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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


Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories Regulations 2018 published by HM Treasury

On 22 October 2018, HM Treasury published a draft version of the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018, together with an explanatory note.  The purpose of the Regulations is to amend aspects of onshored EMIR (the Regulation on OTC derivatives, central counterparties (CCPs) and trade repositories (TRs)) and related UK legislation to ensure that the UK continues to have an effective regulatory framework for OTC derivatives, CCPs and TRs after exit day. Among other things, the Regulations:

  • Ensure that requirements imposed by EMIR continue to apply in the UK and transfer responsibilities in this regard to the Bank of England (BoE), PRA and FCA as appropriate.

  • Transfer the power to make third-country regime equivalence decisions from the European Commission to HM Treasury.

  • Establish a temporary intragroup exemption regime, which will initially last three years, to ensure that intragroup transactions can continue to be exempted from EMIR requirements where this is the case to date.

  • Revoke and replace EMIR provisions relating to TR appeals, fines, supervisory fees, penalties and other supervisory requirements so that they are aligned with relevant provisions in FSMA.

  • Delete provisions relating to sharing information with other EEA authorities and the oversight of CCPs by colleges.

HM Treasury has published a draft version of the Regulations ahead of formally laying them before Parliament. It intends to lay the Regulations before Parliament before exit day. The Regulations will come into force on exit day.


Explanatory note for draft Ring-Fenced Bodies (Amendment) (EU Exit) Regulations 2018: Brexit SI

On 22 October 2018, HM Treasury published an explanatory information document relating to the draft Ring-Fenced Bodies Regulations 2018.  The draft Regulations have not yet been published.  The document explains that the draft Regulations will make amendments to the ring-fencing regime. Although this is a UK initiative implemented through domestic legislation, certain financial services terms and activities are defined by cross-referring to EU legislation, reflecting the UK's place in the EU. Once the UK has left the EU, some of these definitions will be deficient. As a result, the draft Regulations will make amendments to FSMA and other relevant domestic legislation, to ensure the UK's ring-fencing regime continues to operate as it currently does in the event of a no-deal scenario.

Amendments made by the draft Regulations will ensure that ring-fenced bodies (RFBs) can continue to operate through a branch or subsidiary in the EEA in a no-deal scenario. As many banks have carried out significant work to restructure their operations before the ring-fencing regime comes into effect on 1 January 2019, the document states that it is appropriate to maintain the current position after exit day to minimise disruption to UK banks. Prohibiting RFBs from having EEA branches and subsidiaries would have negative financial and operational impacts on UK banks, and could result in the closure of some EEA branches. An independent statutory review of the ring-fencing regime is due to commence in 2020/21. It is thought that this may serve as an appropriate opportunity to reassess the UK's ring-fencing policy.  The document states that the draft Regulations are still in development and that, once published, the drafting approach, together with other technical aspects of the proposal, may change before the final version is laid before Parliament.


EBA work programme for 2019

On 23 October 2018, the EBA published its work programme for 2019.  The EBA's strategic priorities for 2019 are:

•    Leading the Basel III implementation in the EU. 
•    Understanding risks and opportunities arising from financial innovation. 
•    Collecting, disseminating and analysing banking data. 
•    Ensuring a smooth relocation of the EBA to Paris. 
•    Fostering the increase of the loss-absorbing capacity of the EU banking system.

On Brexit, the EBA states that it is actively involved in the co-ordination of competent authorities' work on firms' contingency planning and preparedness and analysis of risks and policy implications for the EU institutions. It is also co-ordinating the work on supervisory co-operation between the authorities, including their development of memorandum of understanding templates.


European Commission 2019 work programme: financial services aspects

On 23 October 2018, the European Commission published a communication outlining its work programme for 2019.

Of interest to financial services practitioners are the number of priority pending financial services legislative proposals. These are the proposals on which the Commission wants the European Parliament and the Council of the EU to take swift action. They include proposals on:

•    Sustainable finance.
•    Cross-border investment funds.
•    Crowdfunding services.
•    The pan-European personal pension product (PEPP).
•    Banking.
•    Recovery and resolution of central counterparties (CCPs).
•    The European deposit insurance scheme (EDIS).
•    Anti-money laundering.


UK Finance to consider recommendations in report on complaints and resolution landscape for SMEs

On 23 October 2018, UK Finance published a report of the findings from an independent review of the complaints and resolution landscape for UK SMEs.  The key recommendations are:

  • A new dedicated SME division should be created under governance of the Financial Ombudsman Service (FOS) and within its legal framework. 

  • To support the new SME division of the FOS, an expert advisory panel should be set up to provide high-level guidance and expertise on technical banking and legal issues arising in complex banking disputes.

  • Real time data monitoring and feedback to the FCA and appropriate government departments should be at the core of the new SME division. This will enable potential problem areas to be identified at an early stage.

  • A voluntary ombudsman scheme to support larger businesses that are not FOS "eligible complainants" should be established, as well as a separate voluntary scheme to consider legacy SME disputes that arose with banks following the financial crisis (which have not been eligible for other forms of dispute resolution).

  • Senior representatives of the major banks should support a formal process that seeks to achieve reconciliation and closure.  


FRC Annual Review of Corporate Governance and Reporting 2017/2018

On 24 October 2018 the FRC published its annual review of corporate governance and reporting for 2017/2018. 

The FRC states that, among other things:

  • Companies should pay particular attention to ensuring that the report includes a fair review of the company’s business that is balanced and comprehensive 

  • Companies were also reluctant to explain clearly when they didn't comply with Code provisions, and the quality of explanations was disappointing.  

  • Viability statements could be enhanced to show more clearly how companies have assessed their prospects and viability. 

  • In relation to non-financial reporting, companies can be more transparent.

  • In relation to reporting on the risks associated with Brexit, companies are encouraged to provide disclosure which distinguishes between the specific and direct challenges to their business model and operations, from broader economic uncertainties. 



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Tel: + 44 20 7585 1406
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Cummings Law
42 Brook Street
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United Kingdom

19 12 2018


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