Feature

ETFs: could crisis be looming?

Exchange traded funds, or ETFs, are one of the most successful financial innovations in the modern era; of similar vintage and, arguably, significance to mortgage-backed securities, but to date thankfully not (yet) as contorversial. 

This article looks at their key features, contextualises their inexorable rise by reference to some performance figures and, by reference to two examples of their higher risk synthetic variants, leveraged and inverse ETFs, highlights both the potential systemic risks they pose to the stability of global financial markets and regulators’ preparedness to address those risks.  

Merricks v Mastercard: the litigation risks for the financial services sector

The recent decisions in the Merricks v Mastercard  litigation will most obviously have a significant impact on the competition class actions regime, but may also have repercussions for the wider litigation landscape, particularly in relation to mass consumer claims. In this article, we consider the potential litigation risks for the financial services sector.

Contractual continuity for “tough legacy” contracts

With time ticking until the end of 2021 when at least certain settings of LIBOR will cease, the UK authorities are finalising their plans for “tough” legacy through the means of legislation and powers granted to the FCA. In this article, we examine such legislation and powers with a comparative eye to alternative solutions in the US and the EU.

Distressed insurers: recent insolvency reforms and future resolution framework

In this article the authors consider the changes introduced by Financial Services and Markets Act 2023 to enhance the insolvency framework and tools available in relation to distressed insurers – and the proposed new UK Insurance Resolution Regime which is intended to provide the Bank of England with enhanced powers to manage the failure of systemically important insurers.

Welcome clarification from the DIFC Court on the amendments to the UAE Federal Banking Law

In this article, Zoe O’Sullivan reviews the recent decision of Punjab National Bank v Shetty (CFI No. 079/2020, 19 January 2024) issued by the Dubai International Financial Centre (DIFC) Court (and comments on its implications for financial institutions established in the DIFC).

Part 26A Restructuring Plans: how significant is the Court of Appeal’s judgment in Adler?

The judgment sets out how a court should approach exercising its cross-class cram-down power, emphasising that any differential treatment of a dissenting class must be commercially justified where that class would be at least partially in-the-money in the “relevant alternative”. It also contains valuable reminders of best practice when using the Pt 26A procedure.

Drop downs and up-tiers in English law loan documentation

Over the past few years there has been a focus on whether loan documentation can be used to create additional priority debt, often as a result of transactions that were not anticipated by incumbent lenders. Various labels have been attached to these types of transaction, with the following becoming common currency: “drop down” and “up-tiering” transactions. While they have different component parts, they result in participating creditors gaining a priority position viz-à-viz other creditors in the borrower’s capital structure. A number of articles discussing aspects of these transactions have been circulated by market participants and the LSTA has published a very helpful market advisory on drafting for New York law credit agreements. This article takes a look at these topics in English law documentation.

Transferring legal title to a digital asset: shared and limited control arrangements (Part 2)

In this article, Hin Liu proposes a three-step structure for deciding what the rule for the transfer of title to a digital asset should be in the shared or limited control context. The structure provides a framework that can be applied by a legislature or court (or law reform body).

UK SDR: setting the ESG blueprint for the world?

The new sustainability disclosure requirements and investment labels regime was introduced by the Financial Conduct Authority (FCA) to improve clarity and address the risks of greenwashing in the UK financial markets. The policy includes four sustainability labels (all of which have the same status – ie there is no hierarchy) and an anti-greenwashing rule applicable to FCA-regulated firms. Overall, the FCA have taken a very pragmatic approach (eg in areas like minimum portfolio composition and temporary breaches), which also avoids many of the issues posed by the EU Sustainable Finance Disclosure Regulation regime by contrast (which was intended to be a disclosure regime but has become a de facto labelling regime). However, some uncertainty remains, notably around the practical adoption of the newly introduced labels as well as the application of the regime to overseas funds, which are not currently covered. Implementation of the regime by firms would require careful examination of the new rules in light of the principle and outcomes-based approach taken by the FCA. Helpfully, the rules have been written with interoperability and international convergence in mind – and the overall pragmatic and outcomes-based approach is likely to provide a useful ESG product labelling and disclosure regime for international regulators.

Reliance revisited: is “conscious awareness” a requirement of reliance/inducement in all misrepresentation cases, or a bridge too far?

This article considers the case law in this area and suggests that the approach in Crossley is to be preferred. The rebuttal to Crossley in Loreley comes close to the right answer, in seeking a satisfactory causative bridge in all cases, but wrongly seeks to retain “conscious awareness” as a requirement in all cases and eschew the notion that this is always distinct from assumption. An analysis of the motivator for that conclusion, the need for a sufficient causative bridge, shows the causative bridge can be satisfied without that requirement in some cases of implied representation, and causes unnecessary difficulty with other juridical concepts.