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Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from April 2020.
In light of the disruption and economic uncertainty caused by the coronavirus (COVID-19) outbreak, UK government ministers and representatives have faced repeated questions in recent weeks regarding a possible change in its position against extending the transition period. On 16 April 2020, the UK government’s chief negotiator, David Frost, reiterated the government’s position, confirming that the UK will neither request nor accept an extension to the transition period beyond 31 December 2020.
The coronavirus outbreak has had an impact on the negotiations between the UK and the EU. This has led some to consider the desirability of an extension to the Brexit transition period. The Government has repeatedly stated that it does not intend to request any extension. In this analysis, Graeme Cowie at the House of Commons Library sets out the legal and procedural hurdles—both in the Withdrawal Agreement (WA) and in UK domestic law—to any extension of the UK’s post-Brexit transition period with the EU.
On 24 April 2020, following the delayed second round of talks on the future UK-EU relationship, EU Chief Negotiator Michel Barnier gave a statement. In the remarks, Mr Barnier acknowledged the grave circumstances and collective responsibility to focus on tackling the coronavirus crisis. However, with the clock ticking on the Brexit transition period, and with the EU taking note of the UK's refusal to extend the timeline, tangible substantive progress is essential. The priority workstreams summarised by Mr Barnier include: ensuring full implementation of the WA, preparing for the negative economic consequences that the end of transition will entail and negotiating a future partnership agreement to limit those consequences. The EU has called for serious engagement from the UK on these parallel workstreams, based on the principles and objectives agreed in the Political Declaration.
Source: Press statement by Michel Barnier following the second round of future relationship negotiations with the United Kingdom.
Negotiations on the future UK-EU relationship began on 3 March 2020. They came to an abrupt halt due to the coronavirus outbreak. This means the UK and EU have been unable to keep to a previously agreed timetable for the talks. Stefano Fella at the House of Commons Library further provides an overview of the negotiating timetable and what has happened so far.
On 8 April 2020 the UK deposited its application to accede to the Lugano Convention with the depositary of the Federal Department of Foreign Affairs (FDFA). This forms part of the UK’s preparations under Brexit to leave the EU.
The Financial Conduct Authority (FCA), the Bank of England (BoE) and members of the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have issued a further statement on the impact of the coronavirus pandemic on firms’ London Interbank Offered Rate (LIBOR) transition plans. Further to the joint statement made on 25 March 2020, it remains the central assumption that firms cannot rely on LIBOR being published after the end of 2021. The statement sets out the RFRWG’s recommendations going forward.
Sources: Further statement from the RFRWG on the impact of coronavirus on the timeline for firms’ LIBOR transition plans and 25 March 2020 statement.
In its monthly newsletter, the RFRWG, in conjunction with the BoE and the FCA, issued a statement saying that the end-2021 deadline for firms to transition from LIBOR should remain unchanged. The RFRWG notes that the coronavirus pandemic will impact the timing of certain aspects of the transition programme, in particular for firms within the loan market. It will continue to monitor the situation and update the markets accordingly.
Source: The Working Group on Sterling Risk-Free Reference Rates.
The Alternative Reference Rates Committee (ARRC) has released a document outlining recommendations for a spread adjusting methodology concerning cash products referencing US dollar (USD) LIBOR. The methodology is intended for the voluntary use of market participants. The spread adjustments are intended for USD LIBOR contracts that have incorporated the ARRC’s advised hardwired fallback language, or for contracts whereby a spread-adjusted Secured Overnight Financing Rate (SOFR) can be chosen as a fallback option.
Source: ARRC Announces Recommendation of a Spread Adjustment Methodology for Cash Products.
Guideline (EU) 2020/496 of the European Central Bank of 19 March 2020 amending Guideline (EU) 2019/1265 on the euro short-term rate (€STR) (ECB/2020/15), has been published in the Official Journal.
The International Accounting Standards Board (IASB) has launched a consultation on further proposed ‘phase II’ amendments to the International Financial Reporting Standards (IFRS) as a result of the interest rate benchmark reform. Further to the IASB’s work since 2018 on the effect of interest rate benchmark reform on financial statements, the consultation relates in particular to changes to reporting on contractual cash flows and hedging relationships. Feedback is requested by 25 May 2020.
Source: IASB proposes further amendments to IFRS Standards in response to interest rate benchmark reform.
The International Swaps and Derivatives Association (ISDA) has published an Interbank Offered Rate (IBOR) Fallback Rate Adjustments Rule Book setting out the methodology, rules and conventions that will be used to calculate rate adjustments as firms transition away from LIBOR and other IBORs, and prepare to replace them with alternative, overnight Risk Free Rates (RFRs). To address the risk that one or more IBORs are discontinued while market participants continue to have exposure to that rate, counterparties are encouraged to agree to contractual fallback provisions that would provide for adjusted versions of the RFRs as replacement rates.
