Monthly highlights: December 2019

Monthly highlights: December 2019

In this issue


LIBOR and benchmarks
Trade and commodity finance
Islamic finance
Debt capital markets
Sustainable finance
Regulation of derivatives and structured products
Regulation for banking lawyers



Brexit and other geopolitical risks most likely to affect loan market in 2020

The Loan Market Association (LMA) has published the results of its membership survey on the outlook for the syndicated loan market in 2020. Members consider that the global economy and/or geopolitical risks including Brexit are the factors most likely to influence the market in 2020. They also consider that refinancing will provide the best opportunities and that volumes in Europe, the Middle East and Africa will remain largely unchanged.

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LIBOR and benchmarks

Sterling Risk-Free Reference Rates Group announces three new taskforces

The Working Group on Sterling Risk-Free Reference Rates (RFRs) has published its monthly newsletter providing updates of key news on RFR transition across UK and international markets. The Working Group has announced the mobilisation of three new task forces in the newsletter—the tough legacy task force, the cash market legacy transition task force and the loans flow enablers task force. The Financial Conduct Authority has also published a Q&A statement to manage conduct risk during the London Inter-bank Offered Rate (LIBOR) transition. The newsletter also stated that the Financial Stability Board’s Official Sector Steering Board published a letter sent to the International Swaps and Derivatives Association regarding the pre-cessation trigger.

ESMA updates Benchmarks Regulation Q&As

The European Securities and Markets Authority (ESMA) has updated its Q&As on the Benchmarks Regulation (EU) 2016/1011 (BMR). Following the publication in the Official Journal of the European Union of Regulation (EU) 2019/2089 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks, the modified Q&A provide clarification on the transitional provisions applicable to third country benchmarks.

AFME report sets out conduct and compliance guidance on LIBOR to RFR transition

The Association for Financial Markets in Europe (AFME), together with law firm Simmons & Simmons, have published the first in a series of papers, ‘LIBOR transition: Managing the conduct and compliance risks’, which provides practical guidance to senior managers and legal and compliance teams on managing conduct risks posed to firms engaged in the transition away from the LIBOR to RFRs.

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Banks’ have no tortious or vicarious liability for packaged loans in film finance scheme (Barness v Ingenious Media Ltd)

Barness v Ingenious Media Ltd [2019] EWHC 3299 (Ch)

Claims against Coutts and NatWest for breach of contract, negligence and vicarious liability were struck out or dismissed as having no prospects of success. The banks had provided loans to investors (professional footballers and others) in film finance schemes promoted by an independent financial advisor (IFA). The loans were packaged with the scheme so that investors were presented with a single investment proposition consisting of the loan and the scheme. The banks agreed to pay the IFA commission for introducing the borrowers. It was alleged that in addition to contractual liability, the banks had assumed responsibility in tort and/or were vicariously liable for the IFA’s breaches either on the principle in Cox v Ministry of Justice or on principles of agency.

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Bona vacantia and beyond—Court of Appeal considers vesting orders (Leon v Attorney-General)

Leon v Her Majesty's Attorney-General [2019] EWCA Civ 2047

In News Analysis: Bona vacantia and beyond—Court of Appeal considers vesting orders (Leon v Attorney-General and others), Gerard van Tonder, barrister at New Square Chambers, examines a Court of Appeal decision that a leasehold interest in a property which had been assigned to the appellant's company and which, after the company was dissolved, was disclaimed by the Crown should not be ordered to vest in the appellant. The court found that although the appellant was a co-mortgagor of the leasehold interest, he was not entitled to it under section 1017(2)(a) of the Companies Act 2006.

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Stay of proceedings on grounds of concurrent proceedings—no set-off clause

Lotus Cars Ltd v Marcassus Sport S.A.E.L. [2019] EWHC 3128 (Comm)

The case concerns an application by Marcassus for a stay of proceedings in England on the grounds that proceedings had already been commenced by Marcassus against Lotus in Toulouse, France. The substantive argument concerned the applicability of Articles 29 and 30 of Regulation 1215/2012 (EU), Brussels I (recast), namely whether the case in France concerned the same cause of action or a related action as that in England. In rejecting the application of Marcassus, Phillips J also considered the construction and significance of the no set-off clause in the contracts between the parties and the general principles applicable to such clauses.

‘No set-off’ clauses in Venson Automotive Solutions Ltd v Morrison's Facilities Services Ltd

[2019] EWHC 3089 (Comm) (9 October 2019)

In the case of Venson Automotive Solutions Ltd v Morrison's Facilities Services Ltd, the High Court considered the interpretation and purpose of ‘no set-off’ clauses and how they impact on parties’ rights and remedies.

