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Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from July 2018.
The Supreme Court ruling in Goldman Sachs v Novo Banco  UKSC 34, recognises that a decision of the Portuguese central bank that, when it incorporated the respondent bank as a bridge institution and transferred to it the assets and liabilities of a failed bank, a liability to the appellants under a loan agreement had not, as a result of Portuguese law, been included in the transfer. Richard Salter QC and Jonathan Mark Phillips, of 3 Verulam Buildings, examine the decision in News Analysis: Supreme Court rules on recognition of foreign measure for bank reorganisation (Goldman Sachs and others v Novo Banco).
The Financial Markets Law Committee (FMLC) has sent a letter in response to the European Commission's proposed regulation on the 'third-party effects' of the assignment of claims. The proposed regulation applies the law of the assignor's habitual residence to the proprietary and third-party effects of an assignment, with various carve outs. The FMLC reiterates its previously published view that the law of the underlying claim, rather than the law of the assignor's habitual residence, should apply in this context.
HM Land Registry has amended section 6 of its practice guide 29 on the registration of legal charges and deeds of variation of charge. The amendment clarifies that an application to register a lender’s obligation to make further advances must be made by the lender or their conveyancer.
According to Jamie Riley, barrister at Littleton Chambers, the decision in Re Birchen House Ltd; Williams v Broadoak Private Finance Ltd  EWHC 1107 (Ch), where an administrator applied to dispose of property free of various secured interests, highlights the fundamental importance of registering property and security interests in order to determine the priority of such rights under section 29 of the Land Registration Act 2002. For more information, see News Analysis: The primacy of prior registration of property (Re Birchen House Ltd).
The Department for Transport has published its interim report on the airline insolvency review, which looks at how airlines can wind down with minimum impact on passengers and taxpayers. The report outlines the review’s early conclusions and next steps.
The Islamic Financial Services Board (IFSB) has issued its eighth working paper on issues arising from changes in takāful capital requirements—the IFSB’s first paper on the takāful sector. It examines potential issues in relation to the solvency requirements of takāful, such as surplus, capital instruments, and qard. It also identifies regulatory and stability issues arising from global capital regulation for the insurance sector and their implications on takāful solvency requirements.
The House of Commons European Scrutiny Committee has published an update on the European Commission’s green finance proposals on classification of investments, disclosures and low carbon benchmarks. The overall aim of the proposals is to channel more investment into sustainable activities by incorporating environmental, social and governance considerations into investment industry practices.
The economic secretary to the Treasury, John Glen MP, has said his vision for the next year and beyond is ‘an explosion of the momentum’ to the point where ‘green finance’ becomes simply ‘finance’. Mr Glen was speaking at the second annual Green Finance Summit.
The Association of Investment Companies (AIC) has published a press release in which a number of investment company managers comment on how they are taking advantage of opportunities to confront environmental issues.
The Department of Business, Energy & Industrial Strategy (BEIS) published the draft Registration of Overseas Entities Bill (Draft Bill) on 23 July 2018. This sets out provisions to establish a new beneficial ownership register of overseas entities that own UK property. This follows the commitment made at the Anti-Corruption Summit in 2016 to establish such a register in order to combat money laundering and achieve greater transparency in the UK property market.
BEIS have also opened a consultation seeking views on how the clauses in the Draft Bill will be implemented in practice (see Overview and Q&A document). The consultation closes on 17 September 2018. The Government intends the register to become operational in 2021.
Draft provisions have been proposed to facilitate access to finance for businesses, by nullifying terms in business contracts, which prohibit or restrict the assignment of receivables in England, Wales and Northern Ireland. This includes terms which prevent an individual to whom a receivable is assigned from enforcing it or determining its validity or value.
For more information, see News Analysis: Updated draft regulations on business contract terms, where Richard Calnan, partner at Norton Rose Fulbright, and Rebecca Oliver, knowledge of counsel, consider the background to the draft Business Contract Terms (Assignment of Receivables) Regulations 2018 and how they could affect the drafting of provisions in contracts and security structures.
The European Banking Authority (EBA) has published a report presenting the outcome of its assessment to the European Commission's call for advice on the European secured notes (ESNs). In addition, it puts forward recommendations on key aspects for the European Commission to consider when possibly designing the legislative framework for SME ESNs.
The Banking & Finance team has been speaking to Thomas Werlen, a Managing Partner of the Swiss office of Quinn Emanuel and a P.R.I.M.E. Finance Expert and Jascha Trubowitz, a trainee at the Swiss office of Quinn Emanuel from April 2017 to June 2018 and currently an intern at the Office of the Attorney General in Switzerland who discuss the recently published IBOR Global Benchmark Transition Report, published by ISDA, AFME, ICMA, SIFMA and SIFMA AMG in News Analysis: The IBOR Global Benchmark Transition Report provides recommendations for transitioning from the IBORs to alternative RFRs.
