EU
Prospectus Regulation
Updated Q&A
05 May 2021: The European Securities and Markets Authority (ESMA) has published new Q&As (Link) clarifying, amongst other things, whether publication of new audited financial statements will trigger the obligation to supplement a base prospectus and the application of CRA Regulation disclosure requirements.
16 July 2021: The Q&As have been further updated in relation to, amongst other things, updating information in tripartite prospectuses and inclusion of information in tripartite prospectuses from a new registration document, and public offers in multiple Member States.
Benchmark Regulation
Updated Q&A
16 July 2021 and 28 May 2021: ESMA has published updates to its Q&A (Link) on the Benchmark Regulation. The updates introduce a new section on EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks.
CSDR
European Commission issues final report on EU CSDR review
01 July 2021: The European Commission has published its final report (COM(2021) 348 final) (Link) to the European Parliament and the Council under Article 75 of the Central Securities Depositories Regulation (EU) 909/2014 (EU CSDR). This report summarises the main areas under review to ensure fulfilment of the objectives of the EU CSDR in a more proportionate, efficient and effective manner.
Trade association letter to European Commission regarding review of EU CSDR
14 July 2021: Trade associations including ISDA, AFME and ICMA have issued a letter to the European Commission (Link) on the EU CSDR review. The trade associations request that ESMA and the European Commission take action to ensure that the mandatory buy-in rules for non-CCP transactions are not subject to application on 01 February 2022, when the relevant RTS is currently set to enter into force, and to provide clarity to market participants on an urgent basis in relation to implementation of these rules in view of their possible amendment.
Retail Investment Products
ESMA publishes annual statistical report on Performance and Costs of EU Retail Investment Products
14 April 2021: ESMA published its annual statistical report (Link) on performance and costs of EU retail investment products from 2010 to 2019 which includes commentary on structured retail products.
EU BMR; Benchmarks
Adoption of Delegated Regulations supplementing EU BMR
06 May 2021: The European Commission has adopted three Delegated Regulations supplementing the Benchmarks Regulation (EU) 2016/1011 (EU BMR) (Link) (Link) (Link) covering (a) certain quality requirements in relation to benchmark methodologies; (b) the criteria for assessment by competent authorities of mandatory administration of critical benchmarks; and (c) the criteria under which competent authorities may require changes to the compliance statement of non-significant benchmarks. These Delegated Regulations will apply from 01 January 2022.
The working group on euro risk-free rates issues recommendations on EURIBOR fallback trigger events and €STR-based fallback rates
11 May 2021: Following two consultations in 2020, the working group has issued recommendations on EURIBOR fallback trigger events and €STR-based EURIBOR fallback rates (Link).
ESG
EU narrative reporting: Commission adopts proposal for Corporate Sustainability Reporting Directive
21 April 2021: The European Commission adopted a proposal for a Corporate Sustainability Directive (Link) which is intended to improve sustainability reporting at a low cost. This proposal covers large companies and those listed on regulated markets and introduces certain reporting requirements in line with mandatory EU sustainability reporting standards. The European Commission also released a Q&A on the proposal (Link).
EU Green Bond Standard Proposal
06 July 2021: The European Commission has published its legislative proposal for a regulation on European green bonds, the 'European Green Bond Standard' (EUGBS) (Link). The new EUGBS will be open to any issuer of green bonds, including companies, public authorities, and also issuers located outside of the EU. There are four key requirements under the proposed framework:
Taxonomy-alignment: The funds raised by the bond should be allocated fully to projects that are aligned with the EU taxonomy.
Transparency: Full transparency on how the bond proceeds are allocated through detailed reporting requirements.
External review: All EU green bonds must be checked by an external reviewer to ensure compliance with the Regulation and taxonomy alignment of the funded projects.
Supervision by the ESMA of reviewers: External reviewers providing services to issuers of European green bonds must be registered with and supervised by the ESMA.
