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Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  


Claire Cummings

020 7585 1406


LMA publishes updated version of revised Replacement of Screen Rate

The LMA has published an updated version of its "Revised Replacement of Screen Rate Clause".  This update takes into account the publication of the Clause by the Sterling Risk Free Rate Working Group, along with the correction of some minor typographical errors.   The Clause is now publicly available on the Bank of England website as the Bank of England provides the Secretariat for the Sterling Risk Free Rate Working Group.  The wider publication of this language is an important step in raising awareness of the implications of the transition away from LIBOR and the need for parties to consider appropriate provisions for documentation referencing LIBOR.  



ISDA publishes whitepaper: Clearing Incentives, Systemic Risk and Margin Requirements for Non-cleared Derivatives

Central clearing of standardized derivatives and margin requirements for non-cleared derivatives are two of the basic tenets of global financial regulatory reform. They are also inter-related: the purpose of margin requirements is to both reduce systemic risk and promote or incentivize central clearing.  Recent studies and research into clearing incentives and margining raise questions about whether certain aspects of the requirements do in fact support these key policy goals.  In this whitepaper, ISDA suggests: (i) Initial Margin (IM) should not be required for counterparties that pose little or no systemic risk. Toward this end, the current threshold of €8 billion in notional outstanding could be raised to €100 billion (and restricted to IM eligible trades) – a level that addresses systemic risk issues and avoids adverse and unnecessary consequences for hundreds of firms that pose no such concerns; and (ii) the role of margin as a clearing incentive should be re-calibrated, with consideration given for the existing inherent benefits of clearing, such as multilateral netting.



FCA policy statement on SME access to FOS

On 16 October 2018, the FCA published a policy statement on SME access to the FOS and is likely to affect owners and managers of SMEs, charities and trusts, as well as providers of financial services and business support to them. 

The FCA has changed the approach consulted on by:

  • Relaxing its proposed eligibility criteria for SMEs so that the definition of an eligible complainant in the Dispute Resolution: Complaints sourcebook (DISP) means a person will only have to meet the turnover test and one of either the headcount or balance sheet total tests. This is likely to mean around 210,000 additional SMEs will have access to the FOS.

  • Allowing the FOS more time to prepare for the changes and allowing the FCA more time to consider the changes as part of its wider consideration of the FOS' business plan and budget for 2019/20.


FCA and FOS consult on increasing FOS award limit

On 16 October 2018, the FCA published a consultation paper, jointly with the FOS, on increasing the FOS award limit.  The FCA proposes to increase the award limit for the FOS' compulsory jurisdiction (CJ), from 1 April 2019, to £350,000 for new complaints (that is, complaints about acts or omissions by firms on or after 1 April 2019) and £160,000 for all other complaints (that is, complaints about acts or omissions by firms before 1 April 2019, and which are referred to the FOS after that date). This award limit reflects changes in inflation since the £150,000 limit was put in place in 2012.  The FCA also proposes that, from 1 April 2020 onwards, both proposed award limits should be automatically adjusted to ensure they keep pace with inflation, as measured by the consumer prices index.  


ECJ considers factors that indicate an individual is selling as a trader

 The ECJ has considered whether an individual who had eight sale listings on an online marketplace was a "trader" for the purposes of the Unfair Commercial Practices Directive (2005/29/EC) and so obliged to comply with that legislation. Referring the issue back to the Bulgarian national courts, the ECJ stated that assessment of a seller's status must always be done on a case-by-case basis in the light of all relevant circumstances. The ECJ gave a non-exhaustive list of factors to consider, including whether the seller has a profit-seeking motive, the volume and frequency of transactions and whether the seller purchases goods to resell. (Komisia za zashtita na potrebitelite v Evelina Kamenova (Case C-105/17))


EDPS calls for closer alignment between consumer and data protection rules in the EU

The European Data Protection Supervisor (EDPS) has published an opinion on the European Commission's legislative package entitled "A New Deal for Consumers", highlighting that consumer law and data protection can no longer afford to work in silos. The package includes a proposal for a Directive on better enforcement and modernisation of EU consumer protection rules, and a proposal for a Directive on representative actions for the protection of the collective interests of consumers. The clear message from the EDPS is that the EU needs a big-picture approach to protecting consumers in digital markets, involving closer co-operation between both policy makers and regulators to avoid legal uncertainty. Consumer and data protection law share the same common goal of protecting the individual and should be both fully aligned and mutually reinforcing.


FCA Dear CEO letter on affordability of high-cost short-term credit loans

On 15 October 2018, the FCA published a Dear CEO letter about issues surrounding the increase in complaints about unaffordable lending and to set out how the FCA expects high-cost short-term credit firms to manage the impact. The FCA reminds firms that complaint-handling procedures should ensure that a firm can improve the way in which they handle complaints.  Where a firm identifies recurring or systemic problems in their provision of a service, which could include problems relating to the carrying out of affordability assessments, the firm should ascertain the scope and severity of the consumer detriment that might have arisen. It should also consider whether it is fair and reasonable for the firm to proactively undertake a redress or remediation exercise, which may include contacting customers who have not complained.  The FCA also expects firms to review their current lending processes to ensure they are fully compliant with rules in the Consumer Credit sourcebook. Risks relating to repeat borrowing are highlighted. If processes do not comply, a firm must take reasonable steps to address this, which may include considering whether to cease lending and informing the FCA of rule breaches.  Firms are reminded of the need to review policies and procedures ahead of the amended rules and guidance set out in the FCA's July 2018 policy statement on assessing creditworthiness coming into force on 1 November 2018.


FCA announces regulatory sandbox fifth cohort application period

On 15 October 2018, the FCA updated its regulatory sandbox webpage to announce the opening of the application window for cohort 5.  The deadline for applications is 30 November 2018.  The regulatory sandbox provides a space where firms can pilot innovative products and services in a live environment. It was set up as part of the FCA's Project Innovate and first opened to applications on 9 May 2016.


HM Treasury letter about FCA designation under the Securitisation Regulation

HM Treasury has published a letter from John Glen, Economic Secretary to the Treasury, to Andrew Bailey, FCA Chief Executive, about the Securitisation Regulation ((EU) 2017/2402).  The letter confirms that HM Treasury intends to designate the FCA as the competent authority responsible for the supervision of compliance of certain UK established sellers, originators, original lenders, and securitisation special purpose entities. This is in addition to the designation of the FCA as the competent authority responsible for the authorisation of third party verifiers and the supervision of their compliance.




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Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

19 12 2018


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