Update Legal & Regulations
The Council of States was the first parliamentary body to debate the statutory instruments FIDLEG/FINIG in the end of 2016 – a minority drawn from the SP and CVP parties successfully argued for a statutory reversal of the burden of proof for prospectus and BIB liability. In the view of the SSPA, however, tightening the prospectus liability provision does not actually solve any problems: In the case of past claims for damages, the prospectuses were correct; the advice was wrong. For this reason, the SSPA is arguing that this should be corrected by the National Council. The Economic Commission of the National Council began its consultation – although the laws were originally planned to come into force on 1 January 2018, this is no longer realistic. FIDLEG and FINIG are likely to come into force on 1 July 2018, whereby FIDLEG is expected to be introduced in a number of stages.
PRIIPs & MIFID2
The EU PRIIPs Regulation – and with it the introduction of standard product information sheets (so-called «KID») for «packaged products» – will definitively come into force in January 2018, coinciding with the start of the MIFID2/MIFIR regulatory package. From the perspective of the industry, this is to be welcomed. The technical implementation provisions (so-called «RTS») have yet to be submitted. These were rejected by the EU parliament at the end of last year on the grounds that they need further revising, above all in respect of insurance products.
The planned enactment MIFID2 Directive also raises many detailed questions. The most obvious, at present, is the issue of how the target market for financial products marketed to private clients needs to be defined. Together with the European umbrella association EUSIPA and other national associations, the SSPA positioned itself here clearly at the beginning of January. The EUSIPA clearly stated that the definition of the target market should not cause distribution channels to be restricted. Even in the case of more complex products distributed only amongst a limited circle of investors, it still needs to be possible to order these products online on individual investor initiative.
Another sensitive issue is the interaction between MIFID2 and PRIIPs – for example the target market defined in accordance with MIFID2 needs to be specified in the PRIIPs-KID document. The industry will also need to ensure that the disclosure of costs pursuant to PRIIPs and MIFID2 is realised using uniform rules.
On 1 January 2017 a US regulation came (partially) into force known by the pseudonym 871(m), which will introduce a withholding tax on so-called dividend equivalent payments. The tax relates to dividend-dependent revenues that non-US investors generate by investing in certain financial instruments that relate to US equities (excluding certain qualified indices). Structured products are also subject to the new US tax, irrespective of where the issuer is domiciled, where the structured products are sold and which legal system these are governed by. As at 1 January 2017, only Delta 1 products are subject to the withholding tax pursuant to Section 871(m). For all other structured products that are covered by Section 871(m), the withholding tax applies from 1 January 2018. 2017 and 2018 have been designated «phase-in years», during which the IRS will take account of «good faith efforts» in respect of adherence to Section 871(m). The SSPA has been working closely on the new regulatory requirement for some time, and has also been addressing how this can be implemented. In this conjunction, the SSPA prepared a memorandum and circulated this amongst its members on 20 December 2016. This document sets out the legal situation, and makes recommendations in respect of implementation of Section 871(m). When it comes to implementation, however, a number of uncertainties remain. The topic remains on the SSPA’s agenda, and the Association is determined to support its members here and to provide a forum for discussion.