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The Financial Markets Law Committee (FMLC) has published an addendum
to its 2017 report entitled ‘Issues of legal uncertainty arising in the context of the withdrawal of the UK from the EU—the provision and application of third country regimes in EU legislation’ (the 2017 report). The addendum sets
out key updates to the 2017 report. The FMLC concludes that the uncertainties highlighted in the 2017 report continue to paint a daunting picture for UK market participants who have been, and would like to continue, providing services into the EU.
The risk of a ‘cliff edge’ continues to present a substantial danger of market disruption and of litigation in relation to legacy business.
The UK government has notified the Dutch Ministry of Foreign Affairs that its accession
to the Hague Convention of 30 June 2005 on Choice of Court Agreements has once again been delayed by the Brexit extension. The government notifies the ministry that the UK and Gibraltar’s accession shall be suspended until 1 February 2020. The
government reiterates that if a Withdrawal Agreement is signed, ratified and approved, before or on 1 February 2020, the UK will withdraw the Instrument of Accession deposited on 28 December 2018.
FCA updates statement on derivatives
reporting obligations in a No deal Brexit scenario
The Financial Conduct Authority (FCA) has updated its statement explaining what trade repositories (TRs), and UK counterparties that use them, should do to make sure they are compliant with their Regulation (EU) 648/2012 (EMIR) reporting obligations if the UK leaves the EU without
an agreed deal. ‘UK counterparties’ includes UK firms and UK central counterparties (CCPs) who will be subject to the UK EMIR reporting regime. The updated statement includes a link to the UK EMIR validation rules.
EU rules that have the power to block the biggest clearinghouses’ access to clients in the bloc may result in smaller UK companies being inadvertently obstructed from carrying out business there. The fee structure proposed by EU policymakers might
present a barrier to entry for smaller clearinghouses, even if they aren’t designed to be captured by the strictest aspects of the rules—and they will have to decide whether the costs are worth it.
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The private sector working group on euro risk-free rates (RFRs) has published a set of
recommendations for fallback provisions in contracts for cash products and derivative transactions referencing Euro Interbank Offered Rate (EURIBOR). The recommendations support compliance with the EU Benchmarks Regulation (BMR) (EU) 2016/1011, and
aim to enhance legal and commercial certainty.
The Alternative Reference Rates Committee (ARRC) has welcomed the opening
of a consultation on the subject of the publication of Secured Overnight Financing Rate (SOFR) averages and a SOFR index. The consultation was released by the Federal Reserve Bank of New York, in co-operation with the Treasury Department’s Office
of Financial Research. The bank intends to initiate publication of SOFR averages during the first half of 2020. The consultation closes 4 December 2019.
The ARRC has released an appendix to SOFR Floating Rate Notes
(FRN) Conventions Matrix. The Conventions Matrix was released in August 2019, and was designed to identify ‘considerations relevant to using SOFR…in new FRNs’. It supplements the ARRC’s paper ‘A User’s Guide to
SOFR’, which was published in April 2019. The new appendix, which is ‘intended as an additional resource for market participants to consider’, includes terms sheets providing examples of conventions and how they are used in SOFR-based
FRNs, as well as recommended fallback language for SOFR-based FRNs.
The European Central Bank (ECB) has published the minutes of a meeting of its working group on euro RFRs. At the meeting, held on 16 October 2019, the working group discussed topics including the first publication of the Euro Short-term Rate (€STR) and of the recalibrated Euro Overnight
Index Average (EONIA), which both took place on 2 October 2019; the status of three information documents currently being prepared for market participants; and an update from the International Swaps and Derivatives Association (ISDA) on its plans
for a consultation on EURIBOR fallbacks.
The private sector working group on euro RFRs has published a report on €STR fallback
arrangements. The purpose of the report is to provide supervised entities with guidance on potential ways to comply with Article 28.2 of the EU Benchmarks Regulation (BMR) when using €STR as the euro RFRs in contracts.