In The State of Netherlands v Deutsche Bank AG  EWHC 1935 (Comm), the judge confirmed that a standard ISDA Credit Support Annex (CSA) does not include an obligation on a Transferor to account for negative interest if the ISDA 2014 Collateral Agreement Negative Interest Protocol has not been explicitly incorporated. For more information, see News Analysis: In a climate of low interest rates, is negative interest automatically payable? (The State of the Netherlands v Deutsche Bank AG).
In Property Alliance Group Limited v The Royal Bank of Scotland plc  EWCA Civ 355, the Royal Bank of Scotland PLC won a final victory over Property Alliance Group in a landmark battle over the alleged mis-selling of derivatives after the Supreme Court refused to review the dismissal of the property company's £30m ($39m) claim.
 EWHC 1731 (Comm)
The High Court struck out a state-owned Iranian shipping company's $8.9 million unjust enrichment lawsuit against Société Générale SA, finding that allegations which said that the French bank wrongly appropriated sums owed under a swap agreement between the parties were actually time-barred.
In BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA , case number CL-2016–000583, it was held that the French lender BNP Paribas SA can bring legal proceedings against an Italian waste management company in the English courts after a judge in London ruled that a jurisdiction clause in a swap deal between the parties trumps an agreement on Italian jurisdiction in a €413m ($480m) loan contract.
ISDA publishes 2018 US Resolution Stay Protocol
ISDA has published the ISDA 2018 US Resolution Stay Protocol. The US Resolution Stay Protocol is intended to help market participants comply with stay regulations issued in the US by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The regulations require global systemically important banks to include contractual stays on early termination rights within qualified financial contracts.
Paper outlines challenges for market participants after initial margin implementation
The International Swaps and Derivatives Association (ISDA), in conjunction with the Securities Industry and Financial Markets Association, have published a paper that aims to highlight the challenges market participants will face when the final phases of initial margin (IM) for non-centrally cleared derivatives implementation take place. The paper outlines the significant tasks and problems that must be addressed to provide a smooth implementation that is without disruption to the functioning of the derivatives market.
ISDA CEO on benchmark reform
ISDA has published an article in its derivatiViews series on benchmark reform by its CEO Scott O'Malia, who says that reforms to interest rate benchmarks will have a big impact across financial markets and that making sure the entire market appreciates the scale of the issue and takes early action is a priority.
ISDA adds French and Irish master agreements to its law choices
ISDA has made additions to its existing suite of English, New York and Japanese law choices by publishing new French and Irish versions of the ISDA Master Agreement. The new French and Irish master agreements offer options for institutions who prefer to continue trading under a EU Member State law with EU court jurisdiction clauses after Brexit.
US derivatives market—total transactions exceed mandate requirement
A paper analysing the impact of key incentives to promote the clearing of standardised over-the-counter (OTC) derivatives has been published by ISDA. The paper calculates the impacts of these incentives—encouraging the clearing of standardised derivatives, netting and capital benefits, and the rollout of margining requirements for non-cleared derivatives—by analysing the volume of cleared derivatives.
The European Commission has published a communication on the intention to endorse, with amendments, the draft RTS and Implementing Technical Standards (ITS) submitted by the European Securities and Markets Authority (ESMA) with regard to the details of securities financing transactions (SFTs) to be reported to trade repositories in accordance with Articles 4(9) and 4(10) of the Securities Financing Transactions Regulation (Regulation (EU) 2015/2365) (SFTR) and to amend, accordingly, the ITS with regard to the details to be reported to trade repositories in accordance with Article 9(6) of the European Market Infrastructure Regulation (Regulation (EU) No 648/2012) (EMIR).
The European Securities and Markets Authority (ESMA) is consulting on the clearing obligation under EMIR. The consultation deals with an amending draft regulatory technical standards (RTS) regarding the treatment of intragroup transactions with a third country group entity. ESMA’s consultation seeks stakeholders’ views on a proposed extension of the temporary intragroup exemption and is open for feedback until 30 August 2018.
ESMA has updated its Q&As on the application of the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive (AIFMD).
ESMA has published the responses received to its consultations on securitisation repositories. ESMA’s consultation papers sought stakeholders’ views on:
technical advice to the European Commission on securitisation repository fees: the type of supervisory fees, the matters for which fees are due, the amount of the fees and the manner in which they are to be paid
ESMA has issued a first set of technical standards (TS) under the Securitisation Regulation (Regulation (EU) 2017/2402) (SR), containing both draft regulatory and implementing standards (RTS/ITS). These TS contain detailed arrangements to implement the new European regulatory framework, which is intended to promote simple, transparent and standardised (STS) securitisations. ESMA has submitted the draft standards to the European Commission for endorsement.
The EBA has published its final draft RTS specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in the new EU securitisation framework (STS Regulation). The final draft RTS, which replace the current Commission Delegated Regulation (EU) 625/2014 on risk retention, aim to provide clarity on the requirements relating to risk retention, thus reducing the risk of moral hazard and aligning interests.
