Legal & Regulatory
BRRD: FCA publishes modification by consent for Article 55 rules
Article 55 of the EU Bank Recovery and Resolution Directive 2014/59 (BRRD) requires European Economic Area (EEA) firms and other in-scope entities to include a contractual recognition of bail-in clause in an extensive range of non-EEA law-governed contracts. The Financial Conduct Authority has now allowed this clause to be modified by consent, through amending IFPRU 11.6, where compliance would not be practicable. The modification is valid until 30 June 2016, or when the relevant rules are amended or revoked, whichever is earlier.

Recovery and resolution: French government proposes to amend insolvency hierarchy among creditors of credit institutions
The French government has announced its intention to amend the insolvency hierarchy amongst creditors of credit institutions, which would apply if the institution has entered into liquidation and resolution of such credit institutions (but without retrospective effect). The proposal amends article L. 613-30-3 of the French code monétaire et financier (Financial Code) to provide a general preference to senior unsecured creditors by introducing a new category of non-preferred senior debts, which would rank below senior unsecured creditors and above subordinated debts. Credit institutions would be allowed to issue debt instruments in the new category by expressly stating, in the issuance document, that the notes rank as non-preferred senior debts referred to in article L. 613-30-3-I 4° of the Financial Code.

To be eligible for this category, the document would have to state that the debt instrument: (a) has an initial maturity of at least one year; and (b) has qualified as a 'non-structured' instrument.

The proposal is currently in the consultation process.

Documentation
BaFin consults on interpretation guidance on Act on Ring Fencing and Recovery and Resolution Planning for Credit Institutions of 2013
15 January 2016
The German Federal Financial Supervisory Authority (BaFin) has launched a consultation on interpretation guidance on the Act on Ring Fencing and Recovery and Resolution Planning for Credit Institutions of 2013.

Amongst other things, the interpretation guidance covers the Act's applicability, the termination of the trigger and the exceptions from the prohibitions of acting. The guidance also offers some clarification on cross-border activities and certain investment funds that have been opened before the entry into force of the German Capital Investment Act. The consultation period ends on 29 January 2016.

Belgium implements bail-in tool
1 January 2016
The Belgian Banking Law of 25 April 2014, which deals with the structure of banking activities, has been amended to implement the bail-in tool into Belgium law. The provisions relating to the bail-in tool became effective on 1 January 2016.

The new law confirms that any reduction or conversion into equity of a liability to which the bail-in tool has applied does not benefit co-debtors, guarantors or security providers regarding the bailed-in liability. Nevertheless, parties can 'opt out' of this principle and agree that a guarantee or security will not be protected against a bail-in.

Legal & Regulatory
Supreme Court holds that contractual terms will only be implied if necessary
The Supreme Court in the case of Marks & Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72 has emphasised that English law is strict in its approach to the implication of terms into a contract. Terms will not be implied into a contract simply because doing so would be reasonable, rather, only if without the implied term the contract would lack commercial or practical coherence. The more detailed the contract, the more implying a term will be difficult.

Withholding tax exemption for private placements: commencement and conditions
Regulations have been made introducing the conditions for withholding tax exemption for private placements under section 888A of the Income Tax Act 2007 (inserted by section 23 of the Finance Act 2015).

Under section 888A, tax need not be deducted from interest payments on a qualifying private placement, being a security representing a loan relationship and not listed on a recognised stock exchange, if the conditions in regulations are met. The Qualifying Private Placement Regulations 2015 (SI 2015/2002) entered into force on 1 January 2016.

EU extends economic sanctions against Russia by six months
21 December 2015
The EU Council has extended economic sanctions against Russia until 31 July 2016.
The sanctions were initially introduced for one year in July 2014, in response to Russia's actions in the east of Ukraine, and target certain exchanges with Russia in the financial, energy and defence sectors, and in the area of dual-use goods. The Council had extended the duration of the measures by six months until 31 January 2016, and linked the duration of the sanctions to the complete implementation of the Minsk agreements. However, as the Minsk agreements have not been fully implemented, the duration of the sanctions has been prolonged whilst the Council continues its assessment of progress in implementation.

EBA report recommends introducing net stable funding ratio in the EU
17 December 2015
The EBA has published a report on the impact assessment and calibration of the net stable funding ratio (NSFR) required under the Capital Requirements Regulation (Regulation 575/2013).

The EBA recommends the introduction of an NSFR in the EU to ensure an appropriate stable funding structure relating to the degree of asset illiquidity, to properly mitigate funding risk in banks. The EBA also found that, although the Basel NSFR standard is believed to fit well within the EU banking framework, certain EU specificities should be considered, particularly in the case of trade finance, pass-through models, central counterparties, centralised regulating savings and residential guaranteed loans.
The EBA reported that it had not found strong statistical evidence of significant negative impact of the NSFR on bank lending, financial assets, markets or trading book positions in banks, apart from some possible adjustment in prices. The report found no arguments to exempt certain banks from being subject to an NSFR because of their size, but the EBA will explore further the costs of implementing the reporting requirements for smaller banks.