Source: IBOR Fallback Rate Adjustments Rule Book.
ISDA has released its Interest Rate Benchmarks Review for the first quarter of 2020. The review analyses trading volumes of interest rate derivatives transactions in the US, referencing SOFR and other selected alternative RFRs, including the Sterling Overnight Index Average (SONIA), the Swiss Average Rate Overnight (SARON), the Tokyo Overnight Average Rate (TONA) and €STR. In addition, the report analyses IRD-traded notional referencing LIBOR denominated in US dollars, sterling, Swiss franc, yen and euro, as well as EURIBOR and TIBOR.
Source: Interest Rate Benchmarks Review: First quarter of 2020.
The Chair of the Business, Energy and Industrial Strategy Committee (BEIS), Rachel Reeves, has addressed some of her concerns relating to the Coronavirus Business Interruption Loan Scheme (CBILS) in a letter to the Chancellor of the Exchequer, Rishi Sunak. The CBILS has been put in place by the government to support businesses by offering them access to affordable lending during the coronavirus crisis. However, Rachel Reeves highlights that the way in which some lenders interpret the CBILS puts off SMEs seeking loans. She notes that several lenders have sought personal guarantees from SME owners, have applied high interest rates on the loans when the interest free period ends, and have been slow and reluctant to approach the British Business Bank to apply for loans. Various measures have been suggested to address these issues.
Source: Coronavirus Business Interruption Loans – Chair writes to Chancellor.
The Lending Standards Board (LSB) has published its response to the changes to the UK CBILS announced by the government on 27 April 2020. The Standards of Lending Practice for business customers will be updated to reflect any amendments required to ensure that they do not prohibit participating firms from meeting the requirements of the CBILS.
Source: Response to the chancellor’s announcement of changes to the Coronavirus Business Interruption Loans Scheme.
The All-Party Parliamentary Group (APPG) on Fair Business Banking has issued a statement on financial support measures for businesses unable to access the CBILS via the existing providers, and on ensuring that the processes and eligibility criteria are straightforward and speedy. The APPG sets out a series of proposed interventions and measures to ‘quickly and effectively distribute much-needed capital to struggling SMEs, charities and social enterprises’.
Source: Statement on the APPG recommendation to the governments in relation to the COVID-19 financial support measures.
The Financial Conduct Authority (FCA) has published a statement concerning the Treasury’s announcement about amendments to the UK’s CBILS scheme to support small businesses during the coronavirus pandemic. The FCA’s statement sets out the FCA’s approach to its regulation of firms in relation to the government’s CBILS and BBL schemes.
Source: Statement on the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the new Bounce Back loan scheme (BBL).
UK Finance has revealed that its data shows that the UK banking and finance sector has provided more than £2.8bn to businesses so far through the CBILS during the coronavirus pandemic. According to UK Finance, ‘total lending under CBILS has doubled in the week from 14 April to 21 April 2020, with an increase of £1.45bn’. Over the same period 9,000 loans were provided to businesses, bringing the total to over 16,600.
Source: £2.8 billion provided to SMEs through Coronavirus lending scheme.
The Treasury Committee has written to the lenders accredited to provide loans through the CBILS, to encourage their co-operation in ensuring that daily data on the loans being made is available to the Committee (which it will publish). The letter follows on from the Committee’s similar request to the British Business Bank (BBB) and UK Finance.
Source: Committee requests co-operation from CBILS lenders on providing daily data update.
The chief executive of UK Finance, Stephen Jones, has responded to the announcement by the chancellor of the exchequer, Rishi Sunak, of further details of the CBILS, saying banks and finance providers are committed to helping British businesses. Jones said over £1.1bn had already been lent to small and medium-sized firms through the CBIL scheme, and the launch of the new scheme for larger businesses will help to expand this support during challenging economic conditions.
Source: UK Finance responds to the chancellor’s announcement of the expansion of the coronavirus loan scheme for larger businesses.
The Bank of England’s new Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME), which complements other schemes the Bank of England and HM Treasury have created to support entities during the coronavirus economic uncertainty, opened for drawings on 15 April 2020, sooner than previously anticipated. Rendering TFSME funding available sooner should support SME's ability to access funding, helping them to cover expenses throughout the duration of the pandemic.
Source: The Bank of England’s Term Funding Scheme with additional incentives for SMEs will open to drawings on 15 April 2020.
The European Commission on 6 April 2020 announced a program using special guarantees to encourage banks to provide €8bn (US$8.5bn) in emergency loans to help small and mid-size businesses cope with the economic impact of the coronavirus pandemic.
The chair of the Treasury Committee, Mel Stride MP, has written to the BBB and UK Finance to request daily updates on the CBILS, the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Future Fund.
