Monthly Highlights: May 2019

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


Committee analyses Brexit implications for road, rail and maritime connectivity 

The European Union Committee has released a report called Brexit—road, rail and maritime transport. In the report, the committee examines the implications of Brexit for UK-EU surface transport, particularly what will be required for road, rail and maritime connectivity under a new UK-EU trading relationship. It also takes into account ‘no deal’ preparations on both sides. 

Accounting and auditing requirements—No deal Brexit guidance

The Department for Business, Energy & Industrial Strategy (BEIS) has published new guidance for stakeholders on how companies can ensure they comply with accounting and reporting requirements, and how auditing professionals should prepare for the possibility of the UK leaving the EU without a deal in place. 

FCA extends temporary permissions regime deadline to October 2019 

The Financial Conduct Authority (FCA) has confirmed the deadline for notifications for the temporary permissions regime (TPR) will be extended to the end of 30 October 2019. The deadline for applying to the trade repository and credit ratings agencies has also been extended to the same date.

Brexit SI Bulletin—latest drafts and sifting committee recommendations, 24 May 2019

The Commons European Statutory Instruments Committee (ESIC) and the Lords Secondary Legislation Scrutiny Committee (SLSC) are responsible for the sifting process under the European Union (Withdrawal) Act 2018 (EU(W)A 2018). These committees scrutinise proposed negative Brexit SIs and make recommendations on the appropriate parliamentary procedure before the instruments are laid in Parliament. This bulletin outlines the latest updates and recommendations, collated on 24 2019.

Benchmark transition

SONIA swaps majority of transactions in association’s quarterly review

In the International Swaps and Derivatives Association (ISDA's) Interest Rate Benchmarks review for the first quarter of 2019, Sterling Overnight Index Average (SONIA) swaps ‘represented the majority of transactions referencing risk-free rates (RFRs), reflecting the fact that SONIA is currently used as the reference rate for sterling overnight index swaps’, among some of the findings.

ISDA CEO on industry preparations for RFRs

ISDA has published a blog by its CEO, Scott O’Malia on the derivatives sector’s ongoing preparations for the use of RFRs as an alternative to LIBOR and other interbank offered rates (IBORs). Mr O’Malia said ISDA continues to believe the best strategy is to take action early before a cessation of LIBOR, or before any potential decline in LIBOR liquidity, but also recognises the need for a safety net that will allow derivatives contracts that still reference LIBOR and other IBORs to survive a discontinuation of the underlying benchmark with the minimum possible disruption.

ISDA launches benchmark fallbacks consultations

ISDA has launched two consultations on benchmark fallbacks. One covers adjustments that would apply to fallback rates in the event certain interbank offered rates (IBORs) are permanently discontinued. The other relates to pre-cessation issues for LIBOR and certain other IBORs. Feedback on both consultations is sought by 12 July 2019. 

Working Group on Sterling RFRs publishes April 2019 newsletter

The Bank of England’s Working Group on sterling risk-free reference rates (RFRs) has published its monthly newsletter containing key milestone dates, market developments, key liquidity indicators, and general updates internationally on the transition to alternative RFRs. 

Loan Market Association provides updates on use of EONIA in loan documentation 

The Loan Market Association (LMA) has released an update on developments relating to the future of EONIA. The update covers the use of EONIA in LMA documentation, the planned change in methodology and discontinuation of EONIA and the significance of these changes for loan market participants involved in transactions that reference EONIA.

EMMI applies for EURIBOR administrator authorisation under BMR, and sets out governance framework 

The European Money Markets Institute (EMMI), administrator of the EURIBOR benchmark, has applied for authorisation from the Belgian Financial Services and Markets Authority under the EU Benchmarks Regulation (BMR). EMMI has started transitioning panel banks from the current EURIBOR methodology to the new hybrid methodology. It has also published a number of documents setting out the governance framework in relation to the provision of the EURIBOR benchmark under the hybrid methodology. 

