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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


ISDA publishes fact sheet on preparation for initial margin regulatory requirements

Each September until 2020, increasing numbers of entities will be required to meet initial margin regulations as the threshold level for compliance reduces. Preparation for meeting these requirements will require intensive work to ensure systems, processes and documentation are in place. ISDA has published a new fact sheet that sets out the steps firms should take when preparing to comply with regulatory initial margin requirements. Step 1: identify in-scope entities early; Step 2: make early disclosures to counterparties; Step 3: exchange information on compliance; Step 4: identify special cases; Step 5: establish custodial relationships; Step 6: prepare for compliance; Step 7: negotiate/execute documentation; and Step 8: Finalize preparations. Further details on each step are available on the ISDA website.


ESMA asks Article 29 Working Party to amend draft guidelines on derogations under Article 49 of GDPR

ESMA recently published its response to the Article 29 Working Party's February 2018 consultation on draft guidelines on Article 49 of the GDPR. The draft guidelines concern derogations relating to the transfer of personal data to "third countries". ESMA’s response focuses on the importance of the "public interest derogation", which is applicable to international transfers of personal data necessary for important reasons of public interest under Article 49(1)(d) of the GDPR. ESMA explains that achieving efficient international co-operation between EU and non-EU financial supervisors is essential to achieve effective financial supervision in the context of global financial markets.

To the extent that this type of co-operation gives rise to international transfers of personal data, ESMA advises that these transfers are important for public interest purposes, as explicitly recognised in Recital 112 to the GDPR.

ESMA asks the Article 29 Working Party to make a number of clarifications in the draft guidelines. It considers that clarity on the scope of the derogations is essential to enable EU financial supervisors to fulfil their missions, while ensuring compliance with applicable EU data protection requirements (in particular, in the absence of comparable legal requirements in the relevant third countries).


AIMA publishes position paper on impact of Brexit on alternative investment industry

The Alternative Investment Management Association (AIMA) recently published a position paper on the impact of Brexit on the alternative investment industry. The aim of the paper is to offer an assessment of what needs addressing during the transition period, regardless of whether there is an agreement on mutual recognition. The analysis is based on the assumption that the UK will leave the EU's single market and that many existing cross-border provisions in EU legislation will cease to apply for UK firms. Points of interest in the paper relate to matters including the following: (i) use of transition period - the UK should, during the transition period, seek an equivalence determination in respect of UK rules by the European Commission that covers the relevant sectoral legislation in which equivalence determinations exist; (ii) grandfathering - the UK should seek a deal with the EU that ensures that UK firms' relationships with EEA investors and clients that existed before Brexit can continue uninterrupted after Brexit by virtue of grandfathering provisions; and (iii) unilateral openness - when Brexit occurs, the change of relationship between the UK and the EU will require decisions to be made about, among other things: (i) whether and to what extent entities from EEA member states will continue to enjoy a preferred status for inbound asset management activities; and (ii) whether and to what extent EEA firms' relationships with UK investors and clients that existed before Brexit can continue uninterrupted after Brexit by virtue of grandfathering provisions. AIMA believes that the UK should generally opt for an approach that prioritises openness over reciprocity.


ICE Benchmark Administration consults on revised LIBOR code of conduct

ICE Benchmark Administration (IBA) recently published a consultation paper on a revised version of the LIBOR code of conduct setting out the framework within which contributing banks are expected to operate. The code sets out the practice standards adopted by the IBA for benchmark submitters to ICE LIBOR. It also provides the framework within which contributing banks should operate and assists users in deciding whether LIBOR is an appropriate benchmark to use in contracts. In the consultation document, IBA explains that it has applied for authorisation under the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds.


The National Crime Agency and the National Cyber Security Centre publish report on cyber activities

The report examines how cybercrime over the past 12 months has impacted businesses, from reputational damage, to systems impacts and the impact on profit. In particular, it highlights that criminals are launching more online attacks on UK businesses than ever before. Between October 2016 and the end of 2017, the NCSC recorded 34 significant cyberattacks and 762 less serious incidents. The report also notes that interest in cryptocurrency remains strong. It is anticipated that cryptojacking, where an individual's computer processing power is used to mine cryptocurrency without the user's consent, will become a regular source of revenue for website owners. Additionally, increased use of cloud technology to store sensitive information will continue to tempt cyber-attackers, which could result in UK citizens' information being breached.


