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Welcome to this month’s highlights from the Lexis®PSL
Banking & Finance team which cover the key news updates from December 2020.
On 24 December 2020, the UK Government and the European
Commission announced a deal in principle on the legal terms of the future UK-EU
relationship. A copy of the draft Trade and Cooperation Agreement, agreed at
negotiator level (to be ratified) has been published, along with a number of
associated declarations and agreements including a separate Nuclear Cooperation
Agreement and an Agreement on Security Procedures for Exchanging and Protecting
The LMA published revised Secondary Terms and Conditions and
Secondary Confidentiality Letters in preparation for the end of the Brexit
transition period on 31 December 2020. The revised documentations will apply to
all trades entered into on or after 1 January 2021. The revised Terms and
Conditions also incorporate a bail-in clause, based on the LMA recommended form
of bail-in clause, however, a bail-in clause has not yet been incorporated into
the Multilateral Netting Agreement nor any of the Termination Agreements.
The Department for International Trade (DIT) has published
updated guidance on the status of trading arrangements taking effect following
the end of the Brexit transition period on 31 December 2020 . While engagement
is ongoing, and the DIT has confirmed that it is not expecting replacement
trade arrangements to be in place with all countries in scope, some
new/contingency trade deals have been signed. The guidance is updated to make
it clear how those agreements will operate on 1 January 2021. While some of the
agreements are fully ratified, others will apply on a provisional basis. Some
agreements are not expected to be operational from 1 January 2021, including
agreements with Canada and Mexico. These arrangements are expected to take
effect in early 2021. Other deals remain under discussion with a number of
countries, with engagement continuing into 2021—some of these countries have
limited coverage via mutual recognition agreements (eg US, Australia and New
Zealand), and some (but not all) are members of the World Trade Organization
(WTO). Further new and updated guidance may be issued as various discussions
progress, so stakeholders and traders are advised to monitor this page for
further updates on the status of these discussions before and after IP
GOV.UK—Guidance: Existing UK trade agreements with non-EU countries
GOV.UK—Guidance: Trading under WTO rules
ICE Benchmark Administration Limited (IBA), the
FCA-authorised and regulated administrator of LIBOR, has launched a
consultation on its intention to cease publication of EUR LIBOR, CHF LIBOR, JPY
LIBOR, GBP LIBOR and USD LIBOR after 31 December 2021 (or, in the case of USD
LIBOR overnight and 1, 3, 6 and 12 months tenors, 30 June 2023). Feedback is
sought by 5 pm London time on 25 January 2021.
An insufficient number of panel banks for EUR LIBOR, CHF
LIBOR, JPY LIBOR, GBP LIBOR and USD LIBOR (1 week and 2 month tenors) have
communicated to IBA that they would be willing to continue contributing after
31 December 2021 for IBA to be sure these settings could be continued on a
representative basis after that date.
Any publication of the Overnight and 1, 3, 6 and 12 Months
USD LIBOR settings based on panel bank submissions beyond 31 December 2021 will
need to comply with applicable regulations, including as to representativeness.
Based on current information from panel banks, IBA anticipates there being a
representative panel for the continuation of these USD LIBOR settings through
to 30 June 2023.
Source: ICE LIBOR consultation on potential
The executive director for markets at the Bank of England
(BoE), Andrew Hauser, has given a speech on the transition away from LIBOR, in
which he highlighted three key actions for market participants in the months
ahead: moving all new business off LIBOR, adopting the ISDA fallbacks for existing
derivatives, and reducing the legacy of post-2021 LIBOR-linked contracts.
Source: Speech by Andrew Hauser—Bowing out
gracefully: LIBOR’s retirement draws near.
The BoE has published the minutes of the Working Group on
Sterling Risk-Free Reference Rates for September 2020. The Working Group on
Sterling Risk-Free Reference Rates is made up of experts from major sterling
swap dealers, who meet up to discuss the development of sterling risk-free
Source: Minutes of the Working Group on
Sterling Risk-Free Reference Rates—September 2020.
IBA, the FCA-authorised and regulated administrator of LIBOR,
has launched its GBP SONIA ICE Swap Rate as a benchmark for use by licensees.
The launch of the new benchmark follows a positive market response to feedback
and consultation papers issued by IBA, and the successful publication of GBP
SONIA ICE Swap Rate settings on an indicative ‘Beta’ basis since October 2020.
Source: ICE Benchmark Administration
launches GBP SONIA ICE Swap Rate as a benchmark for use by licensees.
