Legal Shorts 06.12.19 including hedge fund TCI vows to punish directors over climate change

Hedge fund TCI vows to punish directors over climate change

Sir Christopher Hohn’s activist hedge fund TCI has outlined plans to punish directors of companies that fail to disclose their carbon dioxide emissions in a move that underlines rising investor concerns over climate change and the pressure on boardrooms to respond. TCI has made clear to a number of companies that if they do not improve their pollution disclosure it will vote against their directors. It has also been reported that Sir Christopher has called for asset owners to fire fund managers who do not insist on climate transparency. “Investing in a company that doesn’t disclose its pollution is like investing in a company that doesn’t disclose its balance sheet,” said Sir Christopher, one of the highest paid fund managers in the industry. “If governments won’t force disclosure, then investors can force it themselves.”

The decision by TCI, an activist fund with $28bn under management, comes as investors are becoming increasingly concerned about how climate risks will impact their portfolios and while none of the world’s major financial centres have made climate risk disclosure mandatory it is understood to be under consideration by London regulators.


The European Securities and Markets Authority (ESMA) has updated its Questions and Answers on the application of the Alternative Investment Fund Managers Directive (AIFMD).

ESMA has added one new Q&A on the AIFMD reporting to National Competent Authorities.

The Q&A provides clarification on reporting requirements on liquidity stress tests for closed-ended unleveraged Alternative Investment Fund (AIFs).

The purpose of this Q&A document is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures.

FCA Primary Market Bulletin No 25

On 27 November 2019 the FCA published its 25th Primary Market Bulletin.

The bulletin includes a consultation draft of a best practice note for government departments, industry regulators and public bodies to help them comply with the prohibition on insider dealing and unlawful disclosure of inside information in Article 14 of MAR. Matters covered include:

  • Identifying inside information. (The FCA suggests examples could include proposals to amend the terms of an industry agreement, contract, license or exemption, and policy changes and consultations or conclusions of any sectoral reviews which could affect one or more companies or a sector.)
  • Controlling and handling inside information.
  • Disclosing inside information.
  • Dealing with leaks.

Comments should be received by 15 January 2020.

European Commission publishes report on legal liability for AI and new technologies

The European Commission has published a Report on liability for AI and other new technologies that it commissioned from an independent expert group. The report explores whether the liability regimes in EU member states are fit for the purpose of apportioning liability for emerging digital technologies such as artificial intelligence, the internet of things and services, and distributed ledger technologies.

The report contains case studies and discusses the challenges posed by new technologies in areas such as damage, causation, product liability, damage to data and insurance.

A large section of the report is devoted to suggesting ways of addressing these challenges to ensure a fair and efficient allocation of loss, a coherent and appropriate legal response to threats to the interests of individuals, and effective access to justice.

The issues discussed include, for example, where liability should fall when a technology involves multiple operators or an item contains components from multiple suppliers, whether the strict liability of a producer should extend to defects that appear after the product is in circulation, and the extent of a producer’s duty of care. The report recommends that producers should, where appropriate, have a duty to equip their technology with a means of recording information about how it is operating, and discusses where the burden should lie of proving fault and causation of harm.

ISDA® publishes 2019 Narrowly Tailored Credit Events Protocol Bilateral Agreement.

ISDA® has published a 2019 Narrowly Tailored Credit Events (NTCE) Protocol Bilateral Agreement for counterparties to bilaterally agree to incorporate certain provisions of the ISDA 2019 NTCE Protocol for trades entered into prior to the Implementation Date of the Protocol (anticipated to be 13 January 2020).

The NTCE Protocol was published in September 2019 and enables parties to incorporate the 2019 NTCE Supplement to the ISDA 2014 Credit Derivatives Definitions into their existing credit derivatives agreements (see Legal update, ISDA® publishes 2019 Narrowly Tailored Credit Events Protocol).

The NTCE Supplement was published in July 2019 and amends the definition of “failure-to-pay” in the 2014 Definitions to ensure that a failure to pay is as a result of a deterioration in creditworthiness, rather than as a result of an arrangement to cause a credit event deliberately

FCA consults on extending SMR to benchmark administrators

On 29 November 2019, the FCA published a consultation paper on extending the senior managers regime (SMR) to benchmark administrators (CP19/31).

Firms with permission to carry on the regulated activity of administering a benchmark but no other regulated activity will be brought within the scope of the senior managers and certification regime (SM&CR) from 7 December 2020 (see Legal update, Commencement Regulations for entry into force of SM&CR extension). In CP19/31, the FCA refers to these firms as pure benchmark SM&CR firms.

In CP19/31, the FCA sets out how it intends to apply the SM&CR to these firms:

  • Categorisation of benchmark administrators. The FCA proposes that benchmark administrators should be categorised as a default as core firms, although firms may use the FCA’s waiver process to apply for limited scope categorisation if appropriate.
  • Senior manager functions. Under the core regime, the senior management functions (SMFs) that will apply to benchmark administrators will be the four governing functions (that is, chief executive, executive director, partner and chair functions). Only the limited scope function will apply to a firm that has a waiver for limited scope categorisation.
  • Certification regime. The FCA confirms that it will not implement the certification regime for benchmark administrators. It announced that it would take this approach in its December 2017 policy statement (PS17/28) on the application of the Benchmarks Regulation ((EU) 2016/1011) (BMR).
  • Conduct rules. The FCA proposes that the conduct rules should apply to almost all employees at benchmark administrators. Most of these rules will only apply to the regulated financial services activities of these firms.

The FCA also proposes to amend its rules to reflect the fact that, after 9 December 2019, the existing approved persons regime will only apply to appointed representatives, and will no longer apply to any authorised firms.

The proposed amendments to the FCA Handbook are in the draft Individual Accountability (FCA-Authorised Benchmark Firms) Instrument 2020, which is in appendix 1 to CP19/31. The majority of these amendments are specified to come into force on 7 December 2020.

The deadline for responses is 28 February 2020.