I Introduction

i Prudential Regulation Authority

For many years the United Kingdom's regulation of financial markets and of providers of financial services was in the hands of a statutory body known as the Financial Services Authority (FSA). However, in the wake of the financial crisis of 2008, the responsibility for prudential supervision of systemically important banks and other providers of financial services was transferred to the Bank of England in its capacity as the Prudential Regulation Authority (PRA). Currently, the PRA is responsible for the prudential regulation and supervision of around 1,500 UK banks, building societies, credit unions, insurers and major investment firms.

ii Financial Conduct Authority

UK banks and other providers of financial services that do not fall within the scope of the PRA for the purposes of prudential regulation and supervision are prudentially regulated and supervised by the successor to the FSA, the Financial Conduct Authority (FCA). The FCA is also responsible for regulating and policing the conduct of all firms carrying on regulated activities in the financial services sector in the United Kingdom (UK) whether those firms are prudentially regulated and supervised by the FCA or the PRA. Therefore, PRA-regulated firms are de facto 'dual-regulated firms' – by the PRA for prudential regulation and by the FCA for conduct purposes.

Financial services legislation

There are two major pieces of primary legislation that govern much of the activity in financial services in the UK: the Financial Services and Markets Act 2000 (FSMA) and the Banking Act 2009 (the Banking Act). Much of the detail of financial services regulation in the UK is found in the Rulebook of the PRA and the FCA Handbook, which contain legally binding rules made by the PRA and the FCA, respectively, under powers granted to them by the FSMA.

In addition, much of the legislation in this area originates at the EU level and either has direct effect in the UK (and other EU Member States) without the need for any domestic implementing legislation, such as the Market Abuse Regulation2 or the Capital Requirements Regulation,3 or is given effect in the UK by provisions of the FSMA, the Banking Act, the PRA Rulebook or the FCA Handbook, such as the Prospectus Directive,4 the Markets in Financial Instruments Directive5 (MiFID II) or the Bank Recovery and Resolution Directive.6


i Brexit

Casting its shadow (or light) over everything in the capital markets, and elsewhere, has been the subject of the UK's decision to leave the European Union (EU), with an exit date currently scheduled for 29 March 2019. While there have been various predictions of what might happen upon exit, there have been rather few concrete steps that enable predictions to be made with any accuracy.

On 29 March 2017, the UK gave notice under Article 50 of the Treaty on the European Union of its intention to exit the EU, setting the exit date as 29 March 2019 and starting a process of negotiations with the EU regarding the terms of the exit and the framework of the future trading relationship between the remaining EU Member States (the EU27) and the UK.

In December 2017, agreement in principle was reached between the EU27 and the UK on the first phase of negotiations for the withdrawal of the UK, which was sufficient to allow the negotiations to move on to the second phase concerning the framework for a future trade agreement between the UK and the EU27 and a transition period to cover the time between the UK's exit and the time when the new trading arrangements are actually in place.

On 19 March 2018, the UK and the EU announced that their negotiating teams had reached agreement on a transition period, which provides that, although the UK will formally exit the EU on 29 March 2019, it will continue to apply EU law in such a way that it produces in the UK the same legal effects as those it produces within the EU (subject as otherwise provided in the agreement). By the same token, the EU Member States will continue to treat the UK as a Member State during the transition period (subject as otherwise provided in the agreement). This transition period is scheduled to last until 31 December 2020.

However, this agreement on a transition period is to form part of the overall agreement on the terms of the UK's withdrawal (the Withdrawal Agreement), including such issues as the Irish border. As such, the transition period will only come into effect if the entire Withdrawal Agreement is agreed and implemented.

On 26 June 2018, the EU (Withdrawal) Act 2018 (EUWA) received Royal Assent. Its purpose is, with effect from the day the UK exits the EU, (1) to repeal the European Communities Act 1972 (ECA), which incorporates EU law into the UK domestic legal order and (2) to convert the acquis – the body of European legislation – into UK law at the moment of repeal of the ECA so that, to the greatest practical extent, the same rules and laws will apply in the UK on the day after exit as on the day before.