The Alternative Reference Rates Committee (ARRC) has
applauded the announcements by LIBOR’s administrator, its regulator, and US
regulators, regarding the proposed path forward for the transition away from US
Dollar (USD) LIBOR. The announcements include supervisory guidance which
encourages banks to 'stop new USD LIBOR issuances by the end of 2021’. The
announcements also detail plans to consult on specific timing for ceasing the
publication of USD LIBOR, and propose end dates 'immediately following' 31 December
2021 publication for the one week and two month USD LIBOR settings, and the 30
June 2023 publication for other USD LIBOR tenors. The aim of this is to
'support a smooth transition for legacy contracts by allowing time for most to
mature before USD LIBOR is proposed to cease, subject to consultation
Source: ARRC Applauds Major Milestone in
Transition from U.S. Dollar LIBOR.
The Chancellor announced that the furlough scheme is
extended until late April 2021 where 80% of employees’ salary will continue to
be paid, along with the government-guaranteed coronavirus business loan schemes
extended until late of March 2021. The Chancellor further confirmed the Budget
will be released on 3 March 2021 which aims to present ‘the next phase of the
plan to tackle the virus and protect jobs’. At present, the Coronavirus Job
Retention Scheme (CJRS) has safeguarded 9.6 million jobs in the UK, the
Chancellor has said to review the ‘employer contribution element of the CJRS’.
Businesses will be given an extension up to late March 2021 to access a variety
of loan schemes which has already aided over £68bn in guaranteed loans that has
safeguarded businesses affected by coronavirus. The government has stated that
further support will be provided after March 2021 through a ‘successor loan
scheme’, further details will be published in the course of time.
Source: Chancellor extends furlough and
The Law Commission has called for evidence to ensure the
technology surrounding smart contracts can thrive in England and Wales. A smart
contract is one that is legally binding in which some or all of the contractual
obligations are recorded in or performed by a computer program. There are
uncertainties about whether smart contracts are legally binding, how they are
to be interpreted, how factors such as mistake can apply and remedies
available. The responses to the call for evidence will progress the Law Commission’s
smart contracts study, which will provide an account of the current law and set
out how it will, or may, apply to smart contracts. The call for evidence will
remain open until 31 March 2021.
Source: Law Commission seeks views on smart
The Loan Market Association (LMA) has published a best
practice guide for ensuring completeness in term sheets provided to prospective
participants in a syndicated loan transaction. the LMA and the European
Leveraged Finance Association strongly recommend a ‘fulsome description’ of the
provisions in the term sheet’s first draft. The guide is available to LMA
HMRC has published new policy paper to explain how taxes
paid by employees and customers are protected in insolvency procedures
commencing after 1 December 2020.
as a preferential creditor.
Salam Air SAOC v Latam Airlines Group SA  EWHC 2414
An airline’s argument that the effects of the coronavirus
pandemic had been such as to frustrate the leases of three aircraft so as to
make it appropriate to injunct the lessor (Latam) from issuing demands under
standby letters of credit in place to secure the advance monthly rentals on the
aircraft was described as ‘weak’ in this case. The only continuing obligation
of Latam, having delivered the aircraft pursuant to the terms of the lease was
to fulfil its contractual promise that neither it nor anyone else would
interfere with the use, possession and quiet enjoyment of the aircraft by Salam
Air (Salam). The restriction on the operation of the aircraft by coronavirus
regulations did not prevent either party from performing their contractual
obligations. There was no frustration of purpose (as in Krell v Henry). Even
if, as was arguable, Salam had informed Latam of the specific purpose for which
they intended to lease the aircraft, that purpose did not become the joint
purpose of Salam and Latam.
The Islamic Financial Services Board (IFSB) and the International
Islamic Liquidity Management Corporation (IILM) have signed, for the second
time, a memorandum of understanding (MoU) to enhance their cooperation and
collaboration to achieve their respective objectives and mandates in sustaining
the stability and resilience of the Islamic financial services industry (IFSI).
Source: The IFSB and IILM Renew MoU to Emphasise on
Economic Development in the Islamic Financial Services Industry.
The IFSB has announced at its 37th Meeting on 20 December
2020 in Kuala Lumpur, that it has resolved to approve the adoption of two new
standards. The two new standards are IFSB-24: Guiding Principles on Investor
Protection in Islamic Capital Markets, and IFSB-25: Disclosures to Promote
Transparency and Market Discipline for Takāful/Retakāful Undertakings.
IFSB Council adopts two new Standards for the Islamic financial services
The executive director, markets, at the BoE, Andrew Hauser,
has announced that the BoE will launch a new Shari’ah-compliant
non-interest-based deposit facility in the first quarter of 2021. Speaking at
UK Islamic Finance Week 2020, Hauser said the new Alternative Liquidity
Facility (ALF) will be the first such account from a Western central bank.
Islamic finance has an important role to play in supporting the recovery from
COVID—and how the Bank of England’s new Alternative Liquidity Facility can help.
