With 2014 gone, the majority of rulemaking seems behind us. While 2015 is set to be another busy year on the regulatory front for the buy-and sell-side, things might feel a little different than last year. This year could largely be seen as the implementation year, where key parts of legislation passed in previous years will finally be rolled out.
But it also could the year where we see the real impact of rules enforced from 2014. “It happens to be the stage where ‘scope creep’ occurs and the rules extend beyond the intent of the original regulation,” says Sean Tuffy, head of regulatory intelligence, Brown Brothers Harriman.
Global Custodian breaks down the impact of the regulations and what the industry should look out for in Europe this year.
1. AIFMD – Despite coming into force last year, there are still two major parts of the Alternative Investment Fund Management Directive that are to be rolled out. The first is Annex IV reporting for all AIFMs, which will start from January 31. The industry received a first-look at the industry when the first phase Annex IV reporting for some firms came into effect on October 31, 2014. According to many experts, most firms largely underestimated this onerous task, and failed to understand just how complex continuous reporting will be. Now three months on, it will be interesting to see whether this has changed. Only the first lot of reports will show the extent to which the industry has prepared. The second is the passporting rule for non-EU AIFs. A consultation on the passporting rule for non-EU fund managers ends on January 8, and later this year it is expected a passporting regime will be in place sometime mid-2015.
2. CSDR and T2S – The Central Securities Depository Regulation (CSDR) harmonizes the securities settlement cycle in Europe to T+2. This came into effect on January 1; however the majority of Europe’s markets migrated to this cycle last October, in time for the launch of the first phase of Europe’s securities settlement platform, TARGET2 Securities (T2S) in June 2015. A consultation on the technical standards and technical advice of CSDR, specifically the settlement discipline regime, will end on February 19.
3. EMIR – Banks and major dealers get the first taste of mandatory central clearing for interest rate swaps this year. ESMA has proposed a phased-in approach to clearing, beginning in July for category 1 entities, and then January 2016 for most asset managers and buy-side firms. Furthermore, ESMA will carry out a review of the European Market Infrastructure Regulation (EMIR), which will look at changes including derivatives reporting and frontloading.
4. Collateralization of Uncleared Derivatives – International regulators are set to enforce risk mitigation standards, i.e. collateralization, for derivatives traded outside of clearing houses on December 1, 2015. Again, this will be a phased-in approach, with only the largest market participants will initially be subject to the rules.
5. MiFID II – Input for the revised Markets in Financial Instruments Directive (MiFID II) on March 2, 2015. This will be important for the whole industry to have a say on incoming rules on dealer commissions, organized trading facilities (OTFs) and post-trade transparency.
2015 will also be a busy year for the industry as it prepares for many key regulations set to come into effect in 2016, including UCITS V and the common reporting standard, also known as the “Global FATCA” (Foreign Account Tax Compliance Act). “Though none of these come into effect this year, it’s likely that asset managers will need to commit significant resources to prepare for the new regulations,” adds Tuffy.
While 2014 was the year of digesting the regulations, 2015 looks set to be the year for test-driving them.
Regulation Watch: Into 2015 And Beyond
With 2014 gone, the majority of rulemaking seems behind us. While 2015 is set to be another busy year on the regulatory front for the buy-and sell-side, things might feel a little different than last year. This year could largely be seen as the implementation year, where key parts of legislation passed in previous years will finally be rolled out.