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Derivatives and Structured Products Horizon Scanning 2020

With 2020 now upon us, we examine the key topics we expect to have an impact on derivatives and structured products over the coming year. Explore the tabs below to see our high level guides on what to look out for across interest rate reform, EMIR, SFTR, the Prospectus Regulation, PRIIPs, Sustainable Finance, CSDR, and Brexit.

Interest rate reform

With just under two years remaining to the end of 2021, beyond which the continuation of LIBOR is not guaranteed, the use of risk-free rates (RFRs) is growing across products and work to transition existing LIBOR-based products is picking up pace. However, with the lion’s share of the work yet to be done, and regulatory scrutiny ever-increasing, 2020 will be a critical year in this monumental move away from LIBOR.

EMIR

2020 will see the phase-in of initial margin for a reduced Phase 5 in September and the introduction of mandatory reporting for certain counterparties from 18 June. EMIR 2.2 is now in force, with delegated regulation to follow, and draft changes to the margin rules for uncleared derivatives are also expected to come into force.

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SFTR

Following a lengthy delay in finalising the SFTR regulatory and implementing technical standards, phase-in of the reporting obligation for securities financing transactions will commence from April 2020.

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Prospectus Regulation

With the Prospectus Regulation having applied in full since July last year, many structured products issuers will encounter the new regime for the first time on their 2020 programme updates. Risk factors, retail summaries and disclosure requirements in respect of certain underlying obligors are among the areas that will need to be revisited.

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PRIIPs

2020 is set to be a busy year for packaged retail investment products, with a comprehensive package of proposals to amend the format and content of the key information document expected in the coming months, followed by a wider review of the PRIIPs Regulation later in the year.

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Sustainable Finance

An increasing public awareness of climate change along with the realisation that government action alone will be insufficient to tackle the climate crisis has led to a growing focus around the world on mobilising private finance to effect climate action.

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CSDR

The settlement discipline regime of the Central Securities Depositories Regulation is scheduled to come into force towards the end of 2020 and will impact the settlement of bonds, certain securities financing transactions and, potentially, physically-settled derivatives transactions. Market participants will need to take steps to update documentation and processes in good time ahead of the implementation date.

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Brexit

With a no-deal Brexit in January 2020 looking to have been avoided, the focus of market participants is now on the practical and documentation implications of the UK entering the transition period and beyond.

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