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House of Lords EU Committee Launches Inquiry into Brexit and Financial Services

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On August 31, 2016, the House of Lords EU Sub-Committee on Financial Affairs published a webpage announcing the launch of an inquiry into Brexit and financial services in the UK. The Sub-Committee will begin its inquiry with two evidence sessions concentrating on the consequences of the referendum result for financial services and potential future arrangements.

The issues to be considered by the inquiry are as follows:

  • The reaction of financial services firms to the outcome of the EU referendum result
  • The possibility of the relocation of financial services firms from the UK
  • Priorities for the UK financial services sector in the withdrawal negotiations and in negotiating a future relationship for the UK with the EU
  • Equivalence rights to access the EU single market for the UK
  • Financial regulatory co-operation between the UK and the EU under different models of EU membership
  • A potential free trade agreement and the UK’s financial sector
  • Potential transitional arrangements
  • The importance of passporting rights for firms operating in the UK
  • Risks for retail customers and investors
  • Considerations for non-EU firms wishing to gain access to the EU through the EU’s equivalence regime

Brexit – What Now For Your Business

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So, the UK has voted to leave the EU. Everyone has their own opinion and we’ve all seen the news reports and various viewpoints but what does this result mean for you in practical terms and where do we go from here? Orrick’s EU-UK Working Group is ready and waiting to answer any questions you may have (see contact details at the end of this alert) and in the meantime, here’s our overview of the key issues for your business. READ MORE →

U.S. and U.K. Officials Meet to Discuss Key Components for the Resolution of a Global Systemically Important Bank

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On October 13, the heads of the Treasuries and leading financial regulatory bodies in the United States and United Kingdom participated in an exercise designed to further the understanding, communication, and cooperation between U.S. and U.K. authorities in the event of the failure and resolution of a global systemically important bank, or G-SIB. The exercise demonstrates the continued commitment of the United States and the United Kingdom since the financial crisis to promote a safer and sounder financial system by cooperating to address issues involved in the orderly resolution of large and complex financial institutions without cost to taxpayers.  Release.

PRA Issues Clarification on Implementation of the Solvency II Directive

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On August 29, the UK PRA issued an update on the implementation of the Solvency II Directive (2009/138/EC), which is planned for January 1, 2016. The current PRA Update focuses on:

  • the relationship between the risk margin and the calibration of non-hedgeable risks; and
  • the assessment of the credit risk for matching adjustment portfolios.  PRA Update.

FCA Publishes Report on Hedge Fund Activity in the UK

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On March 24, the FCA published a report which sets out its findings from a survey of hedge fund activity in the UK.

Key findings are:

    • 98 percent of total leverage used by hedge funds in the UK is acquired through derivatives.
    • Institutional investors are the dominant investors in hedge funds.
    • The proportion of high net worth individuals investing in hedge funds has declined.
    • Equity strategies are the most popular among the funds in the survey.   Report.

UK Government White Paper on Banking Reform

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On 14 June 2012, HM Treasury and the Department for Business, Innovation and Skills (BIS) published a white paper on banking reform setting out the government’s proposals for implementing the key recommendations of the Independent Commission on Banking (ICB) chaired by Sir John Vickers. White Paper.

Key proposals of the White Paper are:

• Retail banking operations will be ring-fenced, with operations core to consumer and small business services separated from investment banking.

• Those ring-fenced operations will face limits on exposures to other banks – they will only be allowed to carry out tasks like facilitating other institutions’ payments and managing liquidity.

• The biggest banks will hold 17% of risk-weighted assets as primary loss-absorbing capital.

• Bail-in bonds will be used to make creditors cover some of the cost of a bank failing, without a full collapse.

• But depositors will still be protected and will have a senior claim to bondholders, as well as a legal guarantee on deposits up to £85,000.

• Banks must comply with Basel III’s 3% tier one leverage ratio.

The deadline for responses to the White Paper is 6 September 2012 with the Government due to publish a draft bill in the autumn. The Government states in the white paper that it is committed to completing all primary and secondary legislation by the end of this Parliament in May 2015. The deadline for banks to comply with all of the ICB recommendations is 2019.

FSA Consultation Paper on Recovery and Resolution Plans

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On August 9, the FSA published a Consultation Paper and Discussion Paper regarding the implementation of Recovery and Resolution Plans by systemically important banks and large investment firms in the UK. The goal of the paper is to present proposals on what is expected of a firm in planning for stress events that would require it to take action to recover or, if necessary, wind-down in an orderly manner without putting UK taxpayers at risk of loss. FSA Release. FSA Consultation Paper and Discussion Paper.