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Archive for June, 2016

The challenge of BREXIT for the financial services industry

29/06/2016 | Bruno Fatier
Today we are starting a series of e-bulletins dedicated to considering the consequences of BREXIT on business in general, starting with the impact of BREXIT on the financial services industry. The

Today we are starting a series of e-bulletins dedicated to considering the consequences of BREXIT on business in general, starting with the impact of BREXIT on the financial services industry.

There is no denying that the financial services industry is now facing challenging times, where threats will be generally more visible than opportunities yet to be explored.

From a financial services regulatory perspective, one main threat ahead is the risk of losing EU passport rights whilst one main opportunity is deregulation, but both threat and opportunity are only potential at this stage, as the decision to leave the EU is not yet effective and nobody knows the extent to which gains and losses will effectively materialise.

From a purely EU passport perspective, the later the decision to leave the EU enters into force the better, as more time will be given not only to enjoy the passporting regime but also to prepare for facing all possible BREXIT scenarios including the least comfortable one where no immediately available equivalent of the EU passport rights will be made available from or towards the UK.

The question of timing is therefore important. In this respect, Article 50 of the European Union Treaty provides for a 2-year notice for exit unless a withdrawal agreement has been reached earlier or “unless the European Council, in agreement with the Member State concerned, unanimously decides to extend [the two-year] period”.  The 2-year notice starts from the date on which the leaving Member State notifies the European Council of its intention (this has not yet been given). From a purely EU passport perspective, as explained above, rushing things would not be the best option.

It is also worth noting that Article 50 (not drafted to be actually enforced but rather to frighten prospective leavers) only says that the “framework” of the future relationships should be taken into account when negotiating and concluding a withdrawal agreement. However, there is no denying that it does make sense that both issues be agreed at the same time as part of the same deal, in order to avoid a black hole in between.

Whether the risk of not relying on a satisfactory equivalent of the EU passporting regime to and from the UK will materialise is uncertain. All depends on the outcome of the negotiations between the UK government and the EU.

If the risk materialises, financial services firms from both sides have a lot to lose, i.e. not only UK financial services firms passporting to the rest of the EU but also EU financial services firms passporting to the UK.

Over the last decade or so, banks, investment firms, asset managers and payment services providers licensed in the UK have been relying a lot on the EU Freedom to Provide Services (“FPS”). Doing business directly out of London has been a dominant trend, with fewer and fewer firms deciding to set up or maintain branches in other EU countries under the EU Right of Establishment (“RE”). Cost, convenience and efficiency have been the key driving factors.

By being stripped of the EU passport to do business across the entire EU market, UK licensed financial services firms would have to rely on locally licensed subsidiaries set up in the EU. The likes of Barclays have already such subsidiaries and would “only” be working on relocating staff and activities on an intra-group basis, subject to seizing sale opportunities. As a general rule, EU branches of UK licensed financial services firms would either have to be closed down or converted into branches of the EU subsidiary chosen to provide services all across the EU (subject to exploring sale opportunities). Smaller firms are likely to be those who will most suffer, as setting up a licensed subsidiary is time consuming, uncertain and costly, as is trying to buy one of the few existing EU licensed businesses available for sale on the market.

EU financial services firms holding a passport to do business in the UK would face similar issues, save that the scale of the reshuffling will be narrowed down to the UK and to London in particular.

The risk of not being granted an immediately available and satisfactory equivalent of the FPS and the RE is only the tip of the iceberg. Below the surface, restructuring of credit syndication or euro trading activities currently centralised in London would need to be carried out. Incidentally but noticeably, one would expect EU supervisory bodies based in London to relocate to a country which will still be part of the EU when the UK effectively leaves it. The EBA is the most visible example of the move ahead.

One should also note that UK licensed banks will no longer be part of the European guarantee deposit scheme once BREXIT becomes effective, which leads to the question whether the UK government will decide to provide better, equivalent or lower protection than that available in the EU.

Whilst losses are still hypothetical and one should not panic at the thought of them materialising, one should also coolly think about the alternative opportunities brought about by BREXIT, including that of deregulation. One should not forget that the financial services industry itself has for years vehemently complained about overregulation in many areas such as regulatory capital, remuneration or investor/customer protection.

However, deregulation does not mean that financial service firms licensed in the UK should stop preparing themselves for complying with EU directives adopted at EU level but yet to be implemented nationally (e.g. MiFID2, AMLD 4 or PSD 2), as the risk of having to comply with them or with equivalent rules when providing services towards EU markets, as part of a possible BREXIT deal, may materialise.

