Latham.London

MHRA Releases No-Deal Brexit Guidance for Life Sciences Companies

Posted in Brexit, EU and Competition, Life Sciences

The guidance provides helpful clarity on key regulatory changes impacting life sciences companies in the event of a no-deal Brexit.

By Frances Stocks Allen, Oliver Mobasser, Héctor Armengod, Gail E. Crawford, Christoph W.G. Engeler, Robbie McLaren, and Henrietta J. Ditzen

The UK Medicines and Healthcare products Regulatory Agency (MHRA) has published a significant volume of guidance documents on various aspects of the post-Brexit life sciences regulatory landscape in the UK, including in the event of a no-deal Brexit. The guidance provides helpful clarity to life sciences companies operating in the European Economic Area (EEA) and the UK, which continue to face significant uncertainty about how they will be impacted by Brexit — particularly given the ongoing risk of a no-deal Brexit. (For detailed analysis on how a no-deal Brexit scenario would impact life sciences companies, please see this prior Latham blog post.)

Background

On 29 March 2017, the UK Prime Minister gave the European Council formal notification under Article 50 of the UK’s intention to leave the EU, setting the default withdrawal date for the UK’s withdrawal from the EU to 11 p.m. GMT on 29 March 2019. The UK Prime Minister requested an extension to the original withdrawal date in light of the UK Parliament’s failure to approve the withdrawal agreement agreed between the UK Prime Minister and the European Commission. On 21 March 2019, the European Council approved the UK government’s request, permitting an extension of the Article 50 period until either:

  • 22 May 2019, if the UK Parliament approves the withdrawal agreement by the end of the week commencing 25 March 2019
  • 12 April 2019, if the UK Parliament does not approve the withdrawal agreement by the end of the week commencing 25 March 2019, with this period capable of further extension by agreement between the European Council and the UK government, provided that the European Council expects the UK to indicate “a way forward” prior to 12 April 2019

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Directors Beware: UK Court of Appeal Ruling Clarifies Creditors’ Abilities to Challenge

Posted in Dispute Resolution, Finance and Capital Markets

The court offers guidance on reversing lawful dividend payments and when directors need to take into account creditors’ interests.

By Simon J. Baskerville, Daniel Smith, Anna Hyde, Lisa Stevens, and Vanessa Morrison

On 6 February 2019, the UK Court of Appeal published a judgment in BTI v. Sequana that will impact both creditors and directors of English companies.

The court decided that the payment of a dividend — despite its lawfulness under the Companies Act 2006 — can fall within the scope of section 423 of the Insolvency Act 1986, opening the payment up for challenge by a disgruntled creditor even outside of the realm of insolvency. When deciding to make a dividend payment, directors therefore ought to consider carefully not just the corporate statutory regime but also the Insolvency Act 1986 and common-law directors’ duties.

Furthermore, the ruling provides much-needed clarity on how close to insolvency a company needs to be before directors must consider creditors’ interests when fulfilling their duty to promote the success of the company, indicating the trigger of a so-called “duty shift”.

For an analysis of these rulings, see Client Alerts UK Court of Appeal: Creditors Can Seek to Reverse Lawful Dividend Payments and UK Court of Appeal: When to Trigger the Creditor Duty Shift.

Italian Investor Compensation Scheme Under the Brexit Law Decree

Posted in Brexit, EU and Competition, Finance and Capital Markets

CONSOB notice 8/2019 details the requirements under the Italian investor compensation scheme applicable to UK banks and investment firms operating in Italy.

By Antonio Coletti and Isabella Porchia

On 29 March 2019, the Italian Securities Commission (CONSOB) issued a notice detailing the terms and requirements applicable to UK banks and investment firms operating in Italy in connection with the Italian compensation scheme (Fondo Nazionale di Garanzia or the Italian ICS) pursuant to Article 8 of the Brexit Law Decree No. 22 of 25 March 2019.

According to the Decree, after the date of withdrawal, Italian branches of UK banks and investment firms and UK banks and investment firms operating in Italy on a cross-border basis will mandatorily adhere to the Italian ICS. By way of partial exception, firms operating on a cross-border basis may submit to the Italian ICS a statement from the UK ICS certifying that such UK ICS will continue to protect their clients.

