Financial Services Half -Year Legal Update Report | Capital Markets
1. Implementing norms to the new law regarding the simplification of public offerings, the processing of dividend payments and the exercise of shareholders’ rights during general meetings
- The new FSA Regulation No. 3 /2015 (“Regulation 3”) came into force on March 27, 2015
- Regulation of the National Securities Commission (CNVM) No. 1/2006 on issuers and transactions in securities, and
- the Regulation of the National Securities Commission No. 6/2009 on the exercise of certain shareholders’ rights in the general meetings of shareholders
Essentially, the Regulation includes rules for the implementation of the changes linked to the simplification of public offerings, payment of dividends and the exercise of the voting rights in the general meeting of shareholders, as such are provided in the recently enacted GEO 90/2014.
The most significant amendments to Regulation 1/2006 refer to:
- eliminating the requirement to prepare a public offering announcement to streamline the public offering procedure;
- eliminating the requirement that the FSA should approve marketing communications related to the public offering;
- clarifications as regards the mechanism for the processing of payments of dividends and of any other amounts payable to security holders (e.g., interests);
- extending the term for determining the date of payment (15 working days from the registration date instead of 3 working days, as initially provided in the old regulation)
Regulation 3 includes a number of general provisions regarding the processing of payments to which the security holders are entitled. It is expected that the rules to be issued by the Central Depository as part of the implementation of Regulation 3 will clarify several practical aspects related to the implementation of this new mechanism for processing payments.
Thus, payments will be made by the Central Depository: (i) for the shareholders/security holders who do not have a securities account with an intermediary participating in the clearing and settlement system and a central depository register, via their designated payment agent or (ii) for the shareholders/security holders who have a securities account, via the Central Depository and the participants in the system.
The most significant amendments to Regulation 6/2009 on the exercise of certain shareholders’ rights in the general meetings of shareholders refer to:
- rules regarding the use of a “general power of attorney”, a concept that has been recently introduced by GEO 90/2014 which offers a much more flexible representation alternative as opposed to the classical “special power of attorney”, which may be granted exclusively to attorneys-at-law or intermediaries.
Thus, Regulation 3 clarifies the concept, the minimum content, the use, the transmission and revocation of the “general power of attorney”; for instance, it expressly sets forth that the general power of attorney may be granted both for one general meeting and for several general meetings of shareholders, without containing specific voting instructions. The fact that the power of attorney ceases to have effect when the attorney-in-fact loses his/her capacity as intermediary or attorney-at-law is likely to give rise to discussions on the utility of/need for a verification of the capacity of attorney-at-law or intermediary when the general meeting is held
- requiring shareholders to register and update their identification data in the central depository system in order to give effect to the provisions whereby the capacity of legal representative is ascertained based on the list of shareholders on the reference date, received from the Central Depository
For further details regarding GEO 90/2014 please access our previous news flash.
2. Novel aspects regarding the information systems used by the entities regulated/authorized/endorsed and/or supervised by the FSA
- The new FSA Rule No. 6/ 2015 on the management of the operational risks generated by the information systems used by the entities regulated, authorized/endorsed and/or supervised by FSA (“Rule 6/2015”) came into force on April 3, 2015
- The targeted entities must implement the requirements as of January 1, 2016, except for the provisions related to external providers and to providers of outsourced IT services, which must be implemented starting with September 30, 2016
Rule 6/2015 sets out requirements for the identification, prevention and mitigation of the potentially adverse effect of the operational risks generated by the use of information technology and communications from the perspective of people, processes, systems and external environment, including the risks generated by actions linked to cybercrime.
The new regulations apply to the entities authorized/endorsed, regulated and/or supervised by FSA and set out obligations related to the auditing and testing of the information system, as well as requirements to report the evaluations and audits.
