Author Archives: Thomas Werlen

An Update on International Arbitration and Financial Institutions

Unlike other sectors, the financial sector has been reluctant to embrace international arbitration for resolving finance disputes. The ICC Commission on Arbitration and ADR created the Task Force on Financial Institutions to study the concerns of financial institutions. The study’s findings were published in a report in December 2016. This article builds on the findings of said report and provides an update on the status of international arbitration in the financial sector.

By Thomas Werlen / Jascha Trubowitz (Reference: CapLaw-2018-31)

A Brief Overview of the LIBOR Reform

The London Interbank Offered Rate (LIBOR) reform has been an ongoing project for the past several years, proceeding in fits and starts. It seems, however, that the global regulatory community has now finally begun in earnest to plan for a future without LIBOR. Reforming LIBOR is a complicated undertaking, since LIBOR acts as a reference rate to several hundred trillion dollars in both notional value of derivatives and in bonds, loans and securitizations and thus plays a very important role in the global financial market. LIBOR has attained such a unique role because it is calculated for five currencies (USD, GBP, EUR, CHF and JPY) which come in seven maturities (from overnight to 12 months).

By Thomas Werlen / Jascha Trubowitz (Reference: CapLaw-2018-17)

Cross-Border Transactions in Intermediated Securities: Switzerland Maintains its Lead (Part 2/2)

“The transnational nature of collateral goes beyond the mere (but important) fact that the parties to a swap are often incorporated in different jurisdictions. Collateral may be posted in different currencies, or in the form of government bonds issued by different governments. The collateral is held with intermediaries often incorporated in yet other jurisdictions, with places of business in still other locales. These intermediaries book the collateral in computerized ledgers maintained on servers that may be located elsewhere in the world. And if, as is permitted under the law of some countries, the pledgee (the party that receives the collateral) “repledges” the collateral to yet another party to satisfy its own obligations, which then repledges it again, then lawyers are left to make sense of a constant global movement of collateral in and out of accounts in many jurisdictions in terms of legal rules created to address a far more stationary and localized conception of property and contract rights.”

Annelise Riles, Collateral Knowledge: Legal Reasoning in the Global Financial Markets, p. 43 (University of Chicago Press, 2011)

By Thomas Werlen / Matthias Wühler / Jonas Hertner (Reference: CapLaw-2018-02)

Cross-Border Transactions in Intermediated Securities: Switzerland Maintains its Lead (Part 1/2)

On 1 April 2017, the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary entered into force. The entry into force of the Convention coincides with renewed efforts by the European Commission at modernising the conflicts rules for the third-party effects of transactions in book-entry securities and financial claims in the overall context of the Capital Markets Union action plan.

By Thomas Werlen / Matthias Wühler (Reference: CapLaw-2017-43)

The Enforcement of Clients’ Rights in the Draft Financial Services Act (FinSA) – Update

By Thomas Werlen / Matthias Portmann / Jonas Hertner (Reference: CapLaw-2017-05)

This article is an update of CapLaw-2016-4 in which the Dispatch on the draft Financial Services Act (FinSA) was discussed with a focus on Title 5 aimed to facilitate the enforcement of the rights of clients vis-à-vis Financial Services Providers (FSP). On 4 November 2015, the Swiss Federal Council adopted the Dispatch on the draft FinSA, sending it to parliament for consideration. With regard to the enforcement of rights, the draft proposed three elements: (1) a stricter disclosure obligation of FSP to provide documentation to clients, (2) an obligation of FSP to become affiliated with a certified ombuds body, and (3) new rules governing the allocation of costs in financial market litigation. In comparison with the original bill proposed by the Federal Council, the proposed provisions on the enforcement of rights in the draft FinSA were significantly curtailed after an overwhelmingly negative response from the financial services industry in the consultation proceeding. On 14 December 2016 the draft FinSA was discussed in the Council of States. The Council of States largely followed the draft as proposed by the Federal Council. Most recently, on 25 January 2017, the National Council’s Economic Affairs and Taxation Committee has entered into the debate on the draft FinSA. The Committee will discuss the draft in detail at its meeting on 20/21 February 2017. This will be followed by a debate in the National Council which will likely take place in Spring 2017. The proposed changes by the Council of States related to the enforcement of clients’ rights are discussed below.