Following enactment of the EUWA, the UK government published a number of papers describing how the UK intends to approach amending financial services legislation to deal with the issues thrown up by the Brexit process. There are two principal themes to this approach:

  1. Transition period: planning to proceed on the basis that the transition period agreed will be in place between 29 March 2019 and 31 December 2020.
  2. No deal: planning to proceed on the basis that the UK and the EU fail to reach an agreement on the terms of the UK's withdrawal from the EU with the result that no transition period comes into effect when the UK exits the EU on 29 March 2019 (described as the 'no-deal scenario').

Assuming the terms of the Withdrawal Agreement are eventually finalised between the UK and the EU27, the UK government proposes to give legal effect in the UK to the Withdrawal Agreement by primary legislation currently known as the Withdrawal Agreement and Implementation Bill. The text of this Bill has not yet been published but, among other things, it will require some amendment of the EUWA to provide for the continuing implementation of EU law in the UK during the transition period.

If the UK and the EU27 fail to reach an agreement on the terms of the UK's withdrawal from the EU, with the result that the transition period does not come into effect, then it is likely that the UK will exit the EU on 29 March 2019 and simply become a 'third country' as far as EU legislation is concerned. To prepare for this eventuality, the UK government intends to use powers in the EUWA to ensure that the UK continues to have a functioning financial services regulatory regime.

In a no-deal scenario, the UK government envisages that the responsibilities of EU bodies could be reassigned efficiently and effectively to UK authorities (the Bank of England (the PRA) and the FCA). The UK government also recognises it would be appropriate to introduce what it calls a Temporary Permissions Regime, which would:

  1. allow firms within the European Economic Area (EEA) that have lost their passporting rights on the UK's exit from the EU to continue operating in the UK for a time-limited period after the UK has left the EU; and
  2. provide those firms wishing to maintain their UK business permanently with sufficient time to apply for full authorisation from UK regulators.


The Markets in Financial Instruments Directive and related legislation (widely known as MiFID) has been applicable across the EU since 2007. It was designed as a cornerstone of the EU's regulation of financial markets seeking to improve the competitiveness of EU financial markets by creating a single market for investment services and activities and to ensure a high degree of harmonised protection for investors in financial instruments. However, it was widely recognised for some time that MiFID needed to be updated and expanded and legislation to give effect to the necessary changes (collectively known as MiFID II) was passed in 2014 and took effect in the UK and all other EU Member States from 3 January 2018.

Much of MiFID II represents a significant attempt to improve or reinforce MiFID, for example by:

  1. ensuring that organised trading takes place on regulated platforms;
  2. improving the transparency and oversight of financial markets;
  3. enhancing investor protection and improving conditions for competition in the trading and clearing of financial instruments;
  4. requiring disclosure to the public of data on trading activity and to regulators of transaction data; and
  5. requiring trading of derivatives to take place on organised venues.

Banks and others in-scope of MiFID II have felt obliged to invest a great deal of time and money in seeking to ensure timely and effective compliance with the new regime. Indeed, the volume of work required by competent authorities and market participants to achieve this led to the effective date of MiFID II implementation being pushed back from 3 January 2017 to 3 January 2018.

However, one element of MiFID II of particular significance to the international capital market was not found in MiFID. This is the so-called product governance regime, which seeks to ensure that firms that manufacture and distribute financial instruments act in their clients' best interests during all stages of the life cycle of the instruments. In the UK, the product governance regime has been implemented by the new Product Intervention and Product Governance Sourcebook (PROD), which forms part of the FCA Handbook.

While on its face the product governance regime appears to be directed at structured products, the details of the legislation make it clear that the regime extends even to the issuance of plain vanilla debt securities and ordinary shares.