CONSOB’s notice clarified that UK banks and investment firms (including those that intend to or are required to terminate operations under the Decree) should:

  • Contact the Italian ICS within 30 days of the date of withdrawal to carry out the required operational and administrative formalities, including the obligation to pay contributions
  • Inform their clients about the protections available to them under the Italian ICS as soon as possible, and in any case within 40 days following the entry into force of Brexit Decree (effective from March 26, 2019); these disclosure notices should be clear and in plain language and should contain all the contact details for further information
  • Inform CONSOB’s Financial Intermediaries Division of the disclosure notices sent to their clients within 55 days of the entry into force of the Brexit Decree

Latham & Watkins will continue to monitor and report on developments concerning Italy and Brexit.

Bank of Italy Issues Instructions for Brexit Law Decree

Posted in Brexit, EU and Competition, Finance and Capital Markets

The instructions clarify the requirements applicable to banking and financial intermediaries under the Brexit Law Decree.

By Antonio Coletti and Isabella Porchia

On 28 March 2019, the Italian central bank (Bank of Italy) published two notices detailing the requirements for Italian banks and financial intermediaries operating in the UK, and for UK banks and financial intermediaries operating in Italy, respectively, further to Brexit Law Decree No. 22 of 25 March 2019. The decree lays down a temporary regime for regulated firms in a no-deal Brexit scenario. (Additional background information is available in this Latham.London post.)

  • The first notice calls on Italian banks and financial intermediaries operating in the UK to notify the Italian central bank at least three days before the no-deal withdrawal date if they wish to benefit from transitional provisions under the Brexit Law Decree. The notice applies to smaller Italian banks under Regulation (EU) 1024/2013, payment and e-money institutions, SGRs, SICAVs, SICAFs, managers of EuVECA, EuSEF, and ELTIF funds, and financial intermediaries under Article 106 of the Italian Banking Act.
  • The second notice instructs UK banks and financial intermediaries operating in Italy to comply with the provisions of the Brexit Law Decree.

Latham & Watkins will continue to monitor and report on developments concerning Italy and Brexit.

Italy Issues Regulatory Instructions for Brexit Law Decree

Posted in Brexit

The notice details the requirements applicable to UK investment firms operating in Italy, and Italian investment firms operating in the UK.

By Antonio Coletti and Isabella Porchia

On 26 March 2019, the Italian Securities Commission (CONSOB) issued a notice detailing the requirements applicable to UK investment firms operating in Italy and Italian investment firms operating in the UK, further to Brexit Law Decree No. 22 of 25 March 2019. The decree lays down a temporary regime for regulated firms in a no-deal Brexit scenario. (Additional background information is available in this Latham.London post.)

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German Real Estate Sellers: Beware Rent Roll Risks

Posted in Commercial, Dispute Resolution, EU and Competition

Sellers may be liable for damages if actual rent is lower than stated in the rent roll, despite contractual exclusion of liability for defects.

By Christian Thiele and Patrick Braasch

The Higher Regional Court of Cologne (HRC Cologne) has ruled that a property seller is liable for the difference between the rent shown in the rent roll attached to a property purchase agreement and the actual rent — irrespective of the general exclusion of warranty claims in a purchase agreement. As a consequence, a seller may have to compensate a purchaser for all future losses resulting from such lower actual rent for up to 30 years. The decision highlights the high commercial relevance of rent rolls and the legal risks resulting from rent rolls in the context of real estate transactions.

Background

The HRC Cologne’s judgment, dated 29 November 2018 (3 U 24/18), involved a case in which the plaintiff had acquired from the defendant a residential building with 14 rental units. The sale and purchase agreement (SPA), which excluded the defendant’s statutory liability for material defects as seller, stated that the plaintiff was aware of the lease agreements. An exhibit listing all leases (names of tenants, location of and rent for the respective rental units) was attached to the SPA, which also stated the annual net rent for the entire building. Continue Reading

Italy’s Brexit Law Decree Comes Into Force

Posted in Brexit

The law decree lays down a temporary regime for regulated firms in a no-deal Brexit scenario.

By Antonio Coletti and Isabella Porchia

On 20 March 2019, the Italian Council of Ministers approved a law decree laying down urgent measures to ensure financial stability and market integrity in the event of a no-deal Brexit. In particular, the decree lays down a temporary regime — granting a grace period of six months (Short Grace Period) or eighteen months (Long Grace Period) starting from the no-deal withdrawal date (Withdrawal Date) — for UK-regulated firms operating in Italy and Italian-regulated firms operating in the UK that will lose their European passport in a no-deal scenario.

