Monthly Highlights: February 2021

Monthly Highlights: February 2021

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from February 2021.

LIBOR and benchmarks

Working Group on Sterling Risk-Free Reference Rates publishes paper on ending new use of GBP LIBOR in derivatives

The industry-led Working Group on Sterling Risk-Free Reference Rates (WGSRFR) has published a paper to support market participants in meeting its upcoming recommended milestones for ending new use of GBP LIBOR in derivatives. The first of these milestones is to cease initiation of new GBP LIBOR-linked linear derivatives by the end of March 2021, except for risk management of existing positions.

Source: The Working Group on Sterling Risk-Free Reference Rates: Path to ending new use of GBP LIBOR-linked derivatives

The WGSRFR launches consultation on proposed LIBOR successor rates

The WGSRFR has launched a consultation on whether it should recommend a successor rate to GBP LIBOR for legacy bonds and to seek feedback on the successor rate to be recommended. Proposed successor rates include overnight Sterling Overnight Index Average (SONIA), compounded in arrears and term SONIA. The WGSRFR 'strongly encourages' feedback from as broad a range of market participants as possible. The deadline for responding is 16 March 2021.

Source: Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR.

HM Treasury consults on possible legal safe harbour for parties affected by wind-down of critical benchmarks

HM Treasury is seeking views on the case for additional legal protections for parties affected by the wind-down of a critical benchmark. The consultation seeks to understand the extent to which there is uncertainty over the continued application of a critical benchmark to contracts where the Financial Conduct Authority (FCA) has exercised its power to direct a change in how the benchmark is determined under the Benchmarks Regulation, and the risk of associated litigation. The consultation closes on 15 March 2021.

Source: HMT consultation—Supporting the wind-down of critical benchmarks.

UK Finance publishes practical guide to LIBOR transition

UK Finance has published a guide for bankers and lenders on the discontinuation of LIBOR. It provides an overview of LIBOR transition and ongoing developments, reflecting on the developments to date and identifying the remaining industry progress to be made over the course of 2021. It also sets out logistical considerations of transition and provides a practical checklist identifying the actions firms should now be considering from a commercial and operational perspective, and transition strategies to help meet the various LIBOR implementation deadlines.

Source: UK Finance—Discontinuation of LIBOR—Guide for banks and lenders.

LMA publishes notes regarding the LIBOR rate transition

The Loan Market Association (LMA) has published various notes, outlining considerations for market participants relating to the impact of LIBOR transition for the wider suite of LMA documentation. These notes are intended to to highlight considerations for market participants to bear in mind when using compounded in arrear RFRs in the context of certain other loan product areas and jurisdictions’.

Source: LMA publishes notes outlining LIBOR transition considerations for the LMA's wider suite of documentation.

ISDA reports on transition to RFRs in 2020

The International Swaps and Derivatives Association (ISDA) has published Transition to RFRs Review: Full Year 2020 and the Fourth Quarter of 2020. This report analyses the trading volumes of over-the-counter and exchange-traded interest rate derivatives that reference selected alternative risk-free rates (RFRs).

Source: Transition to RFRs review: Full year 2020 and the fourth quarter of 2020.

ICE Benchmark Administration launches new US dollar reference rates webpage

ICE Benchmark Administration Limited (IBA) has launched a new webpage to provide a comprehensive overview of all of IBA’s solutions designed to help stakeholders prepare for the transition to new US dollar interest rate benchmarks.

Source: ICE Benchmark Administration launches new US dollar reference rates webpage to assist the market with US dollar LIBOR® transition.

ARRC releases recommendations for intercompany loans based on SOFR

The Alternative Reference Rates Committee (ARRC) has published recommendations for intercompany loans based on the Secured Overnight Financing Rate (SOFR), which is the ARRC’s preferred alternative reference rate to USD LIBOR. In its document, the ARRC recommends that ‘new SOFR-based intercompany loans use the 30- or 90-day Average SOFR set in advance, with a monthly, quarterly, semi-annual, annual, or other reset period as is determined appropriate by the firm’.

Source: ARRC Releases Conventions for SOFR-Based Intercompany Loans to Support Non-financial.

EMMI warns EONIA users to accelerate their transition to the €STR

The European Money Markets Institute (EMMI) has issued a statement encouraging EONIA users to accelerate their transition to the €STR—Eonia’s replacement rate—and to finalise without delay their phasing-out in the few months remaining before the benchmark’s planned cessation on 3 January 2022.

Source: Planned cessation of EONIA on 3 January 2022.

