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  • Legal & Regulatory Risk NoteJanuary 2013

  • Document title | 20122

    Allen & Overy LLP 2013

    Legal & Regulatory Risk Note | January 20132

    Allen & Overy LLP 2013



    In this edition 4

    Section I: Opinion pieces

    Views from the UK 6 An opinion by Tim House The approaching regulatory 8 capitalandliquiditycliff Regulation on OTC derivatives, 10 central counterparties and trade repositories (EMIR)

    View from Continental Europe 12 Banks single supervisory mechanism

    Views from the U.S. 14 Antitrust enforcement has arrived on Wall Street Update on the New York litigation 16 and regulatory landscape Continued regulatory focus 18 on insider trading/dealing

    Views from Asia 20 Policing the common law? Update from China 22

    Global Risks 24 The pari passu clause and the Argentine case

    Section II: New threats and opportunities for banksindifferentjurisdictions

    Australia 28 Ratingagenciesinthefiringline

    Czech Republic 29 Prague court says that secured creditors should have limited control over the sale of assets in an insolvency

    Europe 30 Threattoone-way(hybrid)jurisdictionclauses Debt programme updates/establishments 31 and the new Prospectus Directive (PD) regime

    Securitisation vehicles in the wake of the 32 implementation of the Alternative Investment Fund Manager Directive Dealing with personal data: your antitrust risk 33

    Hong Kong 34 New competition measures imminent

    India 35 Enforceability of default/ex parte foreignjudgmentsinIndia

    Italy 36 A mixed picture on derivatives disputes

    The Netherlands 38 New corporate governance rules passed by the Dutch Parliament

    Poland 39 New regulation on short selling raises concerns

    Romania 40 New amendments to the regulation on issuers and securities transactions

    Spain 41 Crisis management of Spanish credit institutions

    United Arab Emirates 42 Matching theory and practice: enforcing international awards in the UAE

    United Kingdom 44 FCAs new product intervention powers LIBOR reforms an update 45 UK Supreme Court ruling on 47 contractual termination provisions Consultation period for UK 47 collective redundancies to halve

    United States 48 Update on FATCA Commodity Futures Trading Commission 50 (CFTC) Recent activity

  • Legal & Regulatory Risk Note | January 20134

    Allen & Overy LLP 2013

    In Section I, Tim House begins by providing his views on the current litigation and regulatory landscape for banks. Bob Penn provides his thoughts on the implementation of Basel III and what he terms the approaching regulatory capital and liquidity cliff .DamianCarolansummarises points of note on the key regulatory technical standards under EMIR (expected to become effectiveinmid/lateMarch2013).From Continental Europe, Fabrice Faure-Dauphin provides an update on plans for a European Banking Union. We then include a triple contribution from the U.S.: Andrew Rhys Davies considersrecentjudicialcriticismofregulators settlements with regulated entitles, John F Terzaken explains how antitrust enforcement authorities are making their presence felt on Wall Street and William E White provides his observations on the continued regulatory focus on insider trading in the U.S.. From Asia, Matt Bower, Alan Ewins (Hong Kong) and Jane Jiang (PRC) provide an update on the latest litigation and regulatory risks in that region. Finally, in Section I, Philip Woodexplainsthewidersignificanceof the hard fought and long running litigation in New York between Argentinaandcertainholdoutbondholders concerning the interpretation of the pari passu clause in certain bond documentation.

    In Section II, we highlight new threats oropportunitiesforbanksindifferentjurisdictions.Weincludeshortarticleson the following matters: proposed changes to the UK regulatory framework following the LIBOR scandal (page 46), a recent Australian decision which found a rating agency andanarrangerofacomplexfinancialproductliableforlossessufferedbyinvestors (page 28), issues to be considered in the context of debt programme updates under the new EU Prospectus Directive regime (page 31), concerns in Luxembourg regardingtheclassificationofcertainsecuritisation structures under the Alternative Investment Fund Manager Directive (page 32), an update on FATCA(page49),difficultieswiththeenforcementofforeignjudgmentsinIndia (page 35), new competition measures proposed in Hong Kong (page 34), developments relating to the crisis management of Spanish credit institutions (page 41), the implications for banks of a French decision which found a hybrid (one-way)jurisdictionclauseinvalid(page30)and,finally,MassimilianoDanusso assesses the latest litigation in Italy involving derivatives contracts (page 36).