3. New provisions on the listing of shares through depository interests (‘”titluri de interes”, in Romanian)
- The Regulation No. 5 of April 9, 2015 on the listing on a Member State market, through depository interests, of the shares admitted to trading on a regulated market in Romania (“Regulation 5/2015”) came into force on April 21, 2015;
Regulation 5/2015 sets out, for the first time, the rules applicable when the shares admitted to trading on a regulated market in Romania, issued by a company headquartered in Romania, are listed on a market of a Member State, by means of depository interests. Regulation 5/2015 gives to companies listed on the regulated market of the BSE a new dual listing tool.
Regulation 5/2015 includes provisions related to:
- (i) the mechanism for the issuing of depository interests, records of shares represented through depository interests in the central depository system,
- (ii) the exercise of rights and the observance of the related obligations of the depository interest holders, such as the obligation to inform that the holding threshold was reached and with respect to the mandatory public offering and corporate events (for instance, exercising the right to vote, payment of dividends)
- Law 74/2015 on managers of alternative investment funds (“Law 74/2015”) was published in the Official Journal of Romania no. 274 of April 23, 2015 and came into force on May 23, 2015
EU Directive Implementation
- Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on alternative investment fund managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010 (“AIFMD”).
The deadline for transposing AIFMD expired on July 22, 2013
The main objective of this regulation is to transpose into the Romanian legislation AIFMD, a directive aimed at creating at the level of the European Union a harmonized legal framework for the authorization and supervision of alternative investment fund managers (“AIFM”). The directive is regulating the activity of all managers of alternative investment funds (“AIF”), other than UCITS, which are distributing fund units in particular to professional investors, setting out authorization requirements, capital requirements, operational requirements regarding risk and liquidity management, organizational requirements, including in relation to the evaluation of the assets that are part of the AIF portfolio, depositing requirements, requirements related to the possibility of delegating AIFM functions, transparency requirements.
What is an alternative investment fund manager?
Pursuant to Law 74/2015, the alternative investment fund manager is any legal person whose main activity consists in managing one or several alternative investment funds.
Each AIF may be managed by just one manager who is: (i) an external AIFM , or (ii) the AIF itself, if AIF is established as a joint-stock company and the management body of AIF decides not to appoint an external AIFM, and in this case is authorized as AIFM, in which case it is considered that the AIF is managed internally or is self-managed.
What is an alternative investment fund?
Pursuant to Law 74/2015, alternative investment funds are undertakings for collective investment, other than undertakings for collective investment in transferable securities (other undertakings for collective investment “OUCI”), which must request to be registered with the FSA, in accordance with Art. 114 paragraph (2) and Art. 115 paragraph (1) of Law 297/2004 on capital markets, as subsequently amended and supplemented (“Law 297/2004”), or OUCI which do not have to register with FSA, as per Art. 115 paragraph (2) of the same regulation.
Limits and exemptions
Limits – The new law does not apply to AIFMs established in Romania who manage one or several AIFs whose sole investors are AIFMs themselves, the parent companies or branches of AIFMs or other branches of these parent companies, provided that none of these investors is itself an AIF.
Furthermore, the law does not apply to:
- AIFMs established in Romania who manage portfolios of AIFs whose assets under management, including the assets obtained through leverage, do not total more than EUR 100,000,000, or
- AIFMs established in Romania who manage portfolios of AIFs whose assets under management do not total more than EUR 500,000,000 if the AIF portfolios consist of AIFs which do not use the leverage method and the redemption rights cannot be exercised within 5 years from the initial investment date in every AIF
Exemptions – Law 74/2015 does not apply to the following entities:
- holding companies;
- institutions offering occupational pensions, optional pension funds, private pension funds, the Romanian Lawyers Insurance Fund, other pension systems that are not integrated in the public system, as well as pension products intended to offer benefits upon retirement including, if applicable, authorized entities responsible for managing these institutions, funds or products which are operating on their behalf, provided that they do not manage the AIFs;
- supranational entities, such as the European Central Bank, the European Investment Bank, the European Investment Fund, the European institutions financing development and bilateral development banks, the World Bank, the International Monetary Fund, etc.;
- The National Bank of Romania;
- national, regional and local authorities and bodies or other institutions that manage funds which support the social security and pension systems;
- employee participation plans or employee savings plans;
- securitization entities
Managers of alternative investment funds which carried out their activity prior to the entering into force of Law 74/2015, are required to demand to the FSA, either the authorization or their registration as AIFM, within a maximum of 12 months as of the entry into force of Law 74/2015.