The ARRC has published its newsletter for October–November 2019,
in which the ARRC aims to inform on key news relating to alternative reference rates transition both in the US and the global markets. The newsletter contains sections on the most recent development within the ARRC, US, international and market developments,
as well as the market liquidity of the SOFR.
UK Finance has published a guide for its members which is intended for business customers
who hold LIBOR-linked financial products, including loans, to help them understand more about the discontinuation and what they should expect to hear from their bank or lender in the coming months.
The Financial Conduct Authority (FCA) has published key questions and answers for firms on conduct risk arising from the LIBOR transition. The Q&As outline in detail the FCA’s core expectations of firms during the transition away from LIBOR.
They set out what firms should do in relation to issues including: governance and accountability; treating customers fairly when replacing LIBOR; offering new products with RFRs or alternative rates; communicating with customers about LIBOR and alternative
rates/products; and acting in the best interests of clients when making investment decisions in relation to LIBOR and RFR-linked products.
The FCA has published a speech by its director of markets and wholesale policy, Edwin Schooling Latter,
outlining the next steps in the transition from LIBOR. Schooling Latter said the aim was to end the use of LIBOR in new sterling loans from Q3 2020, and make it standard to quote based on Sterling Overnight Index Average (SONIA) in sterling swap markets.
The Council of the European Union has published an annex to interest rate benchmark reform covering
amendments to IFRS 9, IAS 39 and IFRS 7. The amendments aim to address the consequences of the reform in financial reporting by alleviating the hedge accounting requirements.
The Brattle Group has published its report
on behalf of International Swaps and Derivatives Association (ISDA) summarising consultation responses on the final parameters for the spread and term adjustments in derivatives fallbacks for key interbank offered rates (IBORs). The report covers
technical issues on specific methodologies for two preferences—the compound setting in arrears rate to address differences in tenor between IBORs and overnight RFRs and the historical mean/median approach to deal with differences in credit risks.
Following the results of the consultation, ISDA will adjust the 2016 ISDA definitions and publish a protocol enabling participants to include fallbacks within legacy IBOR contracts. Implementation is expected in 2020.
The European Commission and the European Financial Reporting Advisory Group (EFRAG) has published its endorsement of the amendments to the interest rate benchmark reform. The amendments are applicable from 1 January 2020 with earlier application permitted.
The Lexis®PSL Banking & Finance team attended the Secured Transactions Conference on the 6 November 2019 held at University College London at which academics, practitioners and industry representatives came together to discuss the most recent
draft of the Secured Transactions Code. For information on the key points arising from the discussion and on next steps, see News Analysis: Reforming the law of security—what is the state of play?
 EWCA Civ 2047
The Court of Appeal confirmed the lower court’s decision in relation to a vesting order of a leasehold property previously owned by a company which was struck off the register. The company had taken a loan jointly with the beneficial owner of the
company (Mr Leon), which was secured on the leasehold property owned by the company. The company was struck off the register but no application had been made to have it restored to the register within applicable time limits. The property vested in
the Crown as bona vacantia and Mr Leon applied for a vesting order claiming he had an interest in the property. His application was refused and a vesting order was granted in favour of the lender with any surplus realised on enforcement of the security
payable to whichever party may be entitled to it. Mr Leon appealed on the basis that he was entitled to the property as a result of his beneficial interest in the company, and because of the fact that he was co-borrower on a loan secured on the property
and was still required to make payments on the loan. He also argued that he was entitled to the equity of redemption in the secured property which meant he was entitled to a vesting order. These arguments failed. In particular, Mr Leon confused his
standing as borrower with standing as mortgagor (the latter of which he did not have, as he did not have an ownership interest in the property and had not granted security on it). Mr Leon’s appeal against the judgment was dismissed.
The European Commission has welcomed an agreement by Member States to start interinstitutional negotiations on new rules for the accelerated extrajudicial enforcement of collateral. The rules aim to increase the efficiency of enforcement regimes, helping
to prevent the future build-up of non-performing loans (NPLs) while maintaining a high level of borrower protection.