Briefly, the product governance regime requires a 'manufacturer' of financial instruments to maintain and operate a process for the approval of the instruments before they are marketed or distributed to clients, which must, among other things:

  1. ensure that relevant staff possess the necessary expertise to understand the characteristics and risks of the instrument;
  2. identify at a sufficiently granular level the potential target market for each financial instrument;
  3. specify the type (or types) of client for whose needs, characteristics and objectives the financial instrument is compatible;
  4. determine whether the instrument meets the identified needs, characteristics and objectives of the target market;
  5. include a scenario analysis that assesses the risks of poor outcomes for end clients posed by the instrument and in which circumstances these outcomes may occur;
  6. ensure that the design of the instrument does not adversely affect end clients and does not lead to problems with market integrity;
  7. analyse potential conflicts of interest; and
  8. ensure that the provision of information about an instrument to distributors includes adequate information about the appropriate channels for distribution of the instrument, the product approval process and the target market assessment.

For these purposes a 'manufacturer' is an institution that is within the scope of MiFID II and that creates, develops, issues or designs investments, including when advising corporate issuers on the launch of new investments. Typical in-scope institutions are banks, securities companies, brokers, dealers and other firms that carry on the business of providing investment services.

The product governance regime also applies to distributors of financial instruments and requires them, if they are within the scope of MiFID II, to have in place adequate arrangements to obtain all appropriate information on the instruments and the product approval process and to understand their characteristics and identified target market. Among other things, these arrangements must:

  1. ensure that a distributor obtains from a manufacturer (or publicly available source if there is no in-scope manufacturer) information to gain the necessary understanding and knowledge of an instrument to ensure that it will be distributed in accordance with the needs, characteristics and objectives of the identified target market;
  2. ensure that an instrument is compatible with the needs, characteristics and objectives of an identified target market;
  3. ensure that the intended distribution strategy is consistent with the identified target market; and
  4. identify and assess the circumstances and needs of the clients a distributor intends to focus on, so as to ensure that clients' interests are not compromised as a result of commercial or funding pressures.

In addition, the product governance regime obliges both manufacturers and distributors to review regularly all relevant instruments throughout their life cycle to consider such things as:

  1. any event that could materially affect the potential risk to the identified target market;
  2. whether the instruments remain consistent with the needs, characteristics and objectives of the target market;
  3. whether the instruments are being distributed to the target market, or are reaching clients for whose needs, characteristics and objectives the instruments are not compatible; and
  4. whether the instruments function as intended.

It is important to note that the product governance regime provides that it is to be applied in an 'appropriate and proportionate' manner, depending on the complexity of the product and the degree to which publicly available information can be obtained, taking into account the nature of the instrument, the investment service and the target market. This is particularly significant for the more plain vanilla end of the international capital market where, for example, beyond basic pricing terms there may be little to the structuring of an issue, the scenario analysis of poor outcomes may be limited to the likelihood of the issuer's business failure, a potential target market of professional investors may need little or no analysis and any distribution channel may be appropriate.

iii The PRIIPs Regulation

From 1 January 2018, Regulation (EU) No. 1286/2014 on key information documents for packaged retail and insurance-based investment products (the PRIIPs Regulation) applies to many offerings of securities in the UK or any other EU Member State. Subject to a small number of exemptions, for any securities that constitute a PRIIP:

  1. if the securities are made available to retail investors, the 'manufacturer' must before they are made available produce and publish a key information document (KID) in accordance with the Regulation;
  2. any Member State in which the securities are marketed to retail investors may require prior notification of the KID to the competent authority for that Member State (the UK has not implemented this option);
  3. the manufacturer must regularly review the information contained in the KID and revise and republish where necessary; and
  4. any person advising on, or selling, the securities to a retail investor must provide that investor with a KID before the investor becomes contractually bound.