- Law 10/2015 approving Government Emergency Ordinance 32/2012 on undertakings for collective investment in transferable securities and investment management companies and amending and supplementing Law 297/2004 on capital markets and amending and supplementing other regulations (“Law 10/2015”) came into force on January 15, 2015
- Law 297/2004 on capital markets
EU Directive Implementation
- Directive 2004/39/EC on markets in financial instruments
- Directive 2004/25/EC on public takeover bids
- Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading
Law 10/2015 brings a number of clarifications as regards the FSA activity by virtue of the amendments made by Government Emergency Ordinance 93/2012 on the creation, organization and operation of the Financial Supervisory Authority, and a number of clarifications regarding the organization and operation of Fondul Proprietatea, by virtue of the amendments introduced to the Law 257/2005 regarding property and justice reform, as well as certain ancillary measures. The key aspects considered refer to: consolidating and extending the duties of FSA, clarifying the duties of the clearing house and of the central counterparty and reinforcing the framework for sanctioning, the framework for takeover bids, conditions linked to quorum and to the majority rule in the general meetings of shareholders of the SIF’s.
6. New regulations on the application of the trust agreement in the capital markets field (“fiducia”, in Romanian)
- Regulation No. 1/2015 on the provision of services by financial investment service companies and the application of certain provisions of the law on capital markets in the case of the trust agreement (“Regulation 1/2015”) was issued by the FSA on February 12, 2015 and came into force on February 25, 2015
Regulation No. 1/2015 sets out rules regarding the effects that the trust agreement – as this is regulated by Law 287/2009 on the Civil Code – has on certain provisions of the law on capital markets, and the implications of the notion of trust for financial investment service companies (“FISC”). Furthermore, it regulates the activities that may be carried out by FISCs, other than investment services and activities.
The effects of the trust agreement on the transactions in securities on the capital markets and on the issuers’ activity
Regulation No. 1/2015 regulates the moment from which the trustee is registered as shareholder, if the trustee receives, by virtue of the trust agreement, certain rights arising from the shares. Thus, the trustee is registered as shareholder as of the date the shares are transferred to its securities account opened with the Central Depository that is subject to the fiduciary relationship.
Furthermore, it sets out rules regarding the rights and obligations linked to the shares transferred to the trustee’s account, including as regards the voting right carried by the respective shares. Thus, by derogation from Art. 14 paragraph (5) of the Regulation of the National Securities Commission No. 6/2009, the trustee may vote differently for the shares corresponding to the securities account that is subject to the fiduciary relationship as opposed to the shares existing in other securities accounts and which are owned by the trustee.
Lastly, Regulation 1/2015 provides for rules as regards the acting in concert of the parties to the trust agreement and between these and third parties.
Other activities that may be conducted by FISCs
Regulation 1/2015 allows financial investment services companies to carry out activities in addition to the main one (i.e. that of providing financial investment services).
Thus, a FISC can manage an organized market, as such is regulated by Law 357/2005 on commodity exchanges, it can lease its properties, it can act as an insurance broker, loan broker and private pension broker.
Before starting to manage an organized market, FISC must notify FSA of its intention, indicating the estimated start date.
- Regulation No. 2 of February 18, 2015 regarding the periodic and unannounced verification made by the Financial Supervisory Authority (“Regulation 2/2015”) came into force on February 27, 2015
- Regulation of the Council of the Financial Supervisory Authority No. 1/2014 regarding the verification made by the Financial Supervisory Authority
Regulation 2/2015 defines, based on unitary rules, the procedural framework for FSA’s verification, as well as the rights and obligations of the parties concerned, and repeals the Regulation of the Council of the Financial Supervisory Authority No. 1/2014 regarding the verification made by the Financial Supervisory Authority.
No significant changes were made to the rights and obligations of the verified entity/target person in comparison with the older regulation. Among the changes we mention the fact that the verified entity or target person must provide the verification team with the telephone recordings regarding the trading orders received/given.
