VO LU M E 2 2 013

A PAC A N D E M E A R E G U L ATO RY D E V E LO P M E N T S N E W S L E T T E R

Dedicated to helping you stay ahead of regulatory change, this newsletter summarises the latest regulatory developments affecting APAC and Europe and provides updates on how Northern Trust is evolving to support your requirements. The regulatory calendar provides an overview of the main regulatory milestones for 2013 and beyond. Readers of the electronic version of the newsletter can use the links to the latest regulatory insights from Northern Trust. REGULATORY CALENDAR

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2013 and beyond

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APAC 4 2. Stronger Super Reforms

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3. 2013 Australian Federal Budget – Key Tax Measures

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EUROPE 8 2. Alternative Investment Fund Managers Directive (AIFMD)

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3. European Market Infrastructure Regulation (EMIR)

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4. Single European Payment Area (SEPA)

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5. Undertakings for Collective Investments in Transferable Securities Directive (UCITS V)

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UNITED STATES

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6. Foreign Account Tax Compliance Act (FATCA)

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REGULATORY CHANGE TIMELINE – APAC AND EMEA: KEY MILESTONES

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REGULATORY CHANGE TIMELINE – APAC AND EMEA: KEY MILESTONES

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APAC 2. Stronger Super Reforms Impacts n Regulated Superannuation Entities (RSE) Key takeaway n On 6 June, the Australian Prudential Regulation Authority (APRA) released the final versions of 35 reporting forms that replace current APRA reporting. n The number of forms required to be completed will depend on the type of fund and the products promoted by the fund. n Tranche 4 of the Stronger Super is still to pass through Parliament

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The Australian government’s Stronger Super reforms aim to improve the transparency of the superannuation system. Under the reforms, APRA will have new data collection powers that will permit publishing of comparable data on the fees, costs and net returns of MySuper products There are four components to Stronger Super: 1. MySuper A simple, low-cost product to replace default investment options for members who do not exercise choice ■■ Prescribed standards regarding fee structure, investment, insurance and disclosure ■■

2. SuperStream Applies to Superfund administrators ■■ Measures designed to enhance the back office ■■ Data and e-commerce standards for transactions ■■

3. Self-managed superannuation funds 4. Governance New prudential standards ■■ Heightened trustee and regulatory oversight ■■ Will require a higher standard of care, skill and due diligence ■■

Northern Trust’s focus continues to be on proactive support for clients around 1. and 4. Parliament has passed three of the four tranches of legislation. The final piece, which relates to product dashboard and various disclosures, is contentious and continues to be debated vigorously. N ort hern Trust Actions

Northern Trust has been highly engaged in lobbying through industry bodies such as the Australian Custodial Services Association (ACSA) and has submitted responses to the APRA draft requirements. This has resulted in the following changes: ■■ ➢A reduction in number of forms from 51 to 35. ■■ ➢A reduction in quarterly forms from 31 to 10. ■■ ➢The timing on forms has been staggered with summary forms commencing in 2013 and detailed ones in 2014. Forms related to MySuper start in 2013. ■■ The series forms have been restructured to separate information collected primarily for APRA’s prudential purposes from information collected for other purposes.

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Although a positive step forward, the reforms have not gone as far as the industry would have liked. There are serious operational and legal implications, particularly for alternative and/or offshore investment vehicles in order to access the right level of granularity. Concerns also extend to the reliability and timeliness of investments infrequently traded or valued. Northern Trust is already working with our clients to identify these types of investment vehicles. Requirements for reporting the underlying investments do not come into full effect until 2014. RSEs must ensure that managers can meet these reporting needs, particularly for new investments. N e x t S teps

Northern Trust has analysed the final reporting requirements and has held workshops with clients to ensure the new requirements are met. We have established a project team and are making a substantial investment in IT development to enable our global technology platform to meet the immediate reporting requirements and those for 2014. Northern Trust continues to engage directly with APRA and industry bodies such as the Australian Custodial Services Association (ACSA) in order to clarify these new requirements.