ECB risk-free rate working group launches consultation on EONIA to €STR legal action plan 

The European Central Bank’s (ECB) working group on euro risk-free rates has launched a public consultation on its draft recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA) as a result of the proposed transition from EONIA to the euro short-term rate (€STR). 


Guidance note on applying US QFC Stay Rules to syndicated loans 

The Loan Market Association (LMA) has published a guidance note on US QFC Stay Rules and syndicated loans detailing how the new rules apply to syndicated facility documentation. Among other things, the note advises market participants that the new rules apply to US global systemically important banking organisations (GSIBs) and their subsidiaries worldwide, as well as the US subsidiaries, branches and agencies of foreign GSIBs, and how some of these institutions may be required to include new language in syndicated facility documentation to reflect the new rules. The rules were designed to improve the resolvability and resilience of US GSIBs and the US operations of foreign GSIBs.

Loan Market Association responds to EBA proposals in consultation paper on credit risk mitigation 

The LMA has responded to the proposals of the European Banking Authority (EBA) contained in the EBA’s consultation paper on its draft guidelines on credit risk mitigation for institutions applying the internal ratings-based approach with own estimates of loss given default. In particular, the LMA’s view is that the approach is unworkable in the context of moveable assets and may reduce access to finance in sectors such as shipping, aviation, transportation and automotive. 

Acquisition Finance 

European leveraged finance issuance down over 50% from first quarter 2018

The Association for Financial Markets in Europe has published its quarterly report on European leveraged finance, ie leveraged loans and high yield bonds. In the first quarter (Q1) of 2019, the total issuance of leveraged finance in Europe was €41.9bn, a 19% increase from Q4 2018 (€35.2bn), but a 53.8% decrease compared to Q1 2018 (€90.6bn). The report further sets out that the credit standard for loans to corporate entities remains largely unchanged, but that the standard has tightened for housing loans and consumer credit, due to banks’ cost of funds and balance sheet constraints. 


FMLC responds to proposal for a regulation on the law applicable to the third-party effects of assignments of claims 

The Financial Markets Law Committee (FMLC) has published a letter addressed to the chair of the committee on legal affairs at the European Parliament, Pavel Svoboda, concerning a proposal for a regulation on the law applicable to the third-party effects of assignments of claims. The Committee has previously engaged with this topic and recommended that the third-party consequences of assignments of claims should be governed by the law of the assigned claim rather than the law of the assignor’s habitual residence. This letter to the European Parliament reiterates that recommendation and draws attention to new uncertainties introduced by the legislative resolution.

Trade finance

European Commission consults on need for updating short-term export credit rules 

The European Commission invited relevant stakeholders with an in-depth understanding of the short-term export-credit insurance market to participate in a consultation on the rules expiring at the end of 2020. The European Commission aims to identify if the rules should be updated or prolonged in their current form. The deadline for responses was 24 May 2019.

Sustainable finance 

European Commission announces next steps on sustainable finance

The Commission has announced that the technical expert group on sustainable finance will publish three new reports in June 2019. The Commission is also planning to organise a stakeholder dialogue on sustainable finance on 24 June 2019, at which it will publicly launch new guidelines for companies on how to report climate-related information.

Debt capital markets 

ICMA launches online buy-side and sell-side surveys 

The International Capital Markets Association (ICMA) has launched online buy-side and sell-side surveys as part of its 3rd European investment grade corporate bond secondary market study. The surveys are intended to highlight market developments since the 2016 study, including market liquidity conditions, policy and regulation, factors affecting liquidity, trends and innovation in electronic trading, availability and use of data, and future sentiment, both from a buy-side and sell-side perspective. 

ECB consults on mechanism for the issuance and initial distribution of debt securities in the EU 

The European Central Bank (ECB) has launched a market consultation on a potential Eurosystem initiative regarding a European mechanism for the issuance and initial distribution of debt securities in the EU. The ECB says there is currently no pan-European, neutral and harmonised channel for issuance that covers the EU as a single ‘domestic’ market, with issuers having to use a multiplicity of channels and procedures. The Eurosystem is therefore exploring the possibility of supporting a harmonised system, and the potential business case for such a service. Feedback is sought by 9 July 2019. 

