Year in Review - English Law in 2016

Brexit: The High Court in November ruled that the government did not have the constitutional authority to trigger Article 50. The Supreme Court’s judgment on the appeal is due in January.

Tort and Privy Council authority: In July, the Supreme Court confirmed that malicious prosecution of civil proceedings does exist in English law. The Court also addressed conflicting House of Lords and Privy Council decisions and issued a judgment on the status of Privy Council decisions before English courts. Read more…

Predictive coding: In February, in an important development for the use of technological aids in court proceedings, the High Court, for the first time, approved the use of predictive coding technology as a tool for conducting a substantial e-disclosure exercise in commercial litigation. Read more…

Courts reject implied duty of good faith: In July, the Court of Appeal restricted the situations in which a duty of good faith will be implied into a contract. However, parties to a contract can expressly agree to act in good faith and must exercise any discretion under a contract rationally. Read more (subscription required) …

Worker status: The Employment Tribunal found that Uber drivers are workers not self-employed contractors. Thousands may be able to claim minimum wage and holiday pay. Uber is appealing. Read more…

Corporate, real estate and tax transparency: UK companies and LLPs must keep a new register of persons with significant control over them and file the information at Companies House with the new check and confirm statement (which replaces the annual return). Read more…  Disclosure of overseas companies’ beneficial ownership of UK real estate has also been proposed. Read more…  New rules require certain UK taxpayers and partnerships that meet a financial threshold to publish their UK tax strategy online.

Slavery and human trafficking statements under the Modern Slavery Act: Organisations doing business in the UK with a turnover over £36m became required to report on their supply chains. Read more…

Digital single market: The European Commission has made progress on its Digital Single Market Strategy, which aims to maximise the growth potential of the digital economy and achieve better access to digital goods and services across Europe. Among other things, the Commission has proposed a copyright reform package, including a new Regulation on the cross-border portability of online content services; launched an antitrust inquiry into the e-commerce sector; and tabled a proposal to address unjustified geo-blocking. Read more...

New Trade Secrets Directive: The new EU Trade Secrets Directive came into force. It is designed to harmonise the treatment of confidential information across the EU. The implementation deadline for all EU member states is June 2018. The Directive requires only minimum harmonisation and is already largely aligned to current UK law, so any changes here will be mainly form over substance. However, the harmonisation should be beneficial for those conducting business across the EU. Read more…

Data security: The General Data Protection Regulation and Network and Information Security Directive were adopted and will require companies to better protect their systems and report breaches to regulators when those laws come into force in May 2018. Read more… 

Insurance contracts: The Insurance Act 2015 came into force in August, making significant changes to UK insurance law, including in relation to policyholder disclosure, warranties and remedies for fraudulent claims.

State aid challenges to tax rulings: The European Commission investigated whether tax rulings by some tax authorities amounted to unlawful state aid and ordered the recovery of a record €13bn (plus interest) of what it decided was unlawful Irish aid. Other investigations continue, and some decisions have been appealed to the EU Courts. This has resulted in uncertainty for Member States and companies, with multinationals potentially having to pay for up to a decade of taxes that they thought were not due. Read more…

New EU Market Abuse Regulation: MAR introduced new rules on market abuse, market soundings, investment recommendations, disclosure of inside information, insider lists and dealings by senior managers, and many procedural requirements. The UK Model Code has been deleted and listed companies no longer have to operate dealing clearance processes for directors, although in practice most still do so. Read more…

EU Audit Regulation: Since June an audit engagement for listed companies, banks, building societies and insurers is limited to 10 years, extendable to 20 years if re-tendered out at least every 10 years. There are also changes to audit committees and to rules on non-audit services. Read more… Contractual clauses which restrict or limit a choice of auditor are prohibited and unenforceable. Read more...

Proposed Directive on preventative restructuring frameworks: This would place greater emphasis on corporate rescues and reduce the ability of shareholders and creditors to block a viable restructuring forcing a liquidation. Read more... 

Schemes of arrangement: These are popular with corporate debtors (often foreign) to restructure their commitments. The English courts have given guidance on best practice, emphasising disclosure to the court and creditors of all relevant matters, including jurisdictional issues, fees and additional benefits received and detail on the reasons for the scheme, predicted outcomes and alternatives. Read more...

Clean energy: In November the European Commission published proposals on energy efficiency, renewable energy and electricity market design and security of electricity supply, including accelerating innovation, eco-design and a strategy for connected cars.