France
French financial market authority publishes guide relating to structured debt securities
26 April 2021: The French financial market authority has published guidance on drafting of marketing materials relating to structured debt securities (only available in French to date) (Link).
Luxembourg
Bill of law reforming securitisation law of 2004
22 May 2021: A bill of law (Link) amending the law of 22 March 2004 on securitisation was tabled at the Luxembourg Chamber of Deputies. The declared goal is to increase clarity in the existing framework and to adapt it to the current market requirements.
Firstly, the bill allows active management for securitisation vehicles and, under certain conditions, the issuance of securities to the public without being licensed by the CSSF. Secondly, securitisation vehicles will now be able to borrow funds to finance the acquisition of assets to the amount of risk securitised. In addition, securitisation vehicles will be entitled to grant any kind of security interest enhancing the financing capacities of the vehicle. Tangible assets such as planes, boats or commodities will be more easily securitised, in particular through owned companies. Thirdly, securitisation can be performed through new legal corporate forms such as SCS, SCSp, SNC and SAS. Finally, a legal subordination between securities is installed but contractual opt out is offered by the bill. The bill is going through the legislative process and the text is therefore subject to change. Currently there is no indication as to when the law will be published and enter into force.
Netherlands
ESMA issues opinion on product intervention measures relating to turbos proposed by the Dutch Authority for the Financial Markets
08 June 2021: In December 2020, the Dutch Authority for the Financial Markets (AFM) published a consultation paper on measures to restrict the marketing, distribution and sale of turbos to retail investors. The measures proposed by the AFM are generally in line with the existing restrictions already applicable to contracts for difference (CFDs) in the Netherlands and throughout the EU, and would introduce:
a leverage cap;
a prohibition on providing retail investors with a payment or other prohibited benefits in relation to the marketing, distribution or sale of a turbo; and
the requirement of a risk warning.
Shortly after publishing the consultation paper, the AFM notified ESMA of its intention to take national product intervention measures under article 42 MiFIR. ESMA has now, on 08 June 2021, issued its opinion (Link) on the intended measures. ESMA's opinion concludes that the proposed measures are justified and proportionate. Furthermore, ESMA's opinion encourages all national competent authorities to monitor turbos in their respective markets to assess whether similar risks for retail investors as those identified by the AFM could arise there.
UK
HM Treasury opens consultation on non-transferable debt securities (mini bonds)
19 April 2021: HM Treasury has begun an open consultation on non-transferable debt securities (mini-bonds) (Link). The consultation sets out, amongst other things, an overview of these unlisted bonds and debentures and proposals by the HM Treasury on how these securities are to be regulated.
The consultation closed on 21 July 2021.
FCA Discussion Paper on financial promotion rules
29 April 2021: The FCA has published a Discussion Paper on financial promotion rules (Link), seeking feedback on financial promotions for high-risk investments. This Discussion Paper discusses, amongst other things, the monitoring requirements of a firm's obligation to withdraw an approval of a financial promotion for unauthorised persons where the firm knows that such promotion no longer complies with the FCA's financial promotion rules.
Financial Services Act 2021 receives royal assent
29 April 2021: The Financial Services Act 2021 received royal assent (Link) after being introduced into Parliament in 2020. The Financial Services Act 2021 covers, amongst other things, implementation of the "tough legacy" legislation in relation to LIBOR transition by way of amendments to the UK Benchmarks Regulation (UK BMR).
The FCA publishes a consultation on a Consumer Duty
14 May 2021: The FCA is consulting on a new Consumer Duty (Link) that would increase the expectations on firms in respect of their engagement with retail customers and, in the FCA's view, provide stronger protection for consumers in financial markets.
The FCA proposes that the Consumer Duty will have three key elements:
The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients'.
Cross-cutting rules which would require three key behaviours from firms, which include: (1) taking all reasonable steps to avoid foreseeable harm to customers; (2) taking all reasonable steps to enable customers to pursue their financial objectives; and (3) to act in good faith.
