Monthly Highlights: February 2018

Monthly Highlights: February 2018

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from February 2018.


AFME and Clifford Chance publish Brexit FAQs on wholesale financial services contracts

The Association for Financial Markets in Europe (AFME), together with Clifford Chance, has published FAQs on the potential operational and documentation impacts of Brexit on banking customers’ contractual activities. As banks begin implementing their Brexit contingency plans, clients are likely to see impacts in respect of existing cross-border contracts and will be required to put in place arrangements for new business following Brexit. The FAQs address questions such as which clients may be in scope, which contracts may be affected, how they may be impacted and consequential operational impacts that need to be considered.


Commission study makes recommendations to promote EU private placements

The European Commission has published a study on the development of the private placement of debt in the EU. The main objectives of the study are to identify best practices for and assess potential regulatory obstacles to the development of private placement markets in the EU. The study was carried out for the Commission by the Boston Consulting Group and Linklaters LLP.

Lending Standards Board to review standards of lending practice for personal customers

The Lending Standards Board (LSB) has opened a review of the standards of lending practice for personal customers. The LSB is seeking input from registered firms, industry bodies, consumer and debt bodies, and other relevant parties whose work may interact with its own to help it consider whether further updates to the standards are required. Responses must be received by 30 March 2018.

LMA has published guide to handling ancillary facilities

The Loan Market Association (LMA) has published an agent’s guide to handling ancillary facilities, which seeks to provide an introduction to ancillary facilities and their treatment in LMA facility documentation together with guidance on common operational scenarios.

Members can log into the LMA website with their username and password to access the guide.

LMA launches timeline for settlement of primary syndication incorporating delayed settlement compensation

The LMA has launched the publication of a recommended timeline for settlement of primary syndication incorporating delayed settlement compensation. This comes as part of the LMA's efforts to reduce settlement times for primary syndications.

The LMA has worked with a committee of LMA members involved as investors and underwriters in the primary loan markets to produce the primary timeline.

The primary timeline is designed to:

  • balance the competing interests of all stakeholders in the syndication process
  • acknowledge that underwriters remain ‘on risk’ and continue to have the legal obligations and be subject to the regulatory and accounting treatment of a lender of record until their commitment/participation has been transferred to an investor in accordance with the terms of the facility agreement
  • recognise that the investors have agreed to participate in the facility in the amount notified to them on the allocation date

Members can log into the LMA website with their username and password to access the documents.


HM Land Registry updates Practice guide 78 on overseas companies and LLPs

HM Land Registry has released updated guidance which deals with the registration requirements for overseas companies, in particular the requirements when they differ from those for UK companies. Section 4.2 has been amended.

HM Land Registry updates Practice guide 29 on registration of legal charges and deeds of variation of charge

Practice guide 29: registration of legal charges and deeds of variation of charge has been updated by HM Land Registry, with a new section (section 14) about digital mortgages added to the guide. This guide gives advice on the registration of legal charges and deeds of variation of the terms of a registered charge at HM Land Registry. It is aimed at conveyancers.

The importance of correct drafting of security documents (Plant and another v Vision Games 1 Ltd and others)

The case of Plant and another v Vision Games 1 Ltd and others [2018] EWHC 108 (Ch) serves as a salutary reminder to practitioners that security documents must be drafted so as to be compatible with the transactional documentation to which they relate, and that the security arrangements provided for must, so far as they can, be actually put into practice. Andrew Ayres QC and James Kinman, barristers at Maitland Chambers, London explore the case in more detail in News Analysis: The importance of correct drafting of security documents (Plant and another v Vision Games 1 Ltd and others).

Trade finance

An invitation to challenge Linden Gardens? (First Abu Dhabi Bank v BP Oil)

The case of First Abu Dhabi Bank PJSC (formerly National Bank of Abu Dhabi PJSC) v BP Oil International Ltd [2018] EWCA Civ 14 considered the effect of a prohibition on the assignment of a contract right as between the assignor and purported assignee and the possibility that a long standing authority of the House of Lords which held an assignment made in breach of a no assignment clause was of no effect as between assignor and assignee might now be ripe for overturning. For more information, see News Analysis: An invitation to challenge Linden Gardens? (First Abu Dhabi Bank v BP Oil).

Debt Capital Markets

ICMA proposes Rule 407 revision

The International Capital Market Association (ICMA) has opened a consultation seeking views on a proposed revision of Rule 407 (claims against the seller) of its secondary market rules and recommendations. The results of the consultation will be shared with the secondary market practices committee (SMPC) and interested members in early April 2018, and any recommendations to revise the rule may be taken ahead of the next scheduled SMPC meeting on 29 May 2018. The deadline for responses is 23 March 2018.

