Alex Sobolev

Senior Associate

London

asobolev@orrick.com

Read full biography at www.orrick.com

Alex Sobolev advises on compliance, risks and strategy for operating business online. His practice focuses on data protection matters, but intersects with consumer law, software development and crypto.

Alex’s multidisciplinary practice and transatlantic experience enable him to provide strategic commercial advice for technology led companies, including coordinating and implementing data and consumer risk mitigation projects, providing outsourcing advice and developing key legal risk mitigation strategies in relation to products where the pace of innovation nearly always outpaces the law.

He has advised companies at all stages of the corporate lifecycle, from software development and product launch, through technology licensing, sale and purchase, to mergers and acquisitions of data and tech-heavy businesses. He has assisted organisations with the design, development and implementation of global data protection and compliance policies, as well the management of risk and security associated with data retention, processing and transfer.

Posts by: Alexei Sobolev

European Commission Implementing Regulation Lays Down ITS on Disclosure of Leverage Ratio for Institutions under CRR

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A European Commission Implementing Regulation laying down implementing technical standards (“ITS“) on disclosure of the leverage ratio for institutions under the CRR has been published in the Official Journal of the EU on February 16.

The Implementing Regulation states that, to ensure the obligation in the CRR to disclose information related to the leverage ratio is carried out by institutions in an effective and harmonised manner across the EU as soon as possible, it is necessary to require institutions to use templates for disclosure at the earliest possible date. The templates and instructions on completing them are set out in the annexes to the Implementing Regulation.

The Implementing Regulation entered into force on February 17.

ECON Publishes Reports Postponing Application of MiFID II, MiFIR, MAR and CSDR

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The European Parliament’s Committee on Economic and Monetary Affairs (“ECON“) has published two draft reports on the proposed directive postponing application of the MiFID II Directive, the proposed regulation amending the Markets in Financial Instruments Regulation (“MiFIR“), the Market Abuse Regulation (“MAR“) and the Regulation on improving securities settlement and regulating central securities depositories (“CSDR“) as regards certain dates.

Both reports contain an explanatory statement, which expresses disappointment that, due to the failure of ESMA and the Commission to deliver regulatory technical standards and delegated acts by the deadline set out in the legislation, and to launch the necessary procurement procedures in time, MiFID II will not be applicable as initially scheduled on January 3, 2017. The rapporteur acknowledged that the delay of the application by a year to January 2018 was sensible and justified, given the scale of the tasks yet to be completed before implementation.

The reports can be found here and here.

PRA Issues Policy Statement on Approach to Identifying O-SIIs

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The UK’s Prudential Regulation Authority (“PRA“) has issued a policy statement on its approach to identifying other systemically important institutions (“O-SIIs“). The statement is relevant to all credit institutions, investment firms, EEA parent institutions, EEA parent financial holding companies and EEA parent mixed financial holdings companies within the domestic financial sector at their highest level of consolidation in the United Kingdom. The proposals contained in the consultation and the policy statement do not apply to branches operating in the UK.

The statement provides feedback to responses to a PRA consultation paper as to which firms can be identified as O-SIIs; application of discretion afforded within the European Banking Authority’s mandatory scoring methodology for O-SII identification; application of a supervisory overlay to  capture adequately systemic risk in the UK banking sector; proposals to use the methodology of the PRA’s existing potential impact framework to inform this assessment; and the timetable for O-SII identification and publications related to O-SII identification. The PRA has made no material changes to its policy as a result of the consultation.

FCA Issues Consultation Paper on Proposed Changes to the Senior Managers and Certification Regime

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The FCA has launched a consultation paper setting out a number of technical rule changes to the Senior Managers and Certification Regime (SM&CR). The changes are being made as a result of HM Treasury’s announcement in October 2015 that it would be amending the current SM&CR legislation as it applies to the banking sector. This included the repeal of section 64B(5) of the Financial Services and Markets Act 2000 (FSMA), which required firms to report to the FCA known and suspected breaches of the FCA Rules of Conduct, before the SM&CR regime enters into force on 7 March 2016.

The FCA proposes to remove references to notifications of known and suspected rule breaches in the associated forms, thereby streamlining reporting requirements so that the forms only require firms to inform the FCA of disciplinary action taken against staff as a result of a breach of one or more Rules of Conduct. The pre-existing obligation to report material breaches will, however, remain in place.

The Consultation Paper sets out how the FCA intends to implement the consequential changes to rules and forms that will be required prior to commencement of the regime, as well as examining the likely impact the changes will have on the industry and on consumers.

Basel Committee Issues Revised Framework for Market Risk Capital Requirements

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The Basel Committee on Banking Supervision (BCBS) has issued revised standards for minimum capital requirements for market risk. The purpose of the revised market risk framework is to ensure that the standardised and internal model approaches to market risk deliver credible capital outcomes and promote consistent implementation of the standards across jurisdictions. The revisions focus on three key areas: revised boundary between banking book and trading book, revised internal models approach for market risk and revised standardised approach for market risk. The revised framework also includes a shift from value-at-risk to an expected shortfall measure of risk under stress and incorporation of the risk of market illiquidity.

The revised framework produces market risk risk-weighted assets (RWAs) that account for less than 10% of total RWAs, compared to approximately 6% under the current framework. The revised market risk standard would result in a medium (weighted mean) increase of approximately 22% (40%) in total market risk capital requirements as against the current market risk framework.

The revised market risk framework comes into effect on 1 January 2019. A detailed explanatory note of the new standards is available here.

