Financial Services Bill Introduced Into UK Parliament

LIBOR

• Gives the UK Financial Conduct Authority (UK FCA) the powers it needs to oversee an orderly transition away from LIBOR
• Aims to ensure that banks and other financial institutions have adequate financial resources and risk management processes in place
• The foregoing is parallel to the rationale for the final rules jointly promulgated on October 20 by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to (i) strengthen the resilience of large banks and (ii) reduce the impact of large bank failures
• Details an entirely new obligation on the U.K. FCA to introduce rules for investment banking firms for capital, liquidity, exposure to concentration risk, reporting, public disclosure, governance arrangements, and remuneration policies
• Provides the U.K. FCA the appropriate powers necessary to manage the orderly wind-down of LIBOR including the maintenance of LIBOR after the LIBOR transition date for legacy contracts due to, among other things:
  • A risk of claims of frustration of purpose, which means that contractual obligations could end if the obligations were found to have been fundamentally altered
  • Cessation of LIBOR-based contracts resulting in potential widespread legal disputes between the parties, including where a party is dissatisfied with the operation of an inappropriate fallback
• These enhanced powers are in line with its statutory objectives of securing an appropriate degree of consumer protection, and protecting and enhancing the integrity of the UK financial system, considering international repercussions
• Transition period for UK usage of USD LIBOR extended to the end of 2022 while usage by non-UK parties extended to the end of 2025

Market Abuse

• Requires issuers and any person acting on their behalf or on their account to maintain an insider list to assure that the UK FCA can investigate the unlawful disclosure of inside information and insider dealing
• Extends the maximum criminal sentence from 7 to 10 years for market abuse – both improper disclosure of inside information/insider dealing and market manipulation[1]
• This extension aligns sentencing for comparable economic crimes (e.g. fraud, bribery)

[1] On October 18, 2019, the UK Serious Fraud Office (UK SFO) announced the closure of its investigation into LIBOR manipulation. This was done ‘[f]ollowing a thorough investigation and a detailed review of the available evidence’. Of 13 individuals charged, five (5) were found guilty or pled guilty, and eight (8) were acquitted. The UK SFO, part of the UK criminal justice system, is a specialist prosecuting authority responsible for investigating and prosecuting the top level of serious or complex fraud, bribery, and corruption.