Rule 407 was introduced in response to a low or negative interest rate environment in a number of markets, in order to create symmetry with Rule 405 (interest claim against buyer) in the event of losses incurred due to settlement fails, following requests by members and approval by the SMPC and ICMA Executive Committee.

The review of Rule 407 follows suggestions by members that it is becoming less relevant as firms have adapted to negative interest rates and become more efficient at managing their cash.

IOSCO consults on proposed policy measures to protect retail investors in OTC leveraged products

The International Organization of Securities Commissions (IOSCO) has published a consultation report on retail OTC leveraged products. The report aims to identify and promote regulatory approaches that can enhance the protection of retail investors who are offered OTC leveraged products. The closing date for comments is 27 March 2018.


Report finds single name CDS are efficient at managing credit risk

ICMA has published a report on the current state and evolution of the European corporate single name credit default (CDS) market, concluding that single name CDS provide an efficient, market-based means of managing credit risk. The aim of the report is to map the state of the market, establishing who are its main users and what benefits and risks are associated with the product.

ISDA appoints firm to develop new digital common domain model

The International Swaps and Derivatives Association (ISDA) has announced that regulatory fintech firm REGnosys has been appointed to develop a digital version of the ISDA Common Domain Model (CDM). REGnosys was selected following a ‘request for quotations issued in the fourth quarter of 2017, and will now assist ISDA in developing the framework to build a digital version of the ISDA CDM, based on a conceptual design published October 2017’. The project is expected to be finished in May 2018.

P.R.I.M.E. Finance conference 2018

In January 2018, P.R.I.M.E. Finance held its seventh annual conference in The Hague. In News Analysis: P.R.I.M.E. Finance conference 2018, Kristy Tillman, executive director at P.R.I.M.E. Finance speaks with the Banking & Finance team about P.R.I.M.E. Finance’s key achievements in 2017, plans for 2018 and the main issues discussed at the P.R.I.M.E. Finance conference 2018.

Trade associations launch benchmarks transition roadmap

ISDA, AFME, ICMA and the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG) have launched a roadmap that highlights key challenges involved in transitioning financial market contracts and practices from interbank offered rates, or ‘IBORs’, to alternative risk-free rates (RFRs).

For detailed analysis on the roadmap, see News Analysis: Global benchmark survey 2018 transition roadmap.

FIA and ISDA joint response to the ESA consultation

The Futures Industry Association (FIA) and ISDA have responded to the European Commission’s draft implementing regulation on the operations of the European Supervisory Authorities (ESAs) and the proposed supervisory framework. The associations support the overall goal of the review package, but suggest that any plan to expand the direct supervisory powers of the European Securities and Markets Authority (ESMA) should respect the subsidiarity principle, and that the value of national supervisors should be recognised.

Regulation of derivatives and capital markets products

ESMA updates

ESMA launches interactive single rulebook

ESMA has launched its interactive single rulebook, which is a new service for market participants and other interested stakeholders across the European Union. The tool launched with the level one text of the UCITS Directive, and links to all relevant level two and level three measures already available elsewhere on ESMA's website.

ESMA publishes 2018 work programme for CRAs, trade repositories and third country CCPs

ESMA has published its 2017 annual report and 2018 work programme setting out its main supervisory activities for credit rating agencies (CRAs), trade repositories (TRs), and third-country central counterparties (TC-CCPs) in the EU. ESMA supervises eight registered TRs, 26 registered CRAs, and four certified CRAs from third-countries. The report also details ESMA's supervisory activities and achievements in 2017.

ESMA stress test results published

ESMA published the results of its second EU-wide stress test exercise regarding central counterparties (CCPs) established in the EU. The test assesses the resilience and safety of the EU CCP industry using the ESMA CCP stress test framework. ESMA says that, overall, the system of EU CCPs is resilient to multiple clearing member defaults and extreme market shocks. In addition, the report also highlights individual CCP-specific results. The 2017 test builds on the first test, conducted in 2016, which focused on counterparty credit risk only. The second exercise includes liquidity risks, examining whether CCPs would meet their liquidity needs under different stress scenarios. ESMA also published a Q&A about the test and its results.

ESMA issues conflict of interest guidelines for CCPs

ESMA has issued final guidelines on the management of conflict of interests for CCPs. Under EMIR, CCPs are required to put in place organisational arrangements and policies to prevent potential conflicts of interest and to solve them if preventative measures are not sufficient. The final guidelines were developed following a public consultation in June 2017.

ECON publishes report on proposal for CCP recovery and resolution

The European Parliament's Committee on Economic and Monetary Affairs (ECON) has published its report on the European Commission's proposal for a regulatory framework for the recovery and resolution of CCPs. The report, which was adopted by ECON on 24 January 2018, makes a number of amendments to the Commission's proposal and includes a draft resolution for the Parliament to adopt the amended version as its position at first reading.