Source: Treasury Committee requests daily updates on coronavirus business loans to drive further vital lending.
The Chancellor of the Exchequer, Rishi Sunak, has announced in a statement to the House of Commons a new 'bounce back' small loan scheme to mitigate the impact of coronavirus for businesses. The loans would cover 25% of a business' turnover, up to the value of £50,000, with the government guaranteeing 100% of the loan and paying the interest for the first 12 months. The Chancellor stated that the loans will be available from 9am, Monday 4 May 2020 and that payments would be made within 24 hours of approval, with ‘no complex eligibility criteria’.
Source: Chancellor announces new 'bounce back' loans for small businesses.
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) has published a paper entitled ‘Public guarantees for bank lending in response to the COVID-19 pandemic’.
Source: Public guarantees for bank lending in response to the COVID-19 pandemic.
As many countries contemplate an easing of coronavirus lockdown restrictions following a downturn in cases, scientists and politicians are warning of the possibility of a ‘second wave’ of coronavirus cases which would then require a re-imposition of restrictions. We are already seeing this in certain Asian countries. Emma Schaafsma, Sarah Pollock, Maura McIntosh and Julie Farley of Herbert Smith Freehills consider the impact of a second wave of coronavirus on contracting parties and force majeure claims.
Force majeure and frustration have suddenly taken centre stage for parties who are either considering their remedies under existing contracts, or deciding what protections need to be built into their future contracts. Patricia Robertson QC, Ben Lynch QC and Deborah Horowitz, barristers at Fountain Court Chambers set out the core legal principles as regards force majeure and frustration, consider their relevance in the context of coronavirus, and identify consequent issues for some of the major industries affected by the pandemic, including construction, trade finance, banking, airline, pharmaceuticals, energy and insurance.
The European Banking Authority (EBA) has published guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the coronavirus crisis, which provide detailed guidance on the criteria to be fulfilled by legislative and non-legislative moratoria applied before 30 June 2020. The guidelines clarify the requirements for public and private moratoria, which if fulfilled, will help avoid the classification of exposures under the definition of forbearance or as defaulted under distressed restructuring.
Source: EBA publishes guidelines on treatment of public and private moratoria in light of COVID-19 measures.
The International Organization of Securities Commissions (IOSCO) has published a statement on the application of International Financial Reporting Standard 9 (IFRS 9) during the coronavirus pandemic. IOSCO acknowledges the current uncertainty resulting from COVID-19, but says application of accounting standards must result in issuers providing clear, reliable, transparent and useful information to allow investors to make informed investment decisions.
Source: IOSCO statement on application of accounting standards during the COVID-19 outbreak.
The Law Society of Scotland has published a ‘beta’ version of a guide to electronic signatures. Despite the guide not being finalised, given the current difficulties being faced by the profession during the coronavirus pandemic, it is hoped the guidance in its current state will be of some use. The guide will be continually reviewed and updated.
Source: Electronic Signatures Guide.
The Loan Market Association (LMA) has created a new coronavirus microsite. The microsite aims to support members through the pandemic and provide up-to-date legal regulatory and market news relating to coronavirus. The microsite also contains a webinar on coronavirus and its impact on facility agreements.
Source: LMA launches new Coronavirus (COVID-19) Microsite.
 EWHC 679 (QB)
This case relates to an application to set aside judgment in default in respect of an unpaid loan. While the judge only had to decide whether the various arguments raised by the defendant/borrower were arguable so that they should proceed to trial, some practical points arise in relation to making sure demand and default notices are correct.
Companies House has announced, in response to the coronavirus crisis, that its emergency filing service can be used for the upload and submission of completed registrar's powers forms. The service will only be available for a selection of paper documents that do not already have an online option.
Source: Coronavirus guidance for Companies House customers, employees and suppliers.
Amendments are made to the Land Registration Rules 2003 to allow for the Chief Land Registrar to certify a day as an ‘interrupted working day’ in England and Wales. The effect of this is to extend the expiry date of the priority period given by an official search, and the date for responses to notices and requisitions, by the number of working days equal to the number of interrupted working days falling within the priority period or within the time given for responding to notices and requisitions. These Rules came into force on 16 April 2020.
The European Parliament's Policy Department for Economic, Scientific and Quality of Life Policies (IPOL) has published a document regarding the contribution of the EU’s Public Procurement Framework to the achievements of the objectives of the Paris Agreement and the Circular Economy Strategy. The report highlights barriers to green public procurement as well as some of the solutions, including actions proposed in European Commission's 'Circular Economy Action Plan for a cleaner and more competitive Europe', adopted in March 2020. IPOL recommends setting 'ambitious but realistic strategic procurement targets', supported by more professionalised public procurement authorities, central purchasing bodies, national competence centres and supplier networks to facilitate SME access. The report also recommends better investment in procurement professionalisation, training, IT and e-procurement to mainstream strategic public procurement, in particular green public procurement.
