Monthly Highlights: March 2017

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from March 2017.

Brexit

UK formally triggers Article 50

Theresa May has given formal notification of the UK’s intention to withdraw from the EU under Article 50 of the Lisbon Treaty. On 29 March 2017, Sir Tim Barrow, UK’s permanent representative to the EU in Brussels, handed over a letter from the PM to Donald Tusk, the President of the European Council. The notification letter confirms the UK’s intention to withdraw from the EU and sets out seven key principles for negotiations, including the need to work towards a comprehensive agreement which minimises disruption and puts the citizens of the UK and EU first.

With a view to setting out some of the legislative and regulatory changes ahead, the government is due to publish a White Paper on the Great Repeal Bill on 30 March 2017. Several pieces of legislation are expected to follow in due course.

Briefing paper published on potential impact of Brexit on financial services

The House of Commons Library has published a briefing paper on Brexit & financial services which brings together responses from financial organisations about the impact of the vote to leave the EU. The briefing paper contains reactions from official bodies such as the Bank of England (BOE) and the Financial Conduct Authority (FCA), as well as certain UK financial institutions and other organisations.

Lending

New Standards of Lending Practice for business customers

The Lending Standards Board (LSB) has made changes to the voluntary code of practice covering lending to small business customers. The new Standards of Lending Practice for business customers, which replace the Lending Code, extend protections beyond micro-enterprise customers to small businesses with a turnover of up to £6.5m.

The LSB says the new Standards of Lending Practice will bring enhanced protections for a much wider range of businesses, supporting organisations in achieving fairer customer outcomes, from the initial product offering and application process through to account servicing, portfolio management and identifying signs of financial stress.

The new Standards will become effective on 1 July 2017, with the applicable provisions within the existing Lending Code remaining in force until then. They will be independently monitored and enforced by the Lending Standards Board.

The Standards of Lending Practice for personal customers have been in effect since 1 October 2016.

For more information, see the press release.

New financial services trade association named UK Finance

The Consumer Credit Trade Association (CCTA) has announced that the new trade association for the UK financial services sector will be named UK Finance. The new trade body, which merges six existing associations, has been named UK Finance—Representing UK Finance and Banking, by unanimous decision from its interim main board.

UK Finance will integrate the remits, skills and capabilities of six trade associations:

  1. Asset Based Finance Association (ABFA)
  2. British Bankers' Association (BBA)
  3. Council of Mortgage Lenders (CML)
  4. Financial Fraud Action UK (FFA UK)
  5. Payments UK
  6. UK Cards Association (UKCA)

UK Finance is set to launch in the summer of 2017. For more information, see the press release.

LMA updates leveraged super senior facility and intercreditor agreements

The Loan Market Association (LMA) has updated its leveraged super senior facility agreements and intercreditor agreements to account for the changes made to its leveraged documentation in November 2016. For more information on the changes in November, see News Analysis: LMA leveraged documents—what has changed?.

Members of the LMA can access the documents by logging into the LMA website with their username and password.

Withholding tax exemption proposed by HMRC

A consultation document has been issued by HM Revenue & Customs (HMRC) regarding a proposed exemption from withholding tax for interest on debt traded on a Multilateral Trading Facility (MTF), as previously announced in the Spring Budget 2017. The intention is to make the UK wholesale debt markets more competitive. The deadline for responses to the consultation is 12 June 2017.

The proposal specifies that legislation will be created to provide that the duty to deduct a sum representing income tax under the Income Tax Act 2007, s 874, does not apply to payment of interest:

  • on an interest-bearing security issued by a company
  • where the interest-bearing security is admitted to trading on an MTF, and
  • where that facility is operated by a recognised stock exchange regulated in an EEA territory

Benchmarks

Updated LIBOR Code of Conduct published

ICE Benchmark Administration (IBA) has published Issue 4 of its LIBOR Code of Conduct (the Code) which supersedes Issue 3 of the Code. It will apply to a contributing bank from the date on which it transitions to the methodology set out in the Roadmap issued by the IBA in March 2016. This Roadmap was designed to deliver a seamless transition to a more robust benchmark and the intention is to make LIBOR more sustainable in the long term.

The Code sets out the practice standards adopted by the IBA for benchmark submitters to ICE LIBOR. It provides the framework within which contributing banks should operate and assists users in deciding whether LIBOR is an appropriate benchmark to use in contracts. The Code also sets out the responsibilities of the Benchmark Administrator and its Oversight Committee. It has been confirmed as industry guidance by the Financial Conduct Authority (FCA).

The IBA has designed a waterfall of submission methodologies to ensure that LIBOR panel banks use funding transactions where available to anchor LIBOR to the greatest extent possible, as well as reflecting changes in banks' funding models. As previously reported, in January 2017 the IBA consulted on changes to the Output Statement and the underlying waterfall introduced in the Roadmap. The revised Output Statement is provided in Annex 2 to the Code.

