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Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from August 2019.
The Financial Conduct Authority (FCA) has announced that it intends
to extend the proposed duration of the directions issued under its temporary transitional power to 31 December 2020. This is to reflect the extension of the period allowed for the negotiation of the UK's withdrawal from the EU under Article 50 of
Treaty on European Union (TEU). Other than allowing additional time for the exercise of its power, the FCA says its approach remains unchanged.
The FCA has published consultation paper CP19/26, setting out draft technical standards on the content and format of simple, transparent and standardised (STS) notifications under the onshored Securitisation Regulation. The consultation is part of the FCA’s preparation
in case the UK leaves the EU on 31 October 2019 without an implementation period and the relevant EU technical standards have not been brought into UK law as part of the EU Withdrawal Act. Feedback is sought by 27 August 2019.
The Bank of England (BoE) and the Prudential Regulation Authority (PRA) have published consultation paper 18/19, UK withdrawal from the EU: Changes following extension of Article 50 (CP18/19). The consultation covers some minor amendments needed to the BoE’s and PRA’s EU Exit Instruments because of the extension of the Article
50 period and change of exit day to 31 October 2019, and additional provisions in EU law that will now meet the definition of retained EU law and require amending. The consultation closes on 18 September 2019.
This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972 and the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend UK primary and subordinate legislation
and retained direct EU legislation in relation to over–the–counter derivatives, central counterparties (CCPs) and trade repositories in order to ensure that the related legislation continue to operate effectively at the point at which
the UK leaves the EU. It comes into force partly on the day after the day on which these Regulations are made and fully on exit day.
The European Central Bank (ECB) has published a newsletter article entitled ‘Brexit: stepping up preparations’, which looks at banks’ preparations so far for the ‘very real possibility’ of a no-deal Brexit on
1 November 2019. Whilst the ECB says the risks posed by a No deal Brexit to overall euro area financial stability would be manageable, it also emphasises the need for banks to continue preparing for all possible contingencies.
The Cabinet Office has reissued its guidance on public procurement to help stakeholders prepare for the UK leaving the EU without a deal in place. Further new and updated guidance may be issued depending on the precise terms upon
which the UK leaves the EU, so stakeholders are advised to monitor these pages for updates.
In News Analysis: Recognition and enforcement of UK judgments in Germany post No deal Brexit, Dr Kathrin Nordmeier, counsel at Noerr LLP in Frankfurt, considers the question of enforceability of UK judgments in Germany following the UK’s departure
from the EU, and predicts there will be some uncertainty regarding judgments rendered in the UK before Brexit but for which enforcement proceedings have not yet been started or have not yet been completed when Brexit occurs.
In News Analysis: Recognition and enforcement of UK judgments in Italy post no-deal Brexit, Massimiliano Danusso, a partner at BonelliErede, discusses the management of the recognition and enforcement of UK judgments in Italy in the case of a No deal
Two months before the end of the extended Article 50 withdrawal period, the government is aiming to secure a last minute Brexit deal capable of reaching a majority in Parliament, but with Exit day fixed in law on 31 October 2019, and the government set
on sticking to this deadline, preparations for a No deal Brexit are critical. Designed to ready the UK statute book for Brexit with or without a deal, the European Union (Withdrawal) Act 2018 is an essential reference for lawyers preparing for Exit
day. Brexit Bulletin—getting to grips with retained EU law highlights one of the key features of this legislation—retained EU law, with links to new materials, background reading and tips for tracking Brexit related legislation and developments.
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Robert Pickle, Chair of P.R.I.M.E. Finance, explains the concerns around hedge accounting in the context of the transition away from London inter-bank offered rates (LIBOR) and discusses how these concerns are being addressed.
Guideline (EU) 2019/1265 of the European Central Bank (ECB) of 10 July 2019 on the euro short-term rate (€STR) (ECB/2019/19) has been published in the Official Journal of the EU. The Guideline governs the euro short-term rate and establishes the
ECB's responsibility for its administration and the oversight of the euro short-term rate determination process. The Guideline also establishes the tasks and responsibilities of the ECB and the national central banks in the Euro area (NCBs) with respect
to their contribution to the euro short-term rate determination process and other business procedures.
