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Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from February 2020.
This Brexit Bulletin provides a quick reference Brexit research aid and updating tool. It answers key questions on Brexit and includes helpful Brexit updates, research tips and resources. It includes links to further reading materials, plus guidance on keeping up to date on key Brexit developments and the implications for UK law.
The UK has notified the Ministry of Foreign Affairs of the Kingdom of the Netherlands that as of 31 January 2020 it has withdrawn its Instrument of Accession, Note Verbale and Declarations for the Hague Convention on Choice of Court Agreements. During the implementation period, Regulation (EU) 1215/2012, Brussels I (recast) continues to apply between the EU and the UK for matters of jurisdiction and enforcement. The UK has further announced that it wishes to deposit a new instrument of accession at a time which will be deemed adequate, and which will take place before the period of transition expires.
The Foreign and Commonwealth Office (FCO) has published the ratified Withdrawal Agreement (WA). Sir Tim Barrow, the UK’s Permanent Representative to the EU, deposited the instrument of ratification to the European Council ahead of its adoption. Completion of these steps, and its addition to the FCO Treaty Series cleared the final hurdles in the domestic ratification of the WA ahead of the UK’s withdrawal from the EU at 11 pm on 31 January 2020.
On 3 February 2020, the European Commission adopted draft negotiating directives, to be approved by the European Council ahead of talks on the future relationship between the UK and the EU. The draft mandate covers all areas outlined in the Political Declaration agreed between the UK and EU in October 2019 and proposes a single comprehensive partnership agreement, covering economic arrangements, security arrangements and overarching principles and governance (based on a level playing field and subject to separate agreement on fisheries). Meanwhile, the government issued a statement to Parliament, setting out high level red lines for talks on the future relationship. The UK proposals take a different approach, rejecting regulatory alignment and recommending a ‘suite of agreements’ on trade, fisheries, security and specific technical areas, accompanied by less formal cooperation in areas such as competition, data protection and public procurement.
On 25 February 2020, the Council of the EU convened to review the European Commission’s recommendation to open talks with the UK on the future EU-UK relationship. The Council adopted a decision authorising the opening of negotiations and nominating the Commission as negotiator for the EU, led by chief negotiator Michel Barnier. The Council also adopted negotiating directives setting out the Commission’s mandate for the talks, sticking firmly to previous EU position statements and targeting a ‘wide-ranging and balanced economic partnership with the UK’, underpinned by ‘robust commitments to ensure a level playing field for open and fair competition’. The UK government outlines its position on Thursday, 27 February 2020, before talks commence in March 2020.
Retained EU law is a legal term introduced into UK law under the European Union (Withdrawal) Act 2018. It captures EU-derived rights and legislation the government intends to retain and preserve in UK law for legal continuity once the transitional arrangements under the Withdrawal Agreement come to an end. There is no specific list of retained EU law for lawyers to refer to. It is a matter of statutory interpretation. Kieran Laird, partner and head of constitutional affairs at Gowling WLG, examines its meaning, scope and status, and provides essential tips for navigating and interpreting retained EU law.
The government has published guidance on the UK sanctions regime under the Sanctions and Anti-Money Laundering Act 2018. This guidance confirms that EU sanctions will continue to apply in the UK until 11 pm on 31 December 2020.
The Financial Conduct Authority (FCA) published information for financial services firms as the UK prepared to exit the EU and move into the implementation period at 11pm on 31 January 2020. During the implementation period, EU law continue to apply in the UK. Firms and funds continue to benefit from passporting between the UK and EEA. Consumer rights and protections derived from EU law also remain in place.
The FCA has updated its webpage on the European Market Infrastructure Regulation (EU) 648/2012 (EMIR) to reflect the fact that the UK has now left the EU and entered an implementation period.
The FCA has also updated a webpage on Brexit which sets out issues for UK firms to consider during and after the transition period, which ends on 31 December 2020.
During the implementation period, the UK will remain subject to EU financial services legislation, and EU passporting arrangements will continue to apply in the UK. This analysis considers what Brexit means for financial services during the implementation period and beyond.
The head of HM Treasury has said that post-Brexit Britain and the EU will devise a ‘full range’ of assessments for aligning regulation of financial services by June 2020, but warned that equivalence will be granted only if rules are mutually compatible.
