Monthly Highlights: March 2019

Monthly Highlights: March 2019

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from March 2019.


The impact of a no-deal Brexit on derivatives contracts

Habib Motani, partner and global head of the derivatives group at Clifford Chance LLP, and Carolyn Jackson, partner at Katten Muchin Rosenman UK LLP, and both P.R.I.M.E. Finance experts, discuss the impact of a ‘no-deal’ Brexit for derivative contracts and derivative market participants, both in the UK and the EU in News Analysis:  The impact of a no-deal Brexit on derivatives contracts.

ESMA statement on MiFID II/MiFIR and BMR provisions in event of no-deal Brexit

The European Securities and Markets Authority (ESMA) has published a statement on its approach to the application of some key recast Markets in Financial Instruments Directive / Markets in Financial Instruments Regulation (MiFID II/MiFIR) and Benchmark Regulation (BMR) provisions should the UK leave the EU under a no-deal Brexit.

FCA statement on MiFID II and BMR provisions in event of a no-deal Brexit

The Financial Conduct Authority (FCA) has also issued a statement setting out its position on the application of some key aspects of the recast MiFID II and the BMR if the UK leaves the EU without a withdrawal agreement in place.

FCA issues statement on derivatives reporting in a no-deal scenario

The FCA has issued a statement explaining what trade repositories (TRs), and UK counterparties that use them, should do to make sure they are compliant with their EMIR reporting obligations after the UK leaves the EU.

DfT publishes details of measures protecting flights in no deal scenario

The Department for Transport (DfT) has published details of measures that will ensure flights will continue if the UK leaves the EU without a deal. The measures will reciprocate to EU airlines the rights granted to UK airlines by the Regulation.

HM Treasury updates guidance webpage on no-deal Brexit for financial services

HM Treasury has updated its webpage setting out guidance on banking, insurance and other financial services if there is no Brexit deal. The webpage provides information about financial services such as banking and insurance for UK residents, businesses based in the UK, EEA residents and financial services institutions. First published on 23 August 2018 and previously updated on 8 January and 15 February 2019, the webpage has now been further updated with revised information.

LIBOR developments

BoE working group publishes discussion paper on referencing SONIA in new contracts

The BoE has published a discussion paper on ‘Conventions for referencing SONIA in new contracts’, prepared by its working group on Sterling risk-free reference rates. The paper, addressed to market participants who are considering how to reference SONIA in new contracts, is intended to raise market awareness of the identified conventions for referencing SONIA and, in doing so, delivers the working group’s key milestone of highlighting how to reference SONIA in new contracts.

FSB asks ISDA to continue work on interest rate benchmark discontinuation

The co-chairs of the Official Sector Steering Group (OSSG) of the Financial Stability Board (FSB) have written to the International Swaps and Derivatives Association (ISDA) urging it to continue its work on derivatives’ contractual robustness to risks of interest rate benchmark discontinuation.

LMA developments

The LMA, APLMA and LSTA publish Sustainability Linked Loan Principles

The Loan Market Association (LMA) has, together with the Loan Syndications and Trading Association and the Asia Pacific Loan Market Association, launched the Sustainability Linked Loan Principles (SLLP). The SLLP were developed by a working party, consisting of representatives from leading financial institutions active in the sustainable lending market, with the support of the International Capital Market Association who have been working on environmental and social impact metrics in relation to the Green Bond Principles.

The sustainability linked loan product is a dynamic and innovative product that enables lenders to incentivise improvements in the borrower's sustainability profile by aligning loan terms (for example, margins) to the borrower's performance against ambitious, pre-determined sustainability performance targets.

LMA lobbying efforts on eligibility of guarantees as unfunded credit protection bear fruit

The LMA is pleased to announce that, following lobbying efforts by the association, certain of its members and other industry bodies, the Prudential Regulation Authority (PRA) has published a policy statement on credit risk mitigation (CRM), which alleviates many of the concerns expressed by respondents, including the LMA, in a previous consultation.


Bank duty of care to customer and the construction of exemptions, indemnities and entire agreement clauses (The Federal Republic of Nigeria v JP Morgan Chase Bank)

The decision of the High Court in the case of The Federal Republic of Nigeria v JP Morgan Chase Bank, NA [2019] EWHC 347 (Comm) (although an application for summary judgment and clearly (given the enormous sums at stake) the opening salvos of what might turn into a protracted legal battle) discusses some important points which banks and other financial institutions will need to consider where they use terms and conditions which seek to narrow duties to their customers. As the case progresses to a full trial it will be interesting to see how the courts construe the bank’s exculpatory clauses and assess their interaction with the law relating to implied terms and tortious liability. For more information, see News Analysis:  Bank duty of care to customer and the construction of exemptions, indemnities and entire agreement clauses (The Federal Republic of Nigeria v JP Morgan Chase Bank).