 EWHC 2918 (Comm)
The claimant companies’ application for summary judgment failed, in a dispute concerning the alleged failure of the defendants to repay sums due under a loan for the purchase of two ships. The no-set off clause in the contract did not exclude the
application of the ‘prevention principle’: namely, that a party in breach of contract was excused where he had been prevented from performing the relevant obligation by the breach of the other party.
TMF Trustee Ltd v Fire Navigation Inc
 EWHC 2910 (Comm)
The court refused to grant summary judgment to lenders seeking repayment of a loan even though the agreement had included a no set-off clause. So where borrowers are able to plead the ‘prevention principle’, and that plea has a real prospect
of success, lenders will not be able to obtain summary judgment (unless, possibly, they have an express clause that bars the operation of this principle). James Collins QC, a barrister at Essex Court Chambers, explains the decision in News Analysis:
Loan repayment—application of the ‘prevention principle’ (TMF Trustee Ltd v Fire Navigation Inc).
Commission Delegated Regulation (EU) 2019/1868 of 28 August 2019
amending Regulation (EU) 1031/2010 to align the auctioning of allowances
with the EU ETS rules for the period 2021 to 2030 and with the classification of allowances as financial instruments pursuant to Directive 2014/65/EU (MiFID II) has been published in the Official Journal of the EU.
The concept of ‘change of status’ within the meaning of Article 12(2) of Commission Delegated Regulation (EU) 2015/63 should be interpreted as including a transaction by which an institution ceased, in the course of a year, to be under the
supervision of the national resolution authority following a cross-border merger through acquisition by its parent company, and as a result that transaction had no impact on the institution’s obligation to pay in full the ordinary contributions
due for the contribution year in question. The Court of Justice of the European Union so held, among other things, in a preliminary ruling in proceedings concerning the payment by the applicant bank of contributions to the respondent national resolution
fund in Italy.
The International Capital Markets Association (ICMA) has updated its mapping directory of Electronic Trading Platforms, which now outlines a total of 41 electronic execution venues, Order Management Systems and information networks. ICMA’s mapping directory is designed to ‘help market participants understand
what execution and non-execution venues are available for cash bonds’.
ICMA has published a study on the expected impact of the
new mandatory buy-in regime, to be introduced in 2020 under the EU Central Securities Depositories Regulation (EU) 909/2014 (CSDR), on bond markets in Europe. ICMA says the results of its member survey, representing buy-side firms, sell-side firms
and repo and securities lending desks, show that the new regime will negatively impact bond market liquidity and efficiency.
The International Swaps and Derivatives Association's (ISDA’s) chief executive officer, Scott O’Malia, has commented on the importance of digital solutions in banking. O’Malia outlines the need to standardise and highlighted the role the ISDA common domain model plays in that process and has also highlighted the digital regulatory reporting pilot as well as
the launch of ISDA Create earlier in 2019.
The CEO of the ISDA, Scott O’Malia, has written to the head of ESMA’s
markets department, Fabrizio Planta, and the head of financial markets infrastructures at the European Commission—DG FISMA, Patrick Pearson, to request an extension to the regulatory technical standards (RTS) related to novation (Novation RTS),
to ensure they achieve their intended objective and apply in the event of a No deal Brexit on 31 January 2020.
The Association for Financial Markets in Europe (AFME) has commented on the adopted texts of the proposed Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment (also referred to as the Taxonomy Regulation) in light of the trilogue negotiations.
The European Investment Bank (EIB) has launched a new
climate strategy and energy lending policy. According to EIB president, Werner Hoyer, the bank intends to stop financing fossil fuels and ‘launch the most ambitious climate investment strategy of any public financial institution anywhere’.
The 14th Islamic Financial Services Board (IFSB) Summit 2019 saw consensus between thought leaders, market players, and regulators that technological innovation would create positive impacts in sustaining Islamic finance development that are in line with
the global sustainable development agenda.
