Monthly Highlights: November 2020

Monthly Highlights: November 2020

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from November 2020. 


LMA Brexit note and EU legislative references destination tables published

The Loan Market Association (LMA) has published a note entitled ‘Documentary implications of the end of the Brexit transition period for LMA facility Documentation’, which consolidates and updates the earlier Brexit notes published in September 2016 and April 2019, as well as two EU legislative references destination tables.

Source: LMA: Issues and Guidance.

Beyond Brexit—DIT starts to identify trade deals ‘not expected to be in place for 1 January 2021’

The Department for International Trade (DIT) has published updated guidance on the status of trade discussions with non-EU countries, as new trading arrangements are being negotiated to take effect following the end of the Brexit transition period on 31 December 2020 (IP completion day). While engagement is ongoing, the DIT has confirmed that it is not expecting replacement trade arrangements to be in place with Algeria, Bosnia and Herzegovina and Serbia in time. Further new and updated guidance may be issued as various trade discussions progress, so stakeholders and traders are advised to monitor this page for further updates on the status of these discussions in the run up to IP completion day.

Sources: GOV.UK—Guidance: Existing UK trade agreements with non-EU countries and GOV.UK—Guidance: Trading under WTO rules.

Beyond Brexit—UK and Canada agree trade continuity agreement

The UK and Canada reached an agreement in principle to continue trading on the same terms as the current EU-Canada trading arrangements after the end of the Brexit transition period. The agreement in principle was reached during a video conference on 21 November 2020 between UK Prime Minister Boris Johnson and International Trade Secretary Liz Truss, and Canadian Prime Minister Justin Trudeau and Minister of Small Business, Export Promotion and International Trade Mary Ng. The agreement to rollover provisions of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) will provide continuity for UK exporters to Canada, allowing tariff-free access to the Canadian market in many areas, with an estimated tariff saving of £42m. The UK-Canada Trade Continuity Agreement will form the basis for future negotiations on a new bespoke UK-Canada trade deal, which the UK hopes will build on the existing terms in areas such as new areas like digital trade, the environment and women’s economic empowerment.

Sources: GOV.UK—Press release: UK secures vital rollover trade deal with Canada and agrees to start negotiating more advanced deal next yearDIT—Existing UK trade agreements with non-EU countries and DIT—Exporting to Canada from 1 January 2021.

Beyond Brexit—UK and Norway sign bilateral treaty for recognition and enforcement of judgments

Norway and the UK have entered into an agreement on the Continued Application and Amendment of the Convention between the government of the United Kingdom of Great Britain and Northern Ireland and the government of the Kingdom of Norway Providing for the Reciprocal Recognition and Enforcement of Judgements in Civil Matters 1961. This treaty is a bilateral agreement between the UK and Norway concerning private international law, namely the recognition and enforcement of certain civil judgments on a reciprocal basis.

Source: UK/Norway: Agreement on the Continued Application and Amendment of the Convention Providing for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters signed at London on 12 June 1961 [CS Norway No.2/2020].

Financial Services—new Brexit transition webpage

The government has published a fresh webpage for UK businesses and organisations in the financial services sector collating existing stakeholder and sectoral guidance on preparation for the end of the transition period. Subjects covered include foreign travel insurance, financial services legislation under the European Union (Withdrawal) Act 2018 (EU(W)A 2018), the temporary permissions regime and Temporary Transitional Power (Bank/PRA). The majority of the guidance within the new webpage is not new but has been collated by sector for ease of reference and bookmarking​. Some of the guidance may change as the transition period progresses, so stakeholders are advised to monitor these pages for updates.

Source: Financial Services Sector: End of Transition Period Guidance.

Chancellor’s statement on post-Brexit future of UK financial services addresses equivalence, green finance and fintech

The chancellor of the exchequer, Rishi Sunak, has outlined the government’s planned approach to financial services post-Brexit, saying that the UK will remain an open, attractive international financial centre and will extend its global leadership in green finance and financial technology. He also announced the publication of a new guidance document setting out the UK’s approach to equivalence with overseas jurisdictions, as well as a package of equivalence decisions relating to the EU and EEA Member States.

