Monthly Highlights: February 2019
Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from February 2019.
Brexit and LMA documentation update
The Loan Market Association (LMA) is in the process of considering appropriate changes to be made to the relevant legislative references in its documentation in the event that the UK's onshoring legislation becomes effective on 29 March. If the UK's onshoring legislation becomes effective on 29 March 2019, the LMA's intention is to publish a table of those suggested changes on or about that date so as to release them to members as soon as possible. Those changes will then be incorporated into its documentation suite over the following weeks.
BoE, FCA and CFTC issue joint statement on continuity of derivatives trading and clearing post-Brexit
The Bank of England (BoE), Financial Conduct Authority (FCA) and Commodity Futures Trading Commission (CFTC) have issued a joint statement on continuity of derivatives trading and clearing post-Brexit. BoE, FCA and CFTC say that they are taking measures to ensure that the UK's withdrawal from the EU, in whatever form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and US, and will coordinate their activities in the areas of supervisory cooperation, extension of existing CFTC relief and comparability for the UK, and UK equivalence for the US.
FMLC publishes report on issues of legal uncertainty arising in the context of emissions allowances after Brexit
The Financial Markets Law Committee has published a report titled ‘UK Withdrawal from the EU: Issues of Legal Uncertainty Arising in the Context of Emissions Allowances’. The UK’s withdrawal from the EU raises various issues of legal uncertainty relating to the EU emissions trading scheme (the EU ETS) and the European emissions allowances (EAUs), whether the UK leaves the EU ETS from the date of exit (as is expected in the event of a hard Brexit) or stays in the EU ETS until the end of 2020. This paper examines the legal complexities which will arise from the UK’s withdrawal from the EU ETS in the event that no agreement is reached regarding its future participation beyond March 2019 or the current phase III of the EU ETS ending on 2020.
ESMA to recognise three UK CCPs in the event of a no-deal Brexit
The European Securities and Markets Authority (ESMA) has announced that in the event of a no-deal Brexit, three central counterparties (CCPs) established in the UK—LCH Limited, ICE Clear Europe Limited and LME Clear Limited—will be recognised to provide their services in the EU. ESMA has adopted these recognition decisions in order to limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU.
ICMA publishes briefing note on ESMA statement on the use of UK data in ESMA databases and performance of MiFID II calculations in case of a no-deal Brexit
The International Capital Market Association (ICMA) has published a briefing note which summarises the key points in the ESMA statement on the use of UK data in ESMA databases and the performance of MiFID II calculations under a no-deal Brexit with regard to bond markets. ESMA’s statement aims to inform stakeholders on the approach it will take on all ESMA IT applications and databases.
ISDA comments on proposed technical standards on Brexit-related novations
The International Swaps and Derivatives Association (ISDA) sent a letter to ESMA and the European Commission on 12 February 2019, commenting on the proposed technical standards on Brexit-related novations.
IA launches roadmap to guide asset managers to post LIBOR world
The Investment Association (IA) has launched a roadmap on 21 February 2019 to guide asset managers through the transition from LIBOR to SONIA, the new risk-free rate.
FCA Speech—ending reliance on LIBOR
The FCA has published a speech by Megan Butler, executive director of supervision-investment, wholesale and specialists, that she has delivered at the Investment Association in London on 21 February 2019.
Government interim response to Land Registration Act 2002 review
The government has published its interim response to the Law Commission’s review of the Land Registration Act 2002, in which it recognised HM Land Registry’s crucial role in England and Wales. The government stated that many of the recommendations set out in the Law Commission’s review are ‘likely to be acceptable in principle’, but to avoid considering the recommendations in a piecemeal fashion, the government will provide its final conclusions in summer 2019.
Updates to HM Land Registry practice guides
HM Land Registry has published updates on several guidance documents related to charges and property registration. The updated practical guides include PG30, PG40s5, PG40s3, PG79 and PG29.
Telecommunication companies start issuing green bonds
Aaron Franklin, attorney and global coordinator for sustainable capital markets at Latham & Watkins, discusses recent activity by telecommunications companies in sustainable finance in News Analysis: Telecommunication companies start issuing green bonds.
ESMA publishes responses to sustainable finance consultations
ESMA has published the responses received to its Consultation Paper on integrating sustainability risks and factors in MiFID II and its Consultation Paper on integrating sustainability risks and factors in the UCITS Directive and AIFMD, both published on 19 December 2019.
IOSCO GEMC launches consultation on sustainable finance
The Growth and Emerging Market Committee (GEMC) of the International Organisation of Securities Commissions (IOSCO) has published a consultation report ‘Sustainable finance in emerging markets and the role of securities regulators’. The report proposes recommendations for emerging market member jurisdictions to consider when issuing regulations or guidance regarding sustainable financial instruments, explores the trends and challenges that influence the development of sustainable finance in emerging capital markets and provides an overview of the initiatives that regulators, stock exchanges, policy makers and other key stakeholders in emerging markets have undertaken in this area. Comments are requested by 1 April 2019.
