Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from August 2018.
No deal Brexit—Technical notice on banking, insurance and other financial services
The UK government published a technical notice for the banking, insurance and financial services sectors setting out guidance in the event that the UK leaves the EU without agreement (a ‘no deal’ scenario). This notice is part of a series of notices which aim to offer guidance for businesses and citizens to understand what they need to do in a ‘no deal’ scenario so that they can make informed plans and preparations.
FMLC examines the effects of a hard Brexit on legacy financial contracts
The Financial Markets Law Committee (FMLC) has published a report on UK withdrawal from the EU: Issues of legal uncertainty arising in the context of the robustness of financial contracts, which considers the possible consequences of a hard Brexit, involving a wholesale loss of authorisations, on legacy financial contracts—ie contracts in existence on exit day. The report takes an in-depth look at the question of the continuity of legacy contracts and highlights the legal uncertainty which will arise if there is no clarity as to the future of the UK-EU relationship post-Brexit. It also suggests a number of ways these uncertainties could be reduced or avoided.
Law Commission publishes consultation on electronic execution of documents
The Law Commission (Commission) has launched a consultation on the electronic execution of documents. The Commission’s provisional conclusion is that an electronic signature is capable in general of meeting a statutory requirement for a signature and that no legislative reform is necessary. The Commission believes this approach will remove current uncertainties in the law, allowing businesses to ‘speed up transactions by going fully digital’, and is seeking views on this conclusion. The deadline for responses to the consultation is 23 November 2018.
Loan Market Association confidentiality user guide updated
The Loan Market Association (LMA) has updated its confidentiality user guide to clarify the position regarding the exclusion of liability for information supplied to designated parties under the LMA’s template confidentiality agreements (the confidentiality agreements). The aim of the update is to clarify that the confidentiality agreements are each designed to be entered into between different parties to a transaction for different purposes, and that, as a result, liability for the accuracy or completeness of any information provided to the receiving party by certain parties may or may not be appropriate.
European Commission request technical advice on sustainable finance from EIOPA and ESMA
The European Insurance and Occupational Pensions Authority (EIOPA) has published a formal request (dated 24 July 2018) from the Director-General for Financial Stability, Financial Services and Capital Markets Union at the European Commission, Olivier Guersent, calling for technical advice from EIOPA and the European Securities and Markets Authority (ESMA) on the Commission’s package of measures on sustainable finance which were adopted by the Commission on 24 May 2018.
Real estate finance
Draft Bill for new register of foreign companies owning UK property
The Department for Business, Energy and Industrial Strategy’s (BEIS) draft Registration of Overseas Entities Bill proposes a number of measures which mean overseas companies will have to register in a public register if they want to acquire land in the UK. The proposals are currently out for public consultation. Jonathan Edwards, specialising in company law at Radcliffe Chambers, outlines the BEIS proposals and comments on what the final outputs could look like in News Analysis: Draft Bill for new register of foreign companies owning UK property.
Debt capital markets
Global Foreign Exchange Committee publishes August 2018 FX Global Code
The Global Foreign Exchange Committee has published the August 2018 edition of the FX Global Code—the set of global principles of good practice in the FX market. The Code was developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale FX market.
ISDA 2018 US Resolution Stay Protocol open from 22 August 2018
The International Swaps and Derivatives Association (ISDA) has announced that the 2018 US Resolution Stay Protocol is open for adherence. The Protocol allows market participants to comply with regulations issued by the board of governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. The regulations impose requirements on the terms of swaps, repos and other qualified financial contracts of global systemically important banking organisations.
CPMI/IOSCO consult on governance of OTC derivatives data elements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a consultative report on governance arrangements for over-the-counter (OTC) derivatives data elements which are required to be reported to a trade repository. CPMI and IOSCO have asked for comments by 27 September 2018.
FIA publishes updated client clearing terms of business and user guide
The Futures Industry Association (FIA) has published a fully updated and comprehensive set of industry standard contractual terms for derivatives clearing—the FIA Terms of Business 2018—and a user guide. For over 15 years, FIA has maintained a suite of terms of business for the provision of client clearing to assist member firms in ensuring that their contractual documentation is up to date and compliant with the latest regulatory developments and business practices.