The EU on 25 February 2020 said that it will decide ‘on a unilateral basis’ on equivalent regulation allowing UK financial companies access to its markets, as it set out its negotiating mandate to carve out a future relationship with Britain after the end of the Brexit transition on 31 December 2020.
The Financial Stability Board (FSB) has published correspondence with the International Swaps and Derivatives Association (ISDA) on London Interbank Offered Rate (LIBOR) pre-cessation issues, including a letter from the Financial Conduct Authority (FCA), responding to ISDA’s request for clarity on the ‘reasonable period’ during which a non-representative LIBOR would continue to be published in accordance with Article 11(4) of the Benchmarks Regulation (EU) 2016/1011(EU BMR).
The International Swaps and Derivatives Association (ISDA) has announced that it will re-consult on how to implement pre-cessation fallbacks following the release of new information by the FCA and ICE Benchmark Administration (IBA) on the length of time LIBOR may be published. Based on the results of this consultation, ISDA will move quickly to deliver the appropriate, industry endorsed fallback solution later in 2020.
ISDA has released a table identifying the areas the ISDA operates relating to the reform of IBORs and the development of alternative risk-free rates (RFRs).
ISDA has also published a paper on the transition from LIBOR and other IBORs to alternative RFRs. The move comes at a critical juncture in time where issues associated with IBORs have resulted in a sharp decline in activity in the unsecured interbank funding market. In particular, the paper examines major upcoming developments linked to the adoption of RFRs such as the publication of new benchmark fallbacks for derivatives contracts.
ISDA has launched a new consultation on how to implement pre-cessation fallbacks for derivatives. The consultation is open until 25 March 2020. ISDA has also published a summary of responses to its supplemental consultation on the spread and term adjustments that would apply to fallbacks for derivatives referencing euro LIBOR and Euro Interbank Offered Rate (EURIBOR).
The European Insurance and Occupational Pensions Authority (EIOPA) has published a discussion paper on IBOR transitions. Following the EU BMR, this paper addresses for the first time the subject of the ongoing changes to the new benchmark rates (or IBOR transitions). The paper addresses issues identified within the EIOPA RFR environment. Feedback is sought by 30 April 2020.
EIOPA has published a discussion paper on IBOR transitions. Following the EU BMR, this paper addresses for the first time the subject of the ongoing changes to the new benchmark rates (or IBOR transitions). The paper addresses issues identified within the EIOPA risk free rate (RFR) environment. Feedback is sought by 30 April 2020.
The European Central Bank (ECB) has published a report by the private sector working group on euro RFRs, on the transfer of liquidity from the euro overnight index average (EONIA)’s cash and derivatives products to the euro short-term rate (€STR). The report contains recommendations for a smooth transition from EONIA to €STR products, in addition to warning stakeholders that EONIA-linked contracts with maturities beyond 3 January 2022 entail significant risks. The report supplements the working group’s previous report on the impact of the transition from EONIA to the €STR on cash and derivatives products, published in August 2019.
The Loan Market Association (LMA) has published a note to assist market participants understand the outstanding requirements that must be satisfied before the Exposure Drafts of Compounded RFR Facility Agreement can be published as LMA recommended form documentation. The note also considers areas where market consensus is not necessarily needed for the LMA to publish the Exposure Drafts as LMA recommended forms.
The executive director for markets at the Bank of England (BoE), Andrew Hauser, has announced two new BoE initiatives in his speech at ISDA/SIFMA Asset Management Group Benchmark Strategies Forum, designed to accelerate the transition away from LIBOR, towards the adoption of Sterling Overnight Interbank Average Rate (SONIA) as a reference rate in sterling markets. First, the BoE has published and is seeking views on its discussion paper entitled ‘Supporting RFR transition through the provision of compounded SONIA’. Responses are requested by 9 April 2020. Secondly, the BoE has published a Market Notice setting out its risk management approach to collateral referencing LIBOR for use in the Sterling Monetary Framework.
 EWHC 3439 (Ch)
Ben Archer, barrister at 4 New Square, examines a High Court decision that a guarantee given by the first defendant company director to secure the company’s liabilities to the claimant bank was enforceable, but a similar guarantee given by the second defendant company director, who was the first defendant’s wife, was not enforceable as her execution of it had resulted from his undue influence.
