Financial Services Quarterly Report - Third Quarter 2010

Contents

Far-Reaching U.S. Financial Reform Legislation Impacts Financial Service Companies Both Within and Outside of the United States Fund Raising for Alternative Investment Funds in Germany CESR's Advice on Complex Financial Instruments: The Implications and Outlook for UCITS Revising the UK Remuneration Code: Considerations for Investment Managers p.10 Marketing of Closed-End Investment Funds in France 11 The Introduction of Funds Re-domiciliation Legislation in Ireland Retail Fund Authorization in Hong Kong: The Moving Goal Posts Russia Finally Adopts Law on Insider Trading From the Editors

Far-Reaching U.S. Financial Reform Legislation Impacts Financial Service Companies Both Within and Outside of the United States

"This law creates a new, more effective regulatory structure, fills a host of regulatory gaps, brings greater public transparency and market accountability to the financial system and gives investors important protections and greater input into corporate governance."

– Mary L. Schapiro, Chairman U.S. SEC

President Barack Obama signed into law on July 21, 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), thereby effecting the most sweeping changes to the U.S. financial regulatory system since the 1930s.

While the Act's principal focus is on U.S. financial services institutions and U.S. financial markets, a number of its provisions will impact non-U.S. financial services companies operating in the United States or providing products and/or services to U.S. clients and consumers. At the same time, wholesale changes to regulation of financial services are also taking place in Europe where, among a number of other regulatory initiatives, the Alternative Investment Fund Managers Directive (or AIFMD) is proposed to introduce a European regime for management and marketing of alternative investment funds. One of the most important challenges the global financial services industry will face in the next few years will be navigating safely through both sets of these new regulatory initiatives.

The Act is primarily focused on improving the regulation and supervision of the financial institutions that were viewed as triggering the 2008 financial crisis, namely banking institutions, as well as other firms that acted as major players in the derivatives marketplace or were involved in subprime lending and securitization of such loans. Nevertheless, the Act's extremely broad reach leaves very few financial services firms untouched.

The Act's provisions range from high-level structural changes, such as the creation of a Financial Stability Oversight Council and a Consumer Financial Protection Bureau, to detailed requirements for specified participants in the financial markets (including investment advisers, investment companies, broker-dealers and broadly defined "banking entities").

The future regulations and studies, the substance and findings of which cannot be predicted, are likely to impact in a variety of ways, and for years to come, all participants in the U.S. financial markets.

The effects of the Act will be felt by entities beyond those currently registered with the Securities and Exchange Commission ("SEC") as investment advisers, investment companies or broker-dealers. Many unregistered investment advisers that manage private funds will now be required to register with the SEC and, together with currently registered advisers, will be subject to greatly increased regulation and SEC scrutiny. And, the so-called "Volcker Rule" adds restrictions that, with certain exceptions for permitted activities, prohibit a banking entity from engaging in proprietary trading and from acquiring or retaining an ownership interest in or sponsoring a hedge fund or a private equity fund.

In addition to implementing various new and amended statutory provisions, the Act defers many of the "details" of this comprehensive regulatory initiative to future regulations and studies by a variety of U.S. federal regulatory agencies. In this regard, the SEC has announced a new process to enable the public to comment even before the Commission proposes its regulatory reform rules and amendments, as well as new best practices for SEC staff when conducting meetings with interested parties "in order to ensure full transparency to the public."

There is a clear tension in the Act between the apparent desire to demonstrate Congress' tough stance on Wall Street while at the same time avoiding adverse impact of the reforms on the financial industry and the recovery in the broader economy.

The future regulations and studies, the substance and findings of which cannot be predicted, are likely to impact in a variety of ways, and for years to come, all participants in the U.S. financial markets. And there is a clear tension in the Act between the apparent desire to demonstrate Congress' tough stance on Wall Street while at the same time avoiding adverse impact of the reforms on the financial industry and the recovery in the broader economy.

For an extensive suite of publications prepared by Dechert attorneys regarding the impact of the Act on various financial services entities and products, please refer to those listed below (and future client alerts on U.S. and international legal developments on our website). We will continue to monitor and report on the rule-making process and related developments as provisions of the Act are implemented.

Analysis of Financial Regulatory Reform Legislation for American Bankers Association, available at http://www.aba.com/RegReform/RR_TitleMenu. htm. New Registration Requirement in Dodd-Frank Legislation May Affect Advisors to State and Local Governments as Well as Persons who Solicit Public Pension Funds, available at http://www.dechert. com/library/FS_23_9-10_New_Registration_Requirement_ in_Dodd-Frank.pdf. The Impact of the Financial Regulatory Reform Legislation on the Life Insurance Industry, available at http://www.dechert.com/library/FS_18_8-10_ The_Impact_of_the_Financial_Regulatory_Reform. pdf. Réforme de la Législation Financière Américaine: Panorama des Dispositions Susceptibles d'avoir un Impact sur les Gestionnaires Financiers Français, available at http://www.dechert.com/library/FS_14- 08-10-France-Reforme_de_la_Legislation_Financiere. pdf. Dodd-Frank: The Regulatory Reset of the OTC Derivatives Markets, available at http://www. dechert.com/library/FS_17_07-10_Dodd-Frank_ The_Regulatory_Reset.pdf. Dodd-Frank's Limitations on Risk Taking: An Analysis of the Volcker Rule's Restrictions on Proprietary Trading and Investments in and Sponsorship of Hedge Funds and Private Equity Funds, available at http://www.dechert.com/library/FS_16_7-10_ Dodd-Frank_Limitations.pdf. The Impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Registration Obligations of Private Fund...