Energy and retail banking market investigations: The CMA completed two big market investigations. The outcomes and implementation of the remedies will have a significant impact on consumers and small businesses in the UK, as well as on energy companies and banks. Read more on the findings of the market investigations in energy and retail banking         

Insurance Companies: Solvency II, a new EEA-wide capital adequacy and risk management regime for insurers and reinsurers, came into force in January. It moves to a risk-based regime and harmonises the rules. Solvency II has resulted in significant change for many firms in how they calculate their regulatory capital requirements and in relation to governance and reporting.

Individuals in regulated roles: The Senior Managers and Certification Regime came into force in March for UK deposit-takers, PRA-designated investment firms and UK branches of overseas banks. The Senior Insurance Managers Regime came into force in March. New whistleblowing rules for regulated firms in September will encourage whistleblowers and impose positive obligations on firms to put policies and procedures in place. Read more… The PRA and FCA published new rules requiring regulated firms to seek and provide references for individuals in regulated roles and specifying how this must be done. Read more…

Benchmark Regulation: The EU Regulation on indices used as benchmarks in financial instruments and contracts or to measure investment fund performance was published in June, although most of it will not take effect until 2018.  A potentially wide range of indices from interbank rates to custom/proprietary indices may be affected. Detail will be specified in secondary legislation expected in the first half of 2017.

EMIR: The phase-in of mandatory clearing for certain classes of OTC derivatives between relevant counterparties commenced in June.

MiFID II & MiFIR: Application has been delayed until 2018. The European Commission adopted delegated acts and technical standards. ESMA began publishing level 3 guidelines and thematic questions and answers. The FCA and the PRA consulted on transposing MiFID II into UK law.

First-ever order by the FCA for an individual to pay restitution for insider dealing: In July, the FCA gave its first order for restitution in an insider dealing (as opposed to market manipulation) case. This has raised the question of whether compensation for contemporaneous traders might become a more prominent feature of such cases. Read more… 

Securities financing transactions:  New rules came into force in 2016 on the use of securities financing transactions and total return swaps and requirements for parties granted a right of reuse over financial collateral. Further requirements come into force in 2017. Read more…

Recovery and resolution of CCPs: In November, the European Commission published a proposal for a Regulation on the recovery and resolution of central counterparties.

Year to Come - English Law in 2017

Brexit: The Supreme Court’s decision on whether parliamentary approval is required to give notice under Article 50 of the Treaty on European Union is expected in January. If the government wins, it is expected to serve the notice by the end of March. This will start the process for negotiating a withdrawal agreement between the UK and the European Union. The timing could be affected if the government loses the appeal. Negotiations on the future relationship between the EU and the UK may take place at the same time as those on the withdrawal agreement.

Business crime: The Criminal Finances Bill 2016, which is likely to be enacted in Spring 2017, includes a new corporate crime of failing to prevent the criminal facilitation of tax evasion. The government will consult on a further new corporate offence of failing to prevent economic crime generally. Read more

European data protection reform: The General Data Protection Regulation will apply in all Member States from May 2018. This is the biggest shake-up to European data protection laws in 20 years with fines of up to 4% of annual worldwide turnover. Our at a glance summary is available here and survival guide here.

Data transfers under scrutiny: The EU-US Privacy Shield (adopted to replace the US Safe Habor scheme) is being challenged in the CJEU. The Irish High Court is also expected to refer the use of Model Contracts to the CJEU in early 2017. Both decisions could have serious implications for cross-border data transfers.

The EU Unified Patent Court Agreement: Is back on track and expected to come into operation in 2017. Read more...

Gender pay gap reporting: Revised Gender Pay Gap Information Regulations were published in December 2016 and are expected to come into force on 6 April 2017. Private sector employers with over 250 employees will have to publish information on their gender pay gap, including bonuses, by 5 April 2018. Read more...

Workers’ rights: We expect reports from the Business, Energy and Industrial Strategy Committee’s inquiry into the changing nature of work and workers’ rights including the rights of those in the ‘gig economy’ and the Taylor review into modern employment practices, looking at job security, wage levels and employees’ rights.

Board pay and corporate governance reform: A Green Paper on Corporate Governance Reform is looking at shareholder influence on executive pay, strengthening the voice of employees, customers and other stakeholders on company boards and extending the corporate governance regime to the largest UK privately-held businesses. Proposals include an annual binding vote on directors’ remuneration and publishing pay ratios. Read more... Separately a Parliamentary Committee inquiry into corporate governance is focusing on board pay, directors’ duties and private company regulation. The Shareholders’ Rights Directive will be finalised in 2017 and will impose additional board pay rules, probably from 2018/19, though companies will need to prepare for them.

Financial regulation of pay: The PRA rules on buy-out bonuses came into force on 1 January 2017. These stop employees from wiping the slate clean by changing jobs. PRA and FCA guidance on a number of aspects of remuneration apply from 1 January 2017. The European Commission has published proposed amendments affecting in particular bonus cap, deferral and non-cash rules.