Source: Chancellor sets out ambition for future of UK financial services.

ISDA responds to joint consultation paper on UK withdrawal from the EU

The International Swaps and Derivatives Association (ISDA) has responded to a joint Bank of England and Prudential Regulation Authority (PRA) consultation paper on the UK withdrawal from the EU and changes before the end of the transition period. ISDA has asked the PRA to ‘retain the existing scope of qualifying indices for the purposes of detailed rules on liquidity horizons in the new market risk rules on the Fundamental Review of the Trading Book’. Additionally, the response calls for the PRA to clarify the position regarding UK phase-in of phases five and six of the initial market requirements in relation to the binding technical standard on the risk-mitigation techniques.

Source: ISDA Response to PRA Consultation on Withdrawal from the EU.

LIBOR and benchmarks

Working Group on Euro Risk-Free Rates launches two EURIBOR fallback consultations

The European Central Banks Working Group on Euro Risk-Free Rates has launched two public consultations on the topic of fallback rates to EURIBOR. One consultation seeks views on fallback rates based on the euro short-term rate (€STR) and spread adjustment methodologies in order to produce the most suitable EURIBOR fallback measures per asset class. The other seeks views on potential events that could trigger such fallback measures. Responses are sought by 15 January 2021.

Source: Working Group on Euro Risk-Free Rates launches two public consultations on fallbacks to EURIBOR.

FCA consults on new benchmark powers as ICE Benchmark Administration proposes to cease publication of GBP, EUR, CHF and JPY LIBOR

The FCA has published a statement setting out its potential approach to the use of proposed new powers under the Financial Services Bill to ensure an orderly wind down of LIBOR, and has launched two consultations on its proposed policy in relation to some of the new powers it would be granted under the Benchmarks Regulation (BMR) as amended by the Bill. Comments on both consultations are sought by 18 January 2021. The FCA’s exercise of the powers would be subject to a decision by ICE Benchmark Administration (IBA) to cease publication of LIBOR as the conclusion of its own upcoming consultation.

Sources: FCA consults on new benchmarks powersICE Benchmark Administration to consult on its intention to cease the publication of GBP, EUR, CHF and JPY LIBOR and ISDA statement on IBA and UK FCA announcements on LIBOR consultations.

LMA releases documents for active transition mechanisms in loan documentation

The Loan Market Association (LMA) has published new and updated documentation to help assist market participants when including active transition mechanisms in their loan documentation for LIBOR transition.

Source: LMA publishes new and updated documentation in respect of LIBOR transition and active transition mechanisms.

‘Signs are very positive’ on new IBOR fallbacks, says ISDA

The General Counsel to the International Swaps and Derivatives Association (ISDA), Katherine Tew Darras, has given the opening remarks to the ‘Understanding the New IBOR Fallbacks’ virtual event on 9 November 2020. Tew Darras discusses the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol launched by ISDA on 23 October 2020, heralded as ‘a major milestone in the transition from LIBOR’, and announces ‘an adjusted version of the relevant risk-free rate’. This will, from 25 January 2021, apply automatically to an interbank offered rate (IBOR) that ceases to exist and to a London interbank offered rate (LIBOR) where the Financial Conduct Authority considers that it is ‘no longer representative of its underlying market’.

Source: Understanding the New IBOR Fallbacks Opening Remarks.

Aviation finance

Aerospace sector—new Brexit transition webpage

The government has published a fresh webpage for UK businesses and organisations in the aerospace sector, collating existing stakeholder and sectoral guidance on preparation for the end of the transition period. Subjects covered include the aerospace sector, importing and exporting, selling your goods, trading with the EU, workforce, data, providing services, Northern Ireland Protocol and access to research and development funding. The majority of the guidance within the new webpage is not new but has been collated by sector for ease of reference and bookmarking. Some of the guidance may change as the transition period progresses, so stakeholders are advised to monitor these pages for updates.