Regulation amending EU Benchmarks Regulation published in Official Journal

Regulation (EU) 2021/168 amending Regulation (EU) 2016/1011 (the EU Benchmarks Regulation) as regards the exemption of certain third-country spot foreign exchange benchmarks and the designation of replacements for certain benchmarks in cessation has been published in the Official Journal, applying from 13 February 2021.


High court finds no breach of duty by bank in exercise of enforcement rights under finance agreements (Aegean Baltic Bank SA v Renzlor Shipping and others)

[2020] EWHC 2851 (Comm)

The High Court found in favour of a bank’s claim against two companies (and the managing director of one of them) to recover outstanding sums due under a $US9m loan agreement and related security agreements (the finance agreements). In doing so, the court confirmed that the bank owed an equitable duty in exercising its enforcement rights under the finance agreements. However, that duty was capable of amendment and constriction by contractual agreement and, on the facts, there had been no breach by the bank of its equitable duty.

Checklist for managing an electronic signing process on a corporate or commercial transaction using an online platform published

A working group of Corporate PSLs, who are members of Networking for Know-how, an association of corporate PSL lawyers, have published a checklist for use when conducting an electronic signing on a corporate or commercial transaction. The checklist is designed purely as an informal list of points to consider when conducting an electronic signing and is designed to be tailored to the particular circumstances of a transaction. Topics covered by the checklist include signing instructions for both signatories and witnesses, arrangements authenticating the identity of signatories and arranging for signatures to be witnessed, and dating and circulating documents.

Source: Checklist for managing an electronic signing process on a corporate or commercial transaction using an online platform. 


European Commission launches targeted consultation on the EU Financial Collateral Directive

The European Commission has launched a targeted consultation on the review of the EU Financial Collateral Directive 2002/47/EC (FCD). The aim of the Commission’s review of the FCD is to consider developments that could affect its functioning and to ensure coherence across legislative frameworks. Relevant issues can arise from market developments (economic, financial or technological) and/or regulatory changes. Two specific issues that are dealt with in the consultation are: recognition of close-out netting provisions; and financial collateral. The consultation closes on 7 May 2021.

HMLR updates three sections of PG8 to clarify procedure on execution of deeds

HM Land Registry (HMLR) has updated three sections of Practice Guide (PG) 8 on the execution of deeds. Section 10 has been expanded slightly to clarify the position on counterparts, section 12 has been amended to confirm that a deed of substituted security can be Mercury signed, and section 13 has been amended to clarify HMLR’s requirements for electronic signatures. An additional line has been added to the certificate in appendix 3 so that the deed in respect of which the certificate is given can be specified.

Source: Execution of deeds (PG8).

Islamic finance

IFSB publishes working papers on Islamic banking stability during coronavirus (COVID-19) and on digital transformation

The Islamic Financial Services Board (IFSB) has issued two new working papers, one on assessing the stability of Islamic banking amid the coronavirus (COVID-19) pandemic and the other on digital transformation in Islamic banking. The first empirically assesses the preliminary effect and implication of the abrupt and pervasive COVID-19 pandemic for the stability of the global Islamic banking industry. The second investigates the operational activities and regulatory approaches relating to the Islamic banking digital transformation process across IFSB member jurisdictions.

Source: The IFSB issues two new working papers on: Assessing the stability of Islamic banking amid COVID-19, and Digital transformations in Islamic banking.

Trade and commodity finance

UKEF launches new financing scheme to help SMEs export goods and services

UK Export Finance (UKEF) has launched a new scheme designed to help importers of UK goods and services obtain financing in order to increase exports. The new Standard Buyer Loan Guarantee (SBLG) will seek to ensure UK exporters are paid upfront and that buyers can obtain flexible repayment terms. Through the scheme, UKEF will be able to guarantee a loan of up to 85% of the contract value with a UK company, up to the value of £30m. The SBLG forms part of the government’s plans to support smaller businesses.

Source: UKEF overhauls buyer finance support to boost SME exports.

GSCFF to update its standard definitions to include description of CPU

The Global Supply Chain Finance Forum (GSCFF) has confirmed that it is to update its standard definitions for techniques of supply chain finance to provide further clarity on the distinctions between the individual techniques. GSCFF detailed that alongside the existing receivables purchase and retitled loan sub-categories, a newly created advanced payable sub-category now includes three techniques, namely, corporate payment undertaking (CPU), dynamic discounting (DD) and bank payment undertaking (BPU). Chair of the GSCFF, Christian Hausherr, said: ‘At the time of publication, the Standard Definitions were deemed to be complete and widespread acceptance of the terminology confirms their benefit for the wider industry. Today, the GSCFF aims to bring further clarity to the techniques, with new description of CPU, DD and BPU. Adapting to current business practices, these updates will continue to encourage greater adoption of the Standard Definitions by market participants’.

