We regularly advise UK and international banks in relation to the capital treatment of their exposures, as well as the application of the liquidity, large exposures and leverage ratio rules to their particular products and/or businesses.
We have assisted a number of banks develop compliant policies and internal checklists to facilitate consistent application of regulatory rules around netting and treatment of certain asset classes and have assisted banks under investigation or regulatory scrutiny in relation to the capital treatment of aspects of their portfolios.
Structural reform: We acted as strategic counsel for two large UK banks in connection with their ring-fencing arrangements. We have also developed bespoke software (“LinkRFI”) to help ring-fenced banks check whether customers are relevant financial institutions for ring-fencing purposes. We have licensed the software to several UK banks for application as part of on-boarding and ongoing customer KYC reviews.
As part of the wider Linklaters Fintech initiative, we advise Fintech and big tech companies (including Revolut) on steps to optimise their group legal entity and regulatory capital structures as they scale their businesses and bring new business to market.
Credit risk mitigation
We advise on a variety of both unfunded and funded credit risk mitigation arrangements driven by prudential regulatory capital requirements. These include bespoke security and title-transfer arrangements, collateralised risk-participations as well as more usual guarantees, credit insurance, netting and sub-participation arrangements designed to optimise regulatory capital treatment.
We also advise on high value, complex financial collateral and asset-backed structures for pension schemes and insurers including advising on: (i) security and title transfer collateral arrangements to support longevity reinsurance transactions; (ii) collateralised buy-in transactions; (iii) security arrangements to support the reinsurance phase of purchases of bulk annuities; and (iv) security arrangements to support ongoing deficit recovery payments to pensions schemes.
We also advise on margin lending transactions and their related collateral and custody arrangements.
Financial market infrastructure and market events
We regularly advise leading clearing houses (including Eurex Clearing, HKSCC and HK OTC Clear) on the enforceability of their clearing rules under UK law including on the insolvency of a Clearing Member. We also advise both Clearing Members and clients on the capital treatment of cleared transactions under the Capital Requirements Regulation 2013/575.
We (along with other product specific Linklaters teams) are advising a number of banks in relation to their LIBOR transition.
We (along with other product specific Linklaters teams) are advising a number of banks on the impact of Brexit and in particular how to mitigate certain risk and capital impacts.
On 28 September 2023, the Government published its long-trailed consultation paper outlining proposals for material near-term reforms to the scope and extent of the UK ring-fencing regime (the “HMT CP”). The PRA has published an accompanying consultation (CP 20/23) (the “PRA CP”) on changes to its rules that will integrate with the changes proposed in the HMT CP. The consultations close on 26 and 27 November 2023, respectively, with a view to implementing the reforms in the first half of 2024.
HM Treasury recently published a response to its 26 January 2023 consultation on a new Insurer Resolution Regime (the “IRR”) (see our earlier alert here on the original proposals). The response reflects feedback from 13 written industry responses as well as verbal feedback in follow up sessions.
On 18 April 2023, the European Commission published proposals for further amendments to the European bank recovery and resolution regime. These proposals, which had been under development for some time, were accelerated in light of recent bank failures.