 EWHC 88 (Ch)]
The court dismissed a commercial property developer’s claim for damages against the Royal Bank of Scotland (RBS), the claims having been brought in tort and contract. The judgment raises substantial questions for borrowers and lenders as to the circumstances in which a breach of term to exercise reasonable skill and care may arise, and the parameters of the torts of intimidation and duress. Hugh Sims QC and John Virgo, barristers at Guildhall Chambers in Bristol and counsel for the claimant, discuss the case.
HM Land Registry has updated the following Practice Guides: Execution of deeds (PG8), Evidence of identity: conveyancers (PG67), Notices, restrictions and protection of third-party interests (PG19), Powers of attorney and registered land (PG9) and Return and rejection of applications for registration (PG49).
HM Land Registry has published updates to practice guide 8 on the execution of deeds and practice guide 19 on the application of notices or restrictions to protect third party interests.
The Council of the European Union has published file items on the proposed regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation), including a consolidated version of the text of this regulation agreed between the Council and the European Parliament. The Economic and Monetary Affairs (ECON) and the Environment, Public Health and Food Safety (ENVI) committees recommend that the Council's position be accepted, subject to legal-linguistic verification.
The Council of the European Union has published file items on the proposed regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation), stating that on 5 February 2020 the Permanent Representatives Committee (COREPER) confirmed the agreement reached with the European Parliament and suggested the Council should adopt a political agreement on the text of the Regulation.
The European Securities and Markets Authority (ESMA) has published its strategy on sustainable finance, which sets out how it will place sustainability at the core of its activities by embedding environmental, social, and governance (ESG) factors in its work. ESMA’s priorities include: transparency obligations, risk analysis on green bonds, ESG investing, convergence of national supervisory practices on ESG factors, taxonomy and supervision.
Steven Maijoor, chair of ESMA, has delivered a keynote address outlining the climate crisis and its impact on financial markets. Maijoor provided two recommendations for areas in which the public sector should have a stronger role. Specifically, the provision of rigorous and standardised environment, social and government (ESG) information and measures to prevent the risk of 'greenwashing' were key recommendations proposed by ESMA. ESMA has confirmed that the transition to sustainability requires rapid and concrete action by all involved to make the European economy more resilient to the threats posed by climate change. Lastly, ESMA stated that the public sector has a pivotal role to play in the transition and assured that ESMA is committed to contribute to the shift towards a sustainable European financial system.
The Pensions and Lifetime Savings Association (PLSA) says new government amendments to the Pension Schemes Bill to impose requirements on pension schemes to manage climate change risk appear to set a dangerous precedent and should be redrafted.
Jason Lawrance, partner, and Sarah Jordan, Knowledge Lawyer Director, both at Osborne Clarke LLP discuss why sustainability linked loans are so popular, why 2019 was a boom year for the growth of them and what 2020 holds for the relatively new kid on the block.
EU asset managers, large unlisted companies such as IKEA and Aldi, and European units of US companies may have to start reporting climate-change impacts under changes to be put forward by the European Commission later this year. Big auditing firms could end up benefiting as the EU seeks to improve investors' information about corporate environmental footprints.
The International Capital Market Association (ICMA) has released a compendium on the subject of international policy initiatives and best market practice for sustainable finance. As the first publication of the ICMA Sustainable Finance Committee, the compendium intends to provide stakeholders with a concise and easy to reference document containing information on various national and international developments relating to sustainable finance. The committee was set up in September 2019, and involves a coming together of numerous other ICMA committees, including the ICMA’s buy-side arm, corporate issuer forum, legal and documentation committee and the Executive Committee of the Green Bond Principles and the Social Bond Principles. The compendium will be regularly updated with new information.
The European Central Bank (ECB) has published an article assessing the effects of the repurchase agreement (repo) market on bond and swap market liquidity. The article contends that a well-functioning repo market supports the implementation of monetary policy but can also affect the financial stability of our financial system where there is disruption. ECB evidence illustrated that bond market liquidity is affected significantly when the repo markets are facing a sudden reduction in liquidity. Research also found that swap spreads decrease significantly when both the repo and bond markets become less liquid.
Following a January 2020 meeting of the World Federation of Exchanges (WFE)’s board and working committee, the global industry group for exchanges and central counterparties (CCPs) has agreed its 2020 business priorities. The WFE will focus on the value of the exchange role in creating data; CCPs and their role in systemic safety; environmental, social & governance (ESG) issues; and building appropriate market structure around technology-led trends.
The Opinion of the European Committee of the Regions—‘A Sustainable Europe by 2030: Follow-up to the UN Sustainable Development Goals, ecological transition and the Paris Agreement on Climate Change’, has been published in the Official Journal.