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3. 2013 Australian Federal Budget – Key Tax Measures Impacts n Australian superannuation funds and other resident and non-resident investors Key takeaway n Investors should consider the impact of these and other proposed taxation changes to their investment activities and taxation obligations. n Many of the proposed legislative changes will be subject to industry consultation. n The proposed application date of these measures varies, and some of the proposals may be impacted by the outcome of the Australian federal election to be held in September 2013.

Overview

The federal treasurer released the 2013 – 2014 federal budget on 14 May 2013. From a tax reform perspective, in recent years the government has not limited amendments to the annual federal budget release but have announced them throughout the year. Such changes are usually accompanied by industry consultation before the proposals are enacted. However, there are still taxation proposals that are announced in the federal budget and this year’s budget was no exception. Whilst many of the changes impact companies and individual taxpayers, there were a number of announcements that may impact superannuation funds and other investors. Proposals impacting investing entities are outlined below: ■■ The frequency of income tax payments will move from quarterly to monthly for large taxpayers, including superannuation funds. This extends existing proposals for certain corporate tax entities to move to a monthly basis from 1 January 2014. Depending on the turnover of the entity, this change will impact certain superannuation funds and other non-corporate tax entities from 1 January 2016. This will not result in additional tax being paid, but the frequency of tax payments will increase. ■■ From 1 July 2013, new measures will close a loophole in the existing law whereby two sets of franking/imputation credits could be claimed on essentially the same parcel of shares (dividend washing). This outcome previously arose when shares were sold on the ex-dividend date and immediately re-acquired on a cum dividend basis through cum-dividend markets on the Australian stock exchange. Through this process, the entitlement to the dividend and associated franking credits on the second parcel of shares was transferred to the purchaser. This practice arose due to the high value that lowly taxed or exempt Australian taxpayers placed on franking credits compared to other taxpayers such as non-residents. ■■ A new non-final withholding tax will apply to certain disposals by non-residents of real property interests situated in Australia. This measure is intended to apply to sales occurring after 1 July 2016 and will be subject to stakeholder consultation. Disposals of residential properties where the value of the property sold is less than $2.5m will be excluded from the measure. The withholding will be based on 10% of the gross proceeds from the sale. As this is a non-final withholding tax, the non-resident may be able to receive a refund by lodging an Australian income tax return and paying the applicable Australian tax on the gain made from the sale. In addition, with immediate effect, laws will be introduced to strengthen existing capital gains tax rules that apply to non-residents on the disposal of shares or units in entities that are essentially land-rich or involve certain mining interests. The Government also re-confirmed its intention to introduce previously announced changes including: ■■ An increase to the Medicare levy (from 1.5% to 2% of taxable income) payable by individuals with effect from 1 July 2014, with consequential impacts to certain withholding tax amounts impacting investors. ■■ The introduction of a 15% tax rate on superannuation earnings above $100,000 per annum. Currently, all pension earnings within a superannuation fund are exempt from income tax. ■■ An increase to certain concessional superannuation contribution rates.

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N ort hern Trust Actions

Northern Trust is monitoring tax developments and updating its taxation reporting and underlying systems to ensure that the changes are correctly reflected. Northern Trust is highly engaged with consultation through industry bodies such as the Australian Custodial Services Association (ACSA) as well as the broader taxation community and advisers. In addition we are proactively discussing the practical impacts of changes with clients. N e x t S teps

Clients should be aware of the upcoming amendments and consider the impact that these may have to the tax profile of their investments, investing entities and ultimately, their members.

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EUROPE 2. Alternative Investment Fund Managers Directive (AIFMD) Impacts n Non-UCITS funds managed in, domiciled in, and/or distributed in the European Union n Non-EU funds and managers wishing to sell in Europe Key takeaway n AIFMD introduces a pan-European marketing passport for alternative investment fund managers. Compliance with the new regulatory requirements is necessary to secure the passport. n Potential investors will need to consider the impact of AIFMD as it may raise costs and may drive managers to manage funds differently