Source: Aerospace sector: end of transition period guidance.

Trade and commodity finance

EBRD joins with Baltic states to develop commercial paper market

The European Bank for Reconstruction and Development (EBRD) has announced that it is joining with the central banks of Estonia (Eesti Pank), Latvia (Latvijas Banka) and Lithuania (Lietuvos Bankas) to develop a regional market for commercial papers (CP) following demand increasing for alternative sources of finance due to the coronavirus (COVID-19) pandemic. The four parties have signed a Memorandum of Understanding to co-operate in developing a deeper and more efficient regional CP market in line with the best practices outlined in the 'Short-Term European Paper' by the European Central Bank. The Memorandum of Understanding states that the papers must be freely transferable and capable of being traded over-the-counter.

Source: EBRD and Baltic states to develop commercial paper market.

WTO report shows decrease in G20 trade restrictions amid coronavirus (COVID-19)

The World Trade Organization (WTO) has published its latest trade monitoring report on G20 trade measures, demonstrating a decrease in the number and coverage of trade-restrictive and trade-facilitating measures on goods implemented by G20 countries between mid-May 2020 and mid-October 2020. This decrease can be attributed primarily to coronavirus (COVID-19).

Source: WTO report shows slowdown in G20 trade restrictions as COVID-19 impacts world economy.

Sustainable finance

Commission seeks views on sustainable finance and the Taxonomy Regulation

The European Commission has launched a consultation on criteria for determining which economic activities can qualify as environmentally sustainable under the EU’s Taxonomy. A sustainable economic activity classification system known as the ‘green list’ is being created by Regulation (EU) 2020/852, the Taxonomy Regulation, to introduce a ‘common language’ for investors and businesses to understand when investing in economic activities positively impacting the climate and environment. To accomplish this, the Commission has introduced two sets of criteria in a draft delegated act, which the Commission seeks feedback on. The feedback period is open for four weeks, closing at midnight (Brussels time) on Friday 18 December 2020.

Source: Sustainable finance—EU classification system for green investments 

Investment Association position paper on climate change sets out industry commitments

The Investment Association (IA) has published a climate change position paper, setting out commitments from the industry and suggestions for how the UK government can further the interests of green investment. IA’s paper discusses the work of the Taskforce on Climate Related Financial Disclosure (TCFD), green gilts and net-zero targets.

Source: IA publishes industry stance on tackling climate change.

BoE announces restarting of the CBES

The Bank of England (BoE) has issued a press release announcing that, in line with comments made by governor Andrew Bailey on 9 November 2020, it is restarting the Climate Biennial Exploratory Scenario (CBES). The CBES will be launched in June 2021.

Source: The Bank of England is restarting the Climate Biennial Exploratory Scenario (CBES).

UK regulators deliver speeches on climate change at Green Horizon Summit

The Governor of the Bank of England, Andrew Bailey, and the FCA CEO, Nikhil Rathi, have delivered a speech at the Corporation of London Green Horizon Summit on the role of the financial system in tackling climate change. Bailey thanked the former Governor of the Bank of England, Mark Carney, for his ‘deep commitment’ to fighting climate change. The Governor maintained that the Bank of England has not abandoned its commitment to tackle climate change amid the challenges posed by the coronavirus (COVID-19) pandemic and stated the necessity to not only plan for the future but act on these plans.

Sources: The time to push ahead on tackling climate change—speech by Andrew Bailey and Green Horizon Summit: Rising to the Climate Challenge.

PRA publishes response letter on climate risk action

The Prudential Regulation Authority’s (PRA) executive director Sarah Breeden has written a letter to the chair of the Treasury Select Committee, Mel Stride MP, following an evidence session on ‘Decarbonisation and Green Finance’. In the letter, Breeden sets out responses to questions on the progress in embedding climate risk into PRA regulated firms’ operations and the role of the Senior Manager Regime in this process. Breeden also sets out responses to questions raised following the session on impact from exiting the EU and sustainable linked loans.