The ECB has published a report by the private sector working group on euro risk-free
rates, which sets out recommendations on the transition from the euro overnight index average (EONIA) to €STR for cash and derivatives products. The report urges market participants to prepare for the change in EONIA’s publication time
that will follow the change in EONIA’s methodology as of 2 October 2019 and the discontinuation of EONIA on 3 January 2022.
The International Organization of Securities Commissions (IOSCO) has published a statement on communication and outreach to inform relevant stakeholders regarding
benchmarks transition, which seeks to raise awareness of the impact of LIBOR’s likely cessation and the need for relevant stakeholders to transition from the widely used USD LIBOR and other inter-bank offered rates (IBORs) to risk free rates
(RFRs), particularly to the new US secured overnight financing rate (SOFR).
The Loan Market Association (LMA) has released a note on the subject of the ‘Revised Replacement of Screen Rate Clause and
considerations in respect of credit adjustment spreads’. The note provides guidance for market participants in relation to considerations to be taken into account in respect of the application of credit adjustment spreads in the context of the
move from LIBOR to risk-free rates. Please note that the guidance note is only available to those who register and login on the LMA website.
The Bank of England (BoE) has published the Working Group on Sterling RFRs statement
and aggregated summary of responses to the March 2019 discussion paper on SONIA conventions and referencing SONIA in new contracts. The discussion paper captured the most significant conventions identified at the time by the working group. Responses
will be discussed in the working group’s forthcoming meetings. The BoE has also published a working paper on loans processing and an updated infrastructure and priority list.
The International Swaps and Derivatives Association (ISDA) has published a summary of the preliminary results of its
supplemental consultation on supplemental benchmark fallbacks. The adjustments would apply to fallback rates in the event that certain IBORs are permanently discontinued. The consultation set out options for spread and term adjustments if fallbacks
are triggered for derivatives referencing US dollar LIBOR, Hong Kong’s HIBOR and Canada’s CDOR.
ISDA has appointed Bloomberg Index Services Limited
to calculate and publish adjustments related to fall-backs that ISDA intends to implement for certain interest rate benchmarks in its 2006 ISDA definitions. The adjustments reflect the fact that interbank offered rates are available in multiple tenors,
whereas the RFRs identified as fall-backs are overnight rates. The adjustments are expected to be published in early 2020, after the methodologies are finalised and prior to the new fall-backs are expected to take effect.
ISDA has published the preliminary results
of its 16 May 2019 consultation on pre-cessation issues for LIBOR and certain other IBORs. ISDA sought comment from market participants on how derivatives contracts should address a regulatory announcement that LIBOR or other IBORs categorised as
critical benchmarks under the Benchmarks Regulation (EU) 2016/1011 are no longer representative of an underlying market.
ISDA has written to the European Commission and the European Securities and Markets
Authority (ESMA), in support of an urgent request by the chair of the EU RFRs Working Group for a statement clarifying that changes made to existing transactions for benchmark reform purposes would not result in margin or clearing obligations being
imposed under the European Market Infrastructure Regulation (EU) 648/2012 (EMIR).
The International Accounting Standards Board (IASB) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—IBOR reform—to its work plan.
The Loan Market Association (LMA) has released a note on the subject of the ‘Revised
Replacement of Screen Rate Clause and considerations in respect of credit adjustment spreads’. The note provides guidance for market participants in relation to considerations to be taken into account in respect of the application of credit
adjustment spreads in the context of the move from LIBOR to near risk-free rates. Please note that the guidance note is only available to those who register and login on the LMA website.
