W&I Insurance Likely to Play Increasing Role in Energy and Infrastructure

By Latham & Watkins on November 28, 2023 Posted in Energy & Infrastructure, Insurance

Stapled W&I policies and synthetic policies will likely be increasingly common features of E&I transactions, although their feasibility should be assessed case by case.

By Simon J. Tysoe and Devdeep Ghosh

Warranty and indemnity insurance (W&I) is a long-established feature of M&A transactions in Europe, especially with private equity sellers. The 10^th edition of the Latham & Watkins Private Equity Market Study shows that nearly 48% of all European M&A transactions in 2023 involved W&I with 65% of private equity sellers favouring W&I-backed exits. However, on the flipside, our market study indicates that on an aggregate basis only 35% of energy and infrastructure (E&I) transactions involved W&I, with varying levels of adoption across European geographies.

Certain recurring characteristics of E&I transactions could explain the dislocation in this trend: the sometimes challenging nature of the assets and jurisdictions for these transactions and the assets themselves frequently having a fragmented shareholder base, which usually means that there are no negotiated business warranties to be covered.

Along with a recent softening of the W&I market, two developments can help bridge this gap for E&I transactions: stapled policies and synthetic coverage.

FRC Provides a Significant Update on Its Future Policy and Cuts Back on Proposed Corporate Governance Code Changes

By Latham & Watkins on November 8, 2023 Posted in Finance and Capital Markets

The FRC’s future work will be assessed through the lens of the UK’s economic growth and international competitiveness.

By Mark Austin, Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 7 November 2023, the FRC announced a significant and wide-ranging policy update which included a material change of direction in relation to how it will approach its work in the future and a significant recalibration of how it will take forward its consultation on proposed changes to the UK Corporate Governance Code. That consultation, which ran from 24 May 2023 to 13 September 2023, sought to implement certain proposals in the UK government’s paper, “Restoring trust in audit and corporate governance”. The vast majority of those proposals will no longer be taken forward.

UK Energy Act 2023 — What to Know About the Landmark Act

By Latham & Watkins on October 31, 2023 Posted in Energy & Infrastructure, ESG

The Act demonstrates the UK’s renewed commitment to reaching net zero and paves the way for players in key industries to achieve their targets.

By Tom Bartlett, Paul A. Davies, JP Sweny, Michael D. Green, James Bee, and Samuel Burleton

On 26 October 2023, the UK Energy Act 2023 (the Act) received Royal Assent. The Act is a landmark piece of energy legislation detailing the UK’s approach to achieving energy independence and its net zero obligations.

The provisions of the Act lay the foundation for potentially £100 billion worth of private investment in clean energy infrastructure. The government has indicated that the Act is intended to support up to 72,000 jobs in carbon capture and storage (CCS) and hydrogen by 2030.

This blog post summarises how the Act is likely to impact key industries.

UK Government Withdraws the Draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations

By Latham & Watkins on October 16, 2023 Posted in Finance and Capital Markets

Companies had raised serious concerns about the additional red tape that the proposed reporting obligations would require.

By Mark Austin, Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 16 October 2023, the UK government withdrew the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations.

The regulations, which formed part of the wider proposals to reform the UK audit and corporate governance regulatory landscape, were laid in Parliament on 19 July 2023. They would have introduced the following additional reporting requirements for UK companies with at least 750 employees and an annual turnover of £750 million or more:

an annual resilience statement, setting out how a company is managing risk and building or maintaining resilience over the short, medium, and long term;
a triennial Audit and Assurance Policy Statement, explaining how the company proposes to assure non-financial reporting over the following three years as well as providing an annual update on the implementation of the policy;
an annual statement about distributable profits and the company’s policy on distributions; and
an annual statement on steps taken to prevent and detect material fraud.

In its press release, the UK government announced that the regulations would be withdrawn after consultation with companies raised serious concerns about the negative impact of additional reporting requirements on both existing and potential users of the UK capital markets. Instead, the Business Secretary will provide options to reform the wider framework to reduce the burden of red tape on businesses.

Latham & Watkins will continue to monitor developments in this area.

Food for Thought: Individuals Remain in SFO’s Sights as Four From Patisserie Valerie Charged With Fraud

By Latham & Watkins on October 10, 2023 Posted in Conduct of Business, Litigation

Individuals continue to face risk from prosecutions for economic crime, despite media focus on corporate criminal liability reforms.

By Stuart Alford KC, Mair Williams, and Matthew Unsworth

Four individuals have today appeared at Westminster Magistrates’ Court charged with fraud in connection with the collapse of UK café and bakery chain, Patisserie Valerie.[i] This follows a five-year investigation by the Serious Fraud Office (SFO) — codenamed “Operation Venom” — which was launched after the chain suddenly announced that its financial statements over successive years had been “mis-stated and subject to fraudulent activity”.[ii] Among those charged is former CFO, Christopher Marsh, who was arrested on suspicion of fraud when the scandal first emerged but was released on bail soon after.

