Regulation dashboard – current issues raising questions

Global Publication May 2016

This article first appeared in the April/ May 2016 edition of Trade Finance magazine.

Bank Recovery and Resolution Directive (BRRD)

  • EU directive giving regulators power to intervene to support troubled EU FIs.
  • Requirement for Bail-In Recognition Clause in line with Art. 55 (obliging counterparties to non-EU law governed contracts to include wording recognising statutory powers of EU regulators to write-down liabilities of EU FIs under such contracts and/or convert them into shares).
  • This requirement is difficult for trade finance instruments like LCs which are unilateral and/or may contain no governing law clause.
  • FIs can apply to the Prudential Regulation Authority for a temporary modification disapplying contractual recognition of bail-in rules where compliance with them is impracticable.  Update to follow.

Market Abuse Regulation (MAR)

  • EU’s new market abuse regime will apply from July 2016 dealing with two main prohibitions: insider dealing and market manipulation.
  • Prohibition on market manipulation extends to activities in relation to commodity and financial benchmarks and spot commodity transactions likely or intended to have an effect on financial markets.
  • MAR applies to entities regardless of their regulatory status, imposes strict liability offences and contains a general sweep-up clause catching a range of activities.

Markets in Financial Instruments Directive and Regulation (MiFID/ MiFIR II)

  • Governs the EU’s regulation of investment services, including managing, advising and operating a multilateral or organised trading facility, relating to any type of financial instrument.
  • Available exemptions from the requirement to be authorised will be significantly different and more limited in scope to those under the current regime. Firms will need to review these provisions carefully.
  • The MiFID II regime will introduce:
    1. Position limits in respect of commodity derivatives traded in Europe and economically equivalent OTC derivatives.
    2. Prohibitions on trading certain derivatives on an OTC basis.
    3. Increased transparency obligations to make public the level of bid and offer interest in the market and the price and volume at which transactions are executed.

European Market Infrastructure Regulation (EMIR)

  • Introduces changes regarding the mandatory clearing of OTC derivatives contracts through a centrally cleared counterparty (June 2016) and risk management of non-centrally cleared OTC derivatives through mandatory collateralisation (September 2016).

Securities Financing Transaction Regulation (SFT)

  • Introduces reporting requirements that will potentially catch commodity repurchase and similar arrangements.  Further guidance is hoped for given the extent of the Regulation.  Reporting requirements are not yet in force.

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