8. Amended provisions on corporate governance, including provisions regarding the contents of the corporate governance statement included in the annual report and on the quality of explanations in case of deviations from the corporate governance code
- Order no. 150 of 11 February 2015 regarding the amendment of the Accounting Regulations compliant with the International Financial Reporting Standards, applicable to companies whose shares are admitted to trading on a regulated market, approved by Order of the deputy prime minister, minister of public finance, no. 1.286/2012 (“Order 150/2015”) was published in the Official Gazette on February 23, 2015 and shall apply starting with the annual financial statements for the financial year 2015
- Accounting Regulations compliant with the International Financial Reporting Standards, applicable to companies whose shares are admitted to trading on a regulated market, approved by Order of the deputy prime minister, minister of public finance, no. 1.286/2012
The order includes changes to the statement on corporate governance to be included in the annual directors’ report. Therefore, entities to which Directive 2004/25/CE of the European Parliament and the Council of 21 April 2004 on takeover bids applies, must present in the same section of the annual report regarding corporate governance the following information:
- significant equity investments, whether direct or indirect (including indirect equity investments through multi-level structures and cross-ownership), within the meaning of the capital market legislation;
- holders of any securities which give special control rights and a description of those rights;
- any restriction on voting rights, such as the limitation of voting rights for holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the company’s cooperation, the financial rights attaching to securities are separated from the holding of such securities;
- rules applicable to the appointment and replacement of members of the administrative or management body as well as to the changes in the articles of association of the companies;
- powers of the members of the administrative or management body, in particular the powers to issue or buy-back securities
For the purpose of improving transparency for shareholders, investors and other interested parties, the companies must describe the way in which they applied the recommendations of the relevant corporate governance code with respect to topics of utmost importance for shareholders. The information must be sufficiently clear, precise and comprehensive in order to allow shareholders, investors and other interested parties to acquire a better understanding of the way the company is being managed. Furthermore, the description must refer to the characteristics and specific situation of the company, such as size, structure or ownership structure of the company or any other relevant aspects.
For the purpose of facilitating the access for shareholders, investors and other stakeholders, the companies must regularly provide on their websites, the information mentioned above and include a link to the site in the directors’ report, even if they already provided the information by other means provided by law.
Order 150/2015 also introduces new provisions regarding deviations from the corporate governance code. Thus, in case of a deviation from the applicable corporate governance code, the issuer must clearly indicate what specific recommendations they did not observe, and for each deviation the issuers must:
- clearly state in what way they did not observe the recommendation;
- describe the reasons of the non-compliance;
- describe the way in which the decision to not comply with a certain recommendation was taken;
- if the deviation is limited to a certain period of time, provide the expected deadline for compliance with a certain recommendation;
- describe, if applicable, the measure taken instead of complying with a requirement and explain to what extent said measure attains the objective underlying the specific recommendation or code as a whole or clarify how they contribute to a good corporate governance of the company
Moreover, the statutory auditor or the audit firm expresses its opinion on certain information included in the corporate governance statement, such as the description of the main features of internal control and risk management systems in relation to the financial reporting process.
- Regulation no. 6 of 25 May 2015 amending and supplementing Regulation 3/2006 regarding the authorization, organizing and functioning of the Investor Compensation Fund, approved by Order of the National Securities Commission no. 12/2006 (“Regulation 6/2015”) came into force on May 29, 2015
- Regulation 3/2006 regarding the authorization, organizing and functioning of the Investor Compensation Fund
Regulation 6/2015 contains provisions modifying certain definitions used in the regulation setting the rules applicable to the Investor Compensation Fund. Among these changes, we note the change of the definition of the concept of “investor”, defined only in relation to Law 297/2004 on the capital market, without any reference to the need for the investor to be a client under a contract for the provision of services and investment activities, as it was stipulated in the old legislation.
