On 13 January 2021, the Financial Markets Law Committee (FMLC) published a letter it had sent to HM Treasury concerning the Financial Services Bill (Bill).
In the letter the FMLC draws HM Treasury’s attention to the following areas of legal uncertainty within the Bill’s provisions:
- Clause 36 of the Bill is designed to fix a problem with the Financial Collateral Arrangements (No. 2) Regulations 2003 (the 2003 Regulations), which implement Directive 2002/47/EC on financial collateral arrangements (the Financial Collateral Arrangements Directive). The scope of the 2003 Regulations is broader than the Financial Collateral Arrangements Directive, which has led to concern that the 2003 Regulations might be ultra vires the powers in Section 2 of the European Communities Act 1972. The FMLC states that stakeholders have expressed concerns as to whether clause 36 of the Bill sufficiently meets the standard for retrospective legislation as established in case law by the European Court of Human Rights. The FMLC also notes that there is precedent in UK legislation pre-dating the ECHR case law for putting in a cut-off date into retrospective legislation. The FMLC is urging HM Government to consider adding a provision to clause 36 of the Bill establishing a cut-off date so as to not interfere with asserted claims and to ensure that the ECHR standard is met.
- The Bill amends the UK’s onshored version of the Benchmarks Regulation to provide an overarching legal framework which gives the FCA new and enhanced powers to manage the wind-down of a critical benchmark. The FMLC notes that the IBA has announced its intention, subject to confirmation following consultation, to cease the production of euro, sterling, Swiss franc and yen LIBOR panels at the end of 2021. In addition, it has stated that one week and two month USD LIBOR settings will cease at end-2021 and the USD LIBOR panel will cease at end June 2023. While the FCA welcomed the IBA’s announcement, the FMLC notes that it is not clear how the IBA’s proposals to continue the production of the USD LIBOR panel past 2021 will interact with transitional arrangements. Given the statements in 2020 about LIBOR discontinuation this may add to the overall sense of confusion and uncertainty. The FMLC observes, however, that the Bill provides for the selective application of the FCA’s powers regarding LIBOR calculation and methodology on a currency-by-currency basis.