Source: The EU’s Public Procurement Framework.
UK Export Finance (UKEF) has issued guidance for creditors on the temporary suspension of debt service repayments. The decision to temporarily suspend debt payments was made by G20 Finance Ministers and the Paris Club in a bid to assist eligible developing countries which request forbearance to respond to the financing needs arising from the coronavirus pandemic. The suspension of payments is for the period of 1 May 2020 to 31 December 2020 on an NPV-neutral basis and will include both interest and principal payments. For the UK, this applies to debt rescheduled through the Paris Club or bilaterally up to 24 March 2020.
Source: UKEF guidance for creditors on temporary suspension of debt service repayments.
The International Chamber of Commerce (ICC) has issued supplementary guidance to the market, governments and regulators in the form of two official publications. The first publication focuses on technical guidance to the market when adapting ICC rules for specific trade finance instruments. The second highlights the effect of essential public health interventions in the fight to eradicate the coronavirus, and the handling of paper-based trade finance transactions. It also addresses calls for timely regulatory intervention to guarantee the uninterrupted functioning of the trade finance market.
Source: ICC provides guidance to the trade finance market to address COVID-19 disruptions.
EU green-disclosure rules for asset managers, floated on 23 April 2020, could send funds on a complex and quixotic search for non-existent data, while offering an inexplicable carveout for the oil sector. The complexity of the system, combined with its lack of fundamental credibility, seems set to please no one.
The European Commission has published a consultation paper on the renewed sustainable finance strategy for the EU. For reasons set out in the introduction to the consultation, the European Green Deal announced a Renewed Sustainable Finance Strategy. This is an integral part of the European Green Deal and the Commission's overall efforts to ensure a sustainable and resilient economic recovery following the coronavirus outbreak. The aim of this consultation is to collect as many views as possible to feed into the Commission's work to help mobilise private investment in sustainable projects.
Source: Consultation on the renewed sustainable finance strategy.
The International Securities Lending Association (ISLA)’s Council for Sustainable Finance (ICSF) has published its first position paper, Making Sense of Sustainable Securities Lending & Short Selling During the COVID-19 Crisis. ICSF argues that a collective commitment to the sustainability agenda can stimulate the market and increase investor confidence.
Source: ICSF publishes first position paper.
The EU Technical Expert Group on Sustainable Finance (TEG), established to advise the European Commission on implementation of the Action Plan on Financing Sustainable Growth, has issued a statement in which it states that it believes the Sustainable Taxonomy, EU Green Bond Standard, and Paris-Aligned and Climate Transition Benchmarks can guide public and private sector plans for recovery from the coronavirus pandemic, including the European Council’s announced Roadmap to Recovery.
Source: Statement by the EU Technical Expert Group on Sustainable Finance: Sustainable recovery from the COVID-19 pandemic requires the right tools.
The Council of the EU has adopted the Taxonomy Regulation at first reading by written procedure. The Taxonomy Regulation sets out an EU-wide classification system (‘taxonomy’) for ‘environmentally sustainable economic activities’. It is intended to enable the EU to become climate neutral by 2050 and achieve the Paris Agreement's 2030 targets, including a 40% cut in greenhouse gas emissions. It also aims to prevent illegitimate use of the ‘green’ or ‘sustainable’ label (‘green washing’).
Source: Sustainable finance: Council adopts a unified EU classification system.
In the absence of live meetings, the Council of the European Union has asked the Permanent Representatives Committee to decide, in accordance with the first subparagraph of Article 12(1) of the Council's Rules of Procedure and Article 1 of Council Decision 2020/430, that the Council uses the written procedure for the adoption of its position at first reading on the draft Regulation of the European Parliament and the Council on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 as set out in document 5639/20 and the Statement of reasons as set out in document 5639/20 ADD 1.
Source: Draft Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (first reading).
The European Supervisory Authorities (ESAs) have launched a consultation on draft regulatory technical standards (RTS) on environmental, social and governance (ESG) disclosures under Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR). The ESAs also consult on certain disclosures under the recently agreed Taxonomy Regulation. The proposals cover, amongst other issues, ‘do not significantly harm’ principle disclosures, adverse impact disclosures (entity level) and product level ESG disclosures. Feedback is requested by 1 September 2020.
Source: ESAs consult on environmental, social and governance disclosure rules.
Airlines, shipping companies and energy companies operating in the EU may see the European Commission postpone the proposal of policies on sustainable fuels and the integration of the power and gas grids with industries and transport, an internal planning document seen by MLex says. EU legislation on consumer protection aimed at boosting sustainability may also have to wait, the document suggests.