Debt capital markets
Capital Markets Union
Capital markets union: political agreement reached on EU framework for covered bonds
The Council of the EU issued a press release on 26 February 2019, stating that the Romanian presidency and the European Parliament reached a provisional agreement on a harmonised framework for covered bonds.
Capital Markets Union—Presidency and Parliament agree on a new regulatory and supervision framework for investment firms
On 26 February 2019, the Romanian Presidency of the Council and the European Parliament reached a provisional agreement on a package of measures, composed of a regulation and a directive, setting out new prudential requirements and supervisory arrangements for investment firms.
Capital Markets Union: Council of the European Union agrees to position on easier access to financial markets for SMEs
On 27 February 2019, EU ambassadors endorsed the Council's position on a proposal to give an easier access to small and medium enterprises (SMEs) trying to list and issue securities on financial markets, while safeguarding investor protection and market integrity.
Response to call for feedback on the Ethical and Auditing Standards changes
ICMA has responded to the UK Financial Reporting Council’s call for feedback on a post implementation review of the 2016 Ethical and Auditing Standards changes to implement the Auditing Regulation and Directive. ICMA has provided comments on one aspect of the call for feedback—whether there should be further restrictions or an outright prohibition on non-audit services. The feedback is given by the ICMA primary market constituency, made up of banks that lead-manage syndicated debt securities issues throughout Europe.
Guide explains due diligence requirements for new investors in securitisation
A guide to due diligence requirements has been issued by ICMA’s Asset Management and Investors Council (AMIC) for investing in a securitisation position. The guide provides a starting point for investors interested in securitisation to understand the new requirements, explaining them and giving potential investors practical guidance on what information can be obtained.
ICMA publishes guide to due diligence requirements under the Securitisation Regulation
ICMA has published a guide to due diligence requirements for investing in a securitisation position. The guide was developed by ICMA's Asset Management and Investors Council (AMIC), through its Securitisation Working Group. It is designed as a starting point for new investors who are interested in securitisation to understand the new due diligence requirements which came into effect on 1 January 2019 under the European Securitisation Regulation.
ESMA issues positive opinion on short selling ban by BaFin
ESMA has issued an official opinion agreeing to an emergency net short position ban, for a period of two months, by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) on net short positions in Wirecard AG shares under the Short Selling Regulation.
P.R.I.M.E. Finance Conference 2019
Kristy Tillman, executive director at P.R.I.M.E. Finance discusses P.R.I.M.E. Finance’s key achievements in 2018, plans for 2019 and the main issues discussed at the P.R.I.M.E. Finance conference 2019 in News Analysis: P.R.I.M.E. Finance Conference 2019.
CCP12: clearing is now the default choice for many standardised derivatives
The Global Association of Central Counterparties (CCP12)—a global association of 36 members who operate more than 50 individual central counterparties (CCPs) across Europe, the Middle East and Africa (EMEA), the Americas and the Asia-Pacific region—has published a report titled ‘Incentives for Central Clearing and the Evolution of OTC Derivatives’ The report examines the progress made in central clearing and is intended to complement the report on ‘Incentives to centrally clear over-the-counter derivatives’ published by the Financial Stability Board (FSB) in November 2018.
ISDA publishes second set of legal guidelines for smart derivatives contracts
ISDA has published the second in its series of legal guidelines for smart derivatives contracts, which aim to explore the core principles of ISDA documentation and to raise awareness of important legal terms that should be maintained when a technology solution is used in derivatives trading. This second paper sets out a summary of the main elements of the ISDA Master Agreement along with possible considerations for technology developers.
ISDA and GFMA issue updated LEI Factsheet
ISDA and the Global Financial Markets Association (GFMA) have updated the Legal Entity Identifier (LEI) factsheet, which they first published in July 2017. The factsheet highlights the pressing need for market participants to obtain LEIs for existing and forthcoming regulatory mandates.
ISDA publishes updated Commodities Derivatives Disclosure Annex
ISDA has published an updated version of its Commodities Derivatives Disclosure Annex. The updated disclosure annex, which is one of several US Commodity Futures Trading Commission (CFTC) disclosure documents published by ISDA, is available on the ISDA website.
ISDA sets out solutions to regulatory driven derivatives market fragmentation
ISDA has published comments by its chief executive officer, Scott O’Malia, alongside a paper which sets out proposed solutions to regulatory driven derivatives market fragmentation. According to Mr O’Malia, regulatory reform efforts have too often differed in scope, substance and timing across jurisdictions and much work needs to be done to avoid fragmentation of markets. He adds that the ability to trade across borders under a consistent and predictable regulatory framework is critical for derivatives users to hedge their risk, raise financing and invest efficiently.
