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Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from January 2019.
Judith Lawless, partner at McCann FitzGerald in Dublin, explains how the International Swaps and Derivatives Association’s (ISDA) publication of Irish and French law governed credit support documents is part of a broader ISDA initiative responding to member demand for documentation governed by the laws of an EU Member State in News Analysis: ISDA future-proofs arrangements against uncertainties posed by Brexit.
ISDA has published a set of frequently asked questions (FAQs) which address the possible UK position after its exit from the EU. The responses to the FAQs involve an assessment of the various outcomes of the exit negotiations, including a possible no-deal Brexit.
The Financial Conduct Authority (FCA) has published a document providing guidance on how to notify the FCA under the temporary permission regime (TPR) for inbound passporting European Economic Area (EEA) investment funds. If the UK leaves the EU without a withdrawal agreement in place, the TPR will allow EEA firms and funds which currently passport into the UK to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation, and will allow funds with a passport to continue marketing temporarily in the UK. Managers of undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) wishing to use the regime must tell the FCA which of their funds they wish to continue marketing in the UK, and the document published by the FCA provides detailed instructions for doing this.
The European Commission has adopted Commission Delegated Regulations including the Bank of England (BoE) and other UK public bodies charged with or intervening in the management of public debt in the list of exempt entities under certain provisions of the European Market Infrastructure Regulation (EMIR), the Market Abuse Regulation, the Markets in Financial Instruments Regulation and the Securities Financing Transactions Regulation. The Commission has also published its related reports to the European Parliament and the Council of the EU.
The Treasury Committee has launched an inquiry that will examine what the UK government’s financial services priorities should be when it negotiates the UK’s future trading relationship with the EU and third countries. It will also look at how the UK’s financial services sector can take advantage of the UK’s new trading environment with the rest of the world, and whether the UK should maintain the current regulatory barriers that apply to third countries.
The House of Commons Treasury Committee has published a letter from John Glen, economic secretary to the Treasury, to Nicky Morgan, the Committee chair, regarding the proposal for a temporary transitional power to be delegated to the Bank of England, the Prudential Regulation Authority (PRA) and the FCA in the event of a no-deal Brexit scenario.
Edwin Schooling Latter, director of markets and wholesale policy at the Financial Conduct Authority (FCA), has given a speech on LIBOR transition and contractual fallbacks at the ISDA Annual Legal Forum. Mr Schooling Latter said that there is now wide recognition that LIBOR will come to an end and that he wished to explore in more detail how it will end. This has important implications for contractual design. It is relevant, in particular, to how fallback language in outstanding contracts that continue to reference LIBOR will and should work. Understanding the way in which the end of LIBOR will play out is key to choosing the right trigger point for moving to a new or replacement fallback rate.
The working group on euro risk-free rates, for which the ECB provides the secretariat, has published the paper ‘Guiding principles for fallback provisions in new contracts for euro-denominated cash products’. The paper offers an overview of the legal frameworks and market practices applicable to cash products, such as mortgages, loans and bonds that reference EURIBOR and EONIA, with a specific focus on fallback clauses.
The Working Group on Sterling Risk-Free Reference Rates has published a paper entitled ‘New and legacy loan transactions referencing Sterling LIBOR’. The paper is intended to raise market awareness regarding potential considerations for loan market participants in relation to new and legacy loan agreements which reference LIBOR. Its aim is to help market participants increase their level of preparedness and forward planning.
The working group on euro risk-free rates has issued a request for market feedback on its technical analysis of the paths available for transitioning from the euro overnight index average (EONIA) to the euro short-term rate (ESTER), and on its assessment of alternative ESTER-based term structure methodologies that can serve as a fallback for EURIBOR linked contracts.
The Loan Market Association (LMA) has amended its suite of facility documentation to incorporate a change to the definition of ‘FATCA Application Date’, as well as to their general disclaimer wording, which has been amended following a review of its membership byelaws.
The Loan Market Association (LMA) has announced that it updated its EU bail-in legislation schedule to reflect the enacting legislation that has recently come into effect in Norway and Liechtenstein. The update also includes the associated users guide in recognition of this enactment.