Inside AIM newsletter reveals guidance notes on nominated advisers 

The London Stock Exchange has published two guidance notes as part of its Inside AIM newsletter, which look at staffing of nominated advisers (Nomads) and the use of the AIM Designated Market route to admission.


Bank for International Settlements updates OTC derivatives outstanding page

The Bank for International Settlements (BIS) updated its OTC derivatives outstanding page on 2 May 2019. The page now includes an explanatory notes document, which outlines how BIS OTC derivatives statistics are reported, aggregated, and valued.

The State of the Netherlands v Deutsche Bank AG 

[2019] EWCA Civ 771  

The Court of Appeal confirmed the decision made by the Commercial Court (and therefore dismissed the claimant State’s claim against the defendant bank) that a credit support annex (the CSA) annexed to an  International Swaps and Derivatives Association (ISDA) Master Agreement, could not be taken as providing for the payment of negative, as opposed to positive, interest.

Construction of conflicting jurisdiction clauses in multi-contract arrangements 

The recent case of BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA Civ 768 concerned a swap concluded on the terms of the 1992 ISDA Master Agreement and pulls together the many recent decisions on the construction of jurisdiction clauses. It provides clear guidance as to the approach to be adopted where multiple contracts contain differing jurisdiction clauses conferring jurisdiction on the courts of different territories. 

Derivatives Service Bureau opens its 2019/2020 industry consultation 

The Derivatives Service Bureau (DSB), founded by the Association of National Numbering Agencies (ANNA) to facilitate the allocation and maintenance of International Securities Identification Numbers (ISINs), classification of financial instrument codes (CFIs) and financial instrument short names (FISNs), for OTC derivatives, has announced it has opened its 2019/2020 consultation. Responses are sought by 5 June 2019.

ISDA guidance on compliance with IM requirements following BCBS/IOSCO statement 

ISDA has published guidance on the steps a market participant needs to take if its aggregate average notional amount (AANA) is above the relevant phase-in amount for initial margin (IM) regulatory requirements but one or more of its relationships does not exceed the IM exchange threshold.

Margin regulations for non-cleared derivatives impose IM requirements on in-scope entities whose non-cleared derivatives portfolio exceeds a specified amount. On 5 March 2019 the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) published a statement that where a counterparty relationship is in the scope of the IM requirements but the amount of IM to be exchanged falls below the €50m IM exchange threshold specified in the BCBS/IOSCO Working Group on Margining Requirements (WGMR) margin framework, the documentation, custodial or operational requirements will not apply to that relationship.

ISDA releases paper on size and composition of OTC derivatives markets 

ISDA has published a research paper on recent trends in the size and composition of over-the-counter (OTC) derivatives markets. The paper uses data from BIS and ISDA. Findings include OTC derivatives notional outstanding decreasing during the second half of 2018 (compared with the first half of 2018) and notional outstanding at year-end 2018 being higher compared with year-end 2017. 

ISDA deploys CDM to help deliver UK digital regulatory reporting pilot 

ISDA has announced the deployment of the ISDA Common Domain Model (ISDA CDM 2.0) to support the Financial Conduct Authority, the Bank of England and participating financial institutions in testing phase two of the digital regulatory reporting (DRR) pilot for derivatives. The DRR is a UK initiative to explore the use of technology to help firms meet their regulatory reporting requirements and to improve the quality of information reported. The aim is to explore the feasibility of a model-driven and machine-readable regulatory environment that could transform how the financial services industry understands, interprets and reports regulatory information. 

ISDA proposes amendments to 2014 ISDA Credit Derivatives Definitions for NTCEs–outstanding principal balance 

ISDA has published proposed amendments to the 2014 ISDA Credit Derivatives Definitions to address issues relating to narrowly tailored credit events (NTCEs), focusing on the outstanding principal balance definition. The deadline for comments is 17 June 2019.