Source: Letter from Sarah Breeden, Executive Director, Prudential Regulation Authority, following the evidence session on 30 September 2020, dated 19 October 2020.

Government and financial regulators support IFRS consultation on global sustainability reporting

The government and the UK financial regulators have published their initial response to the International Financial Reporting Standards Foundation's (IFRS) consultation on the global approach to sustainability reporting. The consultation follows an increased focus on environmental, social and governance matters, developments in sustainability reporting and increased calls for standardisation of such reporting. The consultation aims to determine the demand for global sustainability standards and assess whether and to what extent the IFRS might contribute to the development of such standards. In their initial response, the government and regulators supported the approach set out in the consultation paper. The consultation closes on 31 December 2020.

Sources: IFRS Foundation Trustees consult on global approach to sustainability reporting and on possible Foundation role and Initial response to IFRS Foundation Trustees consultation.

Debt capital markets

ICMA ERCC launches new Repo and Collateral newsletter

 The International Capital Market Association (ICMA)’s European Repo and Collateral Council (ERCC) has launched its new Repo and Collateral newsletter. The newsletter provides updates on a monthly basis on the key initiatives and workstreams undertaken by the ICMA’s ERCC.

Source: ICMA ERCC Repo and Collateral Newsletter.

FSCS publishes factsheet on investing in mini-bonds

The Financial Services Compensation Scheme (FSCS) has published a factsheet on investing in mini-bonds, which are described as ‘essentially a kind of loan you give to an investment company (the issuer)’. The FSCS has issued a number of pointers alongside it including advice that investors should not invest money they cannot afford to lose or that they might need to access before the investment term is over and that generally it is a bad idea to invest more than 10% of a person’s net wealth in mini-bonds.

Source: Mini-bonds—should you invest?

Coronavirus (COVID-19)—ECON proposes changes to capital markets recovery package

The European Parliament’s Economic and Monetary Affairs Committee (ECON) has agreed an amended version of the proposed amendments to MiFID II included in the European Commission’s capital markets recovery package.

Source: COVID-19 recovery: balance investor protection and compliance costs for firms


ISDA developments

Data shows increase in over-the-counter derivatives during first half of 2020

ISDA has reported that the latest data from the Bank for International Settlements over-the-counter (OTC) derivatives statistics has highlighted a significant increase in the gross market value and credit exposure of OTC derivatives during the first half of 2020. The increase is said to be a result of the surge in gross market value of interest rate derivatives following the implementation of central bank measures to support economic activity in response to the ongoing coronavirus pandemic. Notably, the gross market value of OTC derivatives contracts during the first half of 2020 was 28.4% higher compared with the mid way point of 2019, and 33.5% higher versus year-end 2019. Additionally, gross credit exposure increased by 20.3% compared to mid-tear 2019 ad by 35.7% versus year-end 2019.

Source: Key Trends in the Size and Composition of OTC Derivatives Markets in the First Half of 2020.

ISDA discusses timing of 2021 Interest Rate Derivatives Definitions implementation

ISDA has published a recording of the 27 October 2020 call of its Interest Rate Definitions Working Group. On the call, the working group discussed the updated implementation plan and timeline working towards 17 May 2021 for publication of the 2021 Interest Rate Derivatives Definitions, and 21 June 2021 for the adoption of the new definitions.

Source: 2020 ISDA Interest Rate Derivatives Definitions. 

ISDA publishes sixth set of legal guidelines for smart derivatives contracts: credit derivatives

ISDA has published the sixth in a series of legal guidelines for smart derivatives contracts, which are intended to support technology developers, lawyers and other key stakeholders in the development of smart derivatives contracts and other technology solutions in the credit derivatives (CDS) market.

