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Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from October 2020.
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have written a joint letter to CEOs of UK and international banks preparing for the end of the Brexit transition period, stressing the importance of firms continuing to build on their preparatory work to ensure that they and to the extent possible their clients, are ready for a range of scenarios.
Sources: Letter from the PRA and FCA ‘Final preparations for the end of the transition period’ and FCA writes joint letter with the Bank to CEOs of UK and international banks.
The International Swaps and Derivatives Association (ISDA) has announced the launch of the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol. ISDA says the launch marks a major step in reducing the systemic impact of a key interbank offered rate (IBOR) becoming unavailable while market participants continue to have exposure to that rate.
Source: ISDA launches IBOR Fallbacks Supplement and Protocol.
The Association for Financial Markets in Europe (AFME) has published EURIBOR transition model wording for securitisation transactions. The wording has been developed by AFME’s Securitisation Division, which includes issuers, underwriters, investors, law firms, credit rating agencies and service providers.
Source: EURIBOR transition model wording for securitisation transactions.
The Loan Market Association (LMA) has published a ‘Note on Revised Replacement of Screen Rate Clause and pre-cessation trigger’, highlighting considerations relating to inclusion, in the LMA's Revised Replacement of Screen Rate Clause, of a specific pre-cessation trigger relating to a benchmark rate no longer being representative. In light of the publication of Amendments to the 2006 ISDA Definitions to include new fallbacks, one should consider adding a non-representativeness pre-cessation trigger in the Revised Replacement of Screen Rate Clause, particularly where, in due course, related derivatives transactions may include such a trigger following the ISDA IBOR Fallbacks Supplement becoming effective on 25 January 2021.
Source: Documents & Guidelines
The Bank of England (BoE) has published a joint statement with the Financial Conduct Authority (FCA) which states that, following close engagement with market participants, the FCA and BoE support and encourage liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 27 October 2020. The intention is to facilitate the further shift in market liquidity toward SONIA swaps, bringing benefits for a wide range of end users and other market participants as they move away from use of LIBOR.
Source: The FCA and the Bank of England encourage market participants in further switch to SONIA in interest rate swap markets.
Companies House has updated its coronavirus (COVID-19) guidance for customers adding information regarding access to their offices. Companies House offices in Cardiff, Belfast and Edinburgh will be closed from the public until March 2021. The London office will remain closed until March 2021. Paper documents and deliveries can still be made to the offices in Belfast, Edinburgh and Cardiff.
Source: Coronavirus guidance for Companies House customers.
HM Land Registry (HMLR) has amended section 4 of practice guide 80 (PG80), which provides useful information for conveyancers to state that the section ‘is not intended to be comprehensive and that some of the temporary legislative measures are, or may be, subject to review and alteration from time to time’.
Source: Coronavirus (COVID-19): useful information for conveyancers (PG80).
The LMA has launched two new guidance documents highlighting potential applications of the green loan principles (GLP) in the real estate investment finance context. They include analysis of the key considerations that lenders and borrowers should take into account when entering into these types of transactions.
Source: New guidance documents published highlighting potential applications of the GLP in the real estate context.
The European Commission has published a set of FAQs on the setting-up and work of the Platform on Sustainable Finance. The Commission notes that the establishment of the Platform is an important component to fully develop the EU Taxonomy for environmentally sustainable economic activities and potentially extend it to other dimensions of sustainability. It will therefore contribute significantly to the implementation of the renewed Sustainable Finance strategy currently being developed by the European Commission.
Source: Frequently asked questions: Commission Platform on Sustainable Finance
The European Investment Fund (EIF) has announced that it has signed a memorandum of understanding (MoU) with the United Nations Development Programme (UNDP) to develop joint initiatives for sustainable finance and the implementation of the Sustainable Development Goals (SDGs).
Source: EIF and UNDP to strengthen co-operation for sustainable finance.
The Association for Financial Markets in Europe (AFME) and the International Swaps and Derivatives Association (ISDA) have published a joint response to the European Central Bank (ECB) Guide on Climate and Environmental risks. AFME and ISDA note, amongst other things, that the ECB has, for the second year in a row, identified climate-related and environmental risks as a key risk driver in the Single Supervisory Mechanism Risk Map for the euro area banking system.
Source: ECB Guide on Climate and Environmental risks—AFME and ISDA response (general comments) September 2020.
Member States’ ambassadors to the EU have agreed the Council’s position on the capital markets recovery package, which contains targeted amendments to the EU capital market rules to help EU companies raise capital on public markets, support the lending capacity of banks and boost investment in the real economy. The Council’s position includes a number of amendments. On the basis of this negotiating mandate, the presidency will start negotiations with the European Parliament as soon as the Parliament has adopted its position.
Source: Capital Markets Recovery Package: Council agrees its position.
The European Parliament has adopted a report on further development of the capital markets union (CMU), improving access to capital market finance, in particular by SMEs, and further enabling retail investor participation.
Source: P9_TA-PROV(2020)0266 Further development of the Capital Markets Union (CMU): improving access to capital market finance, in particular by SMEs, and further enabling retail investor participation European Parliament resolution of 8 October 2020 on further development of the Capital Markets Union (CMU): improving access to capital market finance, in particular by SMEs, and further enabling retail investor participation (2020/2036(INI)).
The International Capital Market Association (ICMA) has published a discussion paper on transparency and liquidity in the European bond markets. The paper addresses the ‘ongoing parallel discussion on the issue of transparency in the European bond markets’ on the subjects of bond market liquidity and the design and implementation of the European transparency framework for bonds. The paper endeavours to ‘to pull those two workstreams together’ in an effort to ‘explain how bond market structure and dynamics are very different to those of equity markets’.