ISDA facilitates early disclosure exercise for Phases 4 and 5 IM requirements

In anticipation of the 1 September 2020 (IM) requirements (Phase 5), ISDA is facilitating a voluntary early disclosure exercise for parties that may exceed the Phase 5 IM threshold in one or more jurisdictions. This is similar to previous ISDA-facilitated multilateral disclosure exercises for Phases 1, 2, 3 and 4.

Securitisation and structured products 

Deutsche Trustee Company Ltd v Duchess VI CLO BV and other companies

[2019] EWHC 778 (Ch)  

The Chancery Division considered the entitlement of certain noteholders to money in respect of an incentive collateral management fee that was alleged to have fallen due as a result of the noteholders voting to redeem the notes. The court held that, on the true construction of the collateral management agreement that governed the notes, the noteholders were entitled to the money.

ECB amends guidelines on the implementation of monetary policy in the Eurosystem 

The European Central Bank (ECB) has published amendments to its guidelines on the implementation of monetary policy in the Eurosystem.

The new guidelines (ECB/2019/11, ECB/2019/12 and ECB/2019/13) amend:

  • the guideline on the implementation of the Eurosystem monetary policy framework (ECB/2014/60)

  • the guideline on the valuation haircuts applied in the implementation of the Eurosystem monetary policy framework (ECB/2015/35), and

  • the guideline on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral (ECB/2014/31)

The Eurosystem is also incorporating the transparency requirements of the EU Securitisation Regulation (Regulation (EU) No 2017/2402) into its collateral framework.

New and updated ESMA Q&As

ESMA has updated its Q&As on the Securitisation Regulation (Regulation (EU) 2017/2402) to provide clarification on different aspects of the templates contained in ESMA’s draft technical standards on disclosure requirements.

ESMA has updated its Q&As on the implementation of investor protection topics under Markets in Financial Instruments Directive (MiFID II) and (Markets in Financial Instruments Regulation) MiFIR. The updated Q&As provides new answers on best execution and information on costs and charges.

ESMA has updated its Q&As on the Central Securities Depository Regulation (CSDR). The new Q&As clarify aspects of the internalised settlement reporting requirements.

ESMA has updated its Q&As on the implementation of the European Market Infrastructure Regulation (EMIR). The updated Q&As provide clarifications on the new framework introduced by Regulation 2019/834 amending EMIR (the so-called EMIR REFIT) and amends an existing Q&A on novation.

Commission declines to provide guidance on application of PRIIPs Regulation to bonds 

The European Commission has published its reply to the European Supervisory Authorities’ (ESAs’) 19 July 2018 letter requesting detailed public guidance on which types of products, in particular bonds, fall within the scope of the PRIIPs Regulation. The Commission states that this assessment should be made on a case-by-case basis, and that it is neither feasible nor prudent to agree ex-ante and in abstract terms whether some categories of bonds fall under the PRIlPs Regulation or not. 

European Commission adopts RTS on homogeneity criteria under Securitisation Regulation 

The European Commission has adopted a delegated regulation containing regulatory technical standards (RTS) to specify which underlying exposures in non-asset-backed commercial paper (ABCP) and ABCP securitisation are considered homogenous for the purposes of the Securitisation Regulation (Regulation (EU) 2017/2402). The RTS were developed by the EBA, which carried out a public consultation ending on 15 March 2018 and published its final draft RTS in July 2018.  

ESMA consults on proposed guidelines for reporting under Articles 4 and 12 of SFTR 

ESMA has launched a consultation on its proposed guidelines for reporting under Articles 4 and 12 of the Securities Financing Transactions Regulation (Regulation (EU) 2015/2365) (SFTR). The guidelines, which relate to the securities financing transaction (SFT) reporting obligation under Article 4 and the trade repository obligations under Article 12 of the SFTR, are intended to complement the SFTR technical standards and to ensure the consistent implementation of the new SFTR rules. The consultation closes on 29 July 2019.

ESMA consults on proposed guidelines for reporting by trade repositories under EMIR and SFTR 

ESMA has launched a consultation on guidelines on periodic information and notification of material changes to be submitted to ESMA by trade repositories (TRs). The guidelines clarify the format and frequency of the different categories of information that ESMA expects to receive in its role as supervisor of TRs registered under EMIR and/or SFTR. The consultation closes on 27 August 2019.  