Again, on its face the PRIIPs Regulation appears to be directed at structured products but the definition of a PRIIP in the Regulation is very broad and there is little in the way of any helpful official guidance. This has given rise to a situation where securities issued in the international capital market fall into three categories for PRIIPs Regulation purposes:

  1. a relatively small category of securities that are definitely outside scope, such as bonds issued or guaranteed by a Member State or by one of a Member State's regional or local authorities, ordinary corporate shares and extremely straightforward fixed-rate bonds or floating rate notes;
  2. a large category of securities that are definitely within scope, such as structured products, asset-backed securities and securities issued by repackaging vehicles; and
  3. an unfortunately large category of securities that might fall within scope – for example, straightforward debt securities with features such as floors, caps or collars on the interest payable, step-up, step-down or other 'non-linear' coupons, perpetual or subordinated debt securities, inflation-linked securities and securities with make-whole call options.

A large proportion of corporate bonds issued in the international capital market fall within this third category, which has left issuers with a choice between:

  1. producing a KID, which must be maintained throughout the life of the relevant security, with all the attendant liability issues for any misleading statements;
  2. taking a view on the scope of the PRIIPs Regulation with all the attendant risks of that view being wrong and the liabilities that could flow from that; or
  3. restricting distribution of the securities to people who are not retail investors (at least within the EEA).

Almost without exception, corporate issuers have chosen the third option since the Regulation came into effect. This has led to the chairs of the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority as the Joint Committee of European Supervisory Authorities sending a letter on 19 July 2018 to the European Commission expressing their concern that the absence of guidance on the scope of the PRIIPs Regulation has resulted in a significant number of products ceasing to be made available to retail investors in the primary and secondary markets in case they are deemed to fall within the scope of the PRIIPs Regulation.

For issuers of packaged products who have accepted the need to produce KIDs, another problem thrown up by the Regulation has been that the rules established by the Regulation for the calculation and presentation of performance scenarios in KIDs may produce misleading information. This led the FCA to issue a statement on 24 January 2018 recognising those concerns and suggesting they could be addressed 'by providing additional explanation as part of communications with clients'.

iv Benchmark reform and LIBOR transition

One unexpected consequence of the financial crisis of 2008 was to highlight both the critical importance and the fragility of major interest rate benchmarks, particularly the Interbank Offered Rates (IBORs). Following a major review, the Financial Stability Board recommended in 2014 developing alternative, nearly risk-free reference rates (RFRs).

In a speech on 27 July 2017, Andrew Bailey, the Chief Executive of the FCA, gave this process considerable momentum by questioning the future of the London Interbank Offered Rate (LIBOR) and announcing that the FCA had secured agreement from panel banks for sustaining LIBOR until the end of 2021 but that, beyond this date, the FCA would no longer use its powers to sustain LIBOR by persuading or obliging panel banks to continue to provide submissions.

Since this speech, there has been a dramatic increase in the efforts by authorities and market participants around the world to develop provisions for both new and existing contracts that anticipate transitions from the IBORs to alternative RFRs, and to develop RFR-based benchmarks that suit market participants' requirements as well as or better than IBORs. This has been given added impetus by various official exhortations for market participants to include robust fallback provisions in their financial contracts and instruments and, in the EU, the introduction of the Benchmarks Regulation,7 which, from 1 January 2018, makes this a statutory requirement for many users of benchmarks. Many iterations of fallback provisions are in circulation in the market and in development, and we are now just starting to see some new standard or recommended forms being published by representative bodies, such as the International Swaps and Derivatives Association, Inc and the Association for Financial Markets in Europe.

Also, much progress has been made in identifying RFRs to act as alternative benchmarks. For example, in April 2017, the Working Group on Sterling Risk-Free Reference Rates identified the Sterling Overnight Index Average (SONIA) benchmark as the preferred alternative RFR for use instead of Sterling LIBOR and, from 23 April 2018, the Bank of England has reformed SONIA and assumed responsibility for its calculation and publication. Similarly, the Secured Overnight Financing Rate (SOFR) is the alternative RFR identified by the US Working Group, the Alternative Reference Rates Committee, for use instead of USD LIBOR and the Federal Reserve Bank of New York has been publishing SOFR data since 2 April 2018.