The European Commission has published a communication to the European Parliament, dated 24 April 2020, in which the Commission says it accepts the Council of the EU’s position on the adoption of a Regulation on the establishment of a framework to facilitate sustainable investment and amending Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (the proposed Taxonomy Regulation).
Source: Communication from the Commission to the European Parliament pursuant to Article 294(6) of the Treaty on the Functioning of the European Union concerning the position of the Council on the adoption of a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment 2018/0178 (COD), and amending Regulation 2019/2088 on sustainability-related disclosures in the financial services sector.
The European Commission is seeking feedback on a draft delegated regulation on how benchmark administrators can build in ESG criteria in financial benchmarking and minimum standards for climate benchmarks. Separately, feedback is sought on a draft delegated regulation on minimum standards to help benchmark administrators design the new climate benchmarks: the ‘EU climate transition’ and ‘EU Paris-aligned’ benchmarks. Feedback was requested by 6 May 2020.
Sources: Financial benchmarking—building in environmental, social & governance criteria, Sustainable finance—environmental, social and governance criteria (benchmarks) and Sustainable finance—minimum standards for climate benchmarks.
Green Alliance has published a policy insight report considering the flight path to net zero and the potential of offsetting. In its report, Green Alliance suggests there is no guarantee that increasing offsetting in the future will be effective in relation to tackling climate change. Green Alliance has argued that for the UK to meet the demand for carbon removal, it must develop a new ‘office for carbon removal’ to manage the growth of UK carbon capacity and implement policies, rules and frameworks. Additionally, Green Alliance suggests the government should set separate targets for emissions and removals to mitigate the risk that offsetting will slow down progress to reduce actual emissions. The report also considers that the UK should include international aviation in its climate legislation.
Sources: The flight path to net zero—Making the most of nature based carbon offsetting by airlines and A national ‘office for carbon removal’ is vital to guarantee the credibility of carbon offsetting and avoid ‘junk credits’, says new report.
The International Organization of Securities Commissions (IOSCO) has published a final report entitled ‘Sustainable Finance and the Role of Securities Regulators and IOSCO,’ which was prepared by the Sustainable Finance Network of IOSCO (SFN). The report aims to help market participants address issues concerning sustainability and climate change and highlights three recurring themes: multiple and diverse sustainability frameworks and standards including sustainability-related disclosure, a lack of common definitions of sustainable activities, and greenwashing and other challenges to investor protection.
Sources: IOSCO steps up its efforts to address issues around sustainability and climate change and Sustainable Finance and the Role of Securities Regulators and IOSCO.
The International Capital Market Association’s (ICMA) Asset Management and Investors Council (AMIC) has responded to the European Commission’s consultation on the EU Ecolabel. AMIC has said the idea of an EU quality stamp is supported for ESG retail investment funds, but warns that changes are required to ensure the success of the new label.
Source: ICMA AMIC publishes its response to the EC consultation on the EU Ecolabel for financial products.
The Loan Market Association (LMA) has published a glossary of terms concerning green and sustainable lending. The LMA hopes the glossary will aid transparency in this rapidly evolving area of the market.
Source: LMA new Green and Sustainable Lending Glossary of terms.
The Association for Financial Markets in Europe (AFME) has published new research on the initial impact of the coronavirus on Europe’s capital markets. The report analyses the recent trends during the current abnormal market circumstances. It also summarises AFME’s approach to COVID-19 and the areas AFME has been focusing on to ensure that markets remain well-functioning and liquid.
Source: AFME data finds Europe’s capital markets have performed well despite market stress from COVID-19.
The International Capital Markets Association (ICMA) has published its quarterly report for Q2 2020, which focuses on the coronavirus pandemic’s impact on capital markets and the response to it. The report includes articles on official responses to the market impact of coronavirus, whether the Brexit transition period should be extended, the impact of coronavirus on the Chinese bond market and ICMA’s third corporate bond secondary market study.
Source: ICMA Quarterly Report Second Quarter 2020 now available.
ICMA has published an overview of current post-trade reporting obligations across multiple jurisdictions from Europe, the Americas and Asia-Pacific. The mapping is intended to provide a consolidated view to compare both regulatory rules and best practice guidance on bond post-trade transparency regimes, as well as details on reporting fields and exceptions.
Source: ICMA publishes Bond Market Post-Trade Transparency Directory.
ICMA has published the 2020 legal opinions on 16 April 2020, which support the Global Master Repurchase Agreement (GMRA). The GMRA is the standard agreement for international repo transactions.
Source: ICMA publishes 2020 legal opinions on global master repo agreement.
The Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) have announced that they have agreed to extend by one year the deadline for completing the final two implementation phases of the margin requirements for non-centrally cleared derivatives. This is due to the significant challenges posed by the coronavirus, including the displacement of staff and the need for firms to focus resources on managing risks associated with current market volatility.
