1.1 FCA Appoint Andrew Bailey as Chief Executive page FCA Policy Development page 2

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Regulatory Update ISSUED 25 th FEBRUARY 2016 UK Edition INDEX JANUARY 2016 1.0 FCA NEWS 1.1 FCA Appoint Andrew Bailey as Chief Executive page 2 1.2 FCA Policy Development page 2 2.

1 Commission letter of reply on the application of the AIFMD passport page 4 4.0 SENIOR MANAGERS AND CERTIFICATION REGIME (SM&CR) 4.1 Clarification Regarding Legal Function under the SM&CR page 5 4.

1 Regulatory Update ISSUED 25 th FEBRUARY 2016 UK Edition INDEX JANUARY FCA NEWS 1.1 FCA Appoint Andrew Bailey as Chief Executive page FCA Policy Development page MIFID II/MIFIR UPDATES 2.1 ESMA Consultation Paper on MiFIR page MiFID II Implementation Roundtable, 6th January 2016 page AIFMD NEWS 3.1 Commission letter of reply on the application of the AIFMD passport page SENIOR MANAGERS AND CERTIFICATION REGIME (SM&CR) 4.1 Clarification Regarding Legal Function under the SM&CR page PRA and FCA Consult on Minor Amendments to Notification Rules and Forms page 5 CONTACTS RALPH LINDEYER Chairman RLindeyer@cclcompliance.com STUART HOLMAN Managing Director, Consulting Services SHolman@cclcompliance.com, T W

2 1.0 FCA NEWS 1.1 FCA Appoint Andrew Bailey as Chief Executive HM Treasury announced that Andrew Bailey, deputy governor for prudential regulation at the Bank of England and Chief Executive of the PRA, has been appointed as the new Chief Executive of the FCA for a 5- year term. Mr Bailey will succeed Tracey McDermott (interim CEO since September 2015), and Chairman of the FCA, John Griffith-Jones, expects him to bring unrivalled regulatory experience, a proven track record and an excellent reputation in the UK and internationally to the regulator. It is expected that Mr Bailey will assume his position in July In addition, HM Treasury has appointed Bradley Fried, Baroness (Sarah) Hogg, Ruth Kelly and Tom Wright as new non-executive FCA board members. These appointments will take effect from 1st April 2016 and will replace Sir Brian Pomeroy and Amanda Davidson (who will step down from the Board on 31st March 2016) and Mick McAteer (who stood down on 31st December 2015). 1.2 FCA Policy Development The FCA has published its latest policy development update containing a timetable of upcoming publications, including: Consultation Paper, FCA Handbook changes to reflect the introduction of the Innovative Finance ISA and peer-to-peer agreements, published January 2016; Policy Statement to CP15/27, UCITS V implementation and other changes to the Handbook affecting investment funds, published February 2016; Policy Statement to CP15/31, Strengthening accountability in banking: regulatory references, published February 2016; Policy Statement to CP14/13, Strengthening accountability in banking, a new regulatory framework for individuals, expected date to be confirmed; Consultation Paper, Implementation of MiFID directive, due April 2016; Policy Statement to CP15/35, Policy proposals and Handbook changes related to the implementation of the Market Abuse Regulation, due spring 2016; Policy Statement to CP15/43, Markets in Financial Instruments Directive II Implementation Consultation Paper I, due Q2 2016; Policy Statement to CP15/18, Fair, reasonable and non-discriminatory access to regulated benchmarks, expected date to be confirmed; Policy Statement to CP15/23, Ring-fencing: Disclosures to consumer by non-ring-fenced bodies, expected date to be confirmed; Policy Statement to CP12/20, Review of the client money rules for insurance intermediaries, expected date to be confirmed; Policy Statement to CP15/40, Financial Services Compensation Scheme: changes to the Compensation sourcebook, due April 2016; and Policy Statement to CP15/33, Consumer credit: proposals in response to the CMA s recommendations on high-cost short-term credit, expected date to be confirmed.