The Consumer Principle and cross-cutting rules will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to four specific outcomes: (1) communications; (2) products and services; (3) customer service; and (4) price and value.
Comments are to be submitted by 31 July 2021.
FCA publishes consultation on ESG issues in capital markets
22 June 2021: The FCA has published a consultation (Link) on extending its climate-related disclosure rules to issuers of standard listed equity shares and to introduce similar requirements for asset managers, life insurers, and FCA-regulated pension providers, with a focus on the information needs of clients and consumers. Proposals include, amongst other things, a requirement for relevant companies to include a statement in their annual financial report detailing their climate-related disclosures, including whether they comply with the Taskforce on Climate-related Financial Disclosures' recommendations and recommended disclosures and to explain any non-compliance.
Comments are to be submitted by 10 September 2021.
FCA publishes consultation on its proposed amendments to the onshored PRIIPs RTS.
20 July 2021: The FCA has published a consultation (Link) on its proposed amendments to the onshored PRIIPs RTS including proposed rules on scope (covering corporate bonds and legacy trades), the meaning of "made available", removing performance scenarios, upgrading the SRI and amendments to transaction costs. Of particular interest to structured products manufacturers will be the removal of the performance scenario tables and narratives to be replaced by narrative explanations of factors likely to affect future performance. The FCA is not proposing to include past performance in the KID.
Comments are to be submitted by 30 September 2021 and the amendments are due to come into effect on 01 January 2022.
UK Prospectus Regulation: HM Treasury consultation
01 July 2021: The government has published a consultation on the UK Prospectus Regulation (Link). This follows recommendations made in Lord Hill's March 2021 UK Listing Review report and looks at re-designing the prospectus rules around a separation of the requirements for an admission to trading on a regulated market and those for an offer of securities to the public.
The consultation closes on 24 September 2021.
LIBOR
ICE SONIA indices
13 April 2021: ICE Benchmark Administration Limited (IBA) has launched a set of SONIA indices (Link) which are designed to facilitate calculation of interest for licensed products which reference SONIA compounded in arrears.
WGRFR paper on transition from LIBOR in sterling structured products
19 April 2021: The Working Group on Sterling Risk-Free Reference Rates (WGRFR) has published a paper (Link) which describes how a sterling structured products market based on a risk-free rate could potentially be designed using compounded in arrears SONIA, and which sets out considerations for the transition of existing sterling structured products from GBP LIBOR to SONIA.
Forward-looking term SOFR
06 May 2021: The Alternative Reference Rates Committee (ARRC) has published a set of market indicators (Link) that it will consider in recommending a forward-looking Secured Overnight Financing Rate (SOFR) term rate. On 21 May 2021 the ARRC announced that it has selected CME Group as administrator that it plans to recommend for such rate, once the relevant market indicators are met. CME Group announced the launch of term SOFR rates for three key tenors in April 2021 (Link).
Recommendation for Sterling successor rate
19 May 2021: The WGRFR published a statement (Link) in which it recommends SONIA compounded in arrear as the recommended successor rate to GBP LIBOR in the context of fallback provisions which provide for a designated successor rate.
FCA consultation on use of powers in relation to critical benchmarks
20 May 2021: The FCA published a consultation (Link) on use of its powers under the UK BMR in relation to restricting and permitting use of critical benchmarks that are being wound down. The consultation closed on 17 June 2021.
Updated transition roadmap
27 May 2021: The WGRFR has published a revised version of its priorities and roadmap for transition by end-2021 (Link). There are no changes to the fundamental timetable but the updated document now reflects anticipated timing for further consultations, including in relation to synthetic LIBOR.
FCA and Bank of England encourage 'SOFR First'
16 June 2021: The FCA and Bank of England have published a statement supporting and encouraging liquidity providers in the US dollar linear interest rate swaps market to adopt new trading conventions for interdealer trading based on SOFR instead of LIBOR from 26 July 2021 (Link). This follows a prior recommendation from the CFTC for transitioning this market to SOFR.