The waterfall is now as follows:

  1. level 1: the volume weighted average price (VWAP) of eligible transactions
  2. level 2: submissions derived from transactions (including adjusted time-weighted historical transactions and linear interpolation), and
  3. level 3: expert judgment, appropriately framed

The standardising and updating measures set out in the Roadmap will be implemented progressively during 2017. Issue 2 of the Code applies to contributing banks before they transition to the Roadmap methodology. When all contributing banks have transitioned to the Roadmap methodology, Issue 2 will be withdrawn.

Restructuring & Insolvency

The Insolvency (England and Wales) Rules 2016

From 6 April 2017, the Insolvency (England and Wales) Rules 2016 come into force replacing the Insolvency Rules 1986 (IR 1986), SI 1986/1925. We provide details of some of the steps Lexis®PSL Restructuring & Insolvency, together with our external partners and LexisNexis Smartforms, have taken to ensure that you are ready for the changes. For more information see News Analysis: The Insolvency (England and Wales) Rules 2016 come into force.

Real estate finance

LMA updates its real estate finance facility and intercreditor agreements

The Loan Market Association (LMA) has updated its real estate finance facility and intercreditor agreements to account for changes made to its leveraged documentation in November 2016. For more information, see News Analysis: Examining the LMAs recent changes to real estate finance and intercreditor agreements.

LMA members can access the updated facility documentation via the LMA website.

Debt Capital Markets

ICMA introduces greater flexibility into buy-in rules

The requirement to appoint a buy-in agent will be removed under revisions to the buy-in and sell-out procedures, the International Capital Market Association (ICMA) has confirmed. The revised rules provide for the party initiating a buy-in/sell-out to execute the procedure themselves, subject to certain limitations. The changes come into effect from 3 April 2017.

ICMA has now confirmed certain revisions will be made. In addition to removing the requirement to appoint a buy-in or sell-out agent, the updated rules allow greater flexibility for the initiating party to determine the timing of the execution of the buy-in/sell-out.

Derivatives

WFE responds to CCP resolution and resolution planning consultation

The World Federation of Exchanges (WFE) has fed back on the Financial Stability Board (FSB) consultation on central counterparty (CCP) resolution and resolution planning. The WFE argues that recovery must be given every opportunity to succeed before resolution proceedings are invoked, but says it is important nonetheless to have clear resolution plans and expectations in the event the recovery plan has been exhausted.

Judgment on appropriate jurisdiction in tort claims (AMT Futures Ltd v Marzillier)

In AMT Futures Ltd v Marzillier and others [2017] UKSC 13, [2017] All ER (D) 06 (Mar), the Supreme Court, dismissed an appeal by a UK derivatives broker and held that the English courts did not have jurisdiction to hear its claim that its clients had been induced by the respondent German firm of lawyers to breach their contracts. For the purposes of Article 5(3) of Regulation (EC) 44/2001 (Brussels I), which gave jurisdiction in tort claims to the courts for the place in which the harmful event had occurred or might occur, that place had been Germany.

In News Analysis: Establishing the extent of the UK court’s jurisdiction (AMT Futures Ltd v Marzillier and others), Pierre Janusz, barrister, of 3 Hare Court, considers the judgment.

Striking out parts of a swap claim (Ventra Investments v Bank of Scotland)

In News Analysis: Striking out parts of a swaps claim (Ventra Investments v Bank of Scotland), the Banking & Finance team have analysed the recent case of Ventra Investments v Bank of Scotland [2017] EWHC 199 (Comm), which discussed whether aspects of a claim relating to the purchase of replacement interest rate swaps could be struck out.

Structured Products & Securitisations

Default notices sent under a GMRA and GMSLA

This week, in Effective service of default notices under a GMRA and GMSLA (LBI EHF (in winding up) v Raiffeisen Zentralbank Österreich AG and Raiffeisen Bank International AG), the Banking & Finance team analysed the recent case of LBI EHF (in winding up) v Raiffeisen Zentralbank Österreich AG and Raiffeisen Bank International AG [2017] EWHC 522 (Comm). In that case, the claimant, LBI EHF, contended that the default notice had not been served effectively and that the securities had not been valued correctly. The Commercial Court held that serving the notices by fax was effective as that was allowed under the GMRA and GMSLA and the securities had been valued correctly.

Regulation of derivatives and capital markets products

European Commission adopts Delegated Regulation delaying EMIR clearing obligation

The European Commission has adopted a Delegated Regulation (C(2017) 1658 final) relating to three European Market Infrastructure Regulation (EMIR) delegated regulations concerning the deadline for compliance with clearing obligations for certain counterparties dealing with OTC derivatives. This Delegated Regulation prolongs, by two years, the phase-in period for financial counterparties with a limited volume of OTC derivatives activity.

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