Acquisition finance

First middle market unitranche drafting resource published

An updated form of the Loan Syndications and Trading Association’s (LSTA) ‘Agreement Among Lenders’ (AAL) has been published. This version of AAL is designed to be fit for use as a drafting resource in synthetic first lien/second lien unitranche financing. This form is the first document offering intended for middle market lending.

Islamic finance

New report looks at FinTech opportunities in Islamic finance

The CityUK and Borsa İstanbul have published a report on scaling Islamic finance through FinTech. By co-operating in the burgeoning Islamic FinTech market and sharing mutual expertise, firms in the UK and Turkey hope to open up financial services to the unbanked population. The report says that while 43% of Turkish adults do not hold a bank account (for religious or other reasons), two thirds of the world’s unbanked population have access to a smartphone, creating the possibility for sharia-complaint FinTech products to fill the gap.

Project finance

Spring Statement 2019: Government launches consultation reviewing infrastructure finance

The HM Treasury has announced a consultation on infrastructure finance at the Spring Statement 2019. It will look at the tools available to the government for supporting private investment, and their delivery, in relation to the changing relationship between the UK and the European Investment Bank. The deadline for response is 5 June 2019. They can be sent by either post or email. Tim Pugh, solicitor specialising in planning environment and infrastructure at the Law Society, said ‘measures to attract private finance into infrastructure projects are greatly to be welcomed’, particularly with 'Brexit and sterling driven economic uncertainties'.

Sustainable finance

Commission welcomes progress on proposed EU taxonomy for sustainable economic activities

The European Parliament’s Economic Affairs (ECON) and Environment, Public Health and Food Safety (ENVI) Joint Committee has voted in favour of an EU classification system for sustainable economic activities (or 'taxonomy'), which was proposed by the European Commission in May 2018 as part of its sustainable finance action plan. The proposal would give market participants and investors a common understanding of what is unambiguously ‘green’ and thus fight ‘greenwashing’.

European Parliament committees adopt report on sustainable investment proposal

Two European Parliament committees have adopted a report on the European Commission’s proposal for a regulation on the establishment of a framework to facilitate sustainable investment. The Committee on Economic and Monetary Affairs (ECON) and the Committee on the Environment, Public Health and Food Safety (ENVI) have made a number of changes to the proposed regulation and called on the Parliament to adopt its position at first reading.

World Bank commemorates ten years of green bonds

The World Bank has published an article on the origins and results of green bonds, in light of the ten-year anniversary of the first green bond being issued. The publication includes videos about the ‘green bond story’ and a timeline of the development and usage of the bonds.

Trade finance

Spring Statement 2019: Government announces new General Export Facility

The chancellor, Philip Hammond, has announced that New UK Export Finance (UKEF) will introduce a new General Export Facility. This aims to support UK exporters in the short term and will be available in the coming months. More details will be published by UKEF and the government once available.

Recommendation of the Council on Bribery and Officially Supported Export Credits published

The Organisation for Economic Co-operation and Development (OECD) has published the recommendation of the Council on Bribery and Officially Supported Export Credits, which covers general measures to deter bribery, screening and enhanced due diligence, among other things.

Debt capital markets

ICMA developments

Regulator raises concerns over over-regulation of repo market

The International Capital Market Association's European Repo and Collateral Council (ICMA ERCC) has welcomed a change proposed by the Basel Committee on Banking Supervision (BCBS) regarding securities financing transactions (SFTs). In its response, the ICMA ERCC says the change being proposed by the BCBS in respect of SFTs should help to eliminate excessive volatility around reporting dates. The ICMA ERCC, however, does raise concerns about excessive restrictions in the repo market, arising from the cumulative effect of many regulations coming into force over the past years.

ICMA Primary Market Handbook amended

ICMA has published amendments to the ICMA Primary Market Handbook. The amendments for March 2019 include amendments to chapter six, allocation and allotment, new header notices, amended paragraphs for Appendix A8 and A13 and amendments to Appendix 13a and 16.

Capital markets union: Council confirms final agreement on easier access to financial markets for SMEs

The European Council has announced that the EU ambassadors had confirmed an agreement reached between the Romanian presidency and the European Parliament on 6 March, aimed at providing cheaper and easier access to public markets for small and medium enterprises (SMEs). The initiative concerns, specifically, access to ‘SME growth markets’, a recently introduced category of trading venue dedicated to small issuers.

European Commission welcomes political agreement on a stronger and more integrated European supervisory architecture, including on anti-money laundering

The European Commission has issued a press release welcoming the political agreement reached by the European Parliament and Member States on the core elements of the reform of European supervision in areas of EU financial markets, including when it comes to anti-money laundering. The Commission believes this is an important step to achieve the capital markets union (CMU)'s objective to ensure stronger, safer and more integrated financial markets to the benefit of European consumers, investors and businesses.


