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Investment opportunities continue to increase. But uncertainties surrounding deal processes and risk mitigants are ever-present challenges

Anna Pinedo In mid-February 2014, the Federal Reserve approved the final enhanced prudential rule for foreign banking organisations (FBOs) under Section 165 of the Dodd-Frank Act. The final rule applies enhanced standards to FBOs that have a US banking presence, with the most onerous standards being applied to FBOs that have combined US assets of $50 billion or more, or US non-branch assets of $50 billion or more. Admittedly, the rule does not require subsidiarisation of the US operations of foreign banks, and it eliminates the requirement that FBOs with US assets outside the branch and agency network of less than $50 billion establish an intermediate holding company (IHC) for its US subsidiaries. This IHC requirement would apply only to the largest FBOs. The IHC would be subject to regulatory requirements applicable to comparably sized US institutions, such as risk-based capital standards and leverage requirements and other prudential standards on a consolidated basis, including stress testing. Branches and agencies would operate outside the IHC requirement, be subject to liquidity requirements, and may be required to hold liquidity buffers outside the United States. In addition, certain institutions would be required to implement certain risk management policies and procedures, including, for example, forming a risk committee to oversee risk management for its combined US operations and employing a US chief risk officer to aggregate and monitor risks of the combined US operations. Other prudential standards will be addressed separately, such as the large exposure framework for banks and remediation frameworks. Although the final rule addressed a number of the concerns that were raised regarding the December 2012 proposal, it still raises quite a number of issues for complex banking entities with international operations, including significant US businesses. The final rule was adopted shortly after the Volcker Rule had been finalised. It is too early to predict how the activities of foreign banks may be affected by the cumulative impact of the Volcker Rule and this rule. But many foreign banks will certainly consider carefully each of their businesses, the regulatory capital costs associated with these, whether it is possible or desirable to restructure certain businesses so that activities are conducted solely outside of the United States, and the incremental regulatory and compliance costs and risk exposure associated with retaining these businesses in the United States. Regulators outside of the United States can be expected to adopt, and in certain cases already have indicated that they are considering adopting, similar measures in order to address the risks posed in their jurisdictions by the activities of banking entities organised outside of their jurisdiction. One can't help but wonder whether this will lead to the balkanisation or localisation of banking activities.

Iñigo de Luisa Ignacio Buil Royal Decree Law 4/2014 of March 7, on urgent measures for refinancing and restructuring corporate debt, significantly amends Spain's insolvency regulation in several key ways. One of its most relevant new provisions deals with the new regime for court-sanctioned (homologation) refinancing agreements (also known as Spanish schemes of arrangement) under the 4th Additional Provision of the Spanish Insolvency Law. The new framework is mainly aimed at improving refinancing processes in Spain. It will introduce more flexibility and new tools to enhance the deleveraging of viable Spanish companies, and facilitate pre-petition restructuring deals while preventing debtors from filing for concurso which is generally value-destructive as in more than 90% of cases results in liquidation, with very low recovery for creditors.

The US regulator's investigation into the rate-rigging scandal poses difficult questions for jurisdictions around the world. University of New South Wales' Professor Justin O'Brien explains why

George Borovas,

Disintermediation via group insurers is the low hanging fruit for longevity de-risking

John Breslin Karole Cuddihy In a recent decision, the Irish High Court held that if an investor has paid money to a firm based on a fraudulent misrepresentation, the payer has a proprietary claim to the payment (In re Custom House Capital; Scott v Wallace 2013 IEHC 559). This is obviously crucial where a firm is in insolvent liquidation. The Irish High Court (Justice Finlay Geoghegan) held that monies held on account by Custom House Capital Limited (CHC) before its winding up were held on trust for one of its clients. The client of CHC had, between April and July 2009, transferred most of her personal savings and pension funds to CHC for investment, including a sum of €145,000 ($202,000), referred to as a deposit. The client had agreed that the latter sum would be invested by way of a subordinated loan agreement.

Alexei Bonamin Ricardo Mastropasqua On December 20 2013, the Brazilian Exchange Securities Commission (CVM) issued a set of rules which regulate the rendering of services related to the Brazilian capital markets' infrastructure, as follows: (i) CVM Instruction 541 regulates matters regarding the centralised deposit of securities; (ii) CVM Instruction 542 governs the rendering of securities custody services; and (iii) CVM Instruction 543 regulates securities bookkeeping services and the issuance of securities certificates. In accordance with CVM Instruction 541, the centralised deposit service of securities comprises the following activities: (i) securities' safekeeping by the central depository; (ii) controlling the chain of ownership of securities in the deposit accounts maintained on behalf of investors; (iii) restricting practices related to securities' disposal by the ultimate investor or by any third party outside the central depository environment; and (iv) the handling of trading instructions and of incidental events that affect the deposited securities, with the corresponding records on the deposit accounts. CVM Instruction 541 does not apply to positions held in the derivatives market outside the central depository environment. However, it does apply to the establishment of liens and encumbrances on positions held in derivative agreements of any kind, provided that the central depository is also authorised to provide registration services to such agreements. CVM Instruction 541 also applies to financial bills and other instruments that are subject to the jurisdiction of CVM.

Mak Lin Kum The Companies Bill 2013, tabled by the Companies Commission of Malaysia, proposes a new approach to the reduction of share capital, in line with developments in jurisdictions like Australia and Singapore. At present, a special resolution for the reduction of share capital requires a confirmation by the court before it can take effect. The new bill allows an alternative and a seemingly simpler process of capital reduction, whereby only a special resolution and solvency statement are required. The option of going to court to confirm a capital reduction resolution is still preserved under this new Bill. Although it may appear that this non-court approach is simpler, several reasons may be offered as to why the court approach may continue to remain popular and not be rendered obsolete.

An incoming legislative amendment could force China to reconsider its fragmented system of financial markets oversight