Regulation of derivatives and structured products

Commission Delegated Regulation extending the dates of deferred application of the clearing obligation for certain OTC derivative contracts under EMIR published in OJ 

Commission Delegated Regulation (EU) 2019/667 of 19 December 2018 amending Delegated Regulation (EU) 2015/2205, Delegated Regulation (EU) 2016/592 and Delegated Regulation (EU) 2016/1178 to extend the dates of deferred application of the clearing obligation for certain over the counter (OTC) derivative contracts has been published in the Official Journal of the EU. 

EIOPA and ESMA publish technical advice on sustainability risks and factors 

The European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) have published their technical advice to the European Commission on the integration of sustainability risks and factors, relating to environmental, social and governance (ESG) considerations, into Solvency II, the Insurance Distribution Directive (IDD), MiFID II (Directive 2014/65/EU) , AIFMD (Directive 2011/61/EU) and the UCITS (Directive 2009/65/EC) Directive.

Council of EU adopts EMIR REFIT regulation

The Council of the European Union has adopted the text of a new regulation amending the European Market Infrastructure Regulation (Regulation (EU) 648/2012) (EMIR). The new regulation, known as EMIR REFIT, is intended to improve the existing regulatory framework applying to the over-the-counter (OTC) derivative market and includes simplified rules for non-financial counterparties, small financial counterparties and pension funds using financial derivative products.

Carolyn Jackson, partner at Katten Muchin Rosenman UK LLP and a P.R.I.M.E. Finance expert, discusses the recently adopted EMIR REFIT proposal including the key changes that it brings about, the benefits and challenges of these changes, and how practitioners can prepare for it coming into force. 

GLEIF annual report includes LEI within digital, machine-readable financial documentation 

The Global Legal Entity Identifier Foundation (GLEIF) has announced that it has included a legal entity identifier (LEI) within digital, machine-readable financial documentation for the first time. In partnership with XBRL International, GLEIF has published its 2018 annual report in human and machine-readable Inline XBRL and HTML format, with GLEIF’s LEI embedded into the financial information. It becomes the first official business report globally which automatically links the filing entity to its verified LEI reference data held within the global LEI index. 

ESMA launches consultations on tiering, comparable compliance and fees under EMIR 2.2

ESMA has published three consultation papers under EMIR 2.2—the review of the regulatory framework for the authorisation and supervision of central counterparties (CCPs) established under Regulation 648/2012 (EMIR). The three consultation papers relate to draft technical advice on tiering, comparable compliance and fees under EMIR 2.2. The consultations close on 29 July 2019.

CCP12 publishes position paper on central counterparty resilience and global financial market 

CCP12, the Global Association of Central Counterparties, has published a position paper on ‘Best practices to further bolster the resilience of central counterparties (CCPs) and global financial markets’. The paper urges policymakers to continue to support the use of global CCP clearing services, due to the systemic risk benefits inherent to central clearing, and to do everything in their power to avoid taking steps that could undermine the benefits that market users receive from central clearing organisations.


Clarity on cross-border conundrum (Re Toisa Limited) 

Charlotte Moller, Helena Clarke and Harry Rudkin of Reed Smith LLP and Adam Goodison at South Square (who acted for Toisa Limited) look at the groundbreaking case of Re Toisa Limited. In particular the case clarifies the time at which COMI should be determined under the Cross Border Insolvency Regulations 2006, SI 2006/1030 (CBIR). For more information, see News Analysis: Clarity on cross-border conundrum (Re Toisa Limited).

E-filing of administration appointments—don’t get your wires crossed 

Cathryn Williams, a partner at Crowell & Moring LLP, considers the case of Wright v HMV Ecommerce Limited [2019] EWHC 903 (Ch), [2019] All ER (D) 172 (Jan) where the court decided that an electronic filing (e-filing) of a notice of appointment of administrators by directors outside the court’s opening hours was valid. For more information, see News Analysis: E-filing of administration appointments—don’t get your wires crossed.