When a promise to pay another’s debt is not a guarantee requiring writing

Abbhi v Slade (trading as Richard Slade and Co) [2019] EWCA Civ 2175

In News Analysis: When a promise to pay another’s debt is not a guarantee requiring writing (Abbhi v Slade), Brian Doctor QC, barrister at Fountain Court Chambers, examines a Court of Appeal decision that an oral agreement under which the appellant had agreed to pay the legal fees of his father-in-law to the respondent solicitor, where it had been known that the father-in-law could not pay them, had been a funding agreement, rather than a guarantee which, being oral, would have been unenforceable under section 4 of the Statute of Frauds 1677.

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Trade and commodity finance

WTO, ICC and TFG publish white paper on blockchain and DLT in trade

The World Trade Organisation, International Chamber of Commerce and Trade Finance Global have published a jointly produced white paper on blockchain and distributed ledger technology in trade.

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Islamic finance

IFSB adopts new standards on financial inclusion and lender-of-last resort facilities

The Council of the Islamic Financial Services Board (IFSB) has approved the adoption of two new standards at its 35th meeting of the IFSB Council in Dhaka, Bangladesh. The two new standards are a technical note on financial inclusion and Islamic finance (TN-3), and a guidance note on Sharī`ah-compliant lender-of-last-resort facilities (GN-7).

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Debt capital markets

Amendment to Delegated Regulation on the ESEF to update the core taxonomy to be used for ESEF reporting published in OJ

Commission Delegated Regulation (EU) 2019/2100 of 30 September 2019 amending Delegated Regulation (EU) 2019/815 with regard to updates of the taxonomy to be used for the European Single Electronic Format (ESEF) has been published in the Official Journal (OJ).

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ISDA releases November 2019 review

International Swaps and Derivatives Association (ISDA) has released ISDA in Review—November 2019, which includes a compilation of documents, research papers, press releases and letters. The November 2019 review includes the results of consultation on final parameters for benchmark fallback adjustments and the key trends in the size and composition of OTC derivatives markets.

US CFTC announces further comment period on capital requirements for swap dealers

The Futures Industry Association (FIA) has announced that the US Commodity Futures Trading Commission (CFTC) has reopened the comment period on the 2016 proposal regarding capital requirements for swap dealers. The CFTC has also finalised rules for additional transparency to the overall rulemaking process. The renewed comment period will be open for 75 days after its publication in the federal register.

Independent reviewer seeks submissions on FSA/FCA’s handling of interest rate hedging products

John Swift QC, the independent reviewer of the Financial Services Authority (FSA)/FCA’s supervisory intervention on interest rate hedging products (IRHPs), is inviting submissions from interested parties. Swift said anyone affected by or involved with the FSA/FCA’s IRHP redress scheme should send representations, or views in relation to the issues raised in the terms of reference, by 31 January 2020.

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Sustainable finance

Regulation on sustainability-related disclosures in the financial services sector (Regulation (EU) 2019/2088) published in the Official Journal

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector, has been published in the Official Journal. The Regulation forms an integral part of the EU’s efforts, under its CMU project, to connect finance with needs of the economy and the EU’s sustainable development agenda. This Regulation should assist in facilitating investments in sustainable projects and assets across the EU.

Consultation launched to further nature-related financial disclosure

The Climate Disclosure Standards Board (CDSB) has launched a framework consultation into the disclosure regime for nature-related financial information in the mainstream report. The aim of the consultation is to globally drive the uptake of such disclosure, as well as explore the role of the CDSB framework. The consultation welcomes responses until 28 February 2020.

Sustainable Finance Regulation on low-carbon benchmarks published in the Official Journal

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks, has been published in the Official Journal.

EBA action plan on sustainable finance urges firms to act now

The European Banking Authority (EBA) has published an action plan on sustainable finance, outlining the regulator’s plans on deliverables and activities related to environmental, social, and governance (ESG) factors and ESG risks. It explains the phased approach and associated timelines for the reports, advices, guidelines and technical standards mandated to the EBA.

The European Commission publishes initial roadmap for the European Green Deal

The European Commission has published ‘The European Green Deal’, described as ‘a roadmap for making the EU’s economy sustainable by turning climate and environmental challenges into opportunities across all policy areas and making the transition just and inclusive for all’. Initiatives include labels for green retail investment products and an EU green bond standard.

