At a recent “round table”, I gave an overview of legal developments of interest to bank lawyers. Here is a summary:

Regulatory Reform

Is a perfect maelstrom of activity for obvious reasons, as banks are being handed birch twigs to beat themselves penitentially for not counting the pennies. Events have been moving faster than I can blog, and now in the FT we have talk of a turf war between the Bank of England and the FSA cuminating today in the threat of yet another Banking Act.  A few weeks ago, the House of Lords put the boot into the FSA by recommending reform of the tripartite system of FSA/BoE/HMT regulation. They want to reverse history and return supervisory powers to the BoE. You could feel sorry for the FSA. The BBA threw themselves into the job of replying to the FSA consultation “A regulatory response to the global banking crisis” and asked for much more thought to be put into the proposals. The BBA challenge the assumption that any additional regulatory requirement can be justified because “it can’t cost as much as the crisis”.  The FSA propose to take on enforcement of what used to be the BBA’s voluntary Banking Code in November, to levy fines on errant banks. And they have set out the final rules of BCOBS affecting retail banking for consumers and small businesses and requiring banks to help consumers to switch accounts promptly and efficiently.  On top of all this, the OFT are consulting on its Financial Services Strategy, in order to promote fairness and responsibility in the credit industry and its customers. The FSA, not being very busy, have also published a paper on Consumer Responsibility: consumers and lenders are expected to show responsibility, in lending, borrowing, mortgaging, using credit cards and when discussing the EU Responsible Lending Directive.  This hasn’t gone down well with consumer groups.

Registration of company charges

You will soon need to dust off your old files because the consultation is going to start up again in 2010. We will revisit the brave new world of electronic registration and start talking knowledgeably about New Zealand and Canadian personal property security law again as if we were all old hands.

Banking Act 2009

Then there is the Banking Act 2009 and its importance to financial stability. The continuity of banking services is now enshrined in law with a special insolvency position for banks: the special resolution regime. The Safeguards Order has posed some difficulty with its carve outs to the safeguards creating a lack of legal certainty that affected unqualified legal opinions for set off and netting arrangements. This is the “one bad apple” problem – if a failing bank undergoes a partial transfer of assets, the government should be able (to continue the fruity analogy) to cherry-pick assets from a netting arrangement with the Bank and avoid the bad apple. The concern was that the Safeguards Order as drafted would have lead to whole ISDA Master Agreements being taken down in a partial transfer of assets. The drafting problem was where assets in the netting arrangement were to be “solely” “financial instruments” – as defined in MIFID, which automatically excluded forwards, commodity derivatives, life insurance derivatives, spot and forward FX. Despite a few Parliamentary distractions recently, HMT laid a revised draft before Parliament for approval and the drafting error has been rectified. Considering the Order for approval under the affirmative resolution procedure will make a welcome relief from choosing a floating duck house that no duck wants to live in.

Payment Services Directive

The Payment Services Regulations, implementing the PSD nationally to harmonise payment systems across the EU will be thoroughly embedded in banks’ activities by now. The PSD will be implemented in November 2009, the FSA handbook will be amended and banks are well up on changing their payment systems to comply. Perimeter guidance has been issued by the FSA to help banks decide if their activities fall in the scope of the PSD.

Reform of OTC derivatives regulation

And finally, the US have proposed regulatory reform of OTC derivatives to prevent activities in the OTC derivatives markets from posing risk to the financial system; to promote the efficiency and transparency of the OTC derivatives markets; to prevent market manipulation, fraud, and other market abuses; and to ensure that OTC derivatives are not marketed inappropriately to unsophisticated parties.  Sonnenschein’s have a good note on it.

Letters of credit – Guaranteed reimbursement?

Consultation on a product that guarantees reimbursement of UK confirming banks under letter of credit arrangements has started. The Export Credits Guarantee Department seeks views on such a scheme. Export finance has recently become harder to obtain and more expensive. The ECGD propose to launch the Letter of Credit Guarantee Scheme (provisional title). The LCGS would take the form of a master guarantee issued to participating UK banks, under which those banks cede to the guarantee potential exposure which they would incur by virtue of confirming letters of credit issued by overseas banks in favour of UK exporters. In respect of individual transactions ceded within the limits of the master guarantee, ECGD would guarantee repayment to the confirming bank of sums owed to it by the issuing bank.  Replies to the consultation paper are sought by 3 July 2009.

Limitation periods – proposals for reform

A bill is to be published later this year that will propose a “primary” 3-year period for contract (and other) claims starting from, broadly, the date on which the claimant knows of the facts which give rise to the action and a “longstop” 10-year period starting from, broadly, the date of accrual of the cause of action. 