Martin v McLaren Construction Ltd
 EWHC 2059 (Ch)
Where a guarantee is payable on demand, the creditor must ensure that a valid demand has been served on the guarantor before serving a statutory demand under section 268(1)(a) of the Insolvency Act 1986 (IA 1986), (debt for liquidated sum payable immediately)
because if any of the pre-conditions for the presentation of a bankruptcy petition in IA 1986, s 267(2) are not satisfied when a statutory demand is served, that demand is likely to be set aside pursuant to the Insolvency (England and Wales) Rules
2016 (IR 2016), SI 2016/1024, r 10.5(5)(d).
 EWHC 2012 (Comm)
The claimant company's claim under a guarantee concerned with the chartering of a vessel to the defendant company succeeded. The Commercial Court held that, among other things, the first demand for payment made by the claimant had been a valid demand
within the meaning of clause 3 of the guarantee. The defendant had been obliged to pay the sum demanded, and there would be judgment accordingly.
The Islamic Financial Services Board (IFSB) has published the Islamic financial services industry (IFSI) stability report
2019. The report examines the implications for the global IFSI of recent economic developments and changes in the global regulatory and supervisory frameworks, tracks developments, and examines the resilience of the three sectors of the IFSI: Islamic
banking, the Islamic capital market and takāful. The report also considers regulatory and supervisory developments in the IFSI arising from blockchain technology.
The International Capital Market Association (ICMA) has published a briefing on integrated
capital markets and capital markets union (CMU). ICMA says it continues to see significant value in the further development of the CMU concept, and that the idea of integration behind it is integral to much of ICMA’s own work, which ‘strives
to avoid unnecessary market fragmentation and disruption given that such aspects run counter to the development of deep, liquid, efficient markets'.
Regulation (EU) 2019/1156 of the European Parliament
and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings and Directive 2011/61/EU (the Alternative Investment Fund Managers Directive) with regard to cross-border distribution of collective
investment undertakings, have come into force. The new rules are designed to make cross-border distribution
simpler, quicker, cheaper, and increase choice for investors while safeguarding a high level of protection.
The Futures Industry Association (FIA) has revealed its support for the
joint Commodity Futures Trading Commission (CFTC) and Securities Exchange Commission (SEC) notice of proposed rulemaking on ‘Customer Margin Rules Relating to Security Futures’. The proposal, if enforced, would update jointly issued rules
finalised in 2002 regarding the minimum required margin to be collected by security futures intermediaries. The FIA supports the proposal as an ‘effort to update, harmonize and simplify decades-old rules with respect to the minimum required
margin to be collected by security futures intermediaries’.
The International Swaps and Derivatives Association (ISDA) has released on its website its Template Collateral
Schedules. The schedules ‘provide counterparties with pre-selected lists of eligible collateral types and minimum regulatory haircuts…which can be used as a starting point for negotiation between parties in scope for regulatory initial
highlighted three research papers on derivatives and risk management. The papers cover the connection between
liquidity in the credit default swaps (CDS) and corporate bonds markets, how the availability of information affects overall market liquidity in decentralised asset markets with a tiered trading structure, and the impact of central counterparty (CCP)
clearing on sovereign CDS spreads.
ISDA has announced its proposed changes to Taxonomy
2.0 for the interest rate and credit classifications. The proposed changes would apply to interest rate, interest rate full and credit full. ISDA welcomes comments on the proposed changes by 28 August 2019.
ISDA has published compilation and comparison summary charts showing derivatives products which are
subject to regulatory initial margin (IM) and variation margin (VM) requirements in jurisdictions which have final requirements in place for regulatory margin.
The Network for Greening the Financial System (NGFS) has published a technical supplement ‘Macroeconomics and financial stability: Implications of climate change to the April 2019 NGFS Comprehensive report. The supplement provides an overview of existing approaches for
quantitatively assessing climate-related risks and identifies key areas for further research. It also sets out a menu of options for central banks and supervisors to assess the risks.