Switzerland and the EU to link emissions trading systems

The Finnish Presidency of the Council of the European Union, the European Commission and Switzerland met at the United Nations (UN) Climate Change Conference, COP25, in Madrid to announce that Switzerland and the EU are joining forces in carbon pricing. On 1 January 2020, Switzerland became the first country to successfully link its greenhouse gas emissions trading system with the EU emissions trading system (EU ETS). The process has taken almost ten years.

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Regulation of derivatives and structured products

ESMA updates its Prospectus Regulation Q&As

The European Securities and Markets Association (ESMA) has updated its Q&As on the Prospectus Regulation. Two new Q&As provide clarification on the inclusion of pro-forma summaries in base prospectuses, and the application of prospectus disclosure annexes where securities do not fall neatly within a specific disclosure regime.

FMLC responds to ESMA’s MAR consultation

The Financial Markets Law Committee (FMLC) has published its response to the ESMA’s 3 October 2019 consultation on the Market Abuse Regulation (EU) 596/2014 (MAR). The response focuses on two issues: amendment of the definition of inside information; and whether spot FX contracts should be brought within the scope of MAR.

ESMA publishes final report on draft RTS amending the Delegated Regulation

ESMA has published its final report on the draft regulatory technical standards (RTS) amending Regulation (EU) 2019/979 (the Delegated Regulation), containing regulatory technical standards under Regulation (EU) 2017/1129 (the Prospectus Regulation). The report contains the legal basis for the draft RTS, as well as the specific amendments ESMA proposes to the Delegated Regulation. ESMA will submit its final report to the European Commission.

ESMA final report amends the CRR standard on main indices and recognised exchanges

ESMA has published the final report on draft amendments to Implementing Regulation (EU 2016/1646), specifying the main indices and recognised exchanges under the Capital Requirements Regulation (CRR) relevant to credit institutions and investment firms subject to prudential requirements and trading venues. The amendments ensure the most relevant criteria are applied to specify the main indices, and that the list of recognised exchanges is updated to reflect legislative changes and changes in market structures. The report includes two versions of the amended ITS to account for the UK leaving with a Brexit deal and the possibility of a No deal exit.

FIA ‘fully supportive’ of FRANDT’s policy objectives

The Futures Industry Association (FIA) has issued its response to ESMA’s public consultation paper on draft technical advice on commercial terms for providing clear services under EMIR (FRANDT). FIA and its members are ‘fully supportive’ of FRANDT’s policy objectives—to address the difficulties relating to clearing access some counterparties currently face. FIA’s response also highlights the areas of ESMA’s proposal where a different approach and further consideration are needed, in order to ensure the requirements under FRANDT do not have a damaging effect on clearing access and effective risk management by clearing firms. ESMA is expected to publish a final report and submit technical advice to the European Commission by the end of March 2020.

ESMA publishes updated BMR Q&As

ESMA has published an updated version of its Q&As on the Benchmarks Regulation (EU) 2016/1011 (BMR). The updated Q&As provide clarification on the annual review of the International Organization of Securities Commissions principles for Oil Pricing Reporting Agencies and on the legal representative under Article 32(3) of the BMR.

ESMA updates MiFIR data reporting Q&As

ESMA has updated its Q&A document on data reporting under the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR). The updated document includes a new question on the reporting of reference rates not included in Commission Delegated Regulation (EU) 2017/590 (RTS 22) and Commission Delegated Regulation (EU) 2017/585 (RTS 23).

EMIR 2.2 published in OJ

Regulation (EU) 2019/2099 of 23 October 2019 (EMIR 2.2) amending EMIR as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs has been published in the OJ of the EU.

ESMA publishes responses to MiFIR-EMIR Refit alignment consultation

ESMA has published the responses it received to its consultation on aligning the Markets in Financial Instruments Regulation (MiFIR) requirements to the changes introduced by the revision of the European Market Infrastructure Regulation (EMIR Refit).

Commission publishes EMIR Delegated Regulation on the specification of criteria for establishing the arrangements to adequately mitigate counterparty credit risk associated with covered bonds and securitisations

The European Commission has published a Commission Delegated Regulation (C (2019) 8886 final) supplementing the European Markets Infrastructure Regulation (Regulation (EU) 648/2012) (EMIR) with regard to regulatory technical standards on the specification of criteria for establishing the arrangements to adequately mitigate counterparty credit risk associated with covered bonds and securitisations, and amending Delegated Regulation (EU) 2015/2205 and Regulation (EU) 2016/1178.