While corporate criminal liability continues to dominate headlines ahead of reforms to be introduced by the Economic Crime and Corporate Transparency Bill, the Patisserie Valerie charges serve as a reminder that there remains a risk of prosecution at the individual level. Indeed, this is the third case in which the SFO has charged individuals this year, and the agency is targeting a minimum 60% conviction rate of individual (as well as corporate) defendants between 2022 and 2025.[iii]

UK Proposes Insurer Resolution Regime

By Latham & Watkins on September 25, 2023 Posted in Insurance, Restructuring

The proposals would give the Bank of England wide-ranging powers to deal with acute failure scenarios, treating policyholder liabilities as loss-absorbing.

By Victoria Sander and Tim Scott

HM Treasury is proposing a new UK resolution regime for insurers that would appoint the Bank of England as resolution authority with sweeping powers to resolve insurers through transfer or bail-in, and to make resolution plans and assess resolvability in advance. The regime would share many similarities with the Banking Act 2009 (BA09). Crucially, however, there will be no minimum requirement for own funds and eligible liabilities (MREL), a BA09 concept, which sets a minimum loss-absorbing capacity for banking firms, including liabilities that can absorb losses through write-down or conversion to equity.

This Client Alert discusses the key aspects of the proposed regime, how it would impact insurers and counterparties, and next steps as the proposal is expected to proceed through the legislative and implementation processes.

UK Introduces Write-Down Procedure for Insurers’ Policyholder Liabilities

By Latham & Watkins on September 14, 2023 Posted in Insurance, Restructuring

FSMA 2023 includes a court procedure for failing insurers to temporarily write-down liabilities, with implications for counterparties.

By Victoria Sander and Tim Scott

The recently passed Financial Services and Markets Act 2023 (FSMA 2023) provides for a new write-down procedure under which failing insurers can apply to court to have their insurance liabilities written down. Write-downs are intended to be temporary (though no period is specified), followed by a subsequent write-up, which is a transfer of the business or application of insolvency procedures.

While reinsurers and certain other creditors are prevented from terminating contracts during a moratorium period of at least six months, derivative counterparties remain able to terminate (and apply close-out netting) regardless. The protection afforded to financial collateral arrangements and certain other security arrangements underscores the importance of appropriate security to support inwards and outwards reinsurance for UK firms.

FCA Board Focuses on AI

By Latham & Watkins on September 13, 2023 Posted in Cryptoassets, Finance and Capital Markets

A new publication from the UK’s financial regulator signals to firms that they should take steps to manage risks in the use of AI.

By Stuart Davis, Fiona M. Maclean, Gabriel Lakeman, and Imaan Nazir

The UK’s Financial Conduct Authority (FCA) has published its latest board minutes highlighting its increasing focus on artificial intelligence (AI), in which it “raised the question of how one could ‘foresee harm’ (under the new Consumer Duty), and also give customers appropriate disclosure, in the context of the operation of AI”. This publication indicates that AI continues to be a key area of attention within the FCA. It also demonstrates that the FCA believes its existing powers and rules already impose substantive requirements on regulated firms considering deploying AI in their services.

Pension Superfunds Return to the De-Risking Menu

By Latham & Watkins on August 29, 2023 Posted in Employment and Benefits

The UK government has signalled the importance of introducing a permanent superfund regulatory regime.

By Victoria Sander

After the excitement around Clara-Pensions’ approval as a “superfund”, or pension consolidator, in late 2021, the market generally expected that other pension superfund structures would soon follow suit. Last year’s mini-budget and the ensuing liability-driven investment (LDI) crisis, which triggered intervention by the Bank of England, no doubt weighed negatively on the development of the pension consolidation market, along with an increased focus on investment strategies for pension schemes generally. The expected pipeline of further approvals failed to deliver new participants in a market which was to provide much-needed de-risking capacity alongside the burgeoning and highly successful insurance bulk annuity transfer market.

Hopes were revived by the Chancellor’s Mansion House speech on 10 July 2023, which commented on the fragmentation of the defined benefit (DB) pension scheme landscape in the UK and the importance of introducing a permanent superfund regulatory regime, presenting a key policy direction by the government.

On 10 August 2023, the Pensions Regulator (TPR) announced revised guidelines for pension superfunds. The original guidance, issued in 2020, established an interim regime for superfunds and set out tests for when a pension scheme would be appropriate to transition to a superfund.

This blog post examines the updated pension superfund guidance and provides a high level overview of the key changes.

FCA Publishes Further Engagement Papers on Prospectus Reforms

By Latham & Watkins on July 18, 2023 Posted in Finance and Capital Markets

The FCA reveals its initial thinking on the regulatory framework for primary multilateral trading facilities and public offer platforms.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 13 July 2023, the FCA published its fifth and sixth engagement papers to solicit discussion and feedback on the regulation of public offer platforms and primary multilateral trading facilities (MTFs) under the new regime for public offers and admissions to trading.