ISDA developments

Consultation on amendments to 2014 ISDA credit derivatives definitions

An International Swaps and Derivatives Association (ISDA) working group have invited feedback on proposals to amend the 2014 ISDA credit derivatives definitions to address issues relating to narrowly tailored credit events (NTCEs). The consultation closed on 27 March 2019.

ISDA publishes CDM 2.0 for deployment and opens access to entire market

ISDA has published the full version of the ISDA Common Domain Model (CDM) for interest rate and credit derivatives and has opened access to all market participants, including non-ISDA members. The ISDA CDM is the first industry solution to tackle the lack of standard conventions in how derivatives trade events and processes are represented. Developed in response to regulatory changes, high costs associated with current manual processes and a demand for greater automation across the industry, the ISDA CDM, for the first time, creates a common blueprint for events that occur throughout the derivatives lifecycle, paving the way for greater automation and efficiency at scale.

ISDA, FIA and IIF paper on CCP recovery and resolution: incentives

ISDA, the Futures Industry Association (FIA) and the Institute of International Finance (IIF) have published a paper on central counterparty (CCP) recovery and resolution: incentives analysis. It looks at the tools and processes around CCP recovery and resolution, and analyses the incentives and disincentives they would each create.

Securitisation and structured products

ECB aligns disclosure requirements for Securitisation Regulation and collateral framework

The European Central Bank (ECB) has announced that the eligibility requirements for loan-level data reporting in the Eurosystem collateral framework will be adjusted to reflect the disclosure requirements of the EU Securitisation Regulation (EU) 2017/2402. The eligibility criteria for asset-backed securities will change at a future date, depending on the fulfilment of certain conditions. In addition, new loan-level data requirements will be phased in gradually and will facilitate the continued eligibility of transactions fulfilling current reporting standards.

Regulation of derivatives and structured products


ESMA publishes MiFID II compliance table on transaction reporting, order record-keeping and clock synchronization guidelines

ESMA has published a compliance table on the guidelines on transaction reporting, order record-keeping and clock synchronization under Directive 2014/65/EU, Markets in Financial Instruments Directive II (MiFID II) (ESMA/2016/1452) (ESMA guidelines). It sets whether competent authorities comply or intend to comply with these ESMA guidelines.

ESMA updates Public Register for the Trading Obligation for derivatives under MiFIR

ESMA has updated the Public Register for the Trading Obligation for derivatives in accordance with Article 34 of Regulation (EU) No 600/2014, Markets in Financial Instruments Regulation. It aims to inform market participants on the trading obligation for derivatives. The update follows the authorisation of additional entities where the classes of derivatives subject to the trading obligation are available for trading. Those recently authorised venues are located in France and the Netherlands.

FIA white paper warns of increased fragmentation in cleared derivatives market caused by regulation

The Futures Industry Association (FIA) has published a white paper entitled ‘Mitigating the risk of market fragmentation’, which expresses the FIA’s concerns about increased fragmentation of the global listed and cleared derivatives markets due to inconsistent and duplicative regulatory frameworks. In the paper, the FIA urges regulators to embrace the principles of reliance and regulatory co-operation, and makes recommendations on how to avoid increased fragmentation in regulating cross-border activity in the global derivatives markets.

Confirmation of the final compromise texts on covered bonds

The Council of the European Union has confirmed the final compromise texts for a proposed Directive of the European Parliament and of the Council on the issue of covered bonds and covered bond public supervision and amending Directive 2009/65/EC (UCITS IV) and Directive 2014/59/EU (BRRD), and a proposed Regulation of the European Parliament and of the Council on amending Regulation (EU) No 575/2013 as regards exposures in the form of covered bonds.

Regulation for banking lawyers

BCBS issues statement on crypto-assets

The Basel Committee on Banking Supervision (BCBS) has issued a statement regarding crypto-assets. In the statement BCBS highlights the potential for the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets to raise financial stability concerns and increase risks faced by banks. The statement sets out the minimum measures the BCBS expects authorised banks to take if they decide to acquire crypto-asset exposures or provide related services.

EU Parliament adopts new EU rules for standard minimum coverage of NPLs

The European Parliament has adopted new EU rules for standard minimum coverage of bad loans. Measures to mitigate the risk of possible, future, non-performing loans (NPLs) accumulating due to the recessions brought about by the 2008 financial crisis were approved by the Parliament, with 426 votes to 151 and 22 abstentions.

Council of the EU adopts position on secondary markets for bad loans

The Council of the European Union has adopted its position on secondary markets for NPLs in the proposed Directive on credit servicers, credit purchasers and the recovery of collateral. There was, however, no agreement in the Council on the collateral part of the Directive. It is therefore not included in the Council position and will require further discussion at working level in the Council.

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About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.