Source: ICMA publishes discussion paper on Transparency and liquidity in the European bond markets.
ICMA has updated its ‘Guide to Best Practice in the European Repo Market,’ which offers recommended practices, conventions and clarifications aimed at supporting the trading and settlement of repos. The update incorporates new guidelines which aim to address problems since the previous update in December 2018, such as ‘best practices for the termination of open repos late in the day, the calculation of transaction exposure for forward dated trades, and defining stale prices’. The guide will continue to be reviewed and updated.
Source: ICMA publishes updated Guide to Best Practice in the European Repo Market.
ICMA’s Green Bond Principles and Social Bond Principles Executive Committee has announced the composition of the Advisory Council for 2020/2021. The role of the Advisory Council is to advise the Executive Committee, to increase its market awareness and outreach, and to enable further engagement with specific membership categories and observers.
Source: Green Bond Principles and Social Bond Principles executive committee announces 2020/2021 Advisory Council composition.
The European Commission has adopted the Commission Delegated Regulation of 23.10.2020 amending Commission Delegated Regulation (EU) 2018/1229 concerning the regulatory technical standards on settlement discipline, as regards its entry into force (C(2020) 7186 final). The new Commission Delegated Regulation defers the entry into force of the settlement discipline regime under the Central Securities Depositories Regulation (EU) 909/2014 (CSDR) to 1 February 2022 and will enter into force on the third day following its publication in the Official Journal of the EU.
Source: Commission Delegated Regulation (EU)…/...amending Delegated Regulation (EU) 2018/1229 concerning the regulatory technical standards on settlement discipline, as regards its entry into force.
ISDA has commented on the importance of fallbacks for derivatives users around the world. ISDA Chief Executive Officer, Scott O'Malia, explained that while fallbacks should not be used as the ‘primary means’ of transitioning to risk-free rates (RFR), ‘they will act as a critical safety net and risk mitigant, ensuring contracts that continue to reference IBORs switch to the adjusted RFR fallback if an IBOR ceases to exist or, in the case of LIBOR, is deemed by the UK Financial Conduct Authority to be non-representative of its underlying market’. Going forward, O’Malia stressed that ‘building momentum and liquidity in the alternative rates must now be a priority for the whole market’ seeing as only 14 months remain until LIBOR will ‘likely cease publication’.
Source: A Major Milestone for Benchmark Reform
ISDA has published Model Clauses to be used with the 2005 ISDA Commodity Definitions (Negative Floating Amounts). The Model Clauses ‘enable parties to incorporate express contractual provisions into confirmations and/or ISDA Master Agreements to clarify the consequences of a Floating Amount determined under Section 6.1 (Calculation of a Floating Amount) of the Commodity Definitions being a negative amount.’
Source: Model Clauses for Use with the 2005 ISDA Commodity Definitions (Negative Floating Amounts).
ISDA has announced that it has implemented a pilot of the Common Domain Model (CDM), which will be used for the clearing of interest rate derivatives using DAML—an open-source smart contract language created by Digital Asset. ISDA believes using the CDM for clearing will facilitate interoperability, automation and straight-through processing by removing the need to set up connections to incongruous systems.
Source: ISDA and Digital Asset Launch CDM Clearing Pilot Using DAML.
ICMA has announced that the third phase of reporting under the Regulation on reporting and transparency of securities financing transactions (SFTR) (Regulation (EU) 2015/2365) is now live. SFTR reporting obligations now apply to investment funds, pensions funds and (re)insurance undertakings, as well as sell-side firms, central clearing counterparties and central securities depositories, which have been reporting for three months. ICMA has also published recommendations for reporting under SFTR to assist stakeholders.
Source: Buy-side starts reporting under SFTR .
The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has published two draft 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 pandemic.
Source: ECON: Draft 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 (COM(2020)0283—C9-0208(2020)—2020/0156(COD)).
The government has announced that the measures put in place to protect businesses from insolvency will be extended to continue giving businesses 'the much-needed breathing space during the coronavirus (COVID-19) pandemic'. A number of changes to protect businesses from insolvency were 'introduced in the Corporate Insolvency and Governance Act and were due to expire on 30 September 2020'. The Business Minister Lord Callanan, said: 'We are now extending these important and necessary measures to protect companies from insolvency. Through this measure, we want to ensure businesses are able to not only come through this testing period, but also to plan, adapt and build back better'.
Source: Government gives businesses much-needed breathing space with extension of insolvency measures.
The FCA has published a policy statement (PS20/10) which sets out final rules banning the sale of derivatives and exchange traded notes that reference certain types of cryptoassets to retail consumers. The ban will come into effect on 6 January 2021. The FCA is also warning UK consumers to continue to be alert for crypto-derivative investment scams.
Sources: FCA bans the sale of crypto-derivatives to retail consumers and PS20/10: Prohibiting the sale to retail clients of investment products that reference cryptoassets.
The UK government has introduced the Financial Services Bill in Parliament. The Bill is intended to ensure the UK’s regulatory framework continues to function effectively for the UK after leaving the EU. Among other things, the Bill includes provisions to amend the Benchmarks Regulation, which is intended to help manage and direct an orderly wind-down of critical benchmarks such as LIBOR.
Sources: Financial Services Bill introduced today, FCA welcomes Financial Services Bill and Financial Services Bill 2019-21.
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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.
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