HM Treasury has published a summary of consultation feedback
for the Infrastructure Finance Review, which was announced in the 2019 Spring
Budget and closed on 5 June 2019. The summary of feedback covers 117 responses
from a range of sectors and highlighted key future market challenges including
new technologies, market capacity and vulnerability, and the role of the
European Investment Bank. The government’s full response can be found in the
National Infrastructure Strategy, announced on 25 November 2020.
The Ministry of Housing, Communities & Local Government
has announced that the business eviction ban will be extended until the end of
March 2021 in order to protect commercial tenants, who have been financially
affected by the coronavirus (COVID-19) pandemic, from eviction. This final
extension will provide landlords and tenants three months to come to an
agreement on unpaid rent, with further guidance to support negotiations to be
published in due course.
evictions ban extended until March.
The International Accounting Standards Board (IASB) has
launched a consultation which proposes amending International Financial
Reporting Standard (IFRS) 16 on lease liability in a sale and leaseback. The
proposal includes specifying how a company would measure the lease liability in
such transactions, providing greater clarity for the company selling and leasing
back, and ensuring IFRS 16 is applied consistently. Members can provide
comments on the proposal until 29 March 2021 using their International
Financial Reporting Standards Foundation login.
Draft and comment letters: Lease Liability in a Sale and Leaseback.
UK Export Finance (UKEF) has announced the launch of the
General Export Facility, in partnership with the UK’s leading commercial banks.
The scheme will give exporting small and medium-sized enterprises (SMEs) access
to the working capital they need to recover from the coronavirus (COVID-19)
pandemic. Through the scheme, the UK Government can provide up to 80% guarantee
on financial support from one of the UK’s five largest banks to support general
exporting costs, up to the value of £25m.
shake up to government export finance support for small businesses.
UKEF has signed a co-operation agreement with Etihad Credit
Insurance (ECI) with the aim of strengthening trade between the UK and the
United Arab Emirates (UAE) and boosting investment. The agreement provides a
framework for reinsurance between UKEF and ECI that allows for their financial
support to be combined, enabling UK and UAE businesses to obtain export
contracts globally. Additionally, UKEF is now able to support the export of
products from the UAE where the transaction involves substantial trading.
Source: UKEF signs new export partnership with the UAE.
The International Organization of Securities Commissions
(IOSCO) has published its response to the International Financial Reporting
Standards (IFRS) Foundation's consultation on sustainability reporting. IOSCO
says it welcomes the consultation and supports the IFRS Foundation’s engagement
in sustainability reporting. Additionally, IOSCO supports the creation of a
Sustainability Standards Board (SSB), believing it can help meet shared
objectives, provided the ‘requirements for success’ established in the consultation
paper and other observations are met.
The BoE has published three letters from industry leaders to
Chief Executive Officers (CEOs) of Prudential Regulation Authority
(PRA)-regulated banks and firms. All three letters highlight the importance of
financial risk as a result of climate change as being a priority for 2021 for
CEOs. The letters set out that any approach to mitigate this must be
proportionate to both the financial risk to an individual firm or bank and the
complexity of its operations. This focus is a further iteration of the PRA’s
2019 supervisory statement to ensure mechanisms for managing climate-related
financial risks are in place by the end of 2020.
Sources: Prudential regulation, Letter from Anna Sweeney and
Charlotte Gerken ‘Insurance Supervision: 2021 Priorities’, Letter from David
Bailey and Rebecca Jackson ‘International Banks Supervision: 2021 Priorities’
and Letter from Sarah Breeden and Melanie Beaman ‘UK Deposit Takers
Supervision: 2021 Priorities’.
Sources: Prudential regulation, Letter
from Anna Sweeney and Charlotte Gerken ‘Insurance Supervision: 2021 Priorities’, Letter
from David Bailey and Rebecca Jackson ‘International Banks Supervision: 2021
Priorities’ and Letter
from Sarah Breeden and Melanie Beaman ‘UK Deposit Takers Supervision: 2021
The International Chamber of Commerce (ICC) Global Export
Finance Committee’s Sustainability Working Group (ICC-SWG) has announced that
it has commissioned International Financial Consulting Ltd and Acre Impact
Capital to develop a white paper on sustainable finance across the export
finance industry. The paper will 'review the state of sustainable finance across
the export finance industry and propose both product and policy recommendations
aimed at increasing the flow of export financing towards sustainable activity'
and is due to be published in June 2021.
Sustainability Working Group announces new project to review the state of
sustainable finance across the export finance industry.