Having said that, opportunities for growing a financial services industry more lightly regulated, turned towards non-EU markets, should indeed be explored as much as the potentiality of losses should be assessed. The current burden of EU regulation on activities turned towards outside the EU should not be overestimated, as EU law does not generally regulate services provided towards non-EU countries as much as it regulates services provided towards the EU. But gaining market shares outside the EU will be challenging as there is no readily available equivalent of the FPS or RE outside the EU and local regulations will continue to apply after BREXIT.

The possibility of enjoying the “best of both worlds” is likely to require restructuring business models to segregate deregulated activities turned towards non-EU jurisdictions from activities turned towards the EU.  As many EU regulations apply on a group basis, businesses structured as groups of companies will need to be revisited.

The FIN TECH sector can be partially protected from, and can even continue growing despite the loss of EU passporting rights from and to the UK, but only to the extent of those technology services the provision of which towards the EU does not require holding such rights. However, one example where EU regulation will be soon regulating a significant number of FIN TECH firms is PSD2 (due to enter into force before the 2-year Article 50 deadline), under which licensing requirements will be extended further to reach payment aggregators, initiators and the like. And one cannot rule out that the EU will threaten, and even seek to further extend the scope of what it is subjecting to licensing requirements in order to protect the EU market from outsiders.



Brexit – What happens next?

27/06/2016 | Lucy Hamilton-James
Following the outcome of the EU Referendum, this article deals briefly with the formal process of the UK to withdraw from the EU.  The decision of the electorate for the UK to leave the EU is the st

Following the outcome of the EU Referendum, this article deals briefly with the formal process of the UK to withdraw from the EU.  The decision of the electorate for the UK to leave the EU is the start of what could be a long divorce process.  Until that process is complete, the UK will remain part of the EU.

The formal process for an EU member state to withdraw from the EU is contained in a so far unused exit clause – Article 50 – within the Lisbon Treaty.  Article 50 contains 5 short paragraphs which provide guidance as to the steps which must be taken by the withdrawing state and the remaining states to facilitate a withdrawal.

In brief; the first formal step is for the UK to formally notify the EU Council of its intention to withdraw from the EU.  This has been referred to in the press as the “Article 50 Notice”.  The service of the Article 50 Notice will be followed (and quite possibly preceded) by a negotiation period during which the remaining EU states and the UK take steps to reach an agreed form of Withdrawal Agreement.   During this negotiation period, EU laws still apply to the UK which would also continue to participate generally in EU business.  The UK would not however participate in internal negotiations within the remaining EU states regarding their discussions and decisions on the Withdrawal Agreement.  The negotiations themselves will take place between the EU Council and the UK but it is the EU which has the final say on its terms.

The disapplication of the EU Treaties, and thus the actual departure of the UK from the EU, occurs at the earlier of the date of entry into force of the Withdrawal Agreement or 2 years after Article 50 is invoked by the UK having notified the EU Council of its intention to withdraw.  However, Article 50 provides for the extension of that 2 year period should there be unanimous agreement between the EU Council and the withdrawing state for it to be so extended.

Considering the pretty significant function for which the provisions in Article 50 were designed to manage, it is striking how vague it is.  This is likely to be because its actual use was never considered a possibility.  That said, in view of the involvement of 28 countries, including the withdrawing state, and the EU institutions themselves, in the negotiations, the lack of detail could be a distinct advantage in that it will also allow for a degree of flexibility and will likely make the negotiation process easier to manage.  In addition, and from the EU’s internal side of the negotiations the Withdrawal Agreement need only have a qualified majority of the remaining states’ agreement for it to be concluded.

So, where does that leave the UK?  Despite calls by EU representatives over the weekend, only the UK can invoke Article 50 and the timing of that is solely in its gift.  The Prime Minister has indicated that the formal process will not commence until his successor is appointed (the 1922 Committee has today announced that the new leader of the Conservative Party will be chosen by 2 September 2016).  In a speech on 27 June 2016, The Chancellor, George Osborne, sought to provide reassurance by confirming that “In the meantime, and during the negotiations that will follow, there will be no change to people’s rights to travel and work, and to the way our goods and services are traded, or to the way our economy and financial system is regulated.”