    Please do not hesitate to get in touch with any of the contributors if you require further information.

    In this edition

    Sarah GarveyTel +44 20 3088



    Section I: Opinion pieces


  • Legal & Regulatory Risk Note | January 2013 | Section I: Opinion pieces6

    Allen & Overy LLP 2013

    The fallout from the LIBOR investigations continues to dominate the regulatory enforcement agenda and will gradually move towards a focus on the anti-trust aspects, as well as criminal prosecutions of individuals. The pace of follow-on civil claims in the courts, with claimants seeking to rely on regulatory findings(ofbothUKandU.S.regulators) to progress their claims against banks will increase. The lasting relevance of this from a regulatory enforcement perspective is the increased emphasis that the Anti-Trust Division of the U.S. Department of Justice has now put on investigatingaspectsofthefinancialservices industry as John F Terzaken points out below.

    In the UK market we continue to see banks facing increasingly invasive and demanding regulatory oversight. Banksarefindingitharderandharderto have a rational conversation with their regulators. There is a growing recognition that the severity of action against banks and the enormity of recentfinesisimpactinginvestorappetite in the sector which can have an impact on banks ability to raise capital to meet new regulatory requirements and can impact their ability to nurture a weak economic recovery. The Association of British

    Insurers (ABI), for instance, has highlighted1thatdifficultiesinthebanking sector are being felt in the wider economy, in particular by pension funds. None of this, however, lookslikeaffectingtheenforcementagenda yet. The ABI notes that investorappetiteissignificantlyadverselyaffectedbylackofregulatoryclarity and notes a concern that the UK may impose more stringent requirementsthanotherjurisdictions.

    Senior management remain a focus of attention for UK regulatory agencies. The FSA recently wrote to CEOs remindingthemaboutconflictsofinterest between their asset managers and customers, and seeking declarations in this regard. The FSA has said we should expect to see enforcement work in this area.

    A current global theme is the harmonisation of regulation internationally. While this is a desirable goal at a policy level, at the point of enforcement the picture remains (and is increasingly) fragmented. On the ground, repeatedly we see local regulators and courts tasked with enforcing such regulations taking decisions for apparently domestic or political reasons.Thisisacontinuingconflict.

    In Asia, a consistent message is that litigation is not the primary worry for banks; rather the focus is on regulatory investigations, in particular investigationsthatspandifferentmarkets and which are seemingly driven by U.S.-style investigation techniques. We have noted previously the challenges thrown up by the extraterritorial ambit of U.S. jurisdictionclashingwithlocalconcerns about national sovereignty and the right of self determination. There continues to be much New York based litigation against Chinese account holders which gives rise to manydifficultiesinthiscontext. The U.S. Securities and Exchange Commission (SEC), for example, has issued over 50 requests for information to China recently. Themajorityoftheserequestshavereceived no meaningful response. Against this backdrop, it is very difficulttoadviseclientsinChinaastotheambitandeffectivenessof U.S.longarmlaw.

    View from the UKAn opinion by Tim House

    1_ Investability in UK banks December 2012.



    If you require further details please contact:

    Tim House Tel +44 20 3088 3775

    A current global theme is the harmonisation of regulation internationally. While this is a desirable goal at a policy level, at the point of enforcement the picture remains (and is increasingly) fragmented.

  • Legal & Regulatory Risk Note | January 2013 | Section I: Opinion pieces8

    Allen & Overy LLP 2013

    Thefinancialsectorhasinrecentmonths been preoccupied with the U.S.fiscalcliff.Alessdebated, but nevertheless important, risk for (andfrom)thefinancialeconomyisthe prospect of the approaching regulatorycapitalandliquiditycliff,in the form of the impending date for the implementation of Basel III. Thankfully,likeitsU.S.fiscalequivalent,thiscliffhasbeendeferred:following the over-optimistic undertaking by Michel Barnier to implement Basel III faithfully by the end of 2012, European capital and liquidity reform have been delayed (until 2013) as CRD IV becomes caught up with the broader banking union, resolution and deposit compensation proposals. The U.S. authorities have cast doubt on whether it will be implemented at all in the U.S..

    Although the slow pace o