Herbert Smith Freehills launches new and updated Anti-Bribery Guide to Gifts, Entertainment, Travel and Training across Asia Pacific

Clients operating across Asia Pacific face strict anti-bribery laws often coupled with a cultural tradition of gift giving and relationship building. Our new improved and expanded edition on “Gifts, Entertainment, Travel and Training” is aimed at helping clients navigate the local and international anti-bribery rules relating to the giving of gifts and entertainment. These rules often differ across jurisdictions and our Guide provides helpful guidance on what may or may not be prohibited and what steps can be taken to minimise the risk of falling foul of anti-bribery laws.

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Investment recommendations

Increased scope

The former Market Abuse Directive (MAD) imposed requirements designed to ensure the objective presentation of investment recommendations and the disclosure of interests and conflicts of interest on the part of producers or disseminators of such recommendations.  However, the Market Abuse Regulation (MAR) has considerably expanded regulation of "investment recommendations" and other "information recommending or suggesting an investment strategy":

  1. Recital 3 of the former Directive 2003/125/EC implementing MAD had carved out from these requirements "investment advice, through the provision of a personal recommendation to a client … (in particular informal short-term investment recommendations originating from inside the sales or trading departments of an investment firm or a credit institution expressed to their clients), which are not likely to become publicly available". As the Directive has now been repealed, the carve out no longer applies. The investment recommendations requirements therefore now apply to, among other things, informal sales and trading recommendations (e.g. sales notes, shouts)
  2. In addition, under MAD, disclosures were focused on covering more traditional equity market ‘buy/hold/sell’ recommendations; MAR covers less standard sales recommendations, including opinions as to the present or future value or price of financial instruments.
  3. The European Securities and Markets Authority (ESMA), rather than the national regulator, is responsible for providing guidance on the detail of the regime.  The requirements are more prescriptive than before.
  4. MAR applies the investment recommendations requirements to a broader range of financial instruments.  A number of financial instruments are traded on one or more of the 149 multilateral trading facilities in the EU without the consent or request of the issuer. 
  5. The territorial scope of the regime extends to actions or omissions outside the EU which affect or relate to financial instruments to which the regime applies. 

The combined effect of these provisions means that strictly speaking, the MAR requirements would apply to non-EU persons making sales recommendations to non-EU investors in respect of the securities of non-EU issuers if those securities happen to be traded on a trading venue in the EU.  ESMA has not made clear how it envisages this requirement should be supervised and enforced at the very outer-margins of EU-related business.

The regulatory technical standards

The regulatory technical standards (RTS) adopted by the European Commission covering "investment recommendations" and "information recommending or suggesting an investment strategy" contain detailed requirements in respect of:

  • disclosure of the identity of the producers of recommendations;  
  • objective presentation of such recommendations;
  • the disclosure of interests conflicts of interest on the part of producers of recommendations; and
  • arrangements to ensure that disseminators of recommendations disclose conflicts of interest and that altered/summarised recommendations are clear fair and no misleading

The requirements which apply to persons whose main business is to produce investment recommendations are more extensive and granular than those that apply more generally.  The requisite disclosures may be disproportionate to the length or form of the recommendation. This includes the case of "non-written recommendations" (e.g. those communicated via meetings, television, conference calls or website interviews). In that event the RTS allow the person who produces recommendations to fulfill some of these requirements (but not all) by explaining within the recommendation where the required information can be directly and easily accessed by the persons receiving the recommendation free of charge (i.e. on a website).

Industry comment

Joint trade associations representing the industry (amongst others, AFME, BBA, FIA and ISDA) consider the regime to be unduly onerous and comment that it:

"seems to create a largely unbounded requirement for extensive disclosures on sales and trading communications. Without further guidance, there is a material risk that the typical daily sales dialogue with professional clients will have to cease as implementation would be unworkable. This option is being seriously considered by some of our members. This would clearly have a very detrimental effect on proper and efficient information flows, market liquidity, market efficiencies and client outcomes generally."

Jonathan Goodliffe

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Filed under Asset management, Banking, EU, Investment banking, Investment Funds, Uncategorized

Hong Kong court rules in favour of investors in mis-selling claim: A departure from the recent trend

Earlier this week, the Hong Kong Court of First Instance handed down its judgment in relation to a mis-selling claim against a bank, ruling in favour of the plaintiff investors. This departs from the trend in respect of post-financial crisis mis-selling claims against banks, which have all been unsuccessful at the courts.