While the result of the EU referendum continues to sink in, the posturing and strongly worded rhetoric from the EU has begun but is unlikely to last.  The UK and the EU are perfectly capable of working together and indeed need each other so the threats of punishment on the UK and calls for immediate disengagement being made by certain EU state ministers can be seen for what they are.  It is notable that the Heads of State, including those from outside the EU are quite rightly remaining calm and measured in their responses to the referendum result, however shocking,  which can only help to reassure the public and the markets and ensure that stability is returned sooner rather than later.  Whatever side of the fence they are on, the powers that be are well aware of the unilateral damage that prolonging uncertainty can cause and no one wants that.

Ian Rosenblatt awarded an OBE

The Partners of Rosenblatt are delighted to announce that the founder and senior Partner of the Firm , Ian Rosenblatt, has been awarded an OBE in the Queen's 90th Birthday Honours list, receiving th

The Partners of Rosenblatt are delighted to announce that the founder and senior Partner of the Firm , Ian Rosenblatt, has been awarded an OBE in the Queen’s 90th Birthday Honours list, receiving the award for music philanthropy.

Are Employers ready for Euro 2016?

09/06/2016 | Adam Gray
As I’m sure you’re all aware… the 2016 UEFA European football championships (“Euro 2016”) begin tomorrow, with 51 matches due to be played in France over the course of the following month.

As I’m sure you’re all aware… the 2016 UEFA European football championships (“Euro 2016”) begin tomorrow, with 51 matches due to be played in France over the course of the following month. Kick off times vary between 2pm and 8pm BST and some games are therefore being played during the working day, including the game between England and Wales which takes place on Thursday 16 June. As a result, ACAS has issued helpful guidance urging employers to plan ahead in order to minimise disruption.

The main issues identified by ACAS as being likely to affect employers during Euro 2016 are; i) requests for annual leave, ii) sickness absence; iii) use of internal and social media during working hours; and iv) drinking and/or being under the influence of alcohol at work.

So how can employers prepare?

Taking each potential issue of concern in turn, the ACAS guidance states that:

1)     Annual Leave:

‘… Employers may wish to look at being more flexible when allowing employees leave during this period, with the understanding that this will be a temporary arrangement. Employees should remember that special arrangements may not always be possible. The key is for both parties to try and come to an agreement.  All leave requests should be considered fairly by employers, and a consistent approach taken to other major sporting events in granting leave. Remember not everyone likes football !’


Employers should be mindful of their duties pursuant to the Equality Act 2010 and, specifically, should endeavour to ensure that no particular groups are disadvantaged or discriminated against (either directly or indirectly) during or as a result of annual leave due to the championships.   As always, foreign employees should be afforded the same levels of flexibility as their English counterparts and, if employers decide to adopt certain temporary measures regarding annual leave during Euro 2016, they may also need to consider implementing similar measures during other major sporting events and offering the same opportunities to all employees.

2)     Sickness absence:

Organisations’ sickness policies will still apply during this time, and these policies should be operated fairly and consistently for all staff. Levels of attendance should be monitored during this period in accordance with the attendance policy so that any unauthorised absence or patterns in absence could result in formal proceedings. This could include the monitoring of high levels of sickness, late attendance or lower levels of performance at work due to post event celebrations’.


Should any employers be concerned about potential levels of absence during the championship, one deterrent could be to remind employees of any sickness/absence policies applicable to them and to put all employees on notice that absence from work will be closely monitored during this period.

3)     Use of social networking sites and websites:

There may be an increase in the use of social networking sites or sporting websites covering the European Cup. There may be problems around staff watching lengthy coverage via their computers or on personal devices. Employers should have a clear policy regarding web use in the workplace and the policy should be cascaded to all employees. If employers are monitoring internet usage then the data protection regulations require them to make it clear that it is happening to all employees. A web use policy should make clear what is and what is not acceptable usage’.


As well as informing employees that absences will be monitored over this period it may also be wise, at this point, for employers to remind employees of any workplace social media/IT policy(ies) which are applicable and will be enforced.  Any excessive time-wasting and misuse of computer systems should be dealt with in accordance with the employer’s standard policy(ies).

4)     Drinking or being under the influence of drink/drugs at work:

‘ Some people may like to participate in a drink or two while watching the match or may even go to the pub to watch a match live. It is important to remember that anyone caught drinking at work or found to be under the influence of alcohol in the workplace could be subject to disciplinary procedures. There may be a clear no alcohol policy at work and employees may need a reminder of this’.


Employers can remind their employees that anyone found to be under the influence of alcohol in the workplace could be subject to disciplinary procedures. If an employer has a ‘no alcohol policy’ at work, employees should be reminded of this.

