BSP Newsletter: June - September 2013

BANKING & FINANCE

NEW RULES ON PAYMENT SERVICES

On July 24th 2013 the European Commission (the "Commission") presented its proposal for a new directive on payment services ("PSD2") and a proposal for a regulation on interchange fees for card-based payment transactions.

The revised PSD2 will amend the previous payment services directive of 2007. The new directive aims to create higher levels of security and to improve consumers' protection to combat fraud and abuse. In addition, the proposal seeks to promote the introduction of new, innovative low-cost payment services, mainly internet-based services (without the use of a credit card). Consumers will be better protected against fraud, abuse and payment errors. Consumers may be required to face only very limited losses (up to maximum of 50 EUR - versus 150 EUR currently) in the case of an unauthorised credit card payment. Interchange fees are charged by card companies to retailers who in turn pass on the cost to the consumer. They are common in particular when purchasing airline tickets. Surcharges are additional charges imposed by some retailers when using certain payment cards. The Commission believes that capping the interchange fees will reduce costs for retailers and consumers and help to create an EU-wide payments' market. The regulation on interchange fees aims to introduce a cap on fees for cross-border transactions involving consumer debit and credit cards together with a ban on surcharges on these types of cards. After a transition period of 22 months, the caps will also apply to domestic transactions. The caps are set at 0.2% of the value of the transaction for debit cards and 0.3% for credit cards. CAPITAL MARKET

RECENT DEVELOPMENTS IN EU LEGISLATION

Transparency Directive

The proposal for a directive amending Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC was adopted by Parliament in first-reading on June 12th 2013 and by the Council on June 21st 2013. The text has not yet been published in the Official Journal of the European Union but is provisionally agreed between the European Parliament and Council.

Some of the more interesting amendments include:

The introduction of an obligation, across the EU, to disclose holdings of financial instruments that have the same economic effect as holdings of shares. The removal of the requirement to produce interim management statements or quarterly reports. The home Member State may make an issuer subject to requirements more stringent than those laid down in the directive, except they should not require issuers to publish periodic financial information on a more frequent basis than annual financial reports and half-yearly financial reports. Member States may nevertheless require issuers to publish additional periodic financial information if such requirement does not constitute a significant financial burden and if the additional information required is proportionate to what contributes to investment decisions. This is without prejudice to the ability of Member States to require the publication of additional periodic financial information by financial institutions. The introduction of a requirement for extractive and forestry logging companies to disclose payments to governments on a country by country and project specific basis. As for timing, it is expected that these amendments will be implemented in the Member States in mid-2015.

Market Abuse Directive

On June 26th 2013, the Council approved a compromise with Parliament on a market abuse package, consisting of a regulation on the substantive rules aimed at attacking insider dealing and market manipulation on securities market and a directive containing criminal sanctions. While the text has yet to be consolidated and aligned to the new proposals for MIFID II, a final agreement is close.

The draft regulation extends the scope of the existing regulatory framework to financial instruments traded on more recently created venues such as multilateral trading facilities and organised trading facilities, as well as to OTC-traded financial instruments.

CORPORATE

CASE LAW UPDATE FROM THE "COUR DE CASSATION" OF 7th FEBRUARY 2013

The decision of the Supreme Court (Cour de Cassation) is informative and should be noted by legal and insolvency practitioners in Luxembourg. The Supreme Court was asked to rule on the duty of the liquidator to make adequate provisions for the liabilities of a company in liquidation.

The District Court (Tribunal d'Arrondissement) declared at the first instance unfounded the application for the grant of damages against the liquidator in respect of the completion of the liquidation of the company, a "Société Anonyme". In the case in question a ten-year warranty on construction (Articles 1792 & 2270 of the Civil Code) had not expired. It was held that the duty of the liquidator to make a provision for such liability had not been established.

The judgment was upheld on appeal. The Court of Appeal (Cour d'Appel) also stated that there is no legal provision that would prohibit the liquidation of a company before the expiry of the ten-year guarantee period and furthermore that there were no grounds for the suspension of the completion of the liquidation until the expiry of the guarantee period. In addition, the Court of Appeal also rejected the application for damages against the liquidator on the basis of Article 149 of the law of 10 August 1915 on commercial companies, as amended (the "LSC") because the existence of a dispute between the parties or of an unresolved liability of the company before the completion of the liquidation was not established.

The Supreme Court overturned the decision of the Court of Appeal and strongly criticised the decision of the Court of Appeal because article 149 of the LSC does not require the existence of a debt. The Supreme Court considered that the liquidator should have addressed the liability by the constitution of a provision or insurance to cover the obligation to repair the damage resulting from the occurrence of defects after completion of the liquidation for the remainder of the period of the guarantee.

Legal advisors and insolvency practitioners should be very vigilant in the future and advise the liquidator to make provisions in respect of contractual guarantees granted by the company in liquidation to third parties. If no period of guarantee is provided for under contract, the statute of limitations is 10 years in respect of claims arising pursuant to commercial matters.

INVESTMENT FUNDS

PRACTICAL GUIDANCE IN RESPECT OF THE ENTRY INTO FORCE OF THE EuVECA REGULATION AND THE EuSEF REGULATION - CSSF - PRESS RELEASE 13/36 OF AUGUST 2ND 2013

On July 22nd 2013, coinciding with the effective date of the Alternative Investment Fund Managers Directive (AIFMD), and following the Luxembourg implementation of the AIFMD (AIFM Law), Regulation No 345/2013 of April 17th 2013 on European venture capital funds (EuVECA) and Regulation No 346/2013 of April 17th 2013 on European social entrepreneurship funds (EuSEF) entered into force. Both the EuVECA and EuSEF regimes are only available to alternative investment fund managers (AIFMs) which are below the thresholds of article 3 (2) of the AIFMD (Light Regime).

As a reminder, the EuVECA and EuSEF Regulations are intended to provide AIFMs, which are subject to the Light Regime, the possibility to adopt the EuVECA or EuSEF designation. In addition to providing a brand name to such AIFMs, those designations enable Light Regime AIFMs to benefit from a marketing passport which would otherwise not be available to Light Regime AIFMs. Further information on the content of both regulations can be found in our Newsletter of September - January 2013, the Newsletter of April - June 2013 and our article "The new regime for European Venture Capital Funds" at http://www.bsp.lu/publications/articles-books/new-regime-european-venture-capital-funds.

In Luxembourg, the Commision de Surveillance du Surveillance du Secteur Financier (CSSF) is the competent authority for the issuance of the EuVECA or EuSEF designations. In relation thereto, the CSSF issued press release 13/36 in order to provide practical guidance to AIFMs wishing to adopt the EuVECA or EuSEF.

Interested AIFMs are therefore invited to provide the CSSF with the information required by article 14 of the EuVECA Regulation or article 15 of the EuSEF Regulation respectively to the following e-mail address: aifm@cssf.lu

Interested AIFMs also have to be registered as a Light Regime AIFM with the CSSF pursuant to article 3 of the AIFM Law. The CSSF already published practical guidance in this respect in its press release 13/32.

On July 3rd 2013 the European Parliament rejected proposals contained in the proposed directive amending Directive 2009/65/EC on undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions (UCITS V Directive) regarding bonus caps and performance fees for managers of UCITS. The amendments adopted to the text provide for less strict curbs on UCITS fund managers pay.

In particular, the amended test:

Retains the Commission's text where at least 50% of any variable remuneration must...