However, the IBOR series of benchmarks is forward-looking for a range of tenors – from overnight to one year – while many RFRs, such as SONIA, are backward-looking overnight rates. For many market participants, such as users of derivatives contracts, a backward-looking overnight rate is as good as or better than a forward-looking term rate. But in a significant number of markets, particularly those for corporate loans and securitisations, and floating rate notes, a term rate is preferable, either for logistical reasons or for reasons of cash flow and treasury management. Consequently, much of the current focus is on developing term rates based on RFRs. For example, in the case of SONIA, two possibilities are currently being examined by the Working Group:

  1. A rate generated from the average of realised daily SONIA fixings over the desired term. This average could either be a simple mean or a daily compounded interest rate determined at or near the end of the period – the current convention for sterling overnight indexed swap (OIS) products.
  2. A rate that reflects the expected average SONIA over a given period and allows the rate to be fixed at the outset of a given interest period – known as a Term SONIA Reference Rate (TSRR). In principle, TSRRs can be generated from the prices of RFR-referencing derivatives, such as futures or OIS, because they provide information on market expectations of SONIA over a future period.

However, the market infrastructure does not currently exist for producing reliable TSRRs and so the Working Group has published a consultation that:

  1. focuses on how a TSRR can be constructed to facilitate sterling LIBOR transition in markets where term rates are better suited to users' needs;
  2. suggests promotion of trading of OIS on regulated electronic trading platforms where firm quotes could provide sufficiently transparent data sources for TSRRs; and
  3. encourages market participants to work towards listing and trading SONIA OIS on these trading platforms and the development of robustly designed TSRR benchmarks.

The consultation closed on 30 September 2018 and the Working Group anticipates that a TSRR could be available in the second half of 2019.

v The new Prospectus Regulation

The new Prospectus Regulation (Regulation (EU) 2017/1129) came into effect on 20 July 2017, but the vast bulk of it will only apply from 21 July 2019, when it will repeal and replace the current Prospectus Directive regime (which is given effect in the UK by Part VI of the Financial Services and Markets Act 2000 and the FCA's Prospectus Rules). However, as an exception, a few provisions have applied since 20 July 2017 and two have applied from 21 July 2018. These are:

  1. the threshold for offers to the public that are exempt from the obligation to publish a prospectus has been increased from €100,000 to €8 million; and
  2. the threshold for an offer of securities to the public that is exempt from the EU's prospectus regime altogether has been reduced from €5 million to €1 million.

vi Who has the right to sue on a bearer global security?

On 6 October 2017, the UK Court of Appeal delivered an important judgment in the first English case to examine the contractual rights attaching to a permanent global security in bearer form expressed to be governed by English law and held by a depositary for a clearing system.8 The unanimous decision of the court confirmed in every material respect the conventional analysis. Briefly, under English conflicts of law principles, the identification of the parties entitled to sue on a contract is governed by the proper law of the contract – in this case, English law as the express choice in the terms and conditions. Furthermore, the only party entitled to sue on a global security in bearer form is the holder (that is, the depositary for the clearing system) unless one of a limited number of events specified in the global security has occurred, in which case direct rights may arise under a separate deed of covenant for the beneficiaries of that deed.

vii Arranger of new issue owes duty of care to investors

On 7 December 2017, a judgment of the High Court broke new ground in establishing that a duty of care is owed to investors by a bank (arranger) that has assisted a borrower to arrange a publicly listed capital market issue. Although the case9 concerned an Islamic financing transaction, widely known as a sukuk, the terms of the judgment suggest that this duty of care exists in the vast majority of new issues of securities where English law is relevant.

This judgment raises many questions for banks and other parties actively involved in arranging new issues of securities. A number of current market practices are being revisited as a result of this judgment and there may now be a period during which new practices evolve in response to the case with all its implications.

viii The new Securitisation Regulation

The main development in the securitisation market has been the final agreed text from the European Parliament of the regulations dealing with capital treatment and permissible structures for securitisation transactions. What is referred to as the Securitisation Regulation was issued in two parts:

  1. Regulation (EU) 2017/2401, amending the regulations dealing with prudential requirements for credit institutions and investment firms, essentially amending the capital requirements regulations; and
  2. the much-awaited (and discussed) Regulation (EU) 2017/2402 of 12 December 2017 introducing (and laying down) a general framework for securitisation and creating a new category of securitisations to be known as Simple, Transparent and Standardised (STS). Securitisations that satisfy the criteria for STS will attract favourable capital treatment for institutional investors.

