Response sent by e-mail, to europefesco.org
Copy response sent by e-mail to fsa.gov.uk
Secretary General Committee of European Securities Regulators (CESR)
17 Place de la Bourse
75082 PARIS CEDEX 02
France
30 November, 2001
Dear Sir / Madam
CESR Consultative Document on the Harmonisation of Conduct of Business Rules Standards and Rules for Harmonising Core Conduct of Business Rules for Investor Protection (CESR/01-014; 18 October 2001) Implementation of article 11 of the ISD: Categorisation of Investors for the Purpose of Conduct of Business Rules (CESR/01-015; 18 October 2001)
Please find attached the response of The Association of Corporate Treasurers (ACT) to some of the areas on which CESR is particularly interested as detailed in your cover note dated 18 October 2001.
The ACT is a professional body, formed to encourage and promote the study and practice of finance and treasury management, and to educate those involved in the field. It is the only UK professional body that sets professional examinations exclusively on this subject. The Association has approximately 3,100 members and more than 1,100 finance professionals enrolled on examination courses. Since its formation in 1979, the influence of the Association has grown steadily. It has contributed to proposals for regulatory change and promoted voluntary codes for wholesale market participants. It has also influenced changes in accounting and tax legislation. The Association has contributed to the corporate governance debate and aspects of competition policy, and has been consulted on many practical aspects of European Monetary Union. These messages are reinforced at conferences and in the publications it produces.
We hope that you find our comments useful and thank you for having given us the opportunity to comment on this subject. If you wish to discuss further any of the issues raised in our response please contact our technical team on 0207 213 0738 or email.
Yours sincerely
Jon Boyle Chairman of Technical Committee
Professional investors are: (a) entities which are required to be authorised or regulated to operate in the financial markets (including: credit institutions, investment firms, other authorised or regulated financial institutions, insurance companies, collective investment schemes and management companies of such schemes, pension funds and management companies of such funds, commodity dealers); (b) large companies and other institutional investors, including: - Large companies and partnerships meeting two of the following size requirements: Balance sheet total: 12.500.000 euro Net turnover: 25.000.000 euro Average number of employees during the financial year: 250 - Issuers of listed financial instruments, i.e. entities whose securities are traded on a regulated market (c) national and regional Governments, Central Banks, international and supranational institutions such as the World Bank, the IMF, the ECB, the EIB, and other similar international organisations
ACT response
We support the proposal to treat large companies within the category of professional investors and not to be treated as retail customers. - We would propose a net assets test alongside the turnover test as an alternative for a qualifying large company. - We would propose that wording is included to further define companies and therefore how the tests above are applied to companies. The tests should be on a consolidated or group basis as many holding companies or specialist finance vehicles on their own might not meet the criteria - We do not believe that the revised treatment of large companies will lead to misallocation of resources i.e. companies having to establish treasury centres. In practice many smaller companies have treasury activities handled by other departments such as financial accounting, planning, or tax. - In terms of scope, we would propose that non EU listed companies should also be included
A Counterparty relationship is characterised by the absence of a client relationship (i.e. without any provision of service), typical of market participants directly active in the market for their own account. This exemption may be applied to transactions executed by some entities, which are active on their own account in financial markets, in particular: - inter-dealer transaction executed by authorised investment firms - transaction executed in regulated markets or other organised trading platforms by any member admitted to trade in these markets - transaction executed between authorised investment firms and other entities participating in the markets, whose annual sales are not inferior to 2 billion euros
ACT response
We concur with the comments in your letter that companies probably do gain more certainty by reference to the profile of the counterparty than the capacity in which he is acting or the level of service he is perceived to be providing. - Large companies will be mainly dealing with banks and therefore the size criterion of 2 billion euros is probably not too high a limit. However, some companies will be dealing with smaller specialist counterparties and therefore we would suggest a lower limit.
The customer agreements state that prior to providing any investment service, an investment firm must enter into a written agreement with the customer setting out the rights and obligations of the parties.
The dealing requirements state that an investment firm must keep a record of telephone orders on magnetic tape or an equivalent medium. It must duly inform the customer that the conversation will be recorded.
ACT response
We agree that there should be a customer agreement in place prior to providing any investment service, however the level of detail should not be specified in order to avoid unnecessary documentation - Most companies have their own standard mandate documentation which would detail authorised trading and confirmation personnel, authorised instruments, authorised settlement instructions etc.
Although there is an increasing trend against taping telephone conversations, we recommend that companies do tape their transactions with counterparties. In practice, often where there is a dispute, the counterparty is not able to find the relevant tape. Therefore, routine testing of taping facilities needs to be in place to ensure that the control works in practice as well as in theory.