The European Supervisory Authorities (ESAs) have published further guidance on the key information document (KID) requirements for packaged retail and insurance-based investment products (PRIIPs). The guidance seeks to promote common supervisory approaches and practices based on ongoing work to monitor the implementation of the KID. It supplements material published in 2017 prior to implementation.
The International Capital Market Association (ICMA) has published an information brochure on Central Securities Depositories Regulation (EU) 909/2014 (CSDR) mandatory buy-ins, outlining the scope and regulatory requirements. The CSDR buy-in provisions are expected to come into force in September 2020 and will also apply to non-EU/EEA domiciled trading entities.
The European Parliament's Committee on Economic and Monetary Affairs (ECON) has adopted its final reports which can be found here and here on two European Commission proposals to amend the Capital Requirements Directive (CRD IV) and Regulation (CRR). The proposals were made by the Commission in November 2016 as part of its larger package of changes to banking legislation. The reports, which have been tabled for plenary, recommend a number of amendments in some key areas.
ESMA updates Q&As on MiFID II and MiFIR investor protection and intermediaries
ESMA has updated its Q&A document on the implementation of investor protection topics under the Market in Financial Instruments Directive 2014/65/EU and Regulation (EU) 600/2014 (MiFID II/MiFIR).
ECON publishes draft report on proposal to exempt crowdfunding from MiFID II
The European Parliament's Committee on Economic and Monetary Affairs (ECON) has published a draft report on the European Commission's proposal to amend Directive 2014/65/EU on MiFID II in order to exempt crowdfunding service providers from the obligations under that directive. ECON has recommended one change to the recitals.
ESMA issue final RTS on certain provisions in the Prospectus Regulation
ESMA has issued regulatory technical standards (RTS) specifying the implementation of certain provisions in the Prospectus Regulation (EU) 2017/1129 (PR). Under the PR, ESMA was mandated to develop draft RTS by 21 July 2018. The draft RTS have been sent to the European Commission for endorsement. The PR entered into force in June 2017 and will be fully applicable by 21 July 2019.
ESMA consults on Prospectus Regulation and recommends level 1 changes
ESMA has launched two public consultations which can be accessed here and here under the PR. ESMA is seeking views on its technical advice on exempt documents produced for the purpose of offers/admission of securities connected to a takeover, merger or division, as well as in relation to its proposed guidelines on risk factors. The consultations close on 5 October 2018. ESMA has also called on the European Commission to make some changes to the level 1 text of the PR.
HMT letter on proposed directive on cross-border distribution of collective investment funds
The economic secretary to HM Treasury, John Glen MP, has written a letter to the chair of the House of Commons European Scrutiny Committee, Sir William Cash MP, dated 3 July 2018. The letter responds to the Committee's report on the proposal for a directive of the European Parliament and of the Council amending Directive 2009/65/EC of the European Parliament and of the Council, and Directive 2011/61/EU of the European Parliament and of the Council with regard to cross-border distribution of collective investment funds.
DExEU memorandum on proposed directive on cross-border distribution of collective investment funds
The Department for Exiting the European Union (DExEU) has published a memorandum on the proposal for a directive of the European Parliament and of the Council amending Directive 2009/65/EC of the European Parliament and of the Council and Directive 2011/61/EU of the European Parliament and of the Council with regard to cross-border distribution of collective investment funds.
A revised version of the Practice Direction on Insolvency Proceedings came into force on 4 July 2018, replacing the version that had come into force on 25 April 2018. The latest version corrects a number of issues that existed in the April 2018 version. For more information, see News Analysis: Revised Practice Direction on Insolvency Proceedings comes into force.
FSB, FCA and ISDA publish statement, speech and consultation on interest rate benchmark reform
The FSB has published a statement concerning reforms to interbank offered rates (IBORs) and the development of overnight risk-free, or nearly risk-free, rates (RFRs) and term rates. The statement is intended to provide market participants and other stakeholders with the FSB's views ahead of a forthcoming consultation by ISDA which contemplates fall backs for certain derivative contracts based on overnight RFRs. Meanwhile, the Financial Conduct Authority (FCA) CEO Andrew Bailey has given a speech warning firms not to assume that LIBOR may somehow survive, and urging them to increase the speed of the transition to alternative interest rate benchmarks.
BoE consultation paper on term SONIA reference rates
The Bank of England's (BoE) Working Group on sterling risk-free reference rates has launched a consultation on term SONIA reference rates (TSRRs). The BoE is seeking feedback on specific recommendations and encourages market participants to take forward work on the development of robust TSRRs, which members anticipate could be available in the second half of 2019. Feedback should be provided by 30 September 2018.
The ECB has announced further steps in its supervisory approach for addressing the stock of non-performing loans (NPLs) in the euro area. ECB Banking Supervision will engage with individual banks to define its supervisory expectations, which are based on a benchmarking of comparable banks and guided by individual banks’ current NPL ratio and main financial features. The aim is to ensure continued progress to reduce legacy risks and achieve the same coverage of the stock and flow of NPLs over the medium term.
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