Joint statement by the European Commission, ECB, EBA and ESMA on encouraging market participants to cease all LIBOR settings
24 June 2021: The European Commission, European Central Bank (ECB), European Bank Authority (EBA) and ESMA issued a joint statement (Link) encouraging market participants to:
stop using all 35 LIBOR settings, including USD LIBOR, as a reference rate in new contracts as soon as possible and in any event by 31 December 2021;
limit the use of any LIBOR setting published under a changed methodology (also known as "synthetic" LIBOR) only to contracts that are particularly difficult to amend ahead of LIBOR's cessation (commonly referred to as "tough legacy"); and
include robust fallback clauses nominating alternative rates in all contracts referencing LIBOR.
FCA consultation on proposed decision to require synthetic LIBOR for 6 sterling and Japanese yen settings
24 June 2021: The FCA has published a consultation (Link) on use of its powers under the UK BMR to require a synthetic LIBOR to be calculated for key sterling and Yen tenors, using a forward-looking term version of the relevant risk-free rate (i.e. SONIA for sterling and TONA for yen) and the fixed ISDA spread adjustment published for the purposes of the ISDA IBOR Fallbacks Supplement and Protocol for the respective LIBOR setting.
The consultation closes on 27 August 2021.
FCA publishes webpages bringing together key LIBOR sources
05 July 2021: The FCA has published three webpages that bring together key FCA sources relating to LIBOR. The webpages concern LIBOR Dear CEO letters (Link), LIBOR resources (Link) and LIBOR transition in the derivatives market (Link).
ISDA and other trade associations
ICMA publishes Quarterly Report Second Quarter 2021
14 April 2021: ICMA's quarterly report for the second quarter of 2021 (Link) covers the post-Brexit impact on international capital markets, amongst other things. The report also discusses transition from LIBOR and capital market developments in China.
ICMA updates Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines
10 June 2021: Revised versions of the ICMA's Green Bond Principles (last updated in 2018) (Link), Social Bond Principles (Link) and Sustainability Bond Guidelines (Link) have been issued. In addition, ICMA has also made available various supporting resources including illustrative examples for the selection of key performance indicators for sustainability-linked bond issuers (Link).
ISDA launches consultation on GBP and USD LIBOR ICE Swap Rate fallbacks
11 June 2021: ISDA has published a consultation (Link) on implementation of fallbacks for certain swap rates published by the ICE Benchmark Administration. The consultation requests feedback on fallbacks for the sterling LIBOR ICE Swap Rate published by the Non-Linear Task Force of the WGRFR and fallbacks on the US dollar LIBOR ICE Swap Rate published by the Subcommittee of the ARRC in the US.
ISDA publishes its 2021 ISDA Interest Rate Derivatives Definitions
11 June 2021: ISDA has published the 2021 ISDA Interest Rate Derivatives Definitions (2021 Definitions) (Link) which will replace the 2006 ISDA Definitions (2006 Definitions). The 2021 Definitions consolidate the 2006 Definitions that have been sporadically updated. It also updates the definitions to match current market practice including those relating to cash settlement methods, floating rate options and the floating rate matrix, fallbacks and calculation agent, reference dealer and quotation procurement provisions. The 2006 Definitions may still be used but will no longer be updated after the go live date of the 2021 Definitions (i.e. 04 October 2021).
ISDA has also issued a document setting out the key changes in the 2021 Definitions (Link).
ISDA Launches MyLibrary Digital Documentation Platform
14 June 2021: ISDA has launched a new digital documentation platform, aimed at improving the ability of firms to efficiently access and navigate ISDA documents (Link). MyLibrary will initially include the new 2021 ISDA Interest Rate Derivatives Definitions and the 2002 ISDA Master Agreement. Other documentation will be available in digital form via the platform over time, in line with ISDA's strategy to facilitate greater automation and efficiency in derivatives markets.
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