Ashurst Quarterly Debt Capital Markets Update Q3 2022

We have a number of different developments to report on in this edition:

• EFTERM - a new fallback for EURIBOR
• EU-Russian sanctions and the EU Prospectus Regulation
• European Union bond issuance settlement - new Eurosystem-based infrastructure
• UK Financial Services and Markets Bill - a new UK prospectus regime
• Law Commission recommendations concerning digital assets
• UK Jurisdiction Taskforce consultation on digital securities under English law
• ICMA FAQs on distributed ledger technology and blockchain in bond markets
• Retained EU Law (Revocation and Reform) Bill 2022-23
• 1-month and 6-month synthetic sterling LIBOR to cease on 31 March 2023

EFTERM - a new fallback for EURIBOR

On 1 July 2022 EMMI, the authorised administrator of EURIBOR, launched a public consultation on its plans to develop fallback rates to EURIBOR. For this purpose EMMI has developed EFTERM, a forward-looking term rate based primarily on €STR-linked OIS quotes following recommendations made by the Euro Risk Free Rate Working Group. EMMI's expectation is that EFTERM will provide a market standard fallback for EURIBOR and facilitate the compliance of in-scope EURIBOR users with their obligations under the EU Benchmarks Regulation. The consultation, which closed on 31 August 2022, states that the final methodology will be published in Q4 2022.

EU-Russian sanctions and the EU Prospectus Regulation

On 23 May 2022 the European Commission published its view that, if a member state's competent authority discovers a prohibited relationship and suspects a possible infringement of sanctions legislation, there is sufficient legal basis in EU law for such competent authority to refuse to approve a prospectus under the EU Prospectus Regulation. On 7 July 2022 ESMA issued a public statement on prospectus supervision in the context of EU sanctions connected to Russia’s invasion of Ukraine in which ESMA sought to raise awareness among market participants about the Commission's published view and its impact on prospectus supervision (meaning that issuers could receive questions and/or requests for additional documentation from competent authorities concerning the areas and parties identified by EU sanctions).

European Union bond issuance settlement - new Eurosystem-based infrastructure

On 12 July 2022 the European Commission announced the launch of a process for organising the settlement of EU debt securities through the payment and settlement infrastructure of the Eurosystem (the European Central Bank and the national central banks of the euro area). Once this new EU issuance service is in place, a Eurosystem Central Bank – the National Bank of Belgium - will serve as the issuer's Central Securities Depository and act as an agent for settlement services, and the European Central Bank will act as paying agent for all EU debt securities.

The Commission perceives this new issuance service will, amongst other things, enable EU debt securities to be settled in the TARGET2-Securities settlement infrastructure and facilitate the use of EU debt securities as collateral by counterparties with central banks.

UK Financial Services and Markets Bill – a new UK prospectus regime

On 20 July 2022, a new Financial Services and Markets Bill was introduced into the UK Parliament. Among other things, once enacted the Bill will allow HM Treasury to reform the UK prospectus regime in line with the outcome of the UK Prospectus Regime Review published on 1 March 2022. HMT has indicated that the UK prospectus regime will be among the first set of rules to be reformed using these new powers, and that it will do so as soon as parliamentary time allows. In practice this is likely to amount to:

• a transfer of the UK prospectus regime from its current primary and secondary legislation framework to a framework of rules made by the FCA; and
• a reform rather than repeal of the current regime to deliver incremental rather than fundamental changes.

The Financial Services and Markets Bill will also enable the revocation and replacement of many other familiar pieces of EU-derived financial services legislation. For more information on the Bill see this Ashurst briefing.

Law Commission recommendations concerning digital assets

On 28 July 2022 the Law Commission published a landmark consultation paper setting out its recommendations for reform to ensure that English law recognises and protects digital assets, given the difficulties caused for legal and regulatory frameworks by their intangible nature. This consultation paper represents arguably the most significant contribution to this subject to date, and shows the UK positioning itself at the forefront of innovation with regards to regulation and recognition of distributed ledger technology-underpinned digital assets.

The key recommendation made by the paper is the explicit recognition of a new third category of personal property which would encompass certain digital assets, and render them distinct from things in possession and things in action. For more information, see this Ashurst briefing.

UK Jurisdiction Taskforce consultation on digital securities under English law

On 1 August 2022 the UK Jurisdiction Taskforce launched a consultation on the issuance and transfer of digital securities under English law. The principal question the UKJT is seeking to address is: Does English private law support the issuance and transfer of equity or debt securities using a system deploying distributed ledger technology (DLT)? This consultation closed on 23 September 2022.

ICMA FAQs on distributed ledger technology and blockchain in bond markets

On 22 September 2022 ICMA published a set of FAQs on distributed ledger technology (DLT) and blockchain in bond markets. ICMA has designed these FAQs as an entry point for non-experts to gain a basic understanding of DLT bonds and their impact on capital markets. These FAQs, which ICMA say will be updated regularly, can be found on the Market Practice and Regulatory Policy page of the ICMA website.

Retained EU Law (Revocation and Reform) Bill 2022-23

On 22 September 2022, the Retained EU Law (Revocation and Reform) Bill 2022-23 was introduced to the UK Parliament. The purpose of the Bill is to provide the Government with all the required provisions that allow for the amendment of retained EU law and the removal of the special features retained EU law currently has in the UK legal system. The headline provision of the Bill specifies that retained EU law in EU-derived secondary legislation and retained direct EU legislation will expire on 31 December 2023 unless otherwise preserved.

This Bill dovetails with the Financial Services and Markets Bill 2022-23, which is largely concerned with amending the UK's financial markets infrastructure and providing a framework for HM Treasury and UK regulatory authorities such as the FCA and the PRA to revoke retained EU law relating to financial services and replace it with tailored UK rules. In particular, the Bill excludes from the 31 December 2023 deadline:

• most of the retained EU legislation referred to in the Financial Services and Markets Bill 2022-23; and
• any rules made by the FCA, the PRA or the Bank of England.

The Retained EU Law (Revocation and Reform) Bill contains wide-ranging provisions removing the interpretive effects of EU law on the UK statute book. As a result, this Bill will rename "retained EU law" as “assimilated law” to reflect that these interpretive effects of EU law will no longer apply to this body of law once these changes have taken place.

1- month and 6-month synthetic sterling LIBOR to cease on 31 March 2023

On 29 September 2022 the FCA announced that:

• it will require continued publication of the 1-month and 6-month synthetic sterling LIBOR settings for a further 3 months after the end of 2022, until 31 March 2023; and
• it has no intention to compel IBA to continue to publish the 1-month and 6-month synthetic sterling LIBOR settings beyond that date, and therefore these settings will permanently cease immediately after final publication on 31 March 2023.

The announcement also says the FCA is still considering the appropriate date for cessation of the 3-month synthetic sterling LIBOR and will provide further information in due course.

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