Regulatory update

This regulatory update covers major new regulatory requirements and substantial developments that affect the investment management industry.

§ NEW UK GOVERNMENT TO DEVOLVE FSA, MAKING IT BANK OF ENGLAND SUBSIDIARY (UK)

In mid-June, new Chancellor of the Exchequer George Osborne announced sweeping changes to the UK financial regulatory apparatus, effectively abolishing the Financial Services Authority (FSA) and incorporating its mandate into a new subsidiary of the Bank of England (BoE). A new 'Consumer Protection and Markets Authority' will be created to regulate every firm providing financial services to consumers, and a new Financial Policy Committee within the BoE will be given the authority to examine "macro issues that may threaten economic and financial stability and take effective action in response".

http://www.ft.com/cms/s/0/0203b99e-797f-11df-b063-00144feabdc0.html

§ EUROPEAN REGULATORY FUNDS NEWS - MAY 2010

This update from Ernst & Young touches upon recent regulatory actions impacting the European fund industry. The update includes coverage of a new Irish law which allows non-Irish funds to migrate to Ireland without changing the corporate structure; the impact of the new Investment Fund Accounting and Valuation Ordinance (Investment-Rechnungslegungs- und Bewertungsverordnung: InvRBV) that the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht: or BaFin) in Germany has instituted to provide uniform valuation of funds in that market; and an assessment of recent EU edicts regarding re-domiciling of investment funds in Europe.

www.ey.com/Publication/vwLUAssets/European_regulated_funds/$FILE/European_regulated.pdf

§ STANDARDISED CATASTROPHE SCENARIOS FOR THE INSURANCE INDUSTRY

On 15 June, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) presented a final proposal on calibrations of Non Life and Health Catastrophe standardised scenarios. The proposal is the outcome of a joint industry and CEIOPS working group called the Catastrophe Task Force (CTF). The proposal provides a calibration of catastrophe risk at the 99.5% VaR for undertakings that are exposed to extreme or exceptional events. The proposal contains information on both how undertakings should apply the scenarios and how they have been calibrated.

www.ceiops.eu/content/view/17/21/

§ SEC POLITICAL CONTRIBUTION RULES FOR INVESTMENT ADVISERS (US)

The Securities and Exchange Commission (SEC) is adopting a new rule under the Investment Advisers Act of 1940 that prohibits an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates.

The new rule also prohibits an adviser from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser, unless such third parties are registered broker-dealers or registered investment advisers, in each case themselves subject to pay to play restrictions. Additionally, the new rule prevents an adviser from soliciting from others, or coordinating, contributions to certain elected officials or candidates or payments to political parties where the adviser is providing or seeking government business.

www.sec.gov/rules/final/2010/ia-3043.pdf

§ IASB RELEASES RESULTS OF PROJECT TO DEFINE A COMMON MEASURE OF FAIR VALUE IN COOPERATION WITH FASB

This comprehensive project summary, prepared by the International Accounting Standards Board (IASB) staff, provides the background of the IASB’s fair value measurement project and explains how the IASB plans to finalise an IFRS on fair value measurement. In March 2010 the IASB completed its initial discussions with the Financial Accounting Standards Board (FASB) to develop common requirements for measuring fair value and for disclosing information about fair value measurements.

Once the comment period ends (September 2010) and additional deliberations have been completed (January 2011), it is anticipated that the IASB and FASB will publish a common set of IFRS and US GAAP fair value measurement standards. These standards are expected to be published by the end of March 2011.

www.iasb.org/NR/rdonlyres/5179C9D9-F7D8-4742-939C-

§ RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010 (US)

The Stability Act of 2010 proposes broad changes to the existing regulatory structure, such as: creating a host of new agencies (while merging and removing others) in an effort to streamline the regulatory process; increasing oversight of specific institutions regarded as a systemic risk; amending the Federal Reserve Act; promoting transparency; and additional changes.

banking.senate.gov/public/_files/TheRestoringAmericanFinancialStabilityActof2010AYO10732_xml0.pdf

§ IFRS 9 REPLACING IAS 39 FINANCIAL INSTRUMENT ACCOUNTING STANDARDS IN MULTI-PHASED APPROACH

The IFRS standard for financial instruments, IAS 39, is in the process of being replaced by a new standard, IFRS 9, in an approach over three phases. The International Accounting Standards Board (IASB) issued IFRS 9 phase 1 (Classification & Measurement) in November 2009, allowing early adoption in 2010 and making it mandatory for 2013. The public review period for IFRS 9 phase 2 (Impairment Methodology) ended 30 June 2010 and the final version is expected in late 2010. The exposure draft for IFRS phase 3 (Hedge Accounting) is expected to be sent out for comment by the end of 2010.

http://www.iasb.org/Current+Projects/IASB+Projects/Financial+Instruments+A+Replacement+of+IAS+39+Financial+Instruments+Recognitio/Financial+Instruments+Replacement+of+IAS+39.htm

§ UPDATES TO US GAAP STANDARDS ON FINANCIAL INSTRUMENT ACCOUNTING (US)

'The Financial Accounting Standards Board (FASB) issued an exposure draft in May 2010 proposing updates to the accounting for financial instruments (topic 825 in the Accounting Standards Codification) and for derivatives and hedging (topic 815 in the Accounting Standards Codification). The deadline for comments is 30 September 2010. Both the FASB and the IASB are encouraging users of IFRS also to review and comment to the FASB on this exposure draft, to the benefit of the two boards’ convergence project.

http://www.fasb.org/cs/ ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_C/