Furthermore, Regulation 6/2015 includes new provisions with respect to the manner of investing the financial resources of the Investor Compensation Fund. Thus, the financial resources of the Fund may only be invested in bonds or in other fixed income instruments fully guaranteed by the state, and in other low-risk assets abiding by the principle of risk-spreading for each financial instrument and for each issuer of the financial instrument.
- Romania’s Senate adopted the Decision no. 43 on June 3, 2015 (“Decision no. 43”) regarding the Green Paper on building a Capital Markets Union, which was published in the Official Gazette number 434 on June 18, 2015
EU Public consultation
- European Commission Green Paper regarding the creation of a capital markets Union
The Decision no. 43 offers answers to several questions regarding the action plan for building a Capital Markets Union stating, inter alia, that: the action plan should clearly outline the expected impact for “less liquid and lower capitalized markets”, especially because of the risk of capital migration to the more developed markets in the absence of a complete European regulatory framework. These elements are of interest to Romania which has to adopt all the measures in order to progress towards the emerging market status from the current frontier market status.
At the same time, Decision no. 43 analyzes the priority areas for which short term measures are necessary. These include resuming discussions regarding the implementation of a less strict transparency regime and the reporting requirements for the SME`s listed on the capital market.
- Law no. 147 of 16 June 2015 approving the Government Emergency Ordinance no. 78/2013 supplementing the Government Emergency Ordinance no. 93/2012 on the establishment, organization and functioning of the Financial Surveillance Authority and Law no.148 of 16 June 2015 for the approval of the Government Emergency Ordinance no. 94/2013 amending and supplementing the Government Emergency Ordinance no. 93/2012 on the establishment, organization and functioning of the Financial Surveillance Authority, as well as amending and supplementing Law no. 136/1995 regarding the insurance and reinsurance in Romania (“Law no. 148/2015”), entered into force on June 21, 2015
- Government Emergency Ordinance no. 93/2012 on the establishment, organization and functioning of the Financial Surveillance Authority
- The inclusion of a new category of Financial Surveillance Authority regulations, besides decisions, regulations, rules and instructions. The new category is represented by orders;
- The change of the specific requirements regarding professional experience in the field of credit institutions or non-banking financial institutions, necessary for the Board Members of the FSA. Thus, they must have a minimum professional experience of 8 years after completion of their long-term higher education (in the old regulation the minimum necessary experience was of 9 years);
- The reduction of the number of members required for convening the Financial Surveillance Authority Board to 4 instead of 9;
- The possibility for the Committees of the Senate and the Chamber of Deputies to order the control of the FSA’s activities anytime;
- The submission of the execution of the revenue and expenditure budget of the FSA to the control of the Romanian Court of Accounts
12. New regulation on tied agents and changes in the Regulation no. 32/2006 regarding financial investment services
- Regulation no. 8 of 17 June 2015 regarding the investment services agents, tied agents and supplementing Regulation no. 32/2006 regarding investment services (“Regulation 8/2015”), entered into force on 29 June 2015
- Regulation no. 32/2006 regarding investment services
- Regulation no. 4/2014 on tied agents and amending Regulation no. 32/2006 regarding investment services
Regulation 8/2015 focuses on the following aspects:
- The authorization and regulation of the activity of investment services agents and tied agents;
- The change of certain provisions of the Regulation no. 32/2006 regarding investment services, including changes affecting corporate governance of investment firms such as:
- The need for all board members of investment firms (and not only the majority, as stated in the old regulation) to have graduated from a university with a degree or diploma exam and also to have at least 3 years of professional experience in a field related to banking, finance or capital markets;
- The need for all investment firms managers to have graduated from a university with a degree or diploma exam in one of the fields such as law, economics, or any other field which comprises financial specializations such as economic engineering or applied mathematics and to have at least 3 years of professional experience in a field related to banking, finance or capital markets;
Furthermore, Regulation 8/2015 also modifies the conditions for the withdrawal of the authorization obtained by an investment consultant. For example, the withdrawal of the authorization could occur if the investment consultant did not pursue the activity for which it was authorized in the last 12 months prior to the deadline for submitting the activity report (in the old regulation, the term was of only 6 months).