The European Central Bank (ECB) has published its final
guide on climate-related and environmental risks for banks. The guide explains
how the ECB expects banks to prudently manage and transparently disclose these
risks under current prudential rules, and applies immediately.
publishes final guide on climate-related and environmental risks for banks, Guide
on climate-related and environmental risks and ECB
report on institutions’ climate-related and environmental risk disclosures.
The International Capital Market Association (ICMA) has
responded to the UK Listings Review call for evidence suggesting that 'changes
that could be made to the UK Prospectus Regulation while protecting the overall
smooth functioning of the pan-European wholesale bond issuance process.' The
response also suggests developing a suitable regulatory framework to allow a UK
retail bond market to develop.
responds to the UK Listings Review call for evidence.
The FCA has published policy statement PS20/15: High-risk
investments: Marketing speculative illiquid securities (including speculative
mini-bonds) to retail investors, in which it has confirmed proposals to
permanently ban the mass-marketing of speculative illiquid securities—including
speculative mini-bonds—to retail investors.
confirms speculative mini-bond mass-marketing ban.
The executive director of ESMA, Verena Ross, has given a speech
in which she discussed the current challenges of the EU capital markets union
(CMU) and some of the initiatives within the European Commission’s action plan
that are of particular importance to ESMA.
address—CMU and current challenges—Verena Ross, International Investors
The Financial Stability Board (FSB) has published its 2020
note on implementation progress of OTC derivatives market reforms. The FSB
finds that overall progress in implementation of the agreed G20 reforms to
over-the-counter (OTC) derivatives markets is well advanced, but there has been
limited additional implementation of the reforms since October 2019.
derivatives market reforms: 2020 note on implementation progress.
Professor Dr Klaus Peter Berger, (KPB) Director of the
Institute for Banking Law and Centre for Transnational law (CENTRAL) at the
University of Cologne and P.R.I.M.E. Finance Expert, and P.R.I.M.E. Finance
Head of Secretariat, Camilla Macpherson (CM), discuss a new project on
arbitration in banking and finance led by Professor Berger in News Analysis:
Arbitration in banking and finance—new research project launched.
ISDA publishes seventh paper on smart derivatives contracts
in FX market
The International Swaps and Derivatives Association (ISDA)
has published the seventh in a series of legal guidelines for smart derivatives
contracts, which aim to support technology developers, lawyers and other key
stakeholders in the development of smart derivatives contracts and other
technology solutions in the foreign exchange (FX) market. The guidelines
provide high level background on the FX market, identify opportunities for the
application of smart contract technology to FX and flag important issues for
technology developers to consider when designing technology solutions for
trading and FX associated processes.
Guidelines for Smart Derivatives Contracts: Foreign Exchange (FX) Derivatives.
ISDA and other industry bodies seek EMIR equivalence
determination for UK regulated markets
Together with six other trade associations, ISDA has sent a
30 November 2020 letter to the European Commission asking it to issue an
equivalence determination under Article 2a of the European Market Infrastructure
Regulation (EMIR) for UK regulated markets. In the absence of equivalence,
exchange-traded derivatives traded on UK regulated markets will be considered
over-the-counter derivatives, pushing some non-financial counterparties and
financial counterparties above the EMIR clearing threshold.
on equivalence of UK derivatives regulated markets under EMIR Article 2a.
The FCA has updated its webpage which sets out news relating
to EMIR. The November 2020 update provides information on the requirement to
notify the FCA of clearing thresholds for UK financial counterparties (FCs) and
non-financial counterparties (NFCs) under the retained EMIR (UK EMIR), and on
the UK equivalence decision under UK EMIR for intragroup exemptions from the
clearing obligation and margin requirements for uncleared derivatives.
updated webpage: EMIR news (November 2020 update).
The European Commission has announced a new action plan for
tackling non-performing loans (NPLs) in the aftermath of the coronavirus
(COVID-19) pandemic. Key measures include further developing secondary markets
for distressed assets, converging insolvency frameworks across the EU,
supporting the establishment and cooperation of national asset management
companies (AMCs) at EU level, and outlining the precautionary tools provided by
the EU bank crisis management and State aid frameworks.
response: Tackling non-performing loans (NPLs) to enable banks to support EU
households and businesses, Action
plan: Tackling non-performing loans (NPLs) in the aftermath of the COVID-19
remarks by Commissioner McGuinness at the press conference on the Action Plan
for non-performing loans (NPLs), Questions
and Answers: Tackling non-performing loans to enable banks to support EU
households and businesses, COMMUNICATION
FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN
CENTRAL BANK: Tackling non-performing loans in the aftermath of the COVID-19
welcomes European Commission’s action plan to tackle NPLs in the aftermath of
the COVID-19 pandemic and AFME:
Commission’s revised action plan for NPLs from Covid-19 disappoints.
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Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.
Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.
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