The LMA has amended its suite of facility documentation to incorporate a change to the definition of ‘FATCA Application Date’, as well as to their general disclaimer wording, which has been amended following a review of its membership byelaws.
Companies House has published online guidance outlining how to register a mortgage charge for a company. The guidance also applies to limited liability partnerships and includes information on using the online filing service for a reduced fee of £15, compared to the £23 fee to register a charge on paper.
The Islamic Financial Services Board (IFSB) has issued a working paper series on regulatory and market practices related to consumer protection in the Takāful sector. The paper explores how an effective and comprehensive consumer protector regime can be designed and implemented throughout customer engagement with the operators and their intermediaries.
The Investment Association (IA) has launched the first industry-wide consultation on sustainability and responsible investment. The consultation seeks the views of asset managers on key aspects around sustainability and responsible investment, with the aim of bringing greater clarity to help savers and investors navigate and better access this growing feature of the investment management industry.
The European Commission has published draft rules on how investment firms and insurance distributors should take sustainability issues into account when providing advice to their clients. The draft rules would amend delegated acts under the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) and the Insurance Distribution Directive (Directive (EU) 2016/97).
The updated Arrangement on Officially Supported Export Credits for January 2019 has been published, replacing the July 2018 version. It includes all modifications agreed to the Sector Understanding on Export Credits for Civil Aircraft (ASU) and is effective as from 1 January 2019.
The Committee on the Global Financial System (CGFS) of the Bank for International Settlements (BIS) has published a new report outlining ways to boost domestic capital markets. The report examines recent trends in capital market development and identifies the factors that foster the development of robust capital markets, including greater market autonomy and better investor protection.
ICMA launches Green Bond Principles and Social Bond Principles Helpdesk
The International Capital Market Association (ICMA) has announced that it has launched a green bond principles and social bond principles Helpdesk. The aim of the Helpdesk is to offer members informal guidance on questions related to green, social and sustainability bonds specifically relating to the interpretation and application of the principles themselves (and the sustainability bond guidelines).
ICMA updates Frequently Asked Questions on Repos
ICMA has updated its Frequently Asked Questions (FAQs) on Repos. The document includes a new item on mapping the interdealer European repo market, which describes the different stages of a transaction's life and looks at trading, clearing and collateral management.
ICMA publishes its Quarterly Report—First Quarter 2019
ICMA has published its Quarterly Report, First Quarter 2019—Assessment of Market Practice and Regulatory Policy. The Report reviews developments in 2018 and provides an outlook for the year ahead. In particular, the Report includes feature articles on preparations for Brexit in international capital markets and the transition to risk-free rates.
ICMA updates guide to best practice in the European repo market
ICMA has published an updated version of the ICMA European Repo and Collateral Council Guide to Best Practice in the European Repo Market along with a consolidated blackline of amendments to the Guide since it was previously updated in December 2017. The latest version of the Guide is effective as of 21 December 2018.
ISDA chief delivers speech on financial policy developments and future challenges
The chief executive of the International Swaps and Derivatives Association (ISDA), Scott O’Malia, delivered a speech at the Exchequer Club Luncheon. During the speech, ISDA’s perspective on financial policy developments and future challenges were announced. Mr O'Malia stressed that ISDA co-operate regularly with regulators and policy-makers all over the world to make sure that the key issues are understood.
ISDA Create part of next-generation IM documentation
ISDA has launched ISDA Create, an online solution that enables firms to produce, deliver, negotiate and execute derivatives documents completely online. The system captures, processes and stores data from these documents, providing users with a complete digital record. The first offering under ISDA Create, allows firms to electronically negotiate and execute initial margin (IM) documentation and is called ISDA Create—IM. ISDA has developed ISDA Create—IM in partnership with law firm Linklaters.
ISDA SwapsInfo Review—full year 2018 and fourth quarter of 2018
ISDA has published the ‘ISDA SwapsInfo Review’, which provides analysis of interest rate derivatives (IRD) and credit derivatives trading activity over both the full year 2018 and the fourth quarter of 2018. The report provides a breakdown of cleared, non-cleared, swap execution facility (SEF) and off-SEF traded notional and trade count, as well as product taxonomy and currency information. The summary was published on 15 January 2019.