APPG on fair business banking to intervene in Supreme Court reflective loss case

The Supreme Court has granted permission to Trowers & Hamlins LLP, acting for the all-party Parliamentary group on Fair Business Banking (APPG), to intervene in the hearing of Marex Financial Ltd v Carlos Sevilleja Garcia on 8th May 2019. The intervention will allow the court to take account of the APPG’s experience and the public policy considerations underpinning the rule against reflective loss. It is the first APPG to intervene in a Supreme Court case. 

Re Sturgeon Central Asia Balanced Fund Ltd (in liquidation)

[2019] EWHC 1215 (Ch)

The applicant provisional liquidators' application for recognition in Great Britain of a company's liquidation as a 'foreign main proceeding' under the Cross-Border Insolvency Regulations 2006, SI 2006/1030, succeeded. The Chancery Division held that s 161 of the Bermuda Companies Act could fairly be described as a 'law relating to insolvency', as per art 2(g) of the UNICTRAL model law. It was clearly right that a winding up on just and equitable grounds could qualify for recognition in circumstances where the entity was insolvent. 

The New Model Law—goodbye to Gibbs? 

Sarah Clarke at Hardwicke Chambers looks at the new UNCITRAL Model Law on the Recognition and Enforcement of Insolvency Related Judgments and its potential impact on Re Gibbs and Ruben v Eurofinance [2012] UKSC 46, if it was adopted by the UK, in News Analysis: The New Model Law—goodbye to Gibbs?  

Class and jurisdictional issues in schemes of arrangement (Re New Look Secured Issuer plc) 

Charlotte Cooke, barrister at South Square, examines the High Court’s decision in Re New Look Secured Issuer plc [2019] EWHC 960 (Ch) to grant applications by two companies for orders pursuant to section 896 of the Companies Act 2006 to convene meetings of their creditors to consider proposed schemes of arrangement in News Analysis: Class and jurisdictional issues in schemes of arrangement (Re New Look Secured Issuer plc and another)

Regulation for banking lawyers 

Commission report on BRRD and SRMR 

The European Commission has published a report on the application and review of the Bank Recovery and Resolution Directive 2014/59/EU (BRRD) and the Single Resolution Mechanism Regulation (EU) 806/2014 (SRMR). Article 129 of the BRRD and Article 94 of the SRMR require the Commission to review the application of the resolution framework and to submit a report to the European Parliament and the Council of the EU. 

New European Central Bank study discerns monetary policy rate trends

The European Central Bank (ECB) has released a new study as part of its ‘Working Paper Series’. The new paper—called ‘Negative interest rates, excess liquidity and retail deposits: banks’ reaction to unconventional monetary policy in the euro area’—analyses the friction that affects banks’ reactions if the monetary policy rate is lowered to negative levels compared to a standard rate cut in the euro area. The paper finds evidence that banks highly exposed to the policy tend to grant more loans. The Working Paper Series circulates economic research relevant to the tasks and functions of the ECB. It also provides conceptual and empirical evidence for policy-making. 

Claims and remedies

Commercial contract not avoided on economic duress grounds where duress is lawful (Times Travel (UK) LTD v Pakistan International Airlines Corporation) 

In the case of Times Travel (UK) LTD v Pakistan International Airlines Corporation [2019] EWCA Civ 828, the court considered the issue of whether a contract may be avoided on the grounds of economic duress stemming from a lawful act of duress, such as a threat of a lawful act or omission. The Court of Appeal held that in a commercial context, if one party is exerting lawful economic pressure to achieve a result which it believes in good faith it was entitled to (irrespective of whether such a belief was reasonable), such as taking advantage of its position as a monopoly, then such actions will not amount to economic duress so as to avoid the contract. Laura Alliss, associate director/solicitor at DJM Solicitors discusses this in News Analysis: Commercial contract not avoided on economic duress grounds where duress was lawful (Times Travel (UK) LTD v Pakistan International Airlines Corporation)

Area of Interest