The new regulations comprise a significant number of criteria to be complied with by those seeking to have their transactions accepted as STS, and applies to originators, sponsors, original lenders and securitisation special purpose entities. There are detailed requirements dealing with both asset-backed commercial paper (ABCP) programmes and transactions, and non-ABCP (i.e., term asset-backed securities). The due diligence requirements are extensive, as are the new reporting requirements to ensure that the transparency conditions are met. A number of the key provisions provide for the supplement to the basic text of the regulations of regulatory technical standards or implementing technical standards to be submitted by ESMA or the EBA, such as those relating to notification, risk retention, homogeneity (in relation to underlying securitisation exposures). New bodies will also participate in the STS process – such as the Securitisation Repositories (to store all the information to be required to be supplied as part of the STS accreditation) and third party verification agencies – to assist parties with the substantial compliance process envisaged by the new regime. There is a great deal of detail still to be fully understood, and the current expectation is that the STS regime will apply from January 2019. Accordingly, a number of transactions are already being structured in anticipation of the new compliance. Since the UK is still a party to these arrangements, at least until 29 March 2019, many UK deals are also being structured to take account of these new rules, using the transitional arrangements set out in the regulations. How Brexit will affect these transactions is as yet uncertain.

ix The EU Blocking Regulation

A number of amendments were made to the EU Blocking Regulation10 in June 2018 (effective as of 7 August 2018) following the decision by the United States to withdraw from the Joint Comprehensive Plan of Action in relation to Iran. The effect of these amendments is (among other things) to prohibit EU persons from complying, whether directly or indirectly, with any requirement or prohibition based on US sanctions laws specified in the Regulation (as amended). This has given rise to much discussion in the international capital market in relation to the potential impact of those amendments on sanctions-related warranties and undertakings in new issue and programme documentation. A broad consensus is emerging to amend sanctions-related warranties and undertakings to make it clear that each provision will not apply to the extent that it would result in a breach of the EU Blocking Regulation. However, there is no consensus on the best way to achieve this, with different parties having different positions, depending on their view of the relative importance of the US and EU regimes.

x Tax

The Finance Act 2018 extended the exemption from withholding tax on payments of interest made on quoted Eurobonds to cover debt admitted to trading on a multilateral trading facility (MTF) operated by an EEA-regulated stock exchange. An MTF is defined as a multilateral system, operated by an investment firm or a market operator, that brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract in accordance with Title II of MiFID II. This extension has notably brought within the ambit of the quoted Eurobond exemption the London Stock Exchange's International Securities Market and the Vienna Stock Exchange's Third Market.

The Finance Act 2015 provided another exemption from withholding tax on interest that applies to qualifying private placements (QPPs), which was introduced to help unlock new finance for businesses and infrastructure projects. Among other conditions, the creditor must be resident in a territory with which the UK has a double tax treaty with a non-discrimination provision (that is, a clause providing that the UK shall not discriminate against nationals of the other territory as compared to UK nationals). This is one of the key limiting. To date, the exemption has mainly benefited lenders in China, Singapore and Korea. However, the UK has recently entered into new double tax treaties with Jersey, Guernsey and the Isle of Man, which include non-discrimination articles. As a result, it would seem that private placements issued from these territories will – once those treaties have been incorporated into domestic law in each signatory territory (and thence come into force), and subject to meeting the other conditions of the QPP exemption – be eligible for exemption from withholding tax on the interest payable.