Ethnic diversity on boards: Following on from the Davies initiative to increase the number of women on company boards, the Parker report has called for a similar business-led approach to ethnic diversity. It recommends that each FTSE 100 Board should have at least one director of colour by 2021 (and each FTSE 250 Board by 2024). Companies that don’t could be asked to explain why not. Read more…

Duty to report payment practices: From April 2017, large businesses will be required to publish details twice a year on the average time taken to pay supplier invoices. The government has promised to issue guidance on this new reporting obligation early in 2017. Read more...

UK corporation tax: The Finance Bill 2017 is set to restrict interest deductibility and loss relief, introduce more flexibility in relation to loss relief and widen when gains on disposals of subsidiaries are exempt from tax. Many groups and entities will be affected, and will need to rethink their structures and models. Read more…

Insolvency Regulation: The new EU Insolvency Regulation will apply from 26 June. It will apply to pre-insolvency rescue proceedings to ensure their recognition across the EU and avoid unnecessary liquidations. It also provides for a new group coordination proceeding. The provisions on national insolvency registers and a decentralised system for their interconnection will not apply, however, until 2018 and 2019. Read more… The UK Insolvency Service consulted on a number of changes to the UK corporate insolvency framework. The government is yet to clarify next steps. Read more...

Merger Control thresholds: The European Commission is consulting on the procedural and jurisdictional aspects of EU merger control - the likely proposals for action are expected to include changes to jurisdictional thresholds. It has consulted specifically on transactions which are significant from a market perspective, but do not meet current turnover thresholds and thus escape review, and invited views on further simplification of the case referral system and for cases that clearly do not raise competition concerns. Read more…

Implementation of the Antitrust Damages Directive: By the end of 2016, Member States had to implement the EU Directive on Antitrust Damages Actions. It aims to promote and facilitate private redress. Its effects (particularly on choice of forum) will likely start to be felt during 2017. Read more

Increased antitrust powers: The European Commission is expected in early 2017 to propose increasing national competition authorities’ enforcement powers (eg fining, leniency and independence). Read more…

Anti-Money Laundering Directive 4 (“MLDIV”): MLDIV and the accompanying Wire Transfer Regulations will apply by June 2017. They expand the current AML regime scope, change customer due diligence and increase transparency of beneficial ownership, imposing higher standards with greater flexibility for entities and regulators to adapt to specific risks. Amendments to the Level 1 text of MLDIV (“MLDV”) are still under consideration and a final position will be confirmed in 2017, along with the final Level 2 and Level 3 legislation.

New Prospectus Regulation: This is expected to come into force in Q2 of 2017 and be phased in with changes to prospectus content and procedural requirements. The timetable for application means that for most market participants there will be time to prepare for the new regime. Read more... here and here.

Interest rate reform: The inter-bank offered rates (“IBORs”) are expected to be reformed in 2017 with new fallbacks for use where a key benchmark is no longer published. The changes will have an important impact on loan and capital markets documentation. Read more...

MiFID II: The remaining delegated acts and technical standards for MiFID II and MiFIR are to be published in the Official Journal and further final guidelines and questions and answers are expected from ESMA. In the UK, the FCA and PRA will publish policy statements in preparation for the transposition deadline of July 2017.

EMIR: EMIR will continue to be phased in in 2017, particularly as to margin requirements and mandatory clearing. Read more… The European Commission is expected to review EMIR in 2017. Changes are likely on streamlining of reporting, ensuring the regulatory burden imposed by EMIR is proportionate for different types of entities and to address difficulties in accessing clearing for non-financial counterparties and small financial counterparties. It may also make permanent the temporary exemption from mandatory clearing for pensions funds. Reforms are also expected on the recovery and resolution of central counterparties.

PRIIPs: The new Regulation on pre-contractual disclosure rules for “packaged retail investment products” and “insurance-based investment products” will not apply until January 2018 but an appropriate approach to programme documentation (such as selling restrictions and legends) needs to be put in place from January 2017, as programmes updated after that date will continue to be valid for issuance into 2018.

FCA’s competition investigation into corporate and investment banking: The Financial Conduct Authority published its final report in October 2016, together with a consultation paper proposing prohibiting ‘right of first refusal’ and ‘right to act’ clauses in investment and corporate banking engagement letters and contracts. Bridging loans are excluded from the prohibition, which is intended to be implemented in early 2017 through the FCA’s Conduct of Business Sourcebook. 

FCA’s approach to identifying third parties in enforcement notices: The Supreme Court judgment in FCA v Macris will determine when a third party has been ‘identified’ in an enforcement notice, triggering the right to comment. This could have significant implications for FCA investigations. Read more