Securitisation and structured products
ESMA issues revised RTS/ITS and Q&A on Securitisation Regulation disclosure requirements
ESMA has published an opinion containing a revised set of draft regulatory and implementing technical standards (RTS/ITS) under the Securitisation Regulation, which concern the details of a securitisation to be published by the originator, sponsor and Securitisation Special Purpose Entity (SSPE), as well as the relevant format and templates. ESMA has also developed a set of Q&A on the disclosure technical standards.
PRA and FCA issue direction on reporting of private securitisations direction under the Securitisation Regulation
The Prudential Regulation Authority (PRA) and FCA have published the final direction, pursuant to regulation 25 of The Securitisation Regulations 2018 (a statutory instrument that implements the EU Securitisation Regulation 2017 in the United Kingdom), on the way firms must make information regarding ‘private’ securitisations available to their UK competent authorities. This direction is applicable to all UK established originators, sponsors and securitisation special purpose entities (SSPEs).
Regulation of derivatives and structured products
EACH welcomes agreement reached on reform of EMIR
The European Association of CCP Clearing Houses (EACH) has released a statement welcoming the political agreement reached by the European Parliament and EU Member States on the reform of Regulation (EU) 648/2012 (EMIR). However, the association notes that the exemption for UCITSs/AIFs from group level calculation of the clearing threshold might weaken the G20 reforms and enforce an un-levelled playing field with other financial market participants.
RPC publishes opinion on the Prospectus Regulations 2018 impact assessment
The Regulatory Policy Committee (RPC) has published an opinion on HMT impact assessment (IA) on the Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018, SI 2018/786 (the Regulations). Among other things, the Opinion considers the impact of the proposal (noting that the Regulations aim to reduce costs on small and medium enterprises (SMEs), through a reduction in the financial burden that is brought about by the requirement to provide prospectuses when issuing public offers of securities). The RPC rates the IA as fit for purpose.
EMIR reform—political agreement reached on simpler EU rules for derivatives
The European Parliament and EU Member States have reached a political agreement on the targeted reform of EMIR. The changes are intended to provide simpler and more proportionate rules for over-the-counter (OTC) derivatives, helping to reduce costs and regulatory burdens for market participants without compromising market stability.
ECON recommends early non-objection to EMIR delegated regulation amendments
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has recommended that the European Parliament confirm it has no objection to three delegated regulations adopted by the European Commission that would amend existing delegated regulations supplementing EMIR in order to facilitate the transfer of derivative contracts to EU counterparties in the event of a no-deal Brexit and to extend the dates of deferred application of the clearing obligation for certain OTC derivative contracts.
FSB publishes responses to consultation on financial resources for CCPs in resolution
The Financial Stability Board (FSB) has published responses to its discussion paper on proposed financial resources to support central counterparty (CCP) resolution and the treatment of CCP equity in resolution. The consultation was launched on 15 November 2018 and closed on 1 February 2019.
Bank for International Settlements publishes paper examining central counterparties
The Bank for International Settlements (BIS) has published a paper investigating for-profit CCPs and examining whether their incentives might undermine financial stability.
WFE responds to FSB discussion paper on financial resources to support CCP resolution and treatment of CCP equity in resolution
The World Federation of Exchanges (WFE) has published its response to the Financial Stability Board’s (FSB) discussion paper issued on 15 November 2018, ‘Financial resources to support CCP resolution and the treatment of CCP equity in resolution’.
ESAs publish final recommendations on PRIIPs KIDs
The European Supervisory Authorities (ESAs) have published their final recommendations following a consultation on targeted amendments to Commission Delegated Regulation (2017/653/EU) covering the rules for the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). The ESA’s have decided not to propose targeted amendments at this stage, but to undertake a more comprehensive revision of the PRIIPs Delegated Regulation in the course of 2019.
Guidance published on searching for people and companies in insolvency proceedings
The Insolvency Service has published guidance on how to find out if an individual or a company is insolvent. The guidance also lists how to search for details of people who have gone bankrupt or signed an agreement to deal with their debts. The guidance covers registers for the whole of the UK and provides tips on searching and finding details.
Regulation for banking lawyers
European Parliament legislative resolution amends proposal for regulation on law applicable to the third-party effects of assignments of claims
The European Parliament has adopted a legislative resolution on the proposal for a regulation on the law applicable to the third-party effects of assignments of claims (COM(2018)0096 – C8–0109/2018 – 2018/0044(COD). The proposal was first put forward by the European Commission on 12 March 2018 and aims to create stronger, deeper and more integrated capital markets through the creation of efficient and safe post-trade infrastructures.