Source: Basel Committee and IOSCO announce deferral of final implementation phases of the margin requirements for non-centrally cleared derivatives.
The Financial Conduct Authority (FCA) has issued a press release in which it welcomes the BCBS and the IOSCO joint statement published on 3 April 2020 which announced a one-year deferral of the September 2020 and September 2021 phase-ins of the global initial margin requirements for non-centrally cleared derivatives.
Source: BCBS and IOSCO announce a one-year deferral of the remaining global initial margin requirements in response to coronavirus challenges.
The chair of the European Central Bank (ECB) Supervisory Board, Andrea Enria, has written to EU significant institutions setting out the ECB’s expectations around International Financial Reporting Standard (IFRS) 9 accounting in the context of the coronavirus pandemic.
Source: IFRS 9 in the context of the coronavirus (COVID-19) pandemic.
The Futures Industry Association (FIA) has announced that Skytra, an Airbus subsidiary that is developing a derivatives trading venue to help airlines directly hedge passenger ticket prices, is adjusting its plans due to the impact of the coronavirus pandemic on the air travel industry. Skytra has announced a data partnership with the International Air Transport Association (IATA) and a weekly coronavirus update on pricing trends.
Source: Airline ticket derivatives venture starts weekly COVID-19 update.
Coronavirus (COVID-19)—ISDA CEO comments on volatility in OTC derivatives
The International Swaps and Derivatives Association's Chief Executive Officer, Scott O'Malia, has commented on over-the-counter (OTC) derivatives issues raised as a result of coronavirus related market volatility. Recent volatility has put value at risk models under pressure, which O’Malia believes could impede banks from deploying capital to support the economy.
Source: A Pro-cyclical Problem.
Coronavirus (COVID-19)—ISDA publishes memorandum regarding notices
ISDA has published a memorandum which considers how notices may be given under the 1992 or 2002 ISDA Master Agreement (under both English or NY law) in light of the current coronavirus pandemic.
Source: Memorandum on Notices Under the ISDA Master Agreement in the Contact of Covid-19.
Coronavirus (COVID-19)—Value of automation and digitisation highlighted
In the latest step to minimise risk during the coronavirus pandemic, ISDA has announced the development of the 2020 ISDA Interest Rate Derivatives Definitions. To reflect the automative and digital nature to working that has been adopted recently, particularly during the pandemic, the individual transaction definitions will negate the need for manually printing, compiling and reviewing multiple documents. ISDA believes the definitions, launching later in 2020, will mark an important step forward and will set the foundations for a more robust, automated and digital post-trade infrastructure.
Source: ISDA Impetus for Automation.
ISDA ensures its Standard Initial Margin Model reflects risk during coronavirus (COVID-19)
ISDA is monitoring the financial situation surrounding coronavirus to ensure that its Standard Initial Margin Model (SIMM) will continue to perform adequately. ISDA CEO Scott O'Malia reminds users that the SIMM is designed to be conservative, to ensure stability in periods of volatility.
Source: Coronavirus and the SIMM.
ISDA publishes overview of emergency insolvency legislation during coronavirus (COVID-19)
ISDA has published a high-level overview of short-selling restrictions/bans and business and insolvency law measures implemented in various jurisdictions following the coronavirus pandemic. The document will be updated regularly.
Source: ISDA Legal Opinions and COVID-19.
Coronavirus (COVID-19)—ISDA-IIF letter sets out recommendations in light of USD shortage for EMs
ISDA and the Institute of International Finance (IIF) have written a letter to G20 Finance Ministers and central bank governors offering recommendations to ease the acute shortage of US dollars (USD) for emerging market countries (EMs). The letter applauds the efforts of the Federal Reserve Board (FRB) to provide temporary dollar liquidity to markets through the FX swap lines mechanism, in addition to the corresponding repo facility, and says the measures have had a positive impact during the coronavirus pandemic by helping local banking systems access USD in order to continue to finance USD positions.
Sources: ISDA-IIF Letter to G-20 on Dollar Funding and ISDA IIF dollar liquidity letter to G20.
ISDA Clause Library explained
ISDA has published a factsheet detailing operation and benefits of its Clause Library. The Library provides standard-form drafting options for commonly negotiated provisions and possible variants within ISDA documents. ISDA believes standardisation will enhance legal documentation standards and facilitate automation processes.
Source: What is the ISDA Clause Library?.
ISDA issues market closure guidance in relation to the UK early May bank holiday
ISDA has published guidance for parties to OTC derivative transactions concerning the shift of the UK’s early May bank holiday in 2020 from Monday 4 May to Friday 8 May (to mark the 75th anniversary of VE Day). It illustrates the consequences of the market closure event based on the default provisions described in the ISDA 2006 Definitions.