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AIFMD formally comes into force in July 2013, and managers operating before July must submit an application for authorisation before July 2014. Any manager applying for authorisation after July 2013 needs to apply under, and be fully compliant with, the AIFMD regime. Each EU member state is due to transpose the Directive into domestic law by 22 July 2013 – and national regulatory bodies have now started to issue guidance on how national transitional, application and supervision regimes will operate. Specifically, the Irish authorities have issued application forms and the new rulebook, whilst the United Kingdom has issued draft regulations and a Q&A on transitional measures and supervision. NE X T S TE PS

A number of key items remain unclear, but all impacted entities should be at advanced stages of AIFMD implementation. AIFMs should now be creating internal AIFMD projects with a view to determining the optimal approach to compliance, taking into account the manager location, fund domicile, investor base, distribution strategy and operational environment. N O R T H E R N TRUS T ACTIONS

Northern Trust is participating in implementation and transition consultation processes in Ireland, the United Kingdom and other key jurisdictions. H OW C AN I LE AR N MOR E?

Northern Trust can offer support and customised solutions to position your fund ranges for your investors, facilitate compliance with the Directive and secure a distribution advantage through timely adoption of the new pan-European marketing passport. View further Northern Trust insights: ■■ Northern Trust solutions for the Alternative Investment Fund Managers Directive ■■ AIFMD checklist and sample implementation timeline ■■ Fund managers still have concerns on AIFMD, Northern Trust survey finds

northerntrust.com | APAC and EMEA Regulatory Developments Newsletter | 8 of 14

3. European Markets Infrastructure Regulation (EMIR) Impacts n All over-the-counter (OTC) derivatives users, even those pensions granted an exemption from the clearing obligation, given the extent of changes that will impact the bilateral market n The regulation may be viewed across three key pillars: — Mandatory clearing (via authorised centralcounterparties / CCPs) — Reporting (of trades, valuations and collateral into authorised trade repositories/TRs) — Risk mitigation measures (procedures, such as timely confirmations, portfolio reconciliation and compression, together with a move to mandatory initial margin on non-cleared bilateral trades) Key takeaway n The general complexity of collateral management will increase and greater demands will be placed on client collateral n The requirement to finance margin requirements for certain strategies, together with clearing fees, may impact performance n The risk mitigation and reporting requirements will require additional procedures to be established and documented n Even clearing-exempt parties need to analyse the wider impacts to their businesses

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The regulation entered into force on 16 August 2012, and on 19 December 2012 the European Commission adopted nine regulatory and implementing technical standards underpinning EMIR. These standards came into force 15 March 2013 and 10 January respectively, although three technical standards remain to be finalised. Recently, the European Commission has set 25 September 2013 as the date by which ESMA needs to deliver the two technical standards relating to the extraterritorial application of EMIR. The pending release of these technical standards will have a significant impact on how EMIR applies to transactions between non-EU entities. It has been the topic of on-going discussions with international regulators. The European Commission has also provided clarity in terms of how EMIR, particularly the recognition procedure, will apply to non-EU central counterparties (CCPs) that wish to provide services to market participants in the European Union. NE X T S TE PS

The key expected upcoming implementation dates are as follows: Risk mitigation of non-cleared OTC derivatives through portfolio reconciliation, dispute resolution and trade compression (15 September 2013) ■■ Margin requirements for non-cleared trades – contingent on the final international BCBSIOSCO report (later in 2013, with EU implementation during 2014 and phase-in from 2015) ■■ Details of all credit and interest rate derivative contracts must be reported to recognised trade repositories, contingent on recognition of a relevant trade repository by ESMA (estimated November 2013). Collateral reporting on these products to become mandatory six months after this effective date ■■ Details of all other classes of derivative contracts (including equities, FX, commodities) must be reported to recognised trade repositories (targeted 1st January 2014). Collateral reporting on these products to become mandatory six months after this effective date ■■ First clearing obligations applied, subject to authorisation of a relevant CCP by national authorities(Q2/Q3 2014) ■■

