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.