Finally, adding a light hearted touch to the issues that will be faced by many employers during this period,  the chair of ACAS Sir Brendan Barber has stated that: “The Euro 2016 tournament is an exciting event for many football fans, but staff should avoid getting a red card for unreasonable demands or behaviour in the workplace during this period.”

If you require any assistance drafting or reviewing your workplace policies prior to Euro 2016, or find yourself faced with any employment related issues as the tournament progresses, please don’t hesitate to contact Adam Gray, Solicitor, on 0207 955 1518.

Postponement of discharge from bankruptcy: High Court emphasises that suspicion is not enough

A bankrupt is discharged after one year (Insolvency Act 1986, s. 279(1)). But the court has a discretion to extend this period “if satisfied that the bankrupt has failed or is failing to comply wit

A bankrupt is discharged after one year (Insolvency Act 1986, s. 279(1)). But the court has a discretion to extend this period “if satisfied that the bankrupt has failed or is failing to comply with an obligation” imposed by virtue of the bankruptcy (subsection (4)).

The recent case of Bowles v Trefilov is a warning to trustees that suspicion is not enough.

A Russian businessman, the former owner of a chain of Russian supermarkets, was made bankrupt with debts of £121m, shortly after being found liable in proceedings in London to pay 328 million roubles to a Russian bank. He was interviewed by the trustees and corresponded with them, answering various questions about his assets and affairs. There was an initial allegation of inadequate co-operation with the trustees in particular respects, which was dealt with by a short extension of the bankruptcy and undertakings to provide the desired cooperation. The trustees, however, continued to be unhappy generally at the bankrupt’s answers to their questions. They sought a further extension of the bankruptcy.

The Trustees’ main concern was with a “framework agreement” they had become aware of. Under this agreement, an English company owned by an acquaintance of the bankrupt had contracted with a Dutch supermarket holding-company to receive up to US $100m in commission payments from it and related Russian entities in return for services as negotiator of new leases of supermarket premises across Russia. The bankrupt had signed the agreement as attorney for the English company, and much of the negotiation had in practice been carried out by him personally.

The Dutch company failed to pay under the “framework agreement” and was sued in London by the English company, this litigation settling on the basis of an agreement to pay US $14m. The trustees obtained an injunction freezing that sum before it could be paid over to the English company, their underlying claim being that it actually belonged to the bankrupt, or at least that he had an interest in it, or in the English company.

Unless the court intervened to suspend discharge, the bankruptcy was due to expire before this claim could be heard.

The trustees maintained that the bankrupt’s refusal to accept that he had some sort of interest, and the answers he had given in support of this denial, amounted to a breach of his obligation, as a person in bankruptcy, to give them a full account of his affairs. They relied on various alleged inconsistencies in his explanations and between those explanations and things said on his behalf in other contexts, and on what they claimed was the implausibility of his account.

The court (Chief Registrar Baister) first considered the meaning of the words in section 279(4), “has failed or is failing to comply with an obligation”, which are generally understood to present a jurisdictional hurdle to an application to suspend the discharge of a bankrupt (Bramston v Haut [2012] EWCA Civ 1637, [2013] 1 W.L.R. 1720). The court held that the words should be construed entirely literally: any failure to comply with an obligation, even if purely historic and now corrected, was enough to give the court jurisdiction to suspend discharge. Thus, the fact there had been some non-cooperation initially, albeit unrelated to the complaint the trustees now made, was enough in the court’s view to give it jurisdiction to suspend the discharge further.

This left, however, the question of discretion. The court was not persuaded to exercise this discretion:

Whilst I might share and sympathise with the applicants’ suspicions about the relationship between [the bankrupt] and [the English company], as Mr Registrar Nicholls rightly observed in Chadwick v Nash [2012] BPIR 70, suspicion is not enough. On an application of this kind the court will often give great weight to the views of a trustee, but it cannot abandon its role by simply adopting the trustee’s stance. I remind myself that interfering with a bankrupt’s expectation of discharge after the one year period provided for by the Insolvency Act is a serious interference with his rights and is not something to be done lightly” (para 51).

Although the court characterised the material relied on by the trustees as “very persuasive”, it was not so much so as to warrant disbelieving the bankrupt’s account in this context. The application was dismissed with costs.

Thomas Roe QC and Alexander Halban, instructed by Rosenblatt, represented Mr Trefilov.


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