Structured products and securitisation
AFME, UK Finance and IACPM respond to PRA securitisation consultation
The Association for Financial Markets in Europe (AFME), UK Finance, and the International Association of Credit Portfolio Managers (IACPM) have issued a joint response to the Prudential Regulation Authority (PRA)’s consultation paper 12/18: Securitisation: The new EU framework and significant risk transfer.
Regulation of derivatives and structured products
ICMA publishes paper on trading suspensions concerning fixed income instruments
The International Capital Market Association (ICMA) has published a position paper on MiFID II trading suspensions from the perspective of fixed income instruments. The position paper draws attention to scenarios where a blanket suspension of trading in debit instruments or related derivatives could damage investors’ interests and the functioning of the market. The paper also recommends national competent authorities should consider these circumstances and consult market stakeholders before imposing removals or suspensions of trading.
ESMA updates equity derivatives, equity and equity-like instruments’ TTCs for MiFID II/MiFIR
The European Securities and Markets Authority (ESMA) has updated its MiFID II/MiFIR transitional transparency calculations (TTC). The update covers the TTCs for equity derivatives, equity and equity-like instruments, and the tick size band assessment. Trading venues are expected to apply the new results as of 13 August 2018.
ESMA issues clarifications on the clearing obligation and trading obligation for pension scheme arrangements
ESMA has issued an updated statement on the clearing obligation and trading obligation for pension scheme arrangements (PSAs), with the objective to avoid, to the extent possible, disruption to certain PSAs who may face potential challenges clearing their over-the-counter (OTC) derivative contracts and trading them on trading venues on 17 August 2018, when the current, and final, exemption from the clearing obligation under EMIR expired.
ESMA publishes list of authorised central counterparties
ESMA has published a list of central counterparties authorised to offer services and activities in the EU in accordance with Regulation (EU) 648/2012 on over-the-counter derivatives, central counterparties and trade repositories (EMIR).
ESMA issues draft RTS/ITS setting out disclosure standards under the Securitisation Regulation
ESMA has published a final report providing an overview of the feedback received on the consultation paper on draft technical standards on disclosure requirements issued on 19 December 2017, operational draft regulatory standards (RTS) and implementing technical standards (ITS), and access conditions under the Securitisation Regulation, which is intended to promote simple, transparent and standardised (STS) securitisations.
ESMA publishes response for EMIR clearing obligation consultation
ESMA has published a response form for its consultation paper on the clearing obligation under European Market Infrastructure Regulation (EMIR) (No. 6) published on 11 July 2018.
ESMA publishes list of SFD designated payment and securities settlement systems
ESMA has published the list of Member States’ designated payment and securities settlement systems. Article 10(1) of the Settlement Finality Directive 98/26/EC (SFD) requires Member States to supply the information.
ECON draft report on amending CRR for covered bond exposures
The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has published a draft report on the European Commission’s proposal for a regulation of the European Parliament and the Council of the EU to amend the Capital Requirements Regulation (CRR) ((EU) No 575/2013) as regards exposures in the form of covered bonds.
Regulation for banking lawyers
ISDA publishes FAQs in relation to benchmark fallbacks consultation
ISDA has published a set of FAQs covering questions that market participants have raised since ISDA launched a market-wide consultation on technical issues related to new benchmark fallbacks for derivatives contracts that reference certain interbank offered rates (IBORs).
Industry must ensure ‘clear and smooth transition’ away from LIBOR
ISDA has published its IQ report for August 2018, which looks at the progress in the reform of interest rate benchmarks, highlighting that the reform has become a ‘priority’ for the industry as the long-term viability of the London interbank offered rates (LIBOR) and other IBORs remains in doubt. The report warns that waiting until the last minute to transition away from LIBOR could be ‘extremely painful’.
ECB publishes responses to consultation on candidate euro risk-free rates
The ECB has published a summary of the responses to the first public consultation by the working group on euro risk-free rates on the assessment of candidate euro risk-free rates. The consultation closed on 13 July 2018.