On 2 July 2019, the government published its policy paper on the Green Finance Strategy—a strategy that ‘recognises the role of the financial sector in delivering global and domestic climate and environmental objectives’. Imogen Garner,
partner in the financial services team, Glenn Hall, partner and head of the government relations and public policy team, and Rosa Mottershead, counsel in the energy, infrastructure and natural resources team, all at Norton Rose Fulbright, discuss,
among other things, the opportunities created by the strategy, the implications for the financial services/banking and finance sectors, and mandatory requirements that businesses must consider.
The International Swaps and Derivatives Association (ISDA) and the Association for Financial Markets in Europe (AFME) have published feedback on the interim report on Climate Benchmarks and Benchmarks’ ESG disclosures by the EU Technical Expert Group (TEG) on Sustainable Finance.
The World Federation of Exchanges (WFE) has published a white paper
on sustainability and commodity derivatives, which explores sustainability in the context of commodity derivatives markets and is intended to stimulate discussion among WFE members and the wider commodity derivatives industry about how they might
respond to the potential impact of sustainability issues on commodity markets.
The International Capital Markets Association (ICMA) European Repo and Collateral Council (ERCC) has responded to a consultation by the European Securities and Markets Authority (ESMA) on the subject of draft guidelines for Securities Financing Transactions Regulation (SFTR) reporting under articles 4 and
12. Feedback received by the ERCC’s SFTR Task Force—which is composed of over 600 individuals from over 100 member firms—has influenced the response, which was submitted alongside two other documents prepared by the taskforce. Specifically,
a list of SFTR sample reports and an overview table on the reporting of repo lifecycle events.
ESMA has published the responses it received
to the consultation. ESMA expects to publish a final report on the guidelines on reporting under the Securities Financing Transactions Regulation (Regulation (EU) 2015/2365) (SFTR) in Q4 2019.
ESMA has published the responses it received to its consultations on
tiering, comparable compliance and fees under amendments to the European Market Infrastructure Regulation (EMIR 2.2), aimed at UK-based central counterparties (CCPs) after Brexit.
The European Banking Authority (EBA) has launched a public consultation on draft guidelines on the methodology to determine the weighted average maturity of contractual payments due under the tranche of a securitisation transaction, in accordance
with the Capital Requirements Regulation (EU) 575/2013. The consultation closes on 31 October 2019.
 All ER (D) 39 (Aug)
The steps taken by the first defendant, Greencoat Investments (GIL), together with the other defendants, to take control of the securitisation structure issued by the claimant Business Mortgage Finance 6 (BMF6) were invalid and of no effect. The Chancery
Division, also granted an injunction as there remained a strong probability that, unless restrained by an order of the court, GIL would continue to interfere with the securitisation structure irrespective of whether it had the requisite standing to
In News Analysis: Steps taken to gain control of securitisation structure ruled void (Business Mortgage Finance 6 plc v Greencoat Investments Ltd and others), Alex Cunliffe, barrister at Lamb Chambers, examines the High Court’s decision in
Business Mortgage Finance 6 v Greencoat Investments
 EWHC 2128 (Ch) that all of the steps taken by the defendants to gain control of a true-sale securitisation structure under which the claimant had issued £161,250,000 of sterling-denominated notes and €495.4m of euro-denominated notes
were void and of no effect.
Central counterparties (CCP)12 has published a position paper on effective third-party risk management
processes for CCPs.
The Financial Markets Law Committee (FMLC) has published a letter it sent to HM Treasury regarding the Treasury’s review of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013, SI 2013/504 which implemented
the European Market Infrastructure Regulation (EU) 648/2012 (EMIR) in the UK. The review may result in proposed changes to the Part VII of the Companies Act 1989.
In the long-running proceedings Burnden Holdings (UK) Limited (in liquidation) v Fielding, the High Court has dismissed all claims. The case had been brought by Burnden Holdings (UK) (BHUK) and its liquidator against two former directors, Mr and
Mrs Fielding, who were accused of dishonestly breaching their fiduciary duty as directors. James Potts QC and Matthew Parfitt of Erskine Chambers acted for the defendants in the case and comment the significance of the case.