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UK: One month to deadline for implementing FCA and PRA whistleblowing rules

Given the distractions of the summer holiday season and the aftermath of the Brexit referendum, it would be understandable if other developments slipped off the radar. However, there is one particular deadline for regulated firms that demands urgent attention.  Under the whistleblowing rules published by the FCA and PRA back in October 2015, relevant firms must implement effective internal whistleblowing arrangements by 7 September 2016.   Relevant firms include:

  • UK deposit-takers with assets of £250m or more (ie, banks, building societies and credit unions);
  • PRA-designated investment firms; and
  • Insurance and reinsurance firms subject to Solvency II, and the Society of Lloyd's and managing agents.

The arrangements must go further than the statutory whistleblowing protection available to workers and therefore even firms with pre-existing policies are likely to need to update them. 

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Filed under FCA, Insurance, Investment banking, PRA, Retail Banks, UK

Middle East Financial Services Briefing

A round-up of key legal and regulatory developments in the United Arab Emirates, Kuwait, Qatar, Bahrain, Oman and Saudi Arabia 

Overview and review of 1st half of 2016

The first half of 2016 has seen a significant amount of activity from regulators in the Middle East. A real commitment to the protection of investor's rights and the stability of financial markets in the region has been evidenced by regulatory activity including the review and revision of existing regulatory rules so as to clarify legal obligations and close off potential loopholes that authorised firms may rely on to avoid regulatory action.

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Market abuse update – July 2016

The Market Abuse Regulation (MAR) and the Criminal Sanctions (Market Abuse) Directive came into application in Europe on 3 July 2016.  Various outstanding pieces of secondary legislation were published in the Official Journal shortly before then, and further material has emerged since 3 July. ESMA published final form guidelines in relation to delay in disclosure of inside information and market soundings and an updated MAR Q&A document on 13 July, and on 26 July, its final report on Draft Implementing Technical Standards on sanctions and measures under MAR. Further guidelines are expected later this year.

In our latest update, we discuss the implications of these developments, the secondary legislation under MAR and the changes made to the UK regulatory regime to accommodate it.  We also look at some recent enforcement actions in a range of different jurisdictions.

 

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Filed under Americas, Asia, Australia, Europe, European Regulation, France, Hong Kong, Uncategorized, US

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Extra-territorial scope of MAR: impact on non-EU firms

Article 2(4) of MAR applies the "prohibitions and requirements" within MAR to behaviour that occurs both within the EU and in a third county.  In other words, MAR is intended to have extra-territorial effect, capturing individuals and firms operating outside of the EU. 

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Filed under EU, Europe, European Regulation, France, Germany, Investment banking, Italy, Spain, Ukraine

Serious Fraud Office secures second Deferred Prosecution Agreement

London’s Southwark Crown Court recently approved only the second Deferred Prosecution Agreement (DPA) since the introduction of DPAs in 2014. Herbert Smith Freehills' London Corporate Crime and Investigations team negotiated the first DPA with the SFO, which was concluded in November 2015. The recent announcement of the UK’s second DPA indicates that DPAs are likely to be an important tool in the SFO’s armoury as it pursues corporates alleged to have committed economic or financial crimes.

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Suspicious transaction and order reporting

Under Article 16 of MAR, market operators and investment firms operating a trading venue1, and any person professionally arranging or executing transactions, should have in place arrangements, procedures and systems for the detection and reporting of orders and transactions suspected of constituting insider dealing, market manipulation or attempted insider dealing or market manipulation. The obligations to detect and report market abuse are not limited to investment firms under MiFID; they extend to UCITS management companies, AIF managers and other firms professionally engaged in trading on own account (proprietary traders) such as energy trading companies.  Continue reading

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Filed under EU, Europe, FCA, France, Germany, Italy, Uncategorized

Herbert Smith Freehills launches 2016 guide to Financial Services Regulation in Asia Pacific

 

fsrap        Herbert Smith Freehills LLP has launched its 2016 guide on Financial Services Regulation in Asia Pacific. Please click here to preview this publication. 

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Filed under Asia, China, Hong Kong, Indonesia, Philippines, Singapore, Thailand, Vietnam