Monthly Highlights: May 2016

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from May 2016.

Brexit

EU Referendum 2016—What Brexit could mean for you and your clients

As the Brexit debate rages across the nation, LexisNexis has been working with industry experts to cut through the politics and assess the implications for a wide range of legal practice areas, including Banking & Finance.

Download the complete report here.

Lending

European Council approves Benchmark Regulation

A new regulation aimed at ensuring greater accuracy and integrity of benchmarks in financial instruments (Benchmark Regulation) has been approved by the European Council. The Benchmark Regulation will introduce new standards of conduct for administrators and contributors of data. The full text of the Benchmark Regulation can be found here.

LMA requests clarification from HMRC in respect of qualifying private placements exemption

Following the introduction of the new exemption from UK withholding tax for interest paid on 'qualifying private placements' (the QPP Exemption), the Loan Market Association (LMA) has made a further submission to HMRC. The LMA submission requests further clarification on a few points of uncertainty which have arisen since the introduction of the QPP Exemption.

As we previously reported, following the introduction of the QPP Exemption, the LMA updated its template private placement facility agreement and subscription agreement. In particular, a standard form of creditor certificate was drafted which is expected to become market standard. The LMA has also noted that the QPP Exemption is an important step in the expansion of the UK private placement market.

To further encourage market adoption, the LMA has now requested additional information from HMRC to be included within the HMRC Savings and Investment Manual (the Guidance) in relation to:

  • syndicated loans—the LMA has requested that the application of the QPP Exemption to such loans is confirmed in the Guidance
  • 'each creditor' interpretation—it is understood that references to 'each creditor' is intended to ensure that the QPP Exemption applies on an investor-by-investor basis or lender-by-lender basis and it will not be necessary for a borrower to hold a creditor certificate for each creditor in the private placement. The LMA has asked that this be reflected in the Guidance, and
  • 'comprised in a single placement' interpretation—the LMA's position is that this phrase should be interpreted from a commercial perspective and that following a transfer by novation, the transferred piece should still remain within the original 'placement' and have requested that this is clarified in the Guidance

A copy of the LMA Press Release and submission to the HMRC can be viewed by members on the LMA website.

Project Finance

Energy Act 2016

The Energy Act 2016 formally establishes the Oil and Gas Authority (OGA) as an independent regulator. The OGA is responsible for the asset stewardship and regulation of domestic oil and gas recovery. The Energy Act 2016 also provides for rights to use upstream petroleum infrastructure, and for the abandonment of offshore installations, submarine pipelines and upstream petroleum infrastructure.

The Energy Act 2016 extends Part 1A of the Petroleum Act 1998 to Northern Ireland to maximise the economic recovery of UK petroleum. It provides for the disclosure of information for the purposes of international agreements and provides fees in respect of activities relating to oil, gas, carbon dioxide and pipelines. To view the legislation, click here.

Sections 79 to 81 and Part 6 of the Energy Act 2016 came into force on 12 May 2016. Part 4 comes into force two months after 12 May 2016 and the remaining provisions come into force as specified by the creation of secondary legislation.

Derivatives

ISDA launches protocol to ensure cross-border enforceability of stays on contractual termination rights

The International Swaps and Derivatives Association (ISDA) has launched a protocol to enable market participants to comply with new regulations aimed at ensuring the cross-border enforceability of stays on contractual termination rights. The ISDA Resolution Stay Jurisdictional Modular Protocol (the Protocol) can be used by all market participants, and has been designed to provide flexibility to allow adhering parties to choose which jurisdictional 'modules' to opt in to.

The Protocol was developed to deal with recent regulatory changes. Under a framework established by the Financial Stability Board, various national regulators are introducing requirements for certain banks to obtain consent from their counterparties for statutory stays on early termination rights to apply to financial contracts between those parties, regardless of the governing law of the contract.

These stays are among the powers available to the authorities to resolve failing banks as part of their jurisdiction's special resolution regime. While statutory stays would apply to all contracts with all counterparties governed under the law of that jurisdiction in the event a bank enters into resolution proceedings, there is some uncertainty over whether a stay would be enforceable on a cross-border basis if outstanding trades are governed by overseas law.

Along with the Protocol, ISDA is also launching the UK (PRA Rule) Jurisdictional Module, enabling firms to comply with the Prudential Regulation Authority requirements that prohibit certain UK-regulated banks from trading with a counterparty under an agreement not governed by UK or other EU law, unless that counterparty has agreed to be bound by stays on termination rights under UK law. Additional modules will be issued in due course to meet other national regulations.

A copy of the ISDA Press Release announcing the Protocol launch can be viewed here.

Structured products and securitisation

Disclosure requirements in offering circulars

In the case of Credit Suisse Asset Management v Titan Europe 2006-1 [2016] EWHC 969 (Ch), four sets of proceedings were commenced concerning the proper interpretation of notes in a securitisation structure. Each structure involved the securitisation of loans secured on commercial properties. The issues raised in each of the four proceedings related to payments due on the Class X Notes of the Series. The proceedings took place against a background of extensive default on the loans.

The News Analysis: Disclosure in offering circulars discusses the issues raised, the decision reached and the practical implications of the case.

Regulatory

Council and Parliament agree MiFID II extension

The Permanent Representatives Committee (Coreper) has approved an agreement with the European Parliament on a one-year delay to the dates of transposition and application of the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR). A regulation will now be adopted to enact the extension.

MiFID II and MiFIR were to become applicable 30 months after entry into force (3 January 2017), with EU member states required to transpose the new Directive by 3 July 2016. Under the approach agreed with the European Parliament  the deadline for the member states to transpose MIFID II into national legislation will be set for 3 July 2017 and the date of application of both MIFID II and MIFIR will be set for 3 January 2018.

For more information, see the following press release.

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