Reflections on the history and future work of the EFMLG.

Presentation

The Chairman

The Financial Stability Board’s (FSB) Official Sector Steering Group on the reform of reference rates has recently set up a Market Participants Group (MPG). This market group has been tasked to propose options for robust reference rates that could serve as potential alternative to, inter alia, the existing Libor, Euribor and Tibor rates. The transition to new reference rates will require legal reflections. The MPG is expected to approach the EFMLG.

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Otto Heinz

The group will debate the possible need to limit ESMA's activity through Guidance and Q&A documents, focusing on the risks and problems caused so far. There is a concern that ESMA's activity could have gone sometimes beyond what could have been expected, either: (i) by promoting guidelines based upon an arguable interpretation of the European legislation (an example could be found in the recent Guidelines regarding the exemption for market making activities under Regulation (EU) 236/2012, which have not been entirely supported by some competent authorities); or (ii) by creating a sort of new legislation subject to no control by their Q&A documents, when their responses are based upon questionable understanding of the legislation (some cases could be found in the last Q&A regarding EMIR).

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Adolfo Fraguas

The purpose of the FSB Consultative document on the Application of the Key Attributes of Effective Resolution Regimes to Non-Bank Financial Institutions is to agree guidelines for resolution regimes for FMIs (including CCPs). For FMIs, recovery could be more viable than resolution – the interplay with the FMI rules themselves is crucial.
The CPSS/IOSCO report on recovery planning for FMIs is due for October comment. Mutualisation of losses is a key issue – ISDA and market are keen to distinguish between member default losses and more general losses. There is also a larger issue of whether resolution tools applicable to financial institutions are suitable for FMIs, and if so, what modifications are needed. The consultation deadline 15 October 2013.

-  CPSS-IOSCO Report on Recovery Planning for MFIs
-  FSB consultative document on the Application of the Key Attributes of Effective Resolution Regimes to Non-Bank Financial Institutions

Francis Dickinson

In the context of bank resolution there is an issue whether (and which) contracts could be affected by resolution measures, in particular those forbidding close-out netting based on the mere fact of having entered into a resolution procedure and of having transferred the master agreements to a bridge bank. It is also of interest to examine what the relevance of the law applicable to these contracts is.

Presentation

Bertrand Brehier

The application of the Winding Up Directive to SLEs in Spain anticipates the treatment of this question in the Bank Recovery and Resolution Directive. 

Spanish bail-in legislation
Spanish legislation implementing the Winding-Up Directive
Winding-Up Directive
Draft Bank Recovery and Resolution Directive (Council General Approach)

Inigo Arruga Oleaga

Members will receive on update on the status of the preparations for the Single Supervisory Mechanism.

Presentation

The Chairman

Update on the Council work and calendar in respect of the Commission proposal for a Single Resolution Mechanism.
Eventual lessons of the AG Opinion on the ESMA case (short-selling) for work on the SRM.

Commission proposal on the Single Resolution Mechanism
Opinion of the Advocate General in case C-270/12 (UK vs Council and EP; ESMA / Short Selling)

Inigo Arruga Oleaga

BCBS IOSCO issued on September 2 a report on new margin requirements for uncleared derivatives. Under this report, customer assets collected as initial margin on uncleared derivatives trades can only be rehypothecated to a third party to hedge the dealer's derivatives position arising out of transactions with customers for which initial margin was posted. This collateral can only be rehypothecated once – so, the third party would not be able to re-use the assets. Any rehypothecated initial margin must be treated as customer collateral and segregated from proprietary assets. The customer must also be protected from the risk of loss of initial margin in the event the dealer or third party defaults. This proposal is very controversial, inter alia because of the differences of treatment of applicable law in various jurisdictions.

BCBS-IOSCO report on margin requirements for non-centrally-cleared derivatives

Olivier Coupard

Current Basel-driven work may put European credit institutions at a further disadvantaged position with regard to their US counterparts.

Revised Basel III leverage ratio framework and disclosure requirements - Consultative Document
Offsetting under US GAAP and IFRS - May 2012
Presentation

Natalia Butragueno

Update on European Master Agreement (EMA)

EMA’s Special Provisions
EMA’s EMIR Annex

The Vice Chairman