EC consultation on Shareholder Rights Directive

The EC recently launched a consultation on minimum requirements with regard to shareholder identification, the transmission of information and facilitation of the exercise of shareholder rights under the Shareholder Rights Directive. The draft Regulation and Annex specify standardised formats and minimum content requirements across a range of documents, including: (i) requests to disclose information regarding a shareholder's identity, and responses.; (ii) notices of general meetings and notifications of other corporate events; (iii) confirmations of entitlement to exercise shareholder rights at a general meeting and notices of participation by a shareholder at a general meeting and (iv) forms of confirmation of the receipt and counting of votes. The use of common formats of data and message structure is intended to harmonise practice across member states and to enable efficient and reliable processing and interoperability between an issuer, a chain of intermediaries, and shareholders.


CMA advice to businesses on joint ventures

The Competition and Markets Authority (CMA) recently published a new, short guide for businesses in relation to joint ventures and compliance with competition law. This publication follows a CMA decision to fine two suppliers of cleanroom laundry services for agreeing to share the market under the cover of a joint venture agreement. The advice is in the form of a list of "dos and don'ts" and is aimed at businesses that are already in, or are considering entering into, joint ventures, alliances or other forms of collaboration with another business. The CMA’s advice urges competing businesses to make sure they collaborate legally, check they are compliant with competition law from the outset of agreements and to keep arrangements under regular review to help ensure they remain compliant.


ECB consults on cyber resilience oversight expectations for FMIs.

The ECB has published for consultation a draft version of the cyber resilience oversight expectations (CROE) for financial market infrastructures (FMIs). The CROE are based on guidance on cyber resilience for FMIs that was published by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions. The CROE also provides FMIs in the euro area with steps on how to implement the guidance and enhance their cyber resilience. In line with the guidance, the CROE covers five primary risk management categories: (i) governance; (ii) identification; (iii) protection; (iv) detection; and (v) response and recovery. It also covers three overarching components which relate to testing, situational awareness, and learning and evolving. The CROE use a maturity model that provides supervisors and FMIs with a benchmark against which they can evaluate FMIs' current level of cyber resilience, measure progression and establish priority areas for improvement.


FCA updates consultation on 2018/19 regulated fee and levy rate proposals

The FCA recently announced that it has updated its consultation paper on regulated fee and levy rate proposals for 2018/19. The FCA made the following changes: (i) information relating to the calculation of fees and levies for insurers and has been added at the end of chapters 3 and 10, under paragraph 11.9 and at the end of chapter 11 and (ii) the information at the end of chapter 9 has been updated to reflect that some insurers will be notifying the FCA of relevant gross written premium tariff data (business conducted with consumers) in the case of the Financial Ombudsman Service (FOS) general levy.


Transcript of FCA business plan 2018/19 press conference

The FCA recently published a transcript of its business plan 2018/19 press conference, which was held on 9 April 2018. Points of interest in the transcript include the following from members of the FCA's Executive Committee:

  • The high level of uncertainty both on the substance of the FCA's Brexit work, and on its timing, has complicated the business plan 2018/19. The FCA's assumption is that it is still working towards exit from the EU in March 2019. Having said that, the FCA expects a transition or implementation period to take effect. Although it strongly welcomes this, it has to plan on the basis of a March 2019 exit.

  • It is very important for the FCA to remain outward-looking. This is one of the reasons it has created a new International division. The new division is a sign of the importance the FCA places on its continued and enhanced international engagement, and its role in shaping the international regulatory agenda.

  • In the light of the nature of the Brexit process, the FCA will keep the business plan under close watch during the year, and is prepared to adjust and reprioritise as things come up.


ECON draft report on proposed Investment Firms Directive

ECON recently published its draft report on the proposal for a Directive on the prudential supervision of investment firms (IFD), which amends the CRD IV Directive and the MiFID II Directive. The draft report supports the objective of the ECs proposal to create a dedicated, tailor-made, regime for investment firms in the EU and the approach of treating large and systemic investment firms as credit institutions The draft report suggests amendments of the proposed IFD: (i) own funds requirements - the changes aim to enable competent authorities to allow class 3 firms (small and non-interconnected investment firms) to use different instruments than those listed in the Capital Requirements Regulation to fulfil their own funds requirements; (ii) movements between class 2 firms (non-systemic investment firms that are not defined as small and non-interconnected investment firms) and class 3 firms - some of the changes are aimed at providing clarity and sufficient time for firms to adapt to the new requirements; (iii) capital and liquidity requirements and K-factors (quantitative indicators intended to represent the risks that an investment firm can pose to customers, to market access or liquidity, and to the firm itself) - the changes aim to ensure that the risks covered correspond to the actual risks as far as possible and to facilitate the calculation of K-factors; (iv) reporting, governance and remuneration - the changes aim to simplify these rules significantly; and (v) third country regime and equivalence - the changes aim to ensure a more robust equivalence regime, to avoid EU banks being in a less favourable position than third country investment firms. The Commission published its legislative proposals for the IFD and a Regulation on the prudential requirements of investment firms in December 2017.


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19 05 2019

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