Among other things, ECON has added detailed requirements for the recovery plans that CCPs must draw up, distinguishing between default events and non-default events. ECON has also added a provision whereby competent authorities could require a CCP in recovery following a non-default event to recompense non-defaulting clearing members and their clients for their loss, either through cash payments or instruments of ownership in future profits of the CCP.


FCA sets position limits on a further commodity derivative contract traded on a UK trading venue

The Financial Conduct Authority (FCA) has published position limits on a further commodity derivative contract which is traded on a UK trading venue. The limits have been established under Regulation 16 of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017, SI 2017/701 (MiFID Regs) in accordance with Article 57 of MiFID II and the methodology set out in RTS 21. The limits apply from 31 March 2018 to positions held in the spot month and the other months' periods for the Swiss Baseload Power contract (Ch Phy BLSws) which is traded on the organised trading facility of GFI Brokers Ltd.

Further details of the commodity derivative contracts and the limits set on positions in them can be found on the FCA’s position limit webpage.

The FCA's position limit exemptions application gateway is open and it has informed a significant number of market participants of their exemption approvals. The FCA encourages entities to continue to apply in anticipation of their need to enter into positions for commercial hedging purposes. The FCA offers the following contract address for any questions or support in completing the application:


ESMA has published updated Q&As on the implementation of the Central Securities Depositories Regulation (EU) 909/2014 (CSDR).

The Q&As cover four topics:

  • the first clarifies that CSDs intending to provide data reporting services as defined under MiFID II should fully comply with the requirements set out therein
  • the second and third relate to risk monitoring committees for CSDs belonging to the same group of companies, with the second confirming that each CSD should have its own committees, and the third that such committees could have the same membership under certain conditions (ie that the membership of each committee is adapted to each CSD, and that the rules on composition, outsourcing of staff and management of conflicts of interests are strictly complied with), and
  • the fourth clarifies that TARGET2-Securities (T2S) should not be subject to the provisions applicable to critical service providers, given that the organisational and operational safety, efficiency and resilience of T2S should be ensured through the dedicated legal, regulatory and operational framework and agreed governance arrangements

Short selling

ESMA has updated its Q&As regarding the implementation of the Short Selling Regulation (SSR), with a question on covering a short sale with claims to as yet unissued shares.


Court dismisses Azerbaijan foreign representative’s application for permanent moratorium (Bakhshiyeva v Sberbank of Russia)

The Companies Court has dismissed an application by the OJSC International Bank of Azerbaijan for what was considered, in effect, to be a permanent moratorium against English law-based creditor claims against the bank. Justin Michaelson, partner, and Simon Camilleri, associate at Fried, Frank, Harris, Shriver & Jacobson (London) assess the implications of the decision in Re OJSC International Bank of Azerbaijan; Bakhshiyeva (in her capacity as the foreign representative of the OJSC International Bank of Azerbaijan) v Sberbank of Russia [2018] EWHC 59 (Ch). For more information, see News Analysis: Court dismisses Azerbaijan foreign representative’s application for permanent moratorium (Bakhshiyeva v Sberbank of Russia and others).

Regulation for banking lawyers

European Parliament publishes draft report on sustainable finance

The European Parliament has published a draft report on sustainable finance by the Committee on Economic and Monetary Affairs (ECON). The draft report notes that the urgent need to respond to the threat from climate change has led to innovation in the field of sustainable finance in different EU Member States and proposes that the aim of the European Parliament should be to take the best from this innovation across the EU and combine it into minimum standards for all, guiding investment to ensure a just and rapid transition towards a sustainable economy and society.

European Commission confirms that it will promote the use of the EBA's NPL data templates

In a letter to the European Banking Authority (EBA) dated 22 January 2018, the vice president of the European Commission, Valdis Dombrovskis, has confirmed that the Commission will promote the use of the EBA's non-performing loans (NPL) data templates by banks, investors and other financial market participants. The letter is in response to a letter from Andrea Enria of the EBA dated 20 December 2017, in which the EBA asked Mr Dombrovskis for the Commission's support in promoting the usage of the templates.

EBA launches 2018 stress test, with most severe scenario to date

EBA has launched the 2018 EU-wide stress test and released the macroeconomic scenarios. The adverse scenario implies a deviation of EU GDP from its baseline level by 8.3% in 2020, resulting in the most severe scenario to date. The EBA expects to publish the results of the exercise by 2 November 2018.

EMMI no longer to pursue Eonia review

The European Money Markets Institute (EMMI) has announced that, in light of the conclusions of the analyses performed in the context of the Eonia Review Data Exercise, together with the information on the overnight unsecured segment of the euro money market published by the European Central Bank, EMMI will no longer pursue its review of the Euro OverNight Index Average (Eonia).

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About the author:

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.