The European Securities and Markets Authority (ESMA) has published a final report on alignment of the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR) with the changes introduced by Regulation (EU) 2019/834 (EMIR REFIT), to the European Market Infrastructure Regulation (EU) 648/2012 (EMIR). Since the amendment of EMIR by EMIR REFIT there has been a misalignment between the counterparties subject to the clearing obligation under EMIR and the counterparties subject to the derivatives clearing obligation under MiFIR. ESMA recommends aligning MiFIR with EMIR as amended by EMIR REFIT.
ESMA has published seven opinions on position limits regarding commodity derivatives under MiFID II/MIFIR.
ESMA has published a statement on implementation of its supervisory briefing relating to MiFIR pre-trade transparency requirements in commodity derivatives. ESMA said the Financial Conduct Authority (FCA) had not taken appropriate supervisory action with regards to LME and ICE Futures Europe and encourages the FCA to employ supervisory measures against these trading venues, which may include fines and sanctions.
The FCA has updated its webpage on how to make EMIR notifications and applications. It sets out that all counterparties (including non-financial counterparties) must register on the FCA Connect system to submit EMIR notifications. From 10 February 2020 all firms that are required to submit an EMIR notification or application are required to be enrolled (and create a firm profile) on Connect.
Camilla Macpherson, Head of Secretariat at P.R.I.M.E. Finance, discusses P.R.I.M.E. Finance’s key achievements in 2019, the main issues discussed at the P.R.I.M.E. Finance conference 2020 and aims for P.R.I.M.E. Finance ahead.
The International Swaps and Derivatives Association (ISDA) has published a paper on smart derivatives contracts, intended to support technology developers, lawyers and other key stakeholders in the development of smart derivatives contracts in the equity derivatives market.
ISDA has published the fifth in a series of legal guidelines for smart derivatives contracts, intended to explain the core principles of ISDA documentation and to raise awareness of important legal terms that should be maintained when a technology solution is applied to derivatives trading. The fifth publication is intended to support technology developers, lawyers and other key stakeholders in the development of smart derivatives contracts and other technology solutions in the interest rate derivatives (IRD) market.
The European Securities and Markets Authority (ESMA) has updated its Q&As on the implementation of the Central Securities Depositories Regulation (EU) No 909/2014 (CSDR). The new Q&As clarify the implementation of the CSDR settlement discipline regime.
The European Securities and Markets Authority (ESMA) has published a proposal for a new draft regulatory technical standard (RTS) postponing the date of entry into force of Commission Delegated Regulation (EU) 2018/1229 supplementing Regulation (EU) 909/2014 (the CSDR) with regard to the RTS on settlement discipline. Under the proposal, the date of entry into force of the RTS on settlement discipline, which is currently 13 September 2020, would be postponed until 1 February 2021.
ESMA has sent a letter to the European Commission regarding its mandate to provide technical advice under Regulation (EU) 2017/1129 (the Prospectus Regulation) on general equivalence criteria for assessing third country disclosure requirements.
ESMA has updated its question and answer document (Q&As) on the Prospectus Regulation (EU) 2017/1129, creating two new Q&As. The new Q&As clarify the number of additional pages that can be included firstly, in a summary where there is more than one guarantor and secondly, in a summary relating to several securities, in accordance with Article 7(7) of the Regulation.
ESMA has updated its Q&As on the Market in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) and the Market in Financial Instruments Regulation (EU) 600/2014) (MiFIR) investor protection and intermediaries topics. The updated Q&A addresses ‘MiFID practices for firms selling financial instruments subject to the Bank Recovery and Resolution Directive (BRRD) resolution regime.’
The European Commission has launched a consultation on proposed changes to MiFID II and MiFIR that relate to investor protection and investor participation in capital markets, potential actions to foster research coverage for SMEs and a new transparency tool that will provide access to real time asset prices across the EU in a consolidated format (‘consolidated tape’). The consultation closes on 20 April 2020.
The European Central Bank (ECB) has published for consultation a guide outlining the methodology it uses to assess the internal models applied by banks to calculate their exposure to counterparty credit risk (CCR). The guide also describes how the ECB will assess the advanced methods banks use to calculate the own funds required to account for the risks related to credit valuation adjustments (CVAs). The consultation closes on 18 March 2020.