ISDA publishes best practice recommendations for CCPs
ISDA has published a set of best practices for CCPs, aimed at ensuring greater consistency in risk practices at CCPs across the globe. The paper highlights steps that can be taken to minimise the potential for a member default to impact other members and the financial system as a whole, except in an extreme stress event.
January issue of ISDA Quarterly published
ISDA has released its latest Quarterly, which focuses on forecasting the priorities for derivatives markets. Key priorities will include benchmark reform, particularly with the transition period for the EU Benchmarks Regulation which will expire at the end of 2019, and cross-border harmonisation, as well as ensuring standardisation across firms and platforms as new technologies are adopted.
Streamlined licensing process for ISDA SIMM released
ISDA has released a streamlined licensing process for its ISDA SIMM. This is in preparation for September 2020, when an increased number of entities are expected to be in scope for the initial margin regulations (phase 5 entities). The ISDA SIMM will ensure firms are able to utilise the tool to prepare for the deadline. No fees will be charged to phase 5 entities for the use of ISDA SIMM.
The Securitisation Regulation (EU) 2017/2402 and the Capital Requirements Regulation (CRR) Amendment Regulation (EU) 2017/2401, which entered into force in January 2018, now apply in all EU Member States as of 1 January 2019. The new harmonised rules set the criteria for simple, transparent and standardised (STS) securitisation in the EU as part of the Capital Markets Union action plan.
The PRA and the FCA have issued a joint statement setting out how firms should make information regarding ‘private’ securitisations available to their UK competent authorities under the Securitisation Regulation (EU) 2017/2402. This direction applies to all UK established originators, sponsors and securitisation special purpose entities as of Tuesday 15 January 2019.
ESMA publishes six more opinions on MiFID II position limits
The European Securities and Markets Authority (ESMA) has published six opinions on position limits regarding commodity derivatives under the Markets in Financial Instruments Directive and Regulation (MiFID II/MIFIR). ESMA found that the proposed position limits are consistent with the objectives established in MiFID II and with the methodology developed for setting those limits.
ESMA provides update on assessment of third-country trading venues under MiFID II and MiFIR
ESMA has provided an update on its assessment of third-country trading venues (TCTVs) for the purpose of post-trade transparency and position limits under MiFID II/MIFIR. ESMA has not been able to review a sufficient number of TCTVs to publish a comprehensive list, so transactions concluded on TCTVs will not yet need to be made public, and commodity derivatives contracts traded on TCTVs will be not be considered as economically equivalent over-the-counter (EEOTC) contracts for the purpose of the position limit regime.
FCA opens advance applications from CRAs and TRs
The FCA has announced that it has opened advance applications from credit rating agencies (CRAs) and trade repositories (TRs) looking to offer services in the UK after 29 March 2019. CRAs and TRs looking to register a new UK entity or convert their ESMA registration into an FCA registration can find information on how to submit an advance application on the FCA’s CRA and TR webpages.
Council Decision (EU) 2019/134 of 21 January 2019 on the position to be adopted, on behalf of the European Union, within the EEA Joint Committee, concerning the amendment of Annex IX (Financial Services) to the EEA Agreement has been published in the Official Journal of the EU. The decision incorporates Regulation (EU) 909/2014 on improving securities settlement in the EU and on central securities depositaries (CSDR) into the Agreement on the European Economic Area.
The European Investment Bank (EIB) has published a working paper on blockchain, Fintechs and their relevance for international financial institutions. The working paper is intended to be a primer on financial technology and blockchain and to shed light on the impact they may have on the financial industry.
The European Commission has issued a corrigendum to the English language version of its third progress report on the reduction of non-performing loans (NPLs) and further risk reduction in the Banking Union, published in November 2018. The new version corrects a typo in point 3.4 of the report.
The BIS has published a working paper which focuses on how Bitcoin and related crypto-assets verify that payments are final (ie irreversible) once written into the blockchain. It points to the high costs of achieving such finality via ‘proof-of-work’. It then weighs the outlook for cryptocurrencies based on this kind of algorithm and looks at possible future avenues for progress.
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