Source: ISDA guidance: UK early May 2020 bank holiday change.
ISDA notes increase in initial margin for non-cleared derivatives
ISDA has published its 2019 Year-End Margin Survey. Notable from the survey is that the 20 largest market participants (phase-one firms) collected approximately $173.2bn of initial margin (IM) for their non-cleared derivatives transactions at year-end 2019. Of this amount, $105.2bn was collected from counterparties currently in scope of the regulatory IM requirements. Also significant is that a further $68bn of IM was collected from counterparties and/or for transactions that are not in scope of the margin rules (independent amount), including legacy transactions. ISDA also found that $269.1bn of IM was posted by all market participants to major central counterparties for their cleared interest rate derivatives and credit default swap transactions at the end of 2019. The full ISDA survey details the methodology and participants used, and addresses IM and variation margin for non-cleared derivatives, IM for derivatives, and margin rules for non-cleared derivatives.
Source: ISDA Margin Survey Year-End 2019.
ISDA releases preliminary results for its consultation on pre-cessation fallbacks
ISDA has released preliminary results for its consultation on pre-cessation fallbacks for derivatives references to LIBOR. The preliminary results show that ‘a significant majority of respondents are in favor of including both pre-cessation and permanent cessation fallbacks as standard language in the amended 2006 ISDA Definitions for LIBOR and in a single protocol for including the updated definitions in legacy trades’. The results are going to be examined further by ISDA, but ISDA expects ‘to move forward on the basis that pre-cessation fallbacks would apply to all new and legacy derivatives referencing LIBOR that incorporate the amended 2006 ISDA Definitions. The updated definitions for other covered interbank offered rates (IBORs) will continue to include permanent cessation fallbacks only’.
Source: ISDA Announces Preliminary Results of Consultation on Pre-cessation Fallbacks for LIBOR.
The Panel of Recognised International Market Experts (PRIME) in Finance has announced that its panel of experts now exceeds 200. This is a significant milestone in the organisation’s history. Newly appointed experts include a former English Court of Appeal judge, a renowned debt workout specialist, a former general counsel of the European Central Bank, and a business leader with roots in the derivatives business. Commenting on the recent appointees, Chair of the PRIME Finance Foundation, Robert Pickel, said that ‘the experience of our latest appointees builds on our collective knowledge and will ensure that PRIME Finance is ready to deal with the variety and complexity of financial cases that are now arising’. Indeed, Pickel noted that now, more than ever, will the expertise of panel members be needed as the world deals with the economic and financial challenges brought about by the coronavirus outbreak.
Source: Number of P.R.I.M.E. Finance Experts Now Exceeds 200.
The Financial Conduct Authority (FCA) has updated its securitisation webpage to add a new section on securitisation repositories (SR). The new section provides information on the transfer of powers to register and supervise UK SRs from the European Securities and Markets Authority (ESMA) to the FCA at the end of the Brexit transition period, and outlines what prospective UK SRs should be doing to prepare.
Source: Updated FCA webpage: Securitisation.
The International Capital Market Association (ICMA) European Repo and Collateral Council (ERCC) has updated its guide to reporting repo transactions under the EU Securities Financing Transactions Regulation (Regulation 2015/2365) (SFTR). Among other things, the updated guide reflects the recently granted three-month delay to the first phase of the SFTR go-live.
Source: ICMA ERCC releases updated version of its SFTR recommendations.
The European Securities and Markets Authority (ESMA) has issued an official opinion agreeing to the renewal of the emergency restrictions on short selling and similar transactions by the Finanzmarktaufsicht (FMA) of Austria, the Financial Securities and Markets Authority (FSMA) of Belgium, the Autorité des Marchés Financiers (AMF) of France, the Hellenic Capital Market Commission (HCMC) of Greece and the Comisión Nacional del Mercado de Valores (CNMV) of Spain. All five national competent authorities (NCA) imposed restrictions in March 2020 due to the coronavirus pandemic, which were due to expire in April 2020. The NCAs decided to renew the restrictions until 18 May with the possibility of further extension, as approved by ESMA. The restrictions may be lifted before the deadline if the risks of a loss of market confidence is reduced.
Source: ESMA issues positive opinions on short selling bans by Austrian FMA, Belgian FSMA, French AMF, Greek HCMC AND Spanish CNMV.
The Commodity Futures Trading Commission (CFTC) has voted to extend some comment periods yet to be closed as a result of the coronavirus pandemic. The extensions involve rules suggested by the Division of Market Oversight (DMO), for which comment periods currently open were launched in January and February 2020. CFTC Chairman Heath P. Tarbert has stressed that the extensions aim to provide additional flexibility throughout the coronavirus health crisis, pointing out that commenters will now have 90 days at their disposal. Tarbert has also expressed his disagreement with suspending policy work altogether, and has highlighted that doing so would be detrimental to American citizens.