The Commission is required under Article 510(3) of the CRR, if appropriate, to submit a legislative proposal to the European Parliament and Council of the EU on how to ensure that institutions use stable sources of funding. In considering this, the Commission must take into account the EBA's report.

HM Treasury consults on amendments to UK legislation transposing BRRD
17 December 2015
HM Treasury has launched a consultation on a number of changes intended to clarify and strengthen the UK’s transposition of the Bank Recovery and Resolution Directive (BRRD). In particular, the proposed new measures include:

• New powers for the Bank of England and HM Treasury to ensure the effectiveness of contractual write-down and conversion provisions by preventing them from being ‘switched off’ by the Banking Act rules on default event rights, where appropriate
• Two new specific early intervention powers for the PRA and the FCA; the power to:
  
       o Require the removal and replacement of directors and senior managers
       o Appoint a temporary manager. In addition, there would be new powers for the PRA and FCA to call a shareholder meeting if the management body had been required to call a meeting, and had failed to do so
• New powers for the Bank of England to resolve a branch of a third country institution, independently of the third country resolution authority, where the relevant conditions are met.

In addition to these measures, the government intends to make further technical changes to clarify the measures transposing the BRRD.

The Treasury has also published a draft statutory instrument containing the new contractual write-down and conversion provisions, the new early intervention powers, and the other changes summarised in chapter 5 of the consultation paper.
The consultation closes on 25 February 2016.

EBA issues final guidelines on institutions' exposures to shadow banking
15 December 2015
The European Banking Authority (EBA) has published its final guidelines on limits on exposures to shadow banking entities that carry out banking activities outside a regulated framework under Article 395 of the Capital Requirements Regulation (Regulation 575/2013).
The guidelines introduce a requirement for EU banks and certain other financial institutions to set limits for their exposures (above a materiality threshold) to shadow banking entities as part of their internal processes. In prescribing the approach institutions should adopt in order to set appropriate individual and aggregate limits for exposures to shadow banking entities, the guidelines will establish a harmonised approach for mitigating the risks identified relating to exposures to shadow banking entities.

The guidelines will apply from 1 January 2017.

IBA publishes feedback statement on the evolution of ICE LIBOR
14 December 2015
ICE Benchmark Administration Ltd (IBA) has published a feedback statement following its July 2015 consultation on the IBA’s second position paper on the evolution of LIBOR.

The feedback statement summarises the feedback to the second position paper, which set out for consultation a waterfall of methodologies Benchmark Submitters must follow in calculating their submissions. The responses to the position paper indicated support for Benchmark Submitters transmitting eligible transaction data to IBA, rather than submissions, and IBA calculating LIBOR rates from the transactional data. The feedback also indicated support for:

• Including corporations as counterparties (subject to minimum thresholds)
• Widening the funding locations
• Increasing currency panel sizes (subject to maintaining the credit quality)

The comments in the feedback statement do not necessarily reflect the final position, and IBA intends to publish a further paper in early 2016 setting the roadmap for the evolution of LIBOR.

Documentation
LMA publishes recommended form of contractual recognition of bail-in clause
The LMA published a recommended form of clause for use in loan documentation to the extent required by Article 55 of the EU Bank Recovery and Resolution Directive 2014/59 (BRRD) relating to contractual recognition of bail-in. The recommended clause is available on the LMA website, along with a user’s guide, and was assembled and agreed by an experienced working party, consisting of representatives from major banks and a number of law firms.

Article 55 of the BRRD requires EEA firms and other in-scope entities to include a contractual recognition of bail-in clause in an extensive range of non-EEA law-governed contracts. EEA member states were required to implement Article 55 into national law by 1 January 2016, and some states have already done so.

Considering the loan markets’ global nature, Article 55’swide-ranging applicability and the need to promote efficiency in loan markets, the LMA has worked together with the LSTA and APLMA to ensure that their bail-in clauses are as consistent as possible.  As part of the co-operation between the LMA, LSTA, APLMA and also ICMA, each of their forms of bail-in clause (in the case of ICMA, the clause set out in the ICMA AAM v1 New York law schedule) refer to a common EU Bail-In Legislation Schedule, which the LMA has prepared, in order to describe the relevant national implementation legislation and write-down and conversion powers.

The LMA and LSTA also issued a joint statement explaining that differences in the markets in the US and EMEA mean that the LMA and LSTA bail-in clauses matching each other exactly may not be appropriate or possible. As a result, market participants will need to review each bail-in clause and reach their own conclusions as to any modifications that may be required to ensure that each bail-in clause is suitable for the subject document.