U.S. Federal Reserve to Enforce U.S. Bank Resolution Regimes on Cross-Border Financial Contracts, Requiring Counterparties to Relinquish Default Rights

In May 2016, the Board of Governors of the U.S. Federal Reserve System proposed new rules that, if adopted, will constitute a significant shift in the terms of financial contracts such as over-the-counter derivatives, repurchase agreement and securities lending transactions. Under the proposed rules, these qualified financial contracts would have to conform with U.S. special resolution regimes. This would require institutional investors, hedge funds and other market participants to relinquish cross-default rights, including in contracts governed by foreign law, entered into with a foreign party, or for which collateral is held outside the U.S.

The International Swaps and Derivatives Association simultaneously released its ISDA Resolution Stay Jurisdictional Modular Protocol which seeks to allow market participants to comply with the proposed rules in the U.S. and similar rules in other jurisdictions.

In this contribution, we provide a brief overview of these proposals which, if adopted, will significantly affect the terms of many financial transactions.

By Thomas Werlen / Jonas Hertner (Reference: CapLaw-2016-33)

The EU Market Abuse Regulation

July 2016 will see the entry into force in member states across the EU of Regulation (EU) No 596/2014, the so-called Market Abuse Regulation or MAR to replace the outgoing Market Abuse Directive. As set out in its recital (5), MAR removes a number of “divergences between national laws”. The EU legislator found it necessary to “adopt a Regulation establishing a more uniform interpretation of the Union market abuse framework, which more clearly defines rules applicable in all Member States.

By Thomas Werlen / Matthias Wühler (Reference: CapLaw-2016-26)

Draft Financial Services Act to Expand Clients’ Enforcement Rights vis-à-vis Financial Services Providers, Leaves Key Questions Unaddressed

While the draft Financial Services Act (FinSA) primarily has a regulatory purpose, it also contains provisions set to effect the private law relationship between providers of financial services and clients. The proposed measures include a claimant-friendly rule regarding the allocation of costs in litigation proceedings, stricter requirements for financial services providers regarding documentation, information and disclosure of documents for the purpose of enforcement of clients’ rights, and a quasi-mandatory ombuds system for all disputes arising out of financial services contracts, including loan contracts, insurance contracts and all normal retail client bank relationships.

By Thomas Werlen / Jonas Hertner (Reference: CapLaw-2016-4)

ABN AMRO Bank NV v Bathurst Regional Council Rating Agencies’ Duty of Care to Investors

In the recent case of ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65, the Federal Court of Australia confirmed the first instance finding in Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 that, as a matter of Australian common law, a rating agency owes a duty of care to investors in a rated financial product. The principal basis on which the Federal Court reached this conclusion was that the rating agency knew that potential investors would rely on the agency’s opinion when making investment decisions.

By Thomas Werlen/Yasseen Gailani (Reference: CapLaw-2014-25)

Global Benchmarks in the Spotlight: An Overview of Investigations into LIBOR and Foreign Exchange Market Manipulations

Worldwide investigations into manipulations of the London Interbank Offered Rate (LIBOR) have resulted in settlements between regulators and banks with fines so far exceeding USD 6 billion in total. After a number of banks have admitted in deals struck with regulators to manipulating LIBOR by misreporting borrowing rates, numerous private claimants have followed suit by pursuing individual and class actions. At the same time, evidence gathered by regulators has spurred further investigations into other financial benchmarks, in particular in the foreign exchange market where purported misconduct is expected to trigger further multibillion-dollar fines and civil litigation.

By Thomas Werlen/Jonas Hertner (Reference: CapLaw-2014-14)