The Paris Agreement on Climate Change has charged the finance sector with the obligation of ‘making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’. The industry has responded
by launching national and international initiatives to support sustainable development, but how can investors ensure they make the right green investments and how is regulation developing? In News Analysis: Making money greener—the drive towards
sustainable finance, Nigel Howorth and Clare Burgess, both partners at Clifford Chance, comment on the importance of companies increasing the information they publish on their environmental impact, and what the future holds for the sustainable finance
The Financial Markets Law Committee (FMLC) has written to the European Commission in connection with the interpretation of Article 5(1)(e) of the EU Securitisation Regulation (EU) 2017/24. The letter sets out the FMLC’s preferred interpretation and calls on the Commission to issue guidance on the
approach to the due diligence assessments of transactions involving third country entities, so as to promote legal certainty in this area.
The European Commission has published a delegated regulation supplementing
Regulation (EU) 2017/2402 (the Securitisation Regulation) and laying down RTS specifying the information to be provided in accordance with the simple, transparent and standardised criteria (STS) notification requirements.
The European Securities and Markets Authority (ESMA) has updated its Q&As
on the Securitisation Regulation. The update includes new questions on securitisation repositories, STS notification and disclosure requirements, and templates. In addition, ESMA has added a summary table giving an easy overview of the list of Q&As
and adjusted the order of some Q&As compared to the previous version, with a view to grouping Q&As treating similar topics.
The Financial Stability Board (FSB) has updated its report: ‘Transforming shadow banking into resilient market-based
finance—Regulatory framework for haircuts on non-centrally cleared securities financing transactions’, to reflect that this framework has been extended to non-bank-to-non-bank transactions. Financing provided to banks and broker-dealers
subject to adequate capital and liquidity regulation on a consolidated basis is excluded.
ESMA has launched a consultation paper
on position limits and position management in commodity derivatives, in the context of the review ESMA and the European Commission are required to carry out under Directive 2014/65/EU (MiFID II) into the impact of position limits and position management
on liquidity, market abuse, and orderly pricing and settlement conditions in the commodity derivatives markets. The consultation closes on 8 January 2020.
The European Securities and Markets Authority (ESMA) has published three sets of technical advice to the European Commission regarding third-country central counterparties (TC-CCPs) under the revised European Market Infrastructure Regulation (EMIR 2.2). ESMA has sent its advice to the Commission for the development
of the corresponding Delegated Acts under EMIR 2.2, on which the Commission will consult publicly before it finalises them.
Two decisions of the European Economic Area (EEA) Joint Committee have been published in the Official Journal of the EU, both of which incorporate MiFID II, 2004/39/EC and MiFIR, (EU) 600/2014—and related Commission Delegated Regulations, (EU) 2018/815
and Commission Implementing Regulations, (EU) 2015/207—into the EEA Agreement.
The European Commission has published a speech by its vice-president, Valdis Dombrovskis, centred on the Commission’s priorities for sustainability and green finance. But Dombrovskis also used the speech to propose the renewal
of the central clearing time-limited equivalence decision beyond 30 March 2020, in order to ‘prepare for any eventuality’.
The Association for Financial Markets in Europe (AFME) has welcomed an announcement by the European Commission on extending temporary equivalence for UK CCPs. The Commission declared this extension in a speech on 15 November 2019 in London.
The International Capital Market Association (ICMA) has declared that it will amend its Buy-in Rules to support the implementation of the EU Central Securities Depositories Regulation (CSDR) mandatory buy-in provisions. The CSDR buy-in provisions, which are to ‘create
a mandatory obligation for trading parties to execute buy-ins against CCPs who fail to settle their trades within a required period’, are expected to enter into force in September 2020.