Source: GSCFF Announces Update to its Standard Definitions to Include Description of Corporate Payment Undertaking.

Sustainable finance

ICMA publishes new Q&As on sustainability-linked bonds

The Executive Committee of the International Capital Markets Association (ICMA)’s Green and Social Bond Principles has published new Q&As for sustainability-linked bonds (SLBs). The Q&As are designed to promote understanding of this new financial instrument and its place in an issuer’s overall sustainability strategy, as well as encourage development in this rapidly evolving new market.

Source: Sustainability-linked bonds—new Q&As and other resources published by the Green & Social Bond Principles

LMA, APLMA and LSTA publish updated Green Loan Principles

The LMA, the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA) have published a revised version of the Green Loan Principles (GLP) and the Guidance on Green Loan Principles (GLP Guidance).

Source: Green Loan Principles.

European Commission summarises responses to consultation on the renewed sustainable finance strategy

The European Commission has published a summary report of its consultation on the renewed sustainable finance strategy, which closed on 15 July 2020. The document provides a factual overview of the feedback to the consultation, which the Commission says was generally supportive.

Source: Summary report of the stakeholder consultation on the Renewed Sustainable Finance Strategy.

LMA  publishes response to EBA discussion paper on management and supervision of ESG risks for credit institutions and investment firms

The LMA has responded to the European Banking Authority (EBA) discussion paper on management and supervision of environmental, social and governance (ESG) risks for credit institutions and investment firms.

Source: LMA responds to EBA discussion paper on management and supervision of ESG risks for credit institutions and investment firms.

Green Finance—UK joins the International Platform on Sustainable Finance

On 3 February 2021, HM Treasury confirmed the UK’s commitment to strengthening international co-operation on environmentally sustainable finance through becoming a signatory to the Joint Statement on the International Platform on Sustainable Finance.

Sources: HM Treasury Joint Statement on the International Platform on Sustainable Finance (IPSF) and IPSF Sustainable Finance Fact Sheet.

Debt capital markets

European Commission launches targeted consultation on EU Settlement Finality Directive

The European Commission has launched a targeted consultation on the review of the EU Settlement Finality Directive 98/26/EC (SFD). Responses to the consultation will feed into the Commission’s current review of the SFD, which considers the impact of new developments in a changing business, technological and regulatory environment. The consultation closes on 7 May 2021.

Source: Targeted consultation on the review of the Directive on settlement finality in payment and securities settlement systems.

ECJ advocate general issues preliminary ruling on Prospectus Directive Articles 3(2) and 6

An advocate general of the Court of Justice of the EU (ECJ), Richard de la Tour, has given a preliminary ruling on the obligation to publish a prospectus when securities are offered to the public or admitted to trading under the Prospectus Directive 2003/71/EC, and civil liability towards qualified investors in the event of a prospectus being inaccurate or incomplete. The request for a preliminary ruling was made in proceedings between Bankia SA and Unión Mutua Asistencial de Seguros (UMAS), a mutual insurance entity, which acquired shares in Bankia SA where the prospectus contained serious inaccuracies (Case C‑910/19).

Source: Opinion of Advocate General: Bankia SA v Unión Mutua Asistencial de Seguros (UMAS), Case C‑910/19.


FIA article argues that derivatives markets well placed for a market-led response to sustainability issues

The Futures Industry Association (FIA) has published an article by its president and CEO, Walt Lukken, in which he argues that the cleared derivatives markets worked as shock absorbers during the coronavirus (COVID-19) economic downturn in March 2020, and can also contribute to the market-led response to sustainability issues. 

Source: Viewpoint—From recovery to sustainability, markets work.

ISDA CEO announces digital regulatory reporting initiative for OTC derivatives

The chief executive officer of ISDA, Scott O'Malia, has announced that ISDA is working on a digital regulatory reporting (DRR) initiative that will enable all firms to interpret and implement regulatory reporting rules for over the counter (OTC) derivative contracts consistently via a common, machine-readable code, using the Common Domain Model (CDM).

Source: Time to Digitize Trade Reporting.

ISDA and FIA respond to European Commission consultation on the review of CSDR

ISDA, FIA and the FIA European Principal Traders Association have submitted a joint response to the European Commission’s consultation on the settlement discipline regime under the Central Securities Depositories Regulation (EU) 909/2014 (CSDR). The response sets out concerns about detrimental effects arising from the application of the CSDR mandatory buy-in regime for the derivatives markets.