Source: Legal guidelines for smart derivatives contracts: credit derivatives.

Securitisation and structured products

Coronavirus (COVID-19)—ECON adopts reports on proposed changes to securitisation rules

The European Parliaments’ Committee on Economic and Monetary Affairs (ECON) has adopted two reports on proposed amendments to the rules on securitisation set out in the Securitisation Regulation (EU) 2017/2402 and the Capital Requirements Regulation (EU) 575/2013 (CRR). The proposals were adopted by the European Commission in July 2020 as part of its capital markets recovery package, in response to the coronavirus (COVID-19) pandemic.

Sources: ECON report on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation to help the recovery from the COVID-19 pandemic and ECON report on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards adjustments to the securitisation framework to support the economic recovery in response to the COVID-19 pandemic.

Regulation for derivatives and structured products

ECON co-rapporteurs propose approval of Council position on CCP recovery and resolution regulation

ECON has published a draft recommendation regarding the European Commission’s proposed regulation on a framework for the recovery and resolution of central counterparties (CCPs). The co-rapporteurs propose that ECON recommend that the European Parliament plenary confirms the position of the Council of the EU at first reading, without amending it.

Source: Draft recommendation for second reading on the Council position at first reading with a view to the adoption of a regulation of the European Parliament and of the Council on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132.

EBA report makes recommendations to harmonise the SRT assessment in securitisation

The EBA has published a report on significant risk transfer (SRT) in securitisation transactions, which includes a set of detailed recommendations to the European Commission on the harmonisation of practices and processes applicable to the SRT assessment. The EBA proposals aim to enhance the efficiency, consistency and predictability of the supervisory SRT assessment within the current securitisation framework.

Source: The EBA calls on the European Commission to harmonise the significant risk transfer assessment in securitisation.

FSB publishes guidance on the treatment of CCP equity in resolution

The Financial Stability Board (FSB) has published final guidance on financial resources to support central counterparty (CCP) resolution and on the treatment of CCP equity in resolution. The guidance aims to support resolution authorities and crisis management groups in assessing the adequacy of financial resources for CCP resolution and provides guidance on approaches to the treatment of CCP equity in resolution.

Source: FSB releases guidance on CCP financial resources for resolution and announces further work.

FIA white paper on impact of pandemic volatility on CCP margin requirements

FIA has issued a white paper on the impact of pandemic volatility on central counterparty (CCP) requirements, as part of its continuing effort to enhance risk management in the clearing system. Findings include that the CCP margin requirements increased ‘dramatically’ during the coronavirus (COVID-19) pandemic. In order to reduce liquidity risk, FIA recommends improvements to margin models, including improved design and application of margin floors.

Source: FIA issues white paper on the impact of pandemic volatility on CCP margin requirements.


European Commission seeks feedback on convergence of national insolvency laws

The European Commission has opened a consultation on the subject of insolvency laws and the increasing convergence of national laws to encourage cross-border investment. The initiative will address the primary discrepancies between national corporate insolvency laws that have acted as obstacles to the functioning of a Capital Markets Union, and will consider the interests of creditor groups, including investors, employees and consumers. The consultation, which is open until 9 December 2020, seeks feedback for the further development and fine tuning of the initiative. Received feedback will be summarised in a synopsis report, which will also set out how the input will either be taken on board, or provide reasons as to why it cannot be.

Source: Insolvency laws: increasing convergence of national laws to encourage cross-border investment.

Regulation for Banking lawyers

Coronavirus (COVID-19)—Andrew Bailey discusses UK’s future investment needs and the role of regulation

The BoE has published a speech by its governor, Andrew Bailey, on the long-term effects of the coronavirus (COVID-19) and the investment required to support the recovery. Bailey argued that the financial system can help companies manage the current shock, saying regulators and financial services firms must work together so businesses are able to get the finance they need to invest for the future.

Source: The future for business investment in the age of COVID and the role of financial services—speech by Andrew Bailey.







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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.