EBA Publishes Final Draft Technical Standards and Guidelines on Methodology and Disclosure for G-SIIs

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The European Banking Authority (EBA) has published final draft technical standards and revised guidelines on the further specification of the indicators of global systemic importance and their disclosure. The guidelines have been developed according to Directive 2013/36/EU (the Capital Requirements Directive, CRD IV) and in line with international standards. CRD IV requires G-SIIs to hold higher capital levels in order to contain the risks they pose to the financial system and the impact that their potential failure may have on sovereign finance and taxpayers (so-called “too big to fall”). The draft revised Guidelines stipulate that not only G-SIIs, but also other large institutions with an overall exposure of more than €200 billion and which are potentially systemically relevant, will be subject to the same disclosure requirement as the G-SIIs.

The revision was prompted by a new data template and some minor changes introduced by the Basel Committee on Banking Supervision (BCBS) in January 2015 for the identification of global systemically important banks (G-SIBs). The list of EU G-SIBs identified by the BCBS and the global systematically important institutions (G-SIIs) identified by Member States’ authorities are identical.

The final draft technical standards and revised draft guidelines are set out in three reports (revised technical standards (RTS) report, implementing technical standards (ITS) report, and draft guidelines report). The final RTS and ITS will be presented to the European Commission for endorsement, following which the RTS will be subject to scrutiny by the European Parliament and the Council of the EU before publication in the Official Journal of the EU.

ESMA’s New Q and A Responses on the Application of AIFMD and Consultation on New Guidelines

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The European Securities and Markets Authority (ESMA) has published updated questions and answers on the application of the Alternative Investment Fund Managers Directive (AIFMD), which includes updated and new questions and answers on reporting to national authorities and the calculation of the total value of assets under management (AUM). In the same week, it has launched a consultation on proposed guidelines on sound remuneration policies under AIFMD and the UCITS V Directive (the latest changes to the Undertakings for Collective Investments in Transferable Securities Directive).

UCITS V includes rules that UCITS must comply with when establishing and applying a remuneration policy for certain staff categories and the proposed UCITS Remuneration Guidelines further clarify the Directive’s provisions. The proposed Guidelines aim to ensure a convergent application of the remuneration provisions and will provide guidance on issues such as proportionality, governance of remunerations, requirements on risk alignment and disclosure. The consultation paper also proposes a revision of the AIFMD Remuneration Guidelines by clarifying that, in a group context, non-AIFM sectoral prudential supervisors of group entities may deem certain staff of an AIFM in that group to be identified staff for the purpose of their sectoral remuneration rules.

ESMA will consider the feedback received to the consultation and is aiming to finalize and publish the UCITS Remuneration Guidelines and a final report by Q1 2016, ahead of the transposition deadline for the UCITS V Directive (March 18, 2016). It is expected that the final report will also include the revision of the AFIMD Remuneration Guidelines.

ESMA Publishes 17th Extract from EECS’ Enforcement Decisions

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The European Securities and Markets Authority (ESMA) has published extracts from the European Enforcers Coordination Sessions confidential database of enforcement decisions on financial statements. European Enforcers monitor and review International Financial Reporting Standards (IFRS) statements and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law. The decisions included in this publication were taken by national enforcers in the period from February 2013 to November 2014

The aim of the publication is to provide issuers and users of financial statements with relevant information on the appropriate application of the IFRS. It will inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS – namely, whether treatments are considered as being within the accepted range of those permitted by IFRS. The publication of the decisions, together with the reasoning behind them, will contribute to a consistent application of IFRS in the EEA.  Release.

EBA Publishes RWA Assessment as the Next Step in Improving Consistency of Internal Model Outcomes

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The European Banking Authority (EBA) has published two reports on the consistency of Risk-Weighted Assets (RWAs) across large EU institutions for large corporate, sovereign and institutions’ Internal Ratings-Based (IRB) portfolios (collectively referred to as “low default portfolios”, or LDP). The LDP analysis explains how much of the variability in RWAs is led by difference in riskiness (namely, idiosyncratic portfolio features), and tries to identify residual drivers that are linked to banks’ practices. The CCR benchmarking report considers the calculation of counterparty credit risk (CCR) exposures under the Internal Model Method (IMM) and the credit value adjustments (CVA) according to the advanced approach (ACVA).

The reports summarize the findings obtained from two benchmarking exercises aimed at improving the comparability of EU banks’ RWAs. A key finding is that around 75% of the observed difference in global charge (GC) levels across institutions could be explained by the proportion of defaulted exposures in the portfolio and the portfolio mix. As for the CCR and ACVA analyses, the report shows that there is significant variability across banks in the calculation of CCR and ACVA, especially for equity and foreign exchange OTC derivatives.

Fair and Effective Markets Review Publishes Final Report

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On June 10, 2015, the Fair and Effective Markets Review (FEMR), established by the Chancellor in June 2014 to conduct a review of fixed income, currency and commodity markets, published its final report. The report contains 21 policy recommendations aimed at preventing a repeat of the recent years’ misconduct in fixed income, currencies and commodities markets. The recommendations largely rely on market-led initiatives, or suggest legislative reforms to formalize regulators’ existing practices and extend incoming reforms to previously under-regulated markets.

The recommendations include the creation of a Market Standards Board to improve dialogue between regulators and the industry,  the extension of the senior managers’ regime to non-banks and (as the key element of the review) regulation of spot foreign exchange (FX). In the UK, spot FX has previously been treated as falling outside the scope of financial regulation and securities laws since it involves trading cash for cash but the recent probe into FX benchmark rigging in the UK and US identified spot FX as the market where most wrongdoing occurred.