The ‘Limitation Bill’ will be published in draft as part of the provisions of the Civil Law Reform Bill later this year (2009) for pre-legislative scrutiny.  The draft Limitation Bill is expected to follow the terms of the draft Bill that was published by the Law Commission in 2001 with their report, following their consultation on reform of the Limitation Act 1980.  There is a shorter, 31 page, executive summary from 2001.

CVAs: the future?

JJB Sports plc has been the first listed UK company to use a CVA successfully.  They have announced that 99% of the retailer’s unsecured creditors had approved a company voluntary arrangement which will facilitate a restructuring of JJB’s business.  It is believed that the restructuring will protect around 12,000 jobs by allowing JJB to survive as a corporate entity, while implementing a managed store closure programme.

This CVA is the first of this scale to pass without challenge or opposition from landlords who appear to have been persuaded by the fact the CVA provides for landlords to receive around £10,000,000 (or six months rent) and the landlords will accept rent on a monthly, rather than a quarterly basis.

Equality Bill

The Government introduced the Equality Bill to the House of Commons on 27 April 2009.  The Bill is to strengthen existing equality law and introduce new measures against discrimination. The Bill makes it unlawful to discriminate against someone aged 18 or over when providing services, which will include the provision of financial services.  The second reading is due on 11 May 2009.

The Privy Council on “appropriation” under the FCA Regs

The Privy Council have decided (5 May 2009) that it is not necessary for the person taking security in the form of share charges to become the registered holder of the shares for there to be a valid appropriation within the meaning of “appropriation” in Directive 2002/47 and the Financial Collateral Arrangements (No.2) Regulations 2003.  A pragmatic interpretation was required. 

The case arose in the British Virgin Islands and Harney’s, solicitors, have issued a report on it. They comment: “The case is the first known judicial decision anywhere on the interpretation of the Regulations … [it draws] a definitive end to the vexed preliminary issue under British Virgin Islands law.”

1) Cukurova Finance International Ltd (2) Cukurova Holding As V Alfa Telecom Turkey Ltd[2009] UKPC 19 PC (BVI) (Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of GestingthorpeBaroness Hale of Richmond, Lord Mance) 5/5/2009

Registration of charges created by overseas companies

The Department for Business, Enterprise and Regulatory Reform (BERR) has published revised draft regulations for the registration of charges created by overseas companies.  The Overseas Companies (Company Contracts and Registration of Charges) Draft Regulations 2009.  They have also published a note on the revised regulations.

The main changes are:

• The creation of a single regime applicable to all overseas companies that create a charge on property in England and Wales which closely follows the regime for English companies.
•  There is no longer a provision to determine whether property is situated in the UK.
• There are special rules for debentures that apply to English companies.
•  The rules for inspection of records that are generally applicable to private companies will apply to the inspection of overseas companies’ records in respect of the inspection of the register of charges and copies of instruments creating charges.

The Regulations are expected to come into force on 1.10.09.

Lending Regulation Bill – is it or isn’t it?

There is conflicting news about the progress of this Bill.  A commercial legal information provider this week reports it as having been withdrawn at its second reading in the Commons.   The Parliament website says there was not enough time to complete the debate before the end of the session on 27 February 2009,  so it has been postponed to 15 May.  Perhaps the Parliament website just needs updating to catch up with subsequent, unknown events.  If I find out what is really happening, I will let you know … The Bill is to impose requirements on lenders relating to the calculation of interest rates and to regulate the promotion of lending.

Trends in Lending

The Bank of England has begun a new monthly publication that presents the Bank’s assessment of lending to the UK economy.  The Bank say, this first report provides a longer-term perspective and is therefore more comprehensive than will be the case for future editions.

The report draws on existing monetary and financial statistics collected by the Bank and data from six major UK lenders that participate on the Lending Panel established by the Chancellor in November 2008. The report also draws on intelligence gathered by the Bank’s regional Agents and market contacts, as well as the results of other surveys. 

The main findings of the report are:

• Growth in the stock of lending to UK businesses slowed markedly during 2008 but looking ahead, some lenders expect the overall availability of credit to the corporate sector to increase over the next three months.
• Growth in the stock of mortgage lending to individuals has slowed sharply since the start of the financial crisis as credit availability declined. Lenders expect the demand for secured credit to remain weak in coming months.
• The availability of unsecured credit has tightened over the past year and weak demand for unsecured lending is expected to continue over the coming months.

Asset Purchase Facility

The BoE has published the first quarterly report on the transactions undertaken through its Asset Purchase Facility.  The objective of the Facility was to improve the liquidity in, and increase the flow of, corporate credit by making purchases of high quality private sector assets including commercial paper and corporate bonds.

The Facility was authorised by HM Treasury to purchase up to a total of £50 billion of private sector assets financed by Treasury bills. The first purchases of commercial paper began on 13 February.