U.K. – FCA Plans for ESMA LEIs Relief

  • On 2 March 2018, UK FCA issued a statement on plan to implement ESMA LEI relief.
  • Amendment to LEI validation rule to be implemented in MDP on 10 March 2018, and
    firms to (re)submit from 12 March reports where trade date precedes LEI registration.

Hong Kong – SFC Nomura Takeover Code

On 5 March 2018, HK SFC publicly criticized Nomura on takeover research.

  • Criticized Nomura International (HK) Limited, for breaches of HK takeover code.
  • Also cited Lee Yuen Yee, whilst acting as financial adviser to West China Cement.
  • Lee is a licensed representative of Nomura Hong Kong, for the regulated activity.
  • Work done in relation to possible mandatory offer for the shares of the company.
  • Nomura fell within the definition of “associate” of offeree company, for purposes
    of HK takeovers code on engagement as West China financial adviser November 2015.

Alleged Violations

  • Bank did not comply with limits on issuance and distribution of research reports.
  • On publishing five credit commentaries, and three weekly wraps, on West China.
  • Research contained profit forecasts, which were not reported by Lee as required.
  • Note 4 to Rule 8.1 of takeovers code provides that a financial adviser to offeree
    company should stop issuing research reports on it, except if SFC prior consent.
  • Any research reports with profit forecasts must comply with reporting per code.


  • Regulator cited public criticism of Nomura HK for their breach of takeovers code.
  • In determining sanction, SFC took account of Nomura HK and Lee’s cooperation.
  • As well as self-reporting of the breach, and the remedial measures implemented.

Luxembourg – CSSF FAQ on UCITS Version 5

On 26 February 2018, CSSF updated FAQ on key investor information documents, KIID.

  • On which regulatory documents are at minimum to be considered for drafting KIID.
  • On which procedure must be followed to file the final version of KIID with the CSSF.
  • On procedure to be followed when submitting a draft of the KIID to the CSSF in the
    context of a request for authorization from CSSF of UCITS or compartment thereof.
  • On who bears responsibility for the content of the KIIDs, which are made available.

E.U. – ESMA Advise on Short-Selling

On 22 February 2018, EP ECON issued scrutiny paper on evaluation of short selling.

  • Covered ESMA advice of 21 December 2017, evaluation of Short Selling Regulation.
  • Briefing provides overview of three building blocks of the final technical advice.
  • Market making activities exemption, the short term restriction on short selling
    in case of a significant decline in prices under Article 23 SSR (short-term bans).
  • Transparency of net short positions (NSP) and related reporting, and disclosure.
  • ESMA executive director Verena Ross spoke at meeting to describe the 3 areas.

Finland – FINFSA Afarak Takeover Fine

On 21 February, FINFSA fined Danko Koncar, obliged it bid for Afarak.

  • FINFSA obliged Danko Koncar to launch takeover bid for Afarak Group Plc shares.

Alleged Violation

  • FINFSA considered Koncar acted in concert with Hino Resources Co. Ltd, Finaline
    Business Limited and his spouse Jelena Manojlovic, to exercise control in Afarak.
  • Violated provision of the Securities Markets Act protecting minority shareholders.
  • Voting rights of persons acting in concert have exceeded bid obligation threshold.
  • Conduct was long-standing, systematic, investors unaware, voting rights 41.56%.

Fine Imposed

  • Imposed running conditional fine to enforce the obligations stated in the decision.
  • Imposed running conditional fine, decision not yet legally binding, right of appeal.
  • Bid consideration at least the highest price paid by the party under the obligation
    during six months preceding obligation, minimum share price for bid to be €2.50.


  • Koncar must publish mandatory bid, within month of service of FIN-FSA decision.
  • Not yet served with decision as required by law and the period is not yet running.

Nasdaq Notice

  • On 22 February, Nasdaq issued notice, Afarak shares moved to observation segment.

Sweden – SFI Insider Reporting Penalties

On 19 February, SFI decided guideline, penalties late insider reporting.

  • New guidelines, penalties, violation of transparency reporting rules, MAR, Art 19.
  • Aligned, persons discharging managerial responsibilities (PDMR), Act 2016:1306.
  • Not relevant for violations prior to 1 February 2017, the earlier legislation shall apply.

E.U. – European Parliament Issues Amended Rules for FDI

On 19 February, EP ECON issued amended rules on foreign investment.

  • Draft opinion on establishing framework for screening of foreign direct investment.
  • Divisions between those suspicious of, and those supportive of foreign investment.
  • Foreign direct investment may contribute to EU growth, but can also cause issues.
  • Stakes in company capital, will not fall under scope of common commercial policy.
  • EU powers on commercial policy per TFEU, do not cover foreign direct investment.

Supportive Amendments

  • Countries should try not to limit foreign direct investment in non-strategic sectors.
  • Protectionism makes EU weaker open markets make it stronger although it is true
    that need to be vigilante to hinder threats to EU security, integrity and sovereignty.