 EWHC 1917 (Ch)
This case is of interest due to the court’s approach to the question of whether Regulation (EU) 1215/2012, Brussels I (recast), would inhibit its exercise of jurisdiction. Norris J went against Snowden J’s obiter comments in Re Global Garden and held that the exception under Article 25 of Regulation (EU) 1215/2012, Brussels I (recast) could be applied to an asymmetric jurisdiction clause.
 EWCA Civ 1361
The Court of Appeal has clarified the correct test to be applied in deciding whether the written terms of a contract may be rectified because of a common mistake, and in particular whether the relevant test for the intention of the parties should be purely
‘objective’, or whether it should be based on the parties' subjective intentions. The dispute arose out of the execution of two deeds by which FSHC Group Holdings Ltd (FSHC) was to provide security to a security agent. However, the deeds
also imposed onerous and additional obligations on FSHC. FSHC sought to rectify the deeds on the basis of common mistake. The Court of Appeal re-affirmed that rectification for common mistake should be based on the parties' actual intentions at the
time they entered into the relevant contract, ie the subjective test.
The European Banking Authority (EBA) has published its advice contained in four policy advice reports on the implementation of Basel III in the EU, which includes a quantitative analysis of the estimated impact based on data from 189 banks, and a set
of policy recommendations. This work responds to a Commission's call for advice. The EBA supports the full implementation of the final Basel III standards, which will contribute to the credibility of the EU banking sector and ensure a well-functioning
global banking market.
The European Central Bank (ECB) has published an article entitled
‘Understanding the crypto-asset phenomenon, its risks and measurement issues’, which discusses the crypto-asset phenomenon with a view to understanding its potential risks and enhancing its monitoring.
The ECB has revised its supervisory expectations
for prudential provisioning of new non-performing loans (NPLs) to account for new Pillar 1 requirements in
Regulation (EU) 2019/630 of the European Parliament and of the Council amending Regulation (EU) 575/2013, the Capital
Requirements Regulation, as regards minimum loss coverage for non-performing exposures (NPEs), adopted on 26 April 2019. The European Parliament has welcomed the certainty provided by the ECB’s Single Supervisory Mechanism’s (SSM) communication.
The Financial Markets Law Committee (FMLC) has written to HM Treasury regarding its consultation on the transposition of the Fifth Anti-Money Laundering Directive (5MLD). The FMLC highlights uncertainty in respect of 5MLD’s definition of virtual
currencies, noting the definition in 5MLD seems to exclude the possibility of cryptoassets which qualify as money being caught within the regulatory perimeter, and therefore excludes some of the best-known cryptoassets. At the same time, the FMLC
has published a report entitled ‘Initial coin offerings: issues of legal uncertainty’.
An asset preservation order (APO) over Bitcoin worth more than £1m stolen by fraudsters has been obtained. In making the APO, the court had to consider the most important unresolved legal issue about Bitcoin: is Bitcoin legal property (as opposed
to mere data or information) and, if so, what kind of property is it? This issue is considered in News Analysis: A Bitcoin first? Stewarts obtains asset preservation order over cryptocurrency (Robertson v Persons Unknown) by Marc Jones, of Stewarts
Law, who represented the cryptocurrency trader, Mr Liam Robertson.
The World Federation of Exchanges (WFE) has published its letter to the European Commission and the
European Securities and Markets Authority (ESMA), setting out principles that could avoid international regulatory dissonance in the cross-border supervision of central counterparties (CCPs), as the EU sets about adopting rules to implement EMIR 2.2.
Philip Ridgway, barrister at Temple Tax Chambers, examines the provisions of the draft Finance Bill 2019–20 which will enable HMRC to issue joint liability notices to make directors and other persons involved in tax avoidance, evasion or phoenixism
jointly and severally liable for the tax liabilities of a company. Such notices might also make members or shadow members jointly liable for the tax liabilities of a limited liability partnership (LLP), where the company or LLP is subject to, or there
is a serious possibility of it being subject to, an insolvency procedure, including liquidation or administration.
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