Worldwide: FIG Bulletin, 22 August 2019

Last Updated: 27 August 2019
Article by Hogan Lovells
Most Read Contributor in Belgium, October 2019

Banking and Finance

Transition from EONIA to €STR: ECB report on impact on cash and derivatives products

The European Central Bank (ECB) working group on euro risk-free rates has published a report on the impact the transition from the euro overnight index average (EONIA) to the euro shortterm rate (€STR) will have on cash and derivatives products.

The working group analyses the implications of the transition and provides market participants with recommendations on how to smoothen the transition. It does so primarily from an operational and valuation standpoint.

The recommendations may be broken down into two groups:

  • recommendations for dealing with the change in EONIA's publication time resulting from the planned recalibration of EONIA as the €STR plus a fixed spread of 8.5 basis points as at 2 October 2019; and
  • recommendations for the transition from EONIA (recalibrated as the €STR + 8.5 basis points) to the €STR between 2 October 2019 and 3 January 2022, when the publication of EONIA will cease.

Securities and Markets

Review of EMIR Implementing Regulations: FMLC letter to HM Treasury

The Financial Markets Law Committee (FMLC) has published a letter it has sent to HM Treasury relating to a review of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (SI 2013/504) (EMIR Implementing Regulations), which implemented the European Markets Infrastructure Regulation (EMIR) in the UK.

The FMLC refers to a mandatory review of the EMIR Implementing Regulations that HM Treasury is carrying out and which will focus on, among other things, the effect of these regulations on the industry, their unintended consequences, and then impact on small businesses.

The FMLC asks HM Treasury to consider, as part of this review, a report that the FMLC published in 2016 on issues of legal complexity arising from obligations of central counterparties (CCPs) and clearing members under Part VII of Companies Act 1989. In its 2016 report, the FMLC highlighted legal uncertainty in the default management processes of a CCP and made a number of recommendations.

Crypto-assets: EBA and ESMA joint response to Commission

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have published a joint response, dated 20 August 2019, to a letter from the European Commission dated 19 July on crypto-assets, including discussions of "stablecoins".

The EBA and ESMA welcome the Commission's work to address the issues identified by the authorities in their January 2019 reports on crypto-assets and initial coin offerings (ICOs), and agree it is vital that further work progresses with urgency to inform potential actions by the new European Commission.

Sustainability and commodity derivatives: WFE white paper

The World Federation of Exchanges (WFE) has published a white paper on sustainability and commodity derivatives. The white paper explores sustainability in the context of commodity derivatives markets and is intended to stimulate discussion among WFE members and the wider commodity derivatives industry about how they might respond to the potential impact of sustainability issues on commodity markets.


Part VII FSMA insurance business transfer involving annuities: Re Prudential Assurance Company Ltd and another company

In a High Court case, Re Prudential Assurance Company Ltd and another company [2019] EWHC 2245 (Ch), the Chancery Division considered policyholders' objections to a transfer of their annuities from a long established company to a less established company.

The Prudential Assurance Company Limited (PAC) and Rothesay Life Plc (Rothesay) sought the court's sanction under Part VII of the Financial Services and Markets Act 2000 (FSMA) for a scheme transferring to Rothesay about 370,000 annuity policies written by PAC. The scheme was motivated by PAC's desire to reduce its regulatory capital requirements in connection with a planned demerger of the group headed by Prudential plc, of which PAC was a significant member.

An independent expert opined that the implementation of the scheme would not cause any material adverse effect on the security, benefits or reasonable expectations of the transferring policyholders as regards service standards and governance. The Prudential Regulation Authority and Financial Conduct Authority raised no objections. However, a number of annuitants objected to the scheme as the transferee was a relatively new entrant to the business without the same established reputation as the transferor.

Snowden J stated that the views of the independent expert and regulators are not determinative of whether it is appropriate in all the circumstances for the court to exercise its discretion to sanction the scheme as required by section 111(3) of FSMA. The court's discretion can take into account a wider set of factors than they can in striking a balance between the interests of policyholders and the commercial interests of the transferor and transferee.

Ultimately, Snowden J held, on the particular facts of this case, that the court would not sanction a scheme for the transfer of annuity policies to the new company. There were a number of factors that weighed heavily against the exercise of the court's discretion. Snowden J was clear that the result might be different if, for example, PAC's commercial purpose for the transfer was different, if the transfer was proposed to policyholders on different terms, or if there was less disparity between transferor and transferee in the characteristics that policyholders reasonably considered important when selecting PAC as their annuity provider.

Funds and Asset Management

CAIF IA model trust deed updated

The Investment Association (IA) published a revised version of its model trust deed for charity authorised investment funds (CAIFs).

The IA states that the update expands the definition of an eligible charity to include a Scottish recognised body or a Northern Ireland charity, within the meaning of Section 104 of the Charities Act.

Financial Crime

AML and CTF: FATF updates

The Financial Action Task Force (FATF) has published an updated overview of the anti-money laundering (AML) and counter-terrorist financing (CTF) ratings of the 205 jurisdictions that have committed to implementing the FATF Recommendations. It has also published follow-up reports on the AML and CTF regimes in Bangladesh, Cambodia, Fiji and Myanmar.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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