ISDA® publishes 2018 Benchmarks Supplement Protocol
On 11 December 2018, ISDA® published the ISDA 2018 Benchmarks Supplement Protocol, which enables parties to incorporate the ISDA Benchmarks Supplement into relevant transactions under existing master agreements. Relevant transactions referencing benchmarks include interest rate, foreign exchange, equity and commodity derivatives transactions. The Benchmarks Supplement, which was published in September 2018, enables parties to such derivatives transactions to supplement definitions used in the transaction documents, so that they conform to certain requirements of the EU Benchmarks Regulation (2016/1011).
Parties are not required to incorporate the Benchmarks Supplement into transactions with all of their adhering counterparties. Parties are also free to decide whether or not to apply the Protocol to existing Master Agreements. Barring any agreement between adhering parties to that effect, the Protocol will only apply to new transactions. The text of the Protocol, guidance on the mechanics and a link for adherence, together with answers to frequently asked questions, are available on the Protocols page of ISDA’s website.
Draft Collective Investment Scheme (Amendment etc) (EU Exit) Regulations 2019 laid before Parliament
On 17 December 2018, a draft version of the Collective Investment Schemes (Amendment etc) (EU Exit) Regulations 2019 was published on legislation.gov.uk, together with an explanatory memorandum. The purpose of the Regulations, which have been laid before Parliament, is to ensure that the regime established under the UCITS IV Directive (2009/65/EC) for investment funds and their managers continues to operate effectively after Brexit.
It contains amendments to the retained provisions of delegated acts made under UCITS IV (Commission Regulation 2010/583 and Commission Delegated Regulation (EU) 2016/438), as well as UK legislation including the Financial Services and Markets Act 2000 (FSMA) and related secondary legislation. The Regulations will come into force on exit day, except for certain provisions specified in regulation 1(3). These include regulations 59 to 70 (Temporary recognition for the purposes of Part 17 of FSMA), which come into force on the day after the day on which the Regulations are made. HM Treasury published updated versions of the draft Regulations and related explanatory information document on 7 December 2018.
The Money Laundering and Terrorist Financing (Miscellaneous Amendments) Regulations 2018
The Money Laundering and Terrorist Financing (Miscellaneous Amendments) Regulations 2018 (SI 2018/1337) (the regulations) was laid before Parliament on 13 December 2018. They make amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 (oversight regulations) and the Solicitors (Scotland) Act 1980.
- Regulation 3 implements an amendment to Directive 2015/849/EU of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing by adding restrictions on the use of anonymous safe-deposit boxes.
- Regulation 4 specifies the decisions of the FCA and of Her Majesty’s Revenue and Customs which are subject to appeal under the MLR 2017.
- Regulation 5 amends the oversight regulations which give the FCA powers to oversee certain anti-money laundering supervisors. Regulation 12 originally prevented the FCA from disclosing information to anyone other than relevant authorities (such as other supervisors) and law enforcement authorities. The amendment now allows the FCA to disclose information to other persons, provided that the disclosure is for purposes connected with enforcement proceedings or with the FCA’s functions.
- Regulation 7 requires the Treasury to carry out a review of the regulations by 26 June 2022.
The regulations come into force on 10 January 2019.
FCA final rules giving SMEs access to FOS
On 17 December 2018, the FCA published the Small Business (Eligible Complainant) Instrument 2018 (FCA 2018/61) (FOS 2018/7). The instrument contains the final rules extending access to the Financial Ombudsman Service (FOS) to more small and medium-sized enterprises (SMEs), larger charities and trusts, and a new category of personal guarantors. The final rules, which are set out in the FCA’s Dispute resolution: complaints sourcebook (DISP), come into force on 1 April 2019. This immediately follows the entry into force of the changes made by the Claims Management Instrument 2018 (FCA 2018/56) (FOS 2018/6).
FCA updates webpage on preparing your firm for Brexit
On 13 December 2018, the FCA published a press release advising that it has updated its webpage on preparing your firm for Brexit.
The FCA expects that, by now, firms will have considered the issues it has previously highlighted (see Legal update, FCA speech and new webpage on approach to Brexit). It has updated its webpage to follow up on some key areas:
- Contract continuity: the FCA reminds firms doing business in the EEA under a passport that they need to consider how they will continue to service customers with existing contracts after Brexit.
- Execution of firms’ contingency plans: the FCA reminds firms they should consider their clients’ best interests when executing their plans.
- Data sharing: the FCA reminds firms of the importance of considering whether they transfer personal data between the UK and EEA. The FCA expects firms to consider what contingency plans may be necessary.
- Customer communications: the FCA reminds firms of the importance of considering what communications to customers will be necessary to explain how Brexit might affect them.
FCA wholesale banks and asset management cyber multi-firm review findings
On 10 December 2018, the FCA published a webpage setting out the findings from its cyber multi-firm review of 20 firms in the asset management and wholesale banking sectors. The review’s aim was to help assess how wholesale banking and asset management firms oversee and manage their cyber security, how far they identify and mitigate relevant risks and their current capability to respond to and recover from incidents and successful attacks.
Key findings include the following:
- Firms generally lacked board members with strong familiarity or specific technical cyber-expertise.
- Firms should take pro-active steps to foster a security-centric culture that transforms cyber from an IT issue to an organisation-wide priority.
- Firms’ second line of defence after the board, the risk and compliance functions, can have limited technical cyber-expertise.
- Many firms did not actively consider how and how far they should or could incorporate cyber and cyber security risks into their broader approach to conduct risk.
- The FCA saw a wide variety of approaches to testing cyber security, with it appearing to have the most value where it is part of a considered strategy for managing cyber risks.
- Incident management plans did not always appear to reflect the likely impacts of a successful cyber-attack in a variety of ways.
The FCA encourages firms to review its findings and how they apply to their own organisations. It sets out a series of questions that board and management committee members should consider as they review their cyber security and how to manage cyber risk.
BEIS response to consultation on reform of limited partnership law
On 10 December 2018, BEIS published a response to its consultation on reforming the law of limited partnerships. The response includes:
- Confirmation of the government’s intention to require that presenters of applications to register LPs show their registration with an AML supervisory body.
- In relation to the principal place of business of LPs (PPoB), the government intends to request information on a LP’s connection to the UK on application and on an ongoing basis. On application, the LP must give a proposed UK PPoB. To demonstrate an ongoing connection, LPs will have three options: (i) retain their UK PPoB; (ii) show continuing legitimate business activity at a UK address; (iii) show they engage the services of an agent registered with a UK AML supervisory body. Additionally, LPs will need to notify the Registrar if their method of demonstrating an ongoing UK connection changes.
- The government will proceed with the requirement that LPs file a confirmation statement at least every 12 months.
- The government will proceed with the proposal to give the Registrar powers to strike off LPs that are dissolved or which the Registrar concludes are not in operation. These powers are to be subject to a robust notification procedure and the government will consider the circumstances in which it would be appropriate to restore a LP.
Ron is a partner at Cummings Fisher and heads the derivatives and documentation practice. Drawing on his work in private practice with buy-side clients and in house at investment banks, he has broad experience in providing legal advice in relation to derivatives and structured finance transactions, prime brokerage and asset custody arrangements.
If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.
Phone: +44 (0)207 861 4170