Regulation for derivatives lawyers

ESMA publishes final guidelines aiming to harmonise CCP supervisory reviews and evaluation under EMIR

The European Securities and Markets Authority (ESMA) has published its final report on guidelines aimed at assisting competent authorities in the application of provisions in the EU European Market Infrastructure Regulation (EU) 648/2012 (EU EMIR) that deal with the review and evaluation of central counterparties (CCPs). The guidelines address common procedures and methodologies for the review of arrangements, strategies, processes and mechanisms implemented by CCPs, including the evaluation of risks, covering requirements for CCPs to address financial, organisational, operational, and prudential risks as laid down in EU EMIR.

Source: ESMA publishes guidelines to harmonise CCP supervisory reviews and evaluation under EMIR.

FIA highlights CCP margin procyclicality concerns to European regulators

FIA has announced that it has presented to ESMA on the issues experienced in the spring of 2020 when high volatility and procyclicality of margin requirements were experienced in the global clearing system. During this period, the high number and the large size of margin calls drove demand for liquid assets, just as those assets were scarce due to market stresses. Such a drive for liquid assets can contribute to the stress in the financial system. The workshop was organised by ESMA’s CCP Supervisory Committee as part of its examination of the performance of clearinghouses during the extreme volatility in the spring of 2020, and included presentations from several clearinghouses, industry groups, and experts from ESMA’s staff.

Source: FIA highlights CCP margin procyclicality concerns to European regulators.

Regulation for banking lawyers

EBA publishes clarifications on coronavirus (COVID-19) implementation policies

The EBA has published additional clarifications on the application of the prudential framework in response to issues raised as a consequence of the coronavirus (COVID-19) pandemic. These clarifications update the FAQ section of the EBA report on COVID-19 implementation policies, which provides clarity on the implementation of the EBA guidelines on moratoria and the EBA guidelines on COVID-19 reporting and disclosure.

Sources: Press releaseEBA report on the implementation of selected COVID‐19 policiesGuidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis and Guidelines on COVID-19 measures reporting and disclosure.

Securitisation and structured products

IHS Markit optimistic for 2021 as it publishes H2 2020 securities finance review

IHS Markit has published its securities finance market review for the second half (H2) of 2020. The report covers equities in Asia Pacific (APAC), Europe and the Americas, as well as exchange traded funds (ETFs) and bonds. The review also includes an overview of the new functionalities released by IHS in this time.

Source: Securities Finance: H2 2020 Review.

ESMA publishes guidelines on portability of information between securitisation repositories

The European Securities and Markets Authority (ESMA) has published guidelines on portability of information between securitisation repositories under the Securitisation Regulation.

Source: Guidelines on portability of information between securitisation repositories under the Securitisation Regulation.


Gateway to recognition closed? Convening judgment determines that new UK restructuring plan falls outside scope of Lugano Convention 2007 (Re gategroup Guarantee)

[2021] EWHC 304 (Ch)

This judgment relates to the convening hearing for a restructuring plan under section 901C of the Companies Act 2006 (CA 2006) for gategroup Guarantee Ltd. In giving judgment, Mr Justice Zacaroli held that restructuring plans are insolvency proceedings falling within the bankruptcy exclusion in the Lugano Convention 2007 and that the court accordingly had jurisdiction in spite of an exclusive jurisdiction clause in favour of the courts of Zurich. The Lugano Convention 2007 had been anticipated by many practitioners to offer a route to recognition for both schemes of arrangement and restructuring plans in EU Member States post-Brexit; however, this decision rejects the possibility of such an approach in relation to restructuring plans. Although the determination in relation to the Lugano Convention 2007 is likely to be the main focus for practitioners, this judgment also provides helpful confirmation that the court will accept jurisdiction even in circumstances where it has been manufactured through the use of a newly incorporated special purpose vehicle (SPV).

Claims and remedies

Drawing the boundaries of the Quincecare duty in cases of fraud (Philipp v Barclays Bank plc)

[2021] EWHC 10 (Comm)

Barclays Bank plc successfully applied for summary judgment against Mrs Philipp (the claimant) in respect of her claim that Barclays breached its so-called Quincecare duty in failing to prevent the fraudulent dissipation of £700,000 following an authorised push payment fraud, ie a fraud where the victim is induced by the fraudster to authorise a payment instruction to transfer funds to the fraudster. The High Court determined that the claimant’s claim had no real prospects of success since the claim was dependent upon an impermissible and unprincipled extension of the Quincecare duty to situations where a bank acts on a customer’s authorised payment instructions. The duty was held to be confined to situations where an agent of the customer sought to misappropriate funds as had been the case in previously decided cases such as Singularis Holdings Ltd (In Official Liquidation) v Daiwa Capital Markets Europe Ltd.



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