Cases for Stricter Controls

  • Serious cases of unemployment where foreign investor, having established itself in
    EU relocates production years later, despite having repeatedly received EU support.
  • EU now victims of globalization policies and the liberalization of capital movements.
  • Nationalization of one or more companies should be considered if security or public
    order risks, if the sectors in question of strategic importance to national economies.
  • Framework should cover short-term investment masquerading as long-term, direct
    investment flows which are intended to avoid tax or for money laundering purposes.
  • Investment in the sectors with high research and product development expenditure.

Sourced from Non-Cooperative Countries

  • Attention should be paid to investments that originate from countries mentioned in
    EU Council conclusions of 5 December 2017 on the EU list of non-cooperative jurisdictions
  • Including the 47 jurisdictions committed to addressing deficiencies in their systems.
  • Follows EC December 2017 issued a list of non-cooperative tax jurisdictions.
  • See February 2018, EP confirmed EC blacklist of countries with risk of AML.
  • Firms known for aggressive tax optimization practices should be watched carefully.
  • Where country consider that foreign direct investment planned in another State, is
    likely to affect their security or public order, shall inform EC within 10 working days.
  • EC shall inform country in which foreign investment planned, in 10 working days of
    all the comments received, as well as countries maintaining screening mechanisms.

Italy – Consob Short Sale Valtellinese Update

On 17 February, Consob issued a notice on Credito Valtellinese spa’s capital increase.

  • Consob also issued FAQ on highly dilutive capital increases and the rolling model.
  • Capital increase to begin shortly with the right of option on the shares of Credito
    Valtellinese spa listed on MTA market, organized, managed by Borsa Italiana spa.
  • Increase in question shows dilution characteristics, circumstances mean there is
    risk that during offer period of shares, there will be anomalies in pricing process.
  • Consisting of overvaluation of market price of shares regarding theoretical value.
  • To prevent risk share capital increase will be managed according to rolling model.
  • Described in Consob communication 88305, of Oct. 5, 2016, in the consultation
    results of Apr. 28, 2016, in standards issued by Borsa Italiana, Monte Titoli spa.
  • Provides that, once increase has begun, is possible to option rights on each day
    of increase starting from the third, immediately receive the newly issued shares.
  • Alternatively, option rights may be exercised, according to the traditional model.

India – SEBI Foreign Investor Custodians

On 15 February, SEBI eased requirements for foreign investor custodians.

  • Will ease access for Foreign Portfolio Investors (FPIs), for use of local custodian.
  • Discontinued the requirement for FPI to obtain prior approval from SEBI in case
    of any change in their local custodian/ Designated Depository Participant (DDP).

Registration of Investment

  • Applied to protected cell companies (PCC) and multi class share vehicles (MCV).
  • Rationalized the process for submitting PCC/MCV declarations and undertakings.
  • In relation to investor grouping requirements, at the continuance of registration.
  • Placed reliance on due diligence at the time of change of custodian/ DDP of FPIs.

Multiple Managers

  • Exemption for FPIs having Multiple Investment Managers (MIM) structure, from
    seeking prior approval from SEBI, in case of the Free of Cost transfer of assets.
  • Simplification of process for addition of share class, changing FAQs 49 and 100.
  • Permitting FPIs operating under an MIM structure to appoint multiple custodians.
  • Allowing appropriately regulated Private Bank/Merchant Bank to invest for them.

Existing Funds

  • Facility of granting conditional registration to also be extended to existing funds.
    where proposing to convert as India dedicated funds, if existing, given 90 days.

U.S. – SEC Fund Class Self-Reporting

On 12 February, SEC launched fund share class self-reporting, redress.

  • SEC enforcement division issued share class selection disclosure initiative (SCSD).
  • Aims to protect advisory clients from conflicts of interest, and pay client redress.

Relief for Reporting

  • SEC will not recommend penalties against advisers who self-report legal violation.
  • On mutual fund share class selection, if promptly repay money to harmed clients.

Fiduciary Duty

  • IAA imposes fiduciary duty on advisers to act in clients’ interest, disclose conflicts.
  • Conflict arises when an adviser receives compensation, via affiliated broker-dealer,
    for selecting a more expensive fund class if a cheaper appropriate one is available.
  • SEC has long focused on conflict associated with mutual fund share class selection.
  • Advisers must be mindful of duties when recommend, select share class for clients.

SEC Enforcements

  • In recent years, SEC has charged nine firms with failing to disclose these conflicts.
  • Actions included significant penalties on advisers, and millions of dollars in redress.
  • OCIE has cautioned advisers to examine share class selection policies, disclosures.

Aim of Initiative

  • Aims to allocate resources to effectively targets continued failure by some advisers.
  • Encouraged advisers to take advantage of the favorable terms, that SEC is offering.
  • Terms will not be available, to advisers who do not self-report under this initiative.
  • Continue to identify and pursue advisers that fail to make the necessary disclosure.

SCSD Initiative

  • Recommend standardized, favorable settlement terms to advisers, that self-report
    failure to disclose conflicts on receipt of 12b-1 fees by adviser, affiliates, personnel.
  • Settlements will require advisers to disgorge gains, but not impose a civil penalty.
  • Expected to recommend stronger sanctions in any future actions against advisers,
    that engaged in the misconduct but failed to take advantage of reporting initiative.


  • Eligibility for SCSD initiative is set out in announcement with related questionnaire.
  • Advisers must notify the division of their intent to self-report before 12 June 2018.