3 2.0 MIFID II/MIFIR UPDATES 2.1 ESMA Consultation Paper on MiFIR Introduction ESMA has published a Consultation Paper on guidelines on the Markets in Financial Instruments Regulation (MiFIR), under which it has to develop the implementing details. The paper seeks feedback on guidance relating to: Transaction reporting (RTS 22); Reference data (RTS 23); Order record keeping (RTS 24); and Clock synchronisation (RTS 25). Additionally the Consultation Paper offers clarification on the application of the relevant MiFID 2 requirements, as requested by market participants during earlier consultations and which, due to the level of detail required, were not addressed by the final technical standards. It is likely that there will be a need for ESMA to provide further elucidations to its guidance as and when fresh issues arise. Contents Section 1 of the Consultation Paper identifies individual scenarios applicable to a given transaction reporting activity, each of which is accompanied with the precise technical formats and schema to be used to represent the specific reportable values. Section 2 specifies scenarios applicable to specific order record keeping activities. In addition to the reporting and record keeping scenarios, these sections also provide a number of other clarifications on the application of the requirements under the new technical standards which were requested by market participants during the consultations on the MiFID II technical standards but could not be addressed in the final technical standards due to the level of detail and the specificity of such requests. Section 3 provides clarifications on the application of the clock synchronisation requirements. Next Steps ESMA stresses that this paper ought to be considered as work in progress and some areas have been flagged that require further consideration. The consultation is open for comment until 23rd March 2016, and ESMA will consider the feedback it receives and expects to publish the final guidelines in the second half of MiFID II Implementation Roundtable, 6th January 2016 The minutes of the FCA s most recent MiFID II implementation roundtable (held on 6th January 2016) have been published. Initial Discussion of CP 15/43 On 15th December the FCA published CP15/43: Markets in Financial Instruments Directive II Implementation Consultation Paper I which will run for three months and covers as well as seeks views on the issues related to its regulation of the secondary trading of financial instruments. During the roundtable the regulator summarised this Consultation Paper as largely legal carpentry with limited discretion for domestic interpretation. The regulator noted the inclusion in the paper of a draft MiFID Guide, on which it would particularly welcome feedback from the perspective of whether this was something which would be helpful to broaden out so as to cover more than just the implementation of the markets aspects of the legislation.

4 In response to a question on transaction reporting, the FCA confirmed that the intention is that its own transaction reporting guidance (TRUP) will be replaced by EU s transaction reporting guidelines, which were published for consultation by ESMA on the 23 December The regulator reiterated that it would have to wait for clarity on the EU legislation before confirming the timing of publication of future Consultation Papers but, as set out in CP15/43, said it expected to publish a further Consultation Paper in the first half of ESMA Level 3 Work Work is continuing at ESMA on the Investor Protection and Intermediaries Standing Committee (IPISC), Secondary Markets Standing Committee and Commodity Derivatives Task Force on level 3 guidance. This will likely be published later in 2016 but before the implementing measures have been approved. The IPISC has recently issued three sets of guidelines on: cross selling, complex debt instruments and structured deposits, and training and competency. Changes had been made in response to comments made during the consultation on all three sets of guidelines and the FCA invited feedback on the final guidelines. In response to a question, FCA said that it did not expect the training and competency guidelines to change current UK requirements significantly. MiFID II Effective Date The FCA said it expected that there would be greater clarity on a possible delay to the date of application for the whole of MiFID II in the course of January. Public minutes of a discussion in December at the College of Commissioners indicated that the College had accepted the case for a delay and asked to see a draft proposal this month. It was noted that there was still no clarity on whether the Commission would propose a delay to the 3rd July 2016 transposition deadline, as well as the date of application. The FCA said that it would seek to provide clarity on the MiFID rules to those impacted as soon as possible and would provide them with an adequate time to complete their implementation work. Developments since the Roundtable: Confirmed Delay of Implementation The European Commission confirmed on 10th February 2016 that it will delay the implementation of the Directive across the European Union by a full year, stating that this was to take account of the exceptional technical implementation challenges faced by regulators and market participants. The extension means that MiFID II will now apply from 3rd January AIFMD NEWS 3.1 Commission letter of reply on the application of the AIFMD passport Introduction The European Securities and Markets Authority (ESMA) has published the letter it received from the European Commission regarding its advice on the application of the Alternative Investment Fund Managers Directive (AIFMD) passport to non-eu AIFMs and AIFs, in addition to its opinion on the functioning of the passport for EU AIFMs and on the National Private Placement Regimes (NPPRs). The Letter The European Commission has requested that ESMA completes its assessment of the regimes of the United States, Hong Kong, Japan, Singapore, Isle of Man, Canada, Cayman Islands, Bermuda and Australia by 30th June The European Commission has invited ESMA to provide a more detailed evaluation of the capacity of supervisory authorities and their track record in ensuring effective enforcement, as well as an initial