The decree (Law Decree No. 22 of 25 March 2019) was published on 25 March 2019 in the Official Gazette and is effective as from 26 March 2019. Continue Reading

UK and Italian Investment Services Firms Urged to Update Clients on Brexit

Posted in Brexit

The Italian Securities Commission asks banks and investment firms in Italy and the UK to inform customers of Brexit consequences promptly.

By Isabella Porchia

On 12 March 2019, the Italian Securities Commission (CONSOB) issued a warning notice to UK and Italian banks and investment firms providing investment services and activities in Italy and the UK, respectively, requesting that they inform their clients of Brexit consequences as a matter of urgency, especially in case of a “no deal”. CONSOB stressed that a no deal could lead to the loss of the European passport for the provision of investment services throughout the European Union.

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What EBA’s Outsourcing Guidelines Mean for Financial Institutions

Posted in Brexit, Emerging Companies and Technology, Finance and Capital Markets

The guidelines create new obligations for financial, payment, and electronic money institutions that will impact cloud outsourcing and deployment of FinTech.

By Fiona M. Maclean and Laura Holden

On 25 February 2019, the European Banking Authority (EBA) published a final report on its draft guidelines on outsourcing arrangements (Guidelines). The report followed the EBA’s publication of draft guidelines in June 2018 (Draft Guidelines) and the ensuing public consultation in September 2018 (Public Consultation).

The Guidelines replace the 2006 Committee of European Banking Supervisors (CEBS) Guidelines on Outsourcing (CEBS Guidelines) and replace and incorporate the EBA’s final recommendations on outsourcing to cloud service providers (Cloud Recommendations). Financial institutions will now only need to consult one set of guidelines for cloud and non-cloud outsourcing.

The Guidelines apply to a wider range of entities (Covered Entities for the purpose of this article) than the CEBS Guidelines and the Cloud Recommendations, including payment or electronic money institutions. The Guidelines now apply to all financial institutions that are:

  • Within the scope of the EBA’s mandate, including credit institutions
  • Investment firms subject to Directive (EU) 2013/36 IV (Capital Requirements Directive)
  • Payment institutions
  • Electronic money institutions

As a result, a wider range of companies, such as FinTech companies, will now face the challenge of remaining agile and competitive in fast-moving markets, whilst managing the administrative and practical challenges of maintaining compliance with the Guidelines.

The Guidelines come into force on 30 September 2019. Any outsourcing arrangements entered into, reviewed, or amended by Covered Entities after that date must comply with the Guidelines. Covered Entities must also update all existing outsourcing arrangements in line with the Guidelines by 31 December 2021. For Covered Entities that are already subject to the Cloud Recommendations, these deadlines will not have any effect on their obligation to comply with the cloud specific requirements – these requirements will continue to apply as they did prior to publication of the Guidelines. An overview of the status of the Cloud Recommendations, per jurisdiction, can be found here.

While “critical and important functions” are subjected to stricter rules, the Guidelines generally apply to all outsourcings by Covered Entities, including intragroup outsourcings, representing a further widening of scope when compared with the CEBS Guidelines. Covered Entities will therefore face additional administrative burdens that they must balance with the need to stay ahead of the competition. Following concerns raised at the Public Consultation, the EBA clarified in the Guidelines that regulators will not consider every outsourcing to a cloud solution as critical or important; rather the same test applies as with other non-cloud service providers, taking into account “cloud specificities”.

Under the Guidelines, the definition of “outsourcing” is based on the Commission Delegated Regulation (EU) 2017/565 and defined as: “an arrangement of any form between an institution, a payment institution or an electronic money institution and a service provider by which that service provider performs a process, a service or an activity that would otherwise be undertaken by the institution, the payment institution or the electronic money institution itself”.

The Guidelines define “critical or important functions” based on the wording of MiFID II and the Commission Delegated Regulation (EU) 2017/565, which includes functions that “if a defect or failure were to occur, would materially impair the continuing compliance of the firm’s activities and obligations”.

To outsource banking and payment services to a third country (i.e., non-EU) service provider, the Guidelines require the competent authorities responsible for supervising each party to have a co-operation agreement in place. Therefore, post-Brexit, the UK’s Financial Conduct Authority will need to agree a co-operation agreement with EU regulators to ensure that cross-border outsourced arrangements can continue between the UK and the EU27.

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