Council adopts position on proposed new rules for recovery and resolution of CCPs

The Council of the EU’s position on a proposed regulation on a framework for the recovery and resolution of central counterparties (CCPs) has been approved by Member States. The proposed rules aim to provide national authorities with adequate tools to manage crises and to handle situations involving failures of CCPs, building on the same principles as the recovery and resolution framework that applies to banks. The Council can now begin trilogue negotiations on the proposed regulation with the European Parliament.

Regulatory technical standards to aid consistency in global framework implementation

The European Supervisory Authorities (ESAs) have published joint draft RTS, amending the delegated regulation on the risk mitigation techniques for non-cleared over-the-counter (OTC) derivatives. ESAs have also published a joint statement on the introduction of fallbacks in OTC derivative contracts and exchanging collateral requirements. The RTS and the statement have been developed with the aim of facilitating further international consistency in the implementation of the global framework agreed by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions.

FCA updates on its consultation on STS notifications under onshored Securitisation Regulation

The Financial Conduct Authority (FCA) has updated the webpage on its consultation CP19/26 concerning draft technical standards on the content and format of simple, transparent and standardised (STS) notifications under the onshored Securitisation Regulation (EU) 2017/2402. The updated page confirms that the consultation, which is part of the FCA’s preparations for a No deal Brexit, has closed and that the FCA will consider the feedback received and publish its final or near-final technical standards in a policy statement on or very near to exit day.

EU financial-data tape could cover bonds, swaps, pre-trade quotes, official says

An EU-sponsored ‘consolidated tape’ service could encompass bonds, swaps and pre-trade quotes as well as basic equities data, a Brussels official has said. The hope is to defuse a longstanding row over real-time data prices. Brokers and investors complain that trading venues are abusing a quasi-monopoly position to send prices rocketing. Yet last week, the EU securities-market watchdog stopped short of a revolution in favour of standardising the terms that stock markets use to price data packages.

Regulation amending MiFID II, MAR and the Prospectus Regulation on the promotion of the use of SME growth markets published in OJ

Regulation (EU) 2019/2115 of 27 November 2019 amending MiFID II (which created a new type of trading venue, the small and medium-sized enterprise (SME) growth market, a subcategory of multilateral trading facilities (MTFs)), the Market Abuse Regulation (EU) 596/2014 (MAR), and Regulation (EU) 2017/1129 (Prospectus Regulation) as regards the promotion of the use of SME growth markets has been published in the OJ of the EU. The amendments form part of the Capital Markets Union initiative which seeks to reduce dependence on bank lending, diversify market-based sources of financing for all SMEs and promote the issuance of bonds and shares by SMEs on public markets.

Compliance calendar for OTC derivatives updated

The International Swaps and Derivatives Association (ISDA) has updated its global calendar for compliance deadlines and regulatory dates for the over-the-counter (OTC) derivatives markets. The calendar was updated on 2 December 2019 and contain the key dates for the OTC derivatives space up until 1 September 2023.

ISDA/GFMA response to LEI ROC consultation—LEI eligibility for general government entities

ISDA together with the Global Financial Markets Association (GFMA), have issued a response to the Legal Entity Identifier (LEI) Regulatory Oversight Committee’s (ROC) consultative document: LEI eligibility for general government entities. Broadly speaking, ISDA/GFMA members support the LEI ROC’s initiatives towards improving the quality of information for general government entities within the global LEI system (GLEIS).

ISDA supports US regulators’ proposals on revised margin requirements

ISDA has responded to the notice of proposed rulemaking and request for comments regarding margin and capital requirements for covered swap entities issued by the US prudential regulators. The proposed rulemaking extends the phase-in period for initial margin, preserves the legacy status for swaps amended due to the interbank offered rates (IBOR) transition and certain post-trade events, and removes the obligation for affiliates to exchange initial margin. ISDA ‘strongly supports the proposal and encourages the agencies to finalise it expeditiously’.

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Regulation for banking lawyers

Council of the EU and Commission call for further regulatory work on stablecoins

The Council of the European Union and the European Commission have adopted a joint statement on stablecoins, setting out the potential benefits and risks, and noting that the challenges raised by ‘global stablecoins’ require a co-ordinated global response. The Council and the Commission state that no global stablecoin arrangement should begin operation in the EU until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.

Comment—Banks might shun cryptoassets altogether under Basel capital loading plans

Banks face the prospect of increased prudential requirements, under an international standard setter’s proposal for how they should treat virtual currencies from a capital perspective. The higher capital costs might provide a disincentive for banks even to be indirectly associated with cryptoassets.

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About the author:

Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.