@ch.pwc.com

Dr. Kilian Maier
Interaction Partners AG
CEO / Co-Founder
+41 76 570 11 60
kilian.maier@interactionpartners.ch

 

Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant April 2017 Q&As below.

PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Transparency
    – Best execution
    – Inducements
  1. Market Structure
    – Direct Electronic Access (DEA) and algorithmic trading
    – Multilateral and bilateral systems
  1. Data Reporting
    – Field 23 – Seniority of the Bond
    – Business Case: Inflation Indexed Bond
    – Transaction reporting

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR.

Please do not hesitate to contact us.

Guenther Dobrauz
Partner
Legal FS Regulatory and Compliance Services
+41 58 792 23 25
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
Legal FS Regulatory and Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

PwC AFME report on operational impact of Brexit on banking

AFME has recently commissioned a report from PwC, outlining the operational impacts and transformation challenges that Brexit poses to the provision of banking services in the EU.

The report, ‘Planning for Brexit – Operational impacts on wholesale banking andbrexit capital markets in Europe’ aims to provide policymakers and other industry stakeholders, both in the EU27 and the UK, with a fact-based analysis of how these challenges are likely to affect the financial services industry. To inform the study, information was gathered by PwC from previous case studies and from 15 banks spanning a range of sizes, activities, origins and legal entity structures. They include EU27 headquartered, UK headquartered and non-EU headquartered banks in broadly even measure.

Key findings of the report include:
The Brexit transformation will be highly complex for wholesale banks and contains many interdependent activities. Firms providing a significant proportion of current industry capacity will need to execute transformation programmes which will extend beyond Article 50 timescales and in many cases up to three years after Brexit has been completed; or even longer if the post-Brexit trading relationship between the EU and UK remains unresolved for a protracted period.

In executing their transformation programmes, banks will be heavily dependent upon timely approval of licenses by their new EU regulators. This represents a critical step in the implementation of new business models and is likely to occur at a time when regulators will see a peak in requests following Article 50 activation.

Banks are currently proceeding with two year tactical plans to maintain continuity of service.  However, these plans are likely to be sub-optimal for clients and market effectiveness, and will be dependent on reaching agreement about an interim business model that is acceptable to new EU27 regulators and can be put in place before the UK leaves the EU.

Read the report.

Please let us know if you are interested in discussing this.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Reminder: Be prepared for your next regulatory audit

Delegation of regulatory material tasks (art. 66 CISO-FINMA) must be reflected in your organizational documents

Rules in relation to any kind of delegation had been introduced by Art. 66 CISO-FINMA in 2015 to provide a similar requirement for CISA licensees as set out for banks in the FINMA Circular 2008/7 «Outsourcing – Banks» (which is currently under revision). The licensees covered by Art. 66 CISO-FINMA are fund management companies, investment Companies with variable capital (SICAVs), asset managers of collective investment schemes and representatives of foreign collective investment schemes (hereinafter «the licensee(s)»).

Read the whole article.

For more information please contact us:

Günther Dobrauz
Partner, Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Sabine Bartenschlager-Igel
Senior Manager, Legal FS Regulatory &
Compliance Services, Head Asset Management
+41 58 792 28 73
sabine.bartenschlager-igel@ch.pwc.com

Anne Batliner
Manager, Legal FS Regulatory &
Compliance Service
+41 58 792 29 55
anne.batliner@ch.pwc.com

Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant January/February 2017 Q&As below. PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Transparency:
    – Systematic internaliser regime
  2. Market Structure:
    – Direct Electronic Access (DEA) and algorithmic trading
    – Multilateral systems
  3. Data Reporting:
    – Date and time of the request of admission and admission
    – Instrument identification code and Underlying instrument code
    – Maturity Date
    – Classification of Financial Instruments (CFI) and Financial Instrument Short  Name (FISN)
    – Request for admission to trading by issuer
    – Base Point Spread of the index/benchmark of a floating rate bond

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR. Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com