Posts by: Editorial Board

FCA Releases Statement on Speculative Investments


Following the publication of product intervention measures by ESMA in relation to contracts for difference (“CFDs“) earlier this year, the Financial Conduct Authority (“FCA“) has provided a statement in relation to high risk investments and retail clients.

The FCA noted in its statement that it would work with European regulators (including ESMA) to observe the alternative speculative product market, in particular where retail clients are involved, in order to ensure ESMA’s measures are not being avoided by replacing CFDs with other similar products.

The FCA stated that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client”.

The full statement is available here.

OTC Derivative Brexit Issues Considered by AFME and ISDA


A paper was jointly published by AFME and ISDA on July 30, 2018 which considered the potential contractual continuity issues which may influence OTC derivative contracts following Brexit.

As has been widely discussed, Brexit will bring an end to the single market passport. The passport currently allows regulated activities to be carried out by the UK in EU countries without additional local licenses. This however will no longer be in place following Brexit. Given that a number of contracts will have been entered into prior to Brexit and will continue thereafter, there is a risk that entities may be carrying out regulated activities in other jurisdictions without having the relevant local licensing requirements in place following Brexit.

The report, the full version of which is available here, looks at possible solutions both for UK entities, as well as regulators, in order to minimize disruption following Brexit.

EC Seeks Guidance on Sustainable Finance


The European Commission (“EC“) published an open letter to EIOPA and ESMA on August 1, 2018. The letter sought technical advice in relation to sustainable finance, in particular technical advice relating to legislation.

The letter, the full version of which is available here, outlines that the European Commission adopted a package of measures on sustainable finance on May 24, 2018, however they are seeking advice in relation to the possible amendment of legislation such as UCITS, MiFID II and Solvency II.

The aim of the letter, and the possible changes proposed therein, is to incorporate sustainability risks in the decisions taken and processes applied by financial market participants.

The letter asks that EIOPA and ESMA provide their insight by April 30, 2019.

European Commission Provides Guidance on MiFID II Ancillary Activity Test


A letter from the European Commission Vice President was published on June 22, 2018 which sought to clarify the exemption found in Article 2(1)(j) of the MiFID II Directive (the “Exemption“).

The Exemption states that the regulated activities of dealing on own account and providing investment services in relation to commodity derivatives will be exempt from the rules contained in the MiFID II Directive provided that the activities are “ancillary” to the main business.

The letter, addressed to Steven Maijoor, stated that in establishing if the Exemption applies, the MiFID activities that the person is engaged in will be compared with the commercial activities of the person or group which the person forms. This therefore accounts for varying commercial structures whereby business activities of a group may be separated into different legal entities.

The full letter explaining the Exemption and when this applies, is available here.

ICMA Highlights Cliff-Edge Risks of Brexit


The International Capital Markets Association (“ICMA“) published an open letter to Jean-Claude Juncker and Theresa May on June 22, 2018. In the letter the ICMA outlined concerns around potential “cliff-edge risks” which may arise upon the UK leaving the EU.

Some of the issues highlighted in letter include data-sharing, restrictions on cross-border fund management and the continuity of contracts. The ICMA states that it is unfeasible for companies to account for the various potential issues. They also explain that many of the risks highlighted in the letter cannot be resolved by unilateral decisions and will require both the EU and UK to take action.

The ICMA requests either the grandfathering of cross-border financial contracts between the EU and UK following Brexit or a separate agreement addressing the various potential risks.

The full letter is available here.

IBA Publishes Code of Conduct on LIBOR


The ICE Benchmark Administration (“IBA“) released issue 5 of the LIBOR code of conduct on June 19, 2018. This document is intended to provide guidance as to the appropriateness of LIBOR as a benchmark rate in agreements, whilst also setting out a framework under which banks are to operate.

The publication of the code of conduct follows the draft version which was circulated in April 2018 and is available here. The code of conduct supersedes the previous issue.

EMMI Provides Update on EURIBOR Development


The European Money Markets Institute (“EMMI“) has provided an update on its development of EURIBOR through a press release, available here.

EMMI previously stated that it was working on the development of a hybrid methodology for EURIBOR which will be composed of a three-level waterfall and which will leverage on market transactions whenever available, in line with regulatory regulations.

EMMI stated that it will conduct an in-depth data analysis under a number of scenarios and assess all methodological parameters. Furthermore, the three-level waterfall with allow EMMI to assess Level 1 and Level 2 submissions, whilst allowing EMMI to develop a deeper understanding of Level 3.

It was announced that following the testing stage, there will be a stakeholder consultation in the second half of 2018.

ESMA Publishes First Liquidity Assessment for Bonds


In response to the introduction of pre and post trade transparency requirements under the Markets in Financial Instruments Regulation (“MiFIR“), the European Securities and Markets Authority (“ESMA“) on May 2, 2018 published its first liquidity assessment for bonds. This was published on its Financial Instruments Transparency System, found here.

Alongside the assessment was a press release, available here. The press release explained that in the first quarter of 2018, 220 bonds out of 71,000 which were assessed were sufficiently liquid to be subject to the real-time transparency requirements of MiFID II.

The bonds deemed sufficiently liquid following the assessment will need to comply with the transparency requirements under MiFIR and MiFID II from May 16, 2018 to August 15, 2018, when the next quarterly assessment will become applicable.

Interestingly, the press release highlighted that the quality of the data in the review is dependent on the data submitted to ESMA. ESMA stated that due to the lack of completeness and other quality issues in relation to the data, the number of liquid instruments was lower than that produced through previous calculations.

Framework for Cyber-Attack Testing Published by ECB


On May 2, 2018, the European Central Bank (“ECB“) published the “TIBER-EU” framework, a document which outlines the process for European and national authorities to work with financial institutions to put in place a program to test and improve resilience against cyber-attacks.

The TIBER-EU introduces intelligence-led red team tests to mimic the tactics, techniques and procedures of threat-actors, which will allow a financial institution to assess its protection, detection and response capabilities.

The framework, available here, details the key phases, activities, deliverables and interactions involved in a test.

The tests are not mandatory and it is for relevant authorities and institutions to decide if the tests are required, however the ECB has encouraged relevant authorities within jurisdictions to engage with each other in deciding how to adopt the framework, whilst financial institutions are encouraged to work closely with relevant authorities in order to enhance cyber-resilience.

Regulatory Risks Facing Cryptocurrency Trading Platforms

What does it mean for a cryptocurrency trading platform to be compliant with U.S. laws? The answer is not as clear as some may expect and hinges on such questions as how tokens on the platform are legally categorized and how trading is conducted. Orrick’s Jason Somensatto, Of Counsel to our White Collar, Investigations, Securities Law and Compliance Practice, recently explored this issue in Bloomberg Law’s Securities and Regulation Report™.

What is clear from recent developments is that multiple U.S. regulators are scrutinizing whether trading platforms are complying with various regulatory schemes. Most notably, token trading platforms risk enforcement for not following law applicable to money transmission and to securities and commodities trading. Although enforcement against cryptocurrency businesses in these areas has thus far been minimal, trading platforms should expect that to change in light of the increasing attention being paid by regulators to these issues.

To view the full article, please visit Bloomberg’s website.