 EWHC 2896 (Ch)
The respondent company had claimed, as the assignee of Clydesdale Bank (the bank), debts owed to the bank by the appellants. The claim had succeeded on the basis of secondary evidence regarding the assignment, namely a redacted assignment deed. The appellants
were granted permission to appeal on three out of six grounds of appeal. The Chancery Division dismissed their applications: (i) to admit new evidence; and (ii) to introduce a seventh ground of appeal. The court ruled that, given that ground seven
involved a contention that the judgment on the claim had been obtained by fraud, it had to be pursued by what would, in substance, be separate action. Further, the court held that the ‘new’ material that the appellants sought to adduce
did not come close to meeting the requirement in authority that, if it had been adduced at trial, that evidence would have had an important influence on the result of the case.
Re London Bridge Entertainment Partners LLP (in administration)
 EWHC 2932 (Ch)
In this case, Insolvency and Companies Court (ICC) Judge Barber held that the Lundy Granite principle does not extend to an obligation to ‘top up’ a rent deposit deed, where sums had been withdrawn from the fund to pay rent. For more information,
see News Analysis: Administration Expenses—Lundy Granite principle (Re London Bridge Entertainment Partners LLP (in administration)).
 EWHC 2205 (Ch)
The claimant's claim succeeded in part, in a dispute concerning mortgages that she had taken out with the first defendant mortgage loan company. The Chancery Division held that the claims based on forgery, lack of due attestation, undue influence and
breach of duty all failed. The claims based on secret commissions and under the unfair relationships legislation succeeded.
Wood v Commercial First Business Ltd (in Liquidation)
 EWHC 2205 (Ch),
A mortgage broker was retained by Mrs Wood to find her suitable sources of lending. Mrs Wood owned two farms, and following her introduction to a lender (Commercial First Business Ltd) she borrowed substantial sums of money secured by separate mortgages
in 2006 and 2007 over the farms. She later borrowed further sums against one of the securities. She fell into financial difficulty and in 2008 possession orders were made in respect of each farm. In due course she commenced proceedings alleging that
the mortgages were invalid or unenforceable on various grounds, the most interesting of which were: (i) her signature had not been properly attested on the first mortgage because the witness had not signed the document in front of her, (ii) the broker
had received a secret commission in respect of each loan from the lender without her knowledge giving rise to a right to rescind the loans, and (iii) her relationship with the lender was an unfair relationship within the scope of the Consumer Credit
Act 1974 (CCA 1974). Mrs Wood succeeded on the grounds of secret commission and unfair relationship and was entitled to rescission of the agreements, subject to counter-restitution. An account was ordered to be taken of the sums which Mrs Wood ought
to pay notwithstanding the rescission of the loan agreements. The case also considers whether the assignees of the debt were liable to pay to Mrs Wood the amount of the secret commissions, and whether Mrs Wood could set off the value
of the secret commissions against the debt owed to the assignees. For further information, see News Analysis: Mortgages—validity—mortgage broker receiving payment from both lender and borrower (Wood v Commercial First Business Ltd (in
Liquidation)), written by Charles Joseph, barrister, at Tanfield Chambers.
HMRC has issued two notes explaining HM Treasury regulations coming into force on 29 November 2019, which ensure that interest payments made on certain hybrid instruments issued by banks and insurers as regulatory capital under the new Bank of England
requirements continue to receive a tax deduction. These regulations have effect for payments made on or after 1 January 2019 and will be replaced from 1 January 2020 by new regulations to comply with more stringent rules under the EU anti-tax avoidance
In News Analysis:
P.R.I.M.E. Finance New York Conference 2019, Camilla Macpherson, new Head of Secretariat at PRIME Finance, discusses P.R.I.M.E. Finance’s key achievements in 2019, plans for 2020 and the main issues discussed at the P.R.I.M.E. Finance New York
The Chancellor of the High Court and chair of the UK Jurisdiction Taskforce, Sir Geoffery Vos, has launched the LawTech Delivery Panel’s legal statement on cryptoassets and smart contracts. In his speech at the launch, Vos stated that following ‘rigorous legal analysis’, the legal statement
concludes that cryptoassets generally have all the legal indicia of property and are to be treated as property, according to English legal principle.
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