Source: CFTC Extends Certain Comment Periods in Response to COVID-19.
The European Securities and Markets Authority (ESMA) has published a report which contains an overview of the activities of ESMA and of accounting enforcers in the EEA when examining compliance of financial and non-financial information provided by issuers in 2019.
Sources: Enforcement and regulatory activities of European enforcers in 2019 and ESMA publishes 24th extract from its EECS database.
The International Capital Market Association (ICMA) has published a repo trading technology directory, the result of a mapping exercise of electronic repo trading platforms. The directory is intended to help market participants understand what execution venues are available for repo trading; product scope; and differences in trading protocols, clearing and collateral configurations. The directory also provides information on the venues’ regulatory status, market identifier codes and additional services on offer such as regulatory reporting under the Securities Financing Transactions Regulation (Regulation 2015/2365) (SFTR).
Source: ICMA publishes repo trading technology directory.
The International Swaps and Derivatives Association (ISDA) has submitted a joint response alongside the Futures Industry Association (FIA) to ESMA consultation on the subject of the provision of investment services in the EU by non-European investment firms under Regulation (EU) 600/2014, the Markets in Financial Instruments Regulation. In the response, ISDA and FIA outline their key recommendations for ESMA, including some ways in which the scope of information required could be reduced, while still enabling ESMA to perform its responsibilities. They also warn that the volume of information requested could have an impact on ESMA's resources, particularly in relation to the registration requirements.
Source: ISDA responds to ESMA consultation on MiFIR – non-EU investment firms regime.
The coronavirus crisis has had a significant impact on businesses around the world, putting many at real risk of insolvency. The administration regime is one of the insolvency tools available to assist otherwise viable businesses survive this time. Mark Phillips QC, Stephen Robins and William Wilson of South Square have drafted a consent protocol agreement (in consultation with the ILA and the CLLS) to allow the directors of a company in administration to continue running the day to day business of the company within the thresholds set out in the agreement. The consent protocol is now available in LexisPSL.
The Department for Business, Energy and Industrial Strategy (BEIS) has announced new temporary measures for high street shops and other companies under strain from the coronavirus lockdown, protecting them from aggressive rent-seeking landlords. Statutory demands and winding up petitions issued to commercial tenants during this time are to be temporarily voided and changes will be made to the Commercial Rent Arrears Recovery on measures already introduced in the Coronavirus Act 2020. In addition, those businesses struggling will be asked to pay only what they can during the pandemic, and landlords are being asked to work collaboratively with these companies.
Source: New measures to protect UK high street from aggressive rent collection and closure.
The House of Commons Library has released a briefing paper that considers the new insolvency measures announced by the government to help businesses continue to trade during the coronavirus pandemic. Legislation will be introduced to parliament to amend insolvency laws. The proposal is to retrospectively suspend wrongful trading provisions for three months from 1 March 2020 in order to remove the threat of directors incurring personal liability while trading. All other ‘checks and balances’ which help ensure directors fulfil their legal duties will remain in force. Other measures include allowing companies access to essential supplies while attempting to rescue business and companies undergoing a restructuring process being given a time limited moratorium action.
Source: Commons briefing paper - changes to insolvency law.
The European Securities and Markets Authority (ESMA) has added a new Q&A to its Q&As on the ESMA Guidelines on Alternative Performance Measures (APMs) to provide detailed guidance to issuers on the application of the APM Guidelines in the context of the coronavirus pandemic.
Source: ESMA issues new Q&A on alternative performance measures in the context of COVID-19.
The European Central Bank (ECB) said it has adopted ‘unprecedented’ measures to make it easier for eurozone banks to borrow money during the coronavirus crisis by easing the requirements for what they can put down as collateral.
The Basel Committee on Banking Supervision (BCBS) has set out additional measures to alleviate the impact of coronavirus on the global banking system. These measures support the provision of lending by banks to the real economy and provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities.
Source: Basel Committee sets out additional measures to alleviate the impact of COVID-19.
The Prudential Regulation Authority (PRA) has issued a statement on regulatory reporting and Pillar 3 disclosures for UK banks, building societies, designated investment firms and credit unions in response to the coronavirus outbreak. It follows on from the European Banking Authority (EBA)’s statement published on 31 March 2020.
Source: COVID-19 regulatory reporting and disclosure amendments.
The International Securities Lending Association (ISLA) is forming a new digital working group and inviting member firms to join. The group will initially help to form responses to the European Commission’s consultation on its digital finance strategy and the Bank of England (BoE)’s 7 January 2020 discussion paper on RegTech. ISLA says the working group would then focus on the Common Domain Model (CDM) and other fintech topics.
Source: ISLA to form new digital working group.
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