i Brexit

Looming large over everything in the UK in the next 12 months will be the process of Brexit and its impact on all aspects of the UK economy. From the perspective of the international capital market, a pertinent example of the uncertainty arising out of this process is the question of which prospectus regime the UK will have after Brexit. In a no-deal scenario, whereby the UK simply exits the EU on 29 March 2019, the effect of the EUWA will be to preserve the Prospectus Directive as implemented in English law (Part VI of the Financial Services and Markets Act 2000 and the FCA's Prospectus Rules) until such time (if any) as the UK government makes any amendment to those provisions. The Prospectus Regulation, which is designed to repeal and replace the Prospectus Directive regime in all Member States, would never apply in the UK unless and until such time as the UK government makes any legislative provision to that effect, as the majority of the Prospectus Regulation will not be 'operative' (within the meaning of the EUWA) immediately before exit day.

However, the UK and the EU27 agreed at the European Council on 23 March 2018 on the terms of a transition period starting on 29 March 2019 and lasting until the end of 2020, during which the UK will effectively continue to be treated as an EU Member State and (subject as otherwise provided in the agreement) EU law will be applicable to and in the UK. If this agreement is finalised and implemented (which in the UK would involve some amendment of the EUWA) then, although the UK would technically cease to be an EU Member State on exit day, nevertheless the Prospectus Directive regime would continue to be fully applicable in the UK until its repeal and replacement by the Prospectus Regulation in accordance with its terms on 21 July 2019. Then, with effect from 21 July 2019, the Prospectus Regulation regime would repeal and replace the Prospectus Directive regime in the UK (as it will in the other 27 Member States).

The political process in the UK around Brexit is sufficiently fraught as to raise the possibility of yet other outcomes. For example, it is possible that the UK government, after reaching agreement with the EU on the terms of a Withdrawal Agreement, is unable to obtain parliamentary approval to implement that Agreement into UK law and is also unable to obtain parliamentary approval for a no-deal scenario. This would provoke a political crisis that might result in the UK seeking (and obtaining) a postponement of the 29 March 2019 deadline for the UK to exit the EU to allow negotiations to be reopened. This could result in the UK continuing to be an EU Member State while any negotiations are conducted. If this postponement extended beyond 21 July 2019, then it is quite possible that, with effect from that date, the Prospectus Regulation regime would repeal and replace the Prospectus Directive regime in the UK (as it will in the other 27 Member States).

Another possible outcome of such a political crisis, which is now being contemplated in some circles in the UK, is that the UK exits the EU on 29 March 2019 and, as a temporary measure to allow time for the domestic political situation in the UK to settle down, becomes a Member State of the EEA. Again, in this situation it is quite possible that, with effect from 21 July 2019, the Prospectus Regulation regime would repeal and replace the Prospectus Directive regime in the UK (as it will in all other EEA Member States).

ii LIBOR transition

The market has already seen its first SONIA-based floating rate note benchmark. On 29 June 2018, the European Investment Bank issued a £1 billion five-year floating rate note referencing backward-looking SONIA, compounded daily in arrear. However, this is a backward-looking rate that can only be determined at or near the end of a given interest period. The Working Group on Sterling Risk-Free Reference Rates is now consulting on the development of a TSRR that reflects the expected average SONIA over a given period and will be forward-looking, allowing the rate to be fixed at the outset of a given interest period. The Working Group is strongly encouraging the development of the infrastructure seen as necessary to support a TSRR and anticipates that a TSRR could be available in the second half of 2019.


1 Anna Delgado, Thomas Picton, Paul Miller and Jonathan Walsh are partners and Tim Morris is a consultant at Ashurst LLP. The authors would like to thank Vicky Brown for her assistance in the preparation of the section on tax.

2 Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation).

3 Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.

4 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading.

5 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments.

6 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms.

7 Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds.

8 Secure Capital SA v. Credit Suisse AG [2017] EWCA Civ 1486.

9 Golden Belt 1 Sukuk Company B.S.C.(c) v. BNP Paribas and Others [2017] EWHC 3182 (Comm).

10 Council Regulation (EC) No. 2271/96 of 22 November 1996 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.