Interview with Claire Cummings, Cummings

Claire Cummings


Claire Cummings qualified as a solicitor in 1996 and since then has specialised in the legal issues surrounding both funds and fund management. As a solicitor in private practice, she has acted for a number of clients in the alternative investment arena and built up experience of a wide range of legal and regulatory matters. Mrs. Cummings has acted as in-house counsel and director of legal and compliance for a fund manager, where she was involved in the running and growth of a fund management business and worked closely with other directors, the trading and operations departments and brokerage counterparties. In July 2002 Mrs. Cummings established Cummings and draws on her experience as both a lawyer and a director of a fund management company to work with her clients as they establish and build their businesses. Therefore we sat down with her to talk about the current and upcoming regulations for alternative UCITS fund managers like the recently implemented EMIR regulation. Mrs. Cummings, it seems that every year at least one new regulation affects the fund management industry. Let’s start with UCITS V: when will it be implemented and what are the major changes to come?

Claire Cummings: On 25 February 2014 the European Council and European Commission released statements declaring a political agreement had been reached concerning the proposed UCITS V Directive. Considerations as to the formal adoption of the final text of UCITS V by the Council and Commission at first reading are estimated to be completed during 2014. Once the final text is agreed, member states are likely to have a period of two years to transpose the Directive into national law. During this two-year period, the EU will provide greater detail as to the implementing requirements. Implementation in the UK is likely to be at the end of 2014 or the first half of 2015. In drawing up the legislative proposals, the Commission engaged in an impact assessment focusing on five main areas, namely: eligibility to act as a depositary; delegation of depositary functions; liability of depositaries; remuneration; and sanctions. Looking further ahead: what is planned for UCITS VI and is there already a rough timeline for its implementation?

Claire Cummings: Although UCITS V is still in draft form, on 26 July 2012 the European Commission released a paper outlining further ideas as to how the UCITS Directive can be improved known as UCITS VI. The focus of UCITS VI is new, with the proposals concerning areas other than those addressed by UCITS V. The eight topics raised for discussion are: eligible assets and the use of derivatives; efficient portfolio management techniques; over-the-counter derivatives (‘OTC’); extraordinary liquidity management rules; depositary passport; money market funds; long-term investments; and improvements to the UCITS IV framework. What is EMIR and what impact will it have for UCITS fund managers?

Claire Cummings: EMIR stands for the European Market Infrastructure Regulation. It is part of the European Union’s response to the G20 commitment to mitigate the perceived risks in the OTC derivatives market which were exposed by the financial crisis of 2007/8. EMIR covers the clearing of certain OTC derivatives, risk mitigation procedures for non-cleared OTC derivatives and reporting of all derivatives, whether trades by a UCITS or other vehicle. As it is a European Regulation which applies directly in each Member State of the European Union, EMIR does not require local governments or regulators to bring it in to force. It is important to note that further requirements relating to the trading of OTC derivatives on exchanges and other platforms and transparency in the OTC derivatives markets will be implemented via MiFID II/MiFIR which is another body of regulation currently going through the legislative process in the EU. Managers need to look at EMIR and work out where how their fund is caught. To summarise, EMIR imposes obligations on the counterparties to a derivatives trade. It then divides the world into Financial Counterparties, Non-financial Counterparties over the clearing threshold and Non-Financial Counterparties below the clearing threshold. The extent to which the various pieces of EMIR apply depends on the category of the counterparty and the threshold limits depend on the types of investments traded. Most of the risk mitigation requirements relating to uncleared OTC derivatives are already in effect and trade reporting went live on 12 February 2014. This will be followed by clearing of OTC derivatives some time later this year. Margin requirements for non-cleared OTC derivatives are expected to be effective from December 2015. As AIFMD now has been implemented: what type of alternative managers should rather setup an AIFMD compliant than a UCITS fund and vice versa?

Cummings: The key is always going to be investor demand and what the investment strategy will allow. While AIFMD has impacted on the UCITS IV developments, UCITS will remain caught by investment restrictions, which AIFs are not currently, and thus geared more to the retail market than AIFs. The manager would also need to look at the regulatory position in its home state as managers of AIFs are caught by the AIFMD, while MiFID is applicable to UCITS managers. Thank you for the interview.