N O R T H E R N TRUS T ACTIONS

Northern Trust has enhanced its systems to provide operational support for central clearing of certain OTC derivatives, with several clients now actively clearing OTC transactions. These capabilities allow us to electronically capture trade information on OTC derivatives and connect with external parties to route trades to electronic matching platforms, clearing members and CCPs. We are unaffiliated with particular clearing members or CCPs and at every point in the clearing process we will, therefore, be able to act as our clients’ independent derivatives servicing agent to help them execute their trades efficiently and pursue their investment strategies. We have developed and continue to develop solutions that build on our expertise in core custody and collateral management to provide transparent reporting, processing and margin solutions, helping investors manage the greater complexity of the central clearing environment whilst achieving efficiencies in their usage of collateral. Northern Trust also offers solutions to ensure clients are able to conform to the risk mitigation and reporting requirements that are currently being phased in. northerntrust.com | APAC and EMEA Regulatory Developments Newsletter | 9 of 14

H OW C AN I LE AR N MOR E? ■■

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Northern Trust enhances operational support for central counterparty clearing of OTC derivatives EMIR implementation checklist and EMIR/Dodd Frank VII regulatory timeline Northern Trust participates in Dutch publication, Financial Investigator, Ronde Tafel Collateral Management

4. Single European Payments Area (SEPA) Impacts n Individuals or entities making or receiving payments in euros across Europe Key takeaway n Introduces a consistent clearing format for euro credit transfers with IBANs and BICs to be used exclusively as beneficiary identifiers

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SEPA is an initiative of the EU governments, the European Commission and the European Central Bank to create an integrated payments market across Europe for organisations or individuals making or receiving payments in euros. The SEPA territory will consist of 32 European countries and will extend beyond the euro area and the EU. SEPA is already in effect across the 17 countries that comprise the euro area. K E Y IMPAC T

The objective of SEPA is to make payments in euros and across Europe as fast, safe and efficient as national payments are today. It enables customers to make cashless euro payments to anyone located in Europe by credit transfer, direct debit or debit card. Credit transfers incorporate International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs), which will be used exclusively as beneficiary identifiers. SEPA’s developments have been facilitated by the payment services directive, which regulates payment institutions; and the regulation on cross-border payments in the community. NE X T S TE PS

Technical and business requirements for credit transfers and direct debits in euros apply from 1 February 2014 for member countries in the euro area and 31 October 2016 for non-euro area countries. N OR T H E R N TRUS T ACTIONS

As Northern Trust is not currently registered as a Payment Service Provider (PSP), we are not within the scope of SEPA and are not required to issue clients with individual IBANs. We currently work with our sub-custodian, Société Générale, to facilitate payments to beneficiaries without IBANs. From 1 February 2014, Northern Trust will continue to pay and receive on behalf of clients through the high value schemes (TARGET2 and EURO1). A remitter will not be able to pay a Northern Trust client via a SEPA scheme. We are currently reviewing the implications of becoming a PSP and determining how we could create and use client IBANs.

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5. Undertakings for Collective Investments in Transferable Securities Directive (UCITS V) Impacts n UCITS funds and institutional investors Key takeaway n Debate continues over various aspects of the proposed UCITS V legislation n Depositary requirements in line with AIFMD are expected to be adopted under UCITS V

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Proposed in July 2012 by the European Commission, the UCITS V Directive aims to strengthen investor protection and to align rules of retail investor funds with those applying to alternative investment funds (under the Alternative Investment Fund Managers Directive (AIFMD)). The Directive is currently making its way through the EU legislative process to finalise the Level 1 Directive text. UCITS V consists of three broad areas: ■■ Remuneration rules for UCITS fund managers ■■ Rules for depositaries ■■ A harmonised sanctions regime for breach of the UCITS rules The provisions on remuneration have recently gained attention. The European Parliament’s Economic and Monetary Affairs Committee (ECON) voted in favour of the proposal by the German Green Party Member of the European Parliament (MEP) that the annual bonuses of certain staff of UCITS management companies should not exceed their fixed salaries. These are stricter requirements than those applied under the AIFMD and the Capital Requirements Directive III and IV. K E Y IMPAC T

The unintended impacts of such a bonus cap could force asset managers to increase base salaries, thereby increasing their fixed costs; and could turn non-EU managers away from Europe entirely, thereby reducing competition and investor choice. NE X T S TE PS

The remuneration provisions will be voted on in the Parliament’s plenary session later this month and are subject to intensive lobbying efforts by member states, trade bodies and asset managers both in jurisdictions with large asset management industries such as the United Kingdom, Germany, Ireland and also outside of the European Union. The Level 1 Directive text is expected to be finalised towards the end of 2013. Recent developments indicate that a group of MEPs may develop a softer version of the remuneration text for the plenary vote in Parliament.