International Capital Markets Association (ICMA) European Repo and Collateral Council (ERCC) has published its guide to reporting repo transactions under the EU Securities Financing Transactions Regulation (Regulation 2015/2365) (SFTR). The new reporting regime introduced by SFTR will start its phased implementation in April 2020 and will require detailed reporting by EU-incorporated or located entities of all securities financing transactions (including repo and reverse repo) to authorised trade repositories.
The Futures Industry Association (FIA) has published a letter which it, together with the Global Financial Markets Association (GFMA), the Commodity Markets Council Europe (CMC Europe), the European Federation of Energy Traders (EFET) and the London Bullion Market Association (LBMA), sent to the Financial Conduct Authority (FCA) on 20 February 2020. The letter notifies the FCA that the commodity industry will require additional time to implement new reporting requirements under the SFTR, which will commence from April 2020.
Dawn Heath, Tharusha Rajapakse and Katharina Crinson of Freshfields Bruckhaus Deringer LLP consider the powers of the Pensions Regulator and the civil liability aspects of the proposals made in the Pension Scheme Bill.
Re Statebourne (Cryogenic) Ltd,  EWHC 231 (Ch)
Simon Passfield, barrister, at Guildhall Chambers, considers the recent decision in Re Statebourne (Cryogenic) Ltd, in which Zacaroli J was required to determine the validity of an out-of-court appointment of administrators by the directors of a company and the time at which the appointment took effect, where the notice of appointment was CE-filed.
Re Symm & Company Limited  EWHC 317 (Ch)
There have been a number of recent—and conflicting—decisions as to the validity of the appointment of administrators outside of court opening hours. The issues before the court in Re Symm & Company were whether an administrator had been validly appointed where the notice of appointment was filed by directors outside of court opening hours, and, if so, on what date and time the appointment took effect. Mr Justice Zacaroli held that it is not permissible for a company or its directors to effect an appointment of an administrator outside of court opening hours, but that defects in filing could be cured under rule 12.64 of the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024. The notice of appointment was treated as having been filed when the court office opened on the next working day. News Analysis: Confirmation that administrators cannot be appointed by a company or its directors outside of court opening hours (Re Symm & Company Limited), written by Jessica Powers, barrister at New Square Chambers.
Re Carter Moore Solicitors
 EWHC 186 (Ch)
In the latest example of practitioners falling foul of the numerous tripwires surrounding the appointment of administrators using the CE-Filing system, this decision demonstrates the court’s increased willingness to exercise its discretionary powers to validate the appointment. It also highlights the pitfalls of a system presently designed to bring certainty and ease of use, but which instead brings about potentially disastrous consequences for relatively minor infractions.
The House of Lords Constitution Committee has published a report on the constitutional issues in the Pension Schemes Bill, which was introduced into the House of Lords on 7 January 2020 and had its second reading on 28 January.
The Finance Bill will be published on 19 March 2020. The government remains committed to legislating the measures published in July 2019 in draft legislation for Finance Bill 2020. This is subject to confirmation at Budget 2020, which is expected to take place on 11 March 2020. The Finance Bill is expected to include provisions that will (for business insolvencies (whether of a company, an individual or a partnership) that commence on or after 6 April 2020) make HMRC a secondary preferential unsecured creditor (moving HMRC up from a non-preferential unsecured creditor) in respect of income tax, employee National Insurance contributions (NICs) and student loan repayments collected through Pay As You Earn, construction industry scheme deductions, value added tax and any penalties or interest arising from such taxes. This will impact on floating charge realisations on insolvency.
What have been the key cases in the world of banking & finance over the past year?
The Bank for International Settlements (BIS) Markets Committee has called for more participants in the Foreign Exchange (FX) market to adopt the FX Global Code, the set of good market practices launched in 2017.
The European Economic and Social Committee (EESC)’s opinion on blockchain has been published in the Official Journal (OJ). The opinion calls on the European Commission to launch a comprehensive blockchain initiative setting out a common EU approach, complemented by an action plan for Europe to become the reference point for blockchain worldwide. It further calls on the Commission to establish an EU blockchain stakeholder platform.
The International Organization of Securities Commissions (IOSCO) has published a report which describes the issues and risks associated with crypto-asset trading platforms (CTPs) and sets out key considerations to assist regulatory authorities in addressing those issues. The report draws on responses IOSCO received to its 2019 consultation on the same subject.
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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.
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