5 assessment of the expected inflow of funds by type and size into the EU from relevant third countries so as to be able to better assess any potential market disruption and competition effects of granting the passport to third countries. Once the AIFMD has been completely transposed across the EU and there is more experience on the functioning of the framework, ESMA has suggested that it should produce another opinion relating to the functioning of the EU passport and the NPPRs. This proposal was endorsed by the European Commission 4.0 SENIOR MANAGERS AND CERTIFICATION REGIME (SM&CR) 4.1 Clarification Regarding Legal Function under the SM&CR The FCA published a statement in which it acknowledges that there is uncertainty as to whether an individual in charge of a firm s legal function requires approval under the new Senior Managers and Certification Regime (SM&CR). Since publishing its final rules for a new accountability framework for individuals working in banks, building societies and credit unions in July 2015, it has come to the FCA s attention that significant uncertainty exists in the market regarding one particular area for which an individual might have overall responsibility: a firm s legal function. While the regulator had not included such a role in its indicative list of business activities and functions, responsibility for the management of the legal function was not excluded, and it took the view that many firms would need to identify the role as an overall responsibility Senior Management Function (SMF) when allocating senior management responsibilities if it was not covered by another specific SMF in the firm. With this uncertainty in mind, the FCA plans to issue a Consultation Paper openly seeking views on the pros and cons of capturing individuals with overall responsibility for the legal function within the regime. The FCA acknowledges that there will not be time to consult properly before the regime comes into force, although it is also important to clarify its expectations in the interim. The regulator has made it clear that any firm that has sought to make a decision in good faith about whether or not an individual in charge of its legal function requires approval, on the basis of the published rules and the FCA s other communications, should not need to change its approach in the interim. Once the FCA s consultation is complete it will seek to ensure that it is entirely clear on what is required in this area, and information on any transitional measures that may be needed for firms to adjust their arrangements will be provided. 4.2 PRA and FCA Consult on Minor Amendments to Notification Rules and Forms The PRA has published a Consultation Paper (CP1/16) putting forward a number of minor, interim, changes to Forms C, D and L and the Conduct Rules: Notifications Chapter of the Notifications part of the PRA Rulebook in light of the proposed amendments to the Senior Managers and Certification Regime (SM&CR). Background The Banking Reform Act 2013 introduced two statutory requirements into FSMA for relevant authorised persons to notify the PRA and FCA of breaches of the conduct rules by individuals: Section 64B(5), which required these firms to notify the regulators of actual or suspected breaches of the conduct rules by senior managers and other employees in the scope of such rules. Section 64C, which required these firms to notify the regulators of disciplinary action relating to a breach of the conduct rules against senior managers and other employees in the scope of the conduct rules.

6 Consistent with its statutory objective, the FCA applied the conduct rules to a wider set of employees than the PRA. However, this made it impractical for the FCA to require notifications under sections 64B and 64C to be made as frequently as the PRA for all employees in scope. Consequently the FCA decided to require notifications under sections 64B(5) and 64C involving senior managers to be made within seven business days (in line with the PRA) and notifications involving all other employees to be made annually using Form H (an FCA-only form). The regulators respective requirements were reflected in the following forms: Form C (Notice of ceasing to perform a controlled function); Form D (Notifications: Changes to personal information/ application details and conduct breaches/ disciplinary action related to conduct) which, along with Form C, was amended to record notifications made pursuant to sections 64B(5) and 64C where they involved a senior manager; Form H is a new FCA-only form for firms to make their annual notifications under sections 64B(5) and 64C on behalf of all employees other than senior managers; Form L is a new PRA-only form for employees in the scope of the PRA certification rules. Proposed Removal of Section 64B(5) of FSMA Section 64B(5) attracted comment during the development and implementation of the SM&CR for relevant persons with firms highlighting the challenges of having to report suspected breaches. It was argued that it could give rise to: Inconsistent reporting by different firms depending on their respective definitions of suspicion ; Large operational costs, especially for larger firms; and Potential employment litigation if suspected breaches were reported without, at least, some prior substantiation and due process. Consequently, as part of the proposed amendment and extension of the SM&CR, HM Treasury is proposing to remove section 64B(5) from FSMA. It is expected that the similar but separate statutory obligation in Section 64C will remain. Unlike section 64B(5), section 64C is anchored to firms internal disciplinary procedures which, in principle, makes it clearer for firms to know at which point a notification needs to be made. Section 64B(5) cannot be deleted from FSMA until the Bank of England and Financial Services Bill receives royal assent, which is not expected until later this year, after the SM&CR enters into force for relevant authorised persons on 7 th March Consequently, on 17 December 2015, HM Treasury amended the relevant SM&CR commencement order in order to stop section 64B(5) coming into force on 7 th March 2016 pending continuing Parliamentary debates on the merits of deleting it permanently.

7 ABOUT CCL Established in London in 1988, 2006 in Dubai and 2012 in India, CCL provides specialist compliance services to firms regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). Consultancy & Documentation Authorisation Regulatory Advice Compliance Documentation Compliance Platform: Co-Comply Secondment Support Compliance Monitoring Support Compliance Audits CRD IV Returns Shadow S166 Corporate Governance Reviews AML Audits Training Compliance Skills AML and Financial Crime Prevention FCA/PRA Rules and Regulations CISI Qualifications Corporate Governance If you wish to discuss how CCL can assist you with any of the issues raised in this Regulatory Update, please contact one of the directors using the details below: Tel: or write to us at: Birchin Court 20 Birchin Lane London EC3V 9DU This Regulatory Update provides information about the consultative documents and publications issued by the FCA/PRA which are still current, proposed changes to the Rules and Guidance set out in the FCA and PRA Handbooks, actual changes to Rules and Guidance that have occurred in the months leading up to the update and other matters of relevance to FCA/PRA-regulated firms. This Regulatory Update is intended to provide general summarised guidance only, and no action should be taken in reliance on it without specific reference to the particular FCA/PRA document referred to.

Political agreement was reached on the AIFMD in October The text of the Directive was published in the Official Journal (OJ) in July

Political agreement was reached on the AIFMD in October The text of the Directive was published in the Official Journal (OJ) in July Date: 13 October 2015 ESMA/2015/1535 ESMA advice on the application of the AIFMD passport to non- EU AIFMs and AIFs and ESMA opinion on the functioning of the AIFMD EU passport and of the National Private