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UNITED STATES 6. The Foreign Account Tax Compliance Act (FATCA) Impacts n Foreign financial institutions (FFIs) (including non-US banks, brokers, custodians, investment funds and insurance companies) and US financial institutions that make payments to FFIs n Institutional investors that will need to provide evidence of compliance to financial service providers Key takeaway n To avoid the 30% FATCA withholding tax, institutions investing in funds or opening financial accounts on or after 1 January 2014 will need to provide evidence of FATCAcompliant status to their financial service providers n FFIs may need to register with the US Internal Revenue Service (IRS) and agree to conduct due diligence on account holders, withhold from non-compliant account holders, and report on US account holders n FFI registration is scheduled to open 15 July 2013 n Drafts of certain IRS Forms W-8 have been released, although final forms and instructions have not yet been published

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On 17 January 2013, the US Internal Revenue Service (IRS) and the US Treasury Department issued final regulations for the implementation of FATCA. These final FATCA regulations build on the proposed regulations of February 2012 to incorporate comments from industry group participants, reflect intergovernmental agreements (IGAs), and include timeline changes announced by the IRS in October 2012. INTE RG OVE R NME NTAL AGR EEMENT S

The final regulations apply broadly to withholding agents (including Northern Trust) and foreign financial institutions (FFI). However, an FFI in a country that has entered into an intergovernmental agreement based on the Model 1 IGA will be required to comply with its jurisdiction’s own rules, which in some cases may vary from and override the FATCA regulations. Meanwhile, an FFI located in a jurisdiction with a Model 2 IGA will be permitted under local law to comply with the terms of an FFI agreement with the IRS, including reporting directly to the US government. The US Treasury has concluded a total of eight intergovernmental agreements (IGAs) with other countries. On 11 June 2013, it also, jointly with Japan, released a “statement of mutual cooperation and understanding,” the language of which is fully consistent with a Model 2 IGA. Some recent IGAs (e.g. Norway and Germany) were accompanied by a memorandum of understanding, under which the US Treasury agreed to treat financial institutions of the partner country as FATCA-compliant from 1 January 2014, despite the fact that the IGA might enter into force at a later date, pending enactment by the partner country of implementing legislation. Negotiations are still in progress with several other countries. In early May, Ireland published its own draft regulations for the implementation of FATCA. On 21 May 2013, Luxembourg announced that it will be pursuing a Model 1 IGA. Two additional developments reflect a trend towards FATCA becoming a multilateral programme: ■■ The UK government is in the process of developing its own FATCA regime to apply to Crown dependencies and UK overseas territories. Known as the “Son of FATCA”, it will require financial institutions located in these territories to report their account holders to HM Revenue & Customs (HMRC). ■■ A group of five European countries (United Kingdom, Germany, France Italy and Spain) agreed on 9 April 2013 on a pilot multilateral tax information exchange based on the FATCA model. The initiative was joined by 12 additional EU member states as well as the Crown dependencies and UK overseas territories and could lay the foundation for a multilateral exchange of information regime. On June 11 2013, Mexico issued a formal request to join the pilot.

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NE X T S TE PS

Although final regulations under FATCA have been issued, uncertainties are preventing global financial institutions from fully implementing operational and systems changes to address FATCA. Over the course of 2013, the IRS and Treasury Department are expected to publish additional guidance on the coordination of FATCA regulations with existing US tax withholding and reporting requirements. They are also expected to issue finalised tax forms W-8 and W-9. The IRS will launch a new web-based FATCA registration portal for Foreign Financial Institutions (FFIs) by 15 July 2013. FFIs must register on the portal by 25 October 2013 to be included on the IRS list of compliant FFIs before the 1 January 2014 effective date in order to avoid FATCA withholding on US payments they receive. N O R T H E R N TRUS T ACTIONS

In the United Kingdom, Northern Trust has continued to work with HMRC through industry bodies such as the British Bankers Association (BBA) and the Investment Management Association’s FATCA working group to agree an appropriate method of submitting the required FATCA reporting. Globally, Northern Trust is participating in industry organisations and sharing perspectives with other industry participants to identify and resolve challenges. Northern Trust is upgrading its systems and operation models to support its FATCA obligations and to assist fund managers in meeting their own FATCA obligations in relation to their funds. Northern Trust has released details of the solutions it will be offering the clients for which it acts as a transfer agent and for which it performs anti-money laundering and know your customer procedures. Northern Trust will be initiating further discussions with clients regarding details of this new service offering. H OW C AN I LE AR N MOR E?

View further Northern Trust insights: Frequently asked questions for fund managers ■■ FATCA implementation checklist and timeline ■■ FATCA solutions for investment funds ■■

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LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Client should under no circumstances rely upon this information as a substitute for obtaining specific legal or tax advice from their own legal or tax advisors. OPINIONS EXPRESSED are those of the author, do not necessarily reflect the opinions of Northern Trust Corporation, and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed. Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. The Northern Trust Company, London Branch (reg. no. BR001960), Northern Trust Global Investments Limited (reg. no. 03929218) and Northern Trust Global Services Limited (reg. no. 04795756) are authorised and regulated by the Financial Services Authority. The material within and any linked material accessed via this communication is directed to eligible counterparties and professional clients only and should not be distributed to or relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors. Northern Trust (Guernsey) Limited, Northern Trust Fiduciary Services (Guernsey) Limited, and Northern Trust International Fund Administration Services (Guernsey) Limited are licensed by the Guernsey Financial Services Commission. Northern Trust International Fund Administrators (Jersey) Limited and Northern Trust Fiduciary Services (Jersey) Limited are regulated by the Jersey Financial Services Commission. Northern Trust International Fund Administration Services (Ireland) Limited, Northern Trust Securities Services (Ireland) Limited and Northern Trust Fiduciary Services (Ireland) Limited are regulated by the Central Bank of Ireland. Northern Trust Global Services Limited has a Luxembourg Branch, which is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF). Northern Trust Luxembourg Management Company S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF). Northern Trust Global Investments Limited has a Netherlands branch, which is authorised by the Financial Services Authority and subject to regulation in the Netherlands by the Autoriteit Financiële Markten. Northern Trust Global Services Limited has a Netherlands Branch, which is authorised and regulated in the Netherlands by De Nederlandsche Bank. Northern Trust Global Investments Limited has a Sweden branch, which is authorised by the Financial Services Authority and subject to regulation in Sweden by the Finansinspektionen. Northern Trust Global Services Ltd (UK) Sweden Filial is authorised by the Financial Services Authority and subject to regulation by the Finansinspektionen. Northern Trust Global Services Limited operates in Abu Dhabi as a Representative Office. Our registered office is authorised and regulated by the Central Bank of the United Arab Emirates. The Northern Trust Company operates in Australia as a foreign authorised deposit-taking institution (foreign ADI) and is regulated by the Australian Prudential Regulation Authority. The Northern Trust Company has a branch in China regulated by the China Banking Regulatory Commission. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a Singapore Branch, which is a foreign wholesale bank regulated by the Monetary Authority of Singapore. The Northern Trust Company operates in Canada as The Northern Trust Company, Canada Branch, which is an authorised foreign bank branch under the Bank Act (Canada). Trustee related services in Canada are provided by the wholly owned subsidiary The Northern Trust Company, Canada, an authorised trust company under the Trust & Loans Companies Act (Canada). Deposits with The Northern Trust Company and its affiliates and subsidiaries are not insured by the Canada Deposit Insurance Corporation.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice, see http://www.northerntrust.com/circular230.

© northern trust 2013

the northern trust company

northerntrust.com | APAC and EMEA Regulatory Developments Newsletter | 14 of 14 Q53439 (6/13)