Aba Schubert

At the start of the week the Bank of England and the Financial Conduct Authority announced that the Digital Securities Sandbox is open for applications. Check out the article from my team at Hogan Lovells for everything you need to know about it (link in comments). In the meantime, here is a quick rundown of how the Policy Statement stacked up against 5 points that came out of our discussion with the Bank of England and the FCA a few months ago: ✅ We highlighted that firms that use digital assets within the DSS that fall under the definition of a cryptoasset under the MLRs will need to be registered with the FCA for MLR purposes. It is great to see that HMT has decided to bring the MLRs into scope of the FMI sandbox powers in FSMA 2023 and provide a temporary exemption so that engaging in DSS activity does not in itself make a firm a cryptoasset exchange provider or a custodian wallet provider under those Regulations. ❗ One of the shortcomings of the EU DLT Pilot Regime has been the thresholds that have been set out. With the DSS, we noted that there is a lack of transparency as to what the allocation of the overall limits are and therefore it is hard for firms to ascertain whether it is commercially viable to enter into the sandbox. It is reassuring to see that there is a new mechanism to allow the Bank to grant uplifts to the limits. However, it is important that the Bank use this mechanism to allow firms to trade with volume to not just make this commercially viable but also sufficiently test the infrastructure. ❗ We noted that the cost of operating in the sandbox is quite high. It is understood that these fees reflect the cost of the BoE and the FCA to stand up this function and that reducing fees could compromise the ability to effectively run this. However, there is a concern that this could price out some participants especially for those who consider the limits inhibiting from a commercial viability perspective. The BoE and the FCA have acknowledged this but kept it as is. ✅ The BoE Discussion Paper on innovation in money and payments noted that the BoE would not allow stablecoins or e-money to be used for wholesale settlements, which is reiterated in this Policy Statement. Whilst this is in some way disappointing, the Policy Statement does outline a number of other digital money solutions that are being pursued. ✅ With both the FCA and the BoE involved in the DSS, there was a suggestion that there should be a single point of contact for firms wishing to interact with the regulator as at present there is a fragmented approach which is over complicating the DSS. The Policy Statement acknowledged this and has ensured that the process is streamlined to avoid duplication however has reaffirmed its position that there will still be two distinctive assessments and no single point of contact. A lot has been taken on board and there is plenty to look forward to! Feel free to get in touch if you want to discuss any of this further.

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Financial Markets and Funds Partner Nathaniel Lalone recently spoke with Futures & Options World about the FCA's latest consultation on the derivatives trading obligation (DTO) and post-trade risk reduction (PTRR) services. This consultation shows the FCA’s intention to update the list of derivatives under the DTO to include certain Secured Overnight Financing Rate (SOFR) swaps and to expand the scope of PTRR services beyond portfolio compression. 💬 Calling it a positive development, Nate stated, “The FCA’s proposals would allow the market to solve for three types of non-market risk rather than just one. When you can solve for credit risk mitigation and better align payment flows and trigger dates, you’re expanding the types of risks that are being managed, which is only good for financial stability." Read more: https://bit.ly/3B3ngIF #Futures #Derivatives #FCA #DerivativesMarket #DTO #PTRR #SOFR

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Could we securitise data centres in low earth orbit? Please read our attached article for thoughts on this and other aspects of data centre securitisation

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UK Digital Securities Sandbox - open for applications + process clarified by regulators ➡ On 30 September, the Digital Securities Sandbox (DSS) was opened for applications following industry consultation, with the Bank of England and the Financial Conduct Authority publishing a joint Policy Statement clairfying their approach to its operation, as well as other materials including guidance and the relevant application form. We have summarised the key changes to and clarifications on the consultation proposals in our article below, which also links to our earlier article on those proposals. By way of recap, the DSS is intended to facilitate the issuance, trading and settlement of digital securities in the UK on distributed, programmable ledgers, through the creation of a regulated live environment that can be used by firms to undertake the activities of notary, maintenance and settlement for financial securities, either alone or together with the operation of a trading venue. It is hoped that the DSS will have better uptake than the equivalent DLT Pilot Regime in the EU, which has only received a very limited number of applications since opening last year and has received widespread criticism for its lack of practical application and impact. However, it remains to be seen whether the UK approach will do enough, quickly enough, to realise the government's ambition of making the UK a global hub for digital assets technologies, or whether it risks conceding further ground to jurisdictions that have moved more quickly and comprehensively to remove regulatory barriers.

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The clock is ticking with the publication of the UK’s FCA and PRA final rules on securitization; these will, together with The Securitization Regulations 2024, provide a new framework for UK securitizations with effect from 1 November 2024. #Securitization

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The clock is ticking with the publication of the UK’s FCA and PRA final rules on securitization; these will, together with The Securitization Regulations 2024, provide a new framework for UK securitizations with effect from 1 November 2024. #Securitization

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IA Reporter has put out an extensive review of the award in the case of Metlife v Argentina, which arose from a governmental decision to abolish the private pension regime in 2008 (the article is behind a paywall, but clearly it won’t be long before the award is published in its entirety). Metlife’s claim was for more than 500 million dollars, but the amount awarded came to barely over 8 million, plus around 6 million in legal costs. Around three quarters of the Metlife claim actually consisted of pre-award interest, calculated from a date going back more than 8 years before the arbitration was filed (2017). Over this period of time, interest rates were exceedingly low, but the reason why the pre-award interest claim was so large was that the rate at which interest was assumed to accrue was the Weighted Average Cost of Capital (WACC) of Metlife (11%). The rationale behind such a claim is that a governmental measure like that at issue in the case sequesters funds that an investor would have had available to invest but for the perfidy of the government that took measure, and for which the investor would expect to receive no less than their WACC. While such a rationale might sound superficially plausible, it is absurd. For one thing, capitalist firms are not guaranteed to recoup their WACC (in fact, the essence of the system is a process of Schumpeterian creative destruction whereby most firms don’t manage this). But even more tellingly, consider this thought experiment: assume two firms with different risk profiles and, hence, different WACCs, but identical market value (as calculated by the discounted cash flow methodology). The firms are expropriated on the same day. Their respective owners file for arbitration eight years down the line. Under the sequestration theory delineated above, the owner of the riskier firm with the higher WACC would supposedly be owed more in compensation than the owner of the firm with the better risk profile. Go figure. The sequestration theory underlying the Metlife claim was comprehensively pulverized in a classic paper by Romaine and Fisher with the peerless title of “Janis Joplin's Yearbook and the Theory of Damages” (https://lnkd.in/eJHyiKEQ). However, arbitrators may not be familiar with this paper and, furthermore, submitting inflated damages claims is something that is not penalized or sanctioned in international arbitration. Thus, as in Metlife, claims of the utmost dubiousness may be advanced by claimants who know that exaggeration may be (and often is) rewarded by generous increases to reasonable compensation. This is a manifestation of an empirically attested characteristic of decision-making under uncertainty referred to as ‘anchoring’, which in turn explains the phenomenon of runaway claim inflation discussed in Chapter 10 of Rethinking Investment Law (edited by David Schneiderman and Gus Van Harten), and of which Metlife v Argentina is yet another excellent example.

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Some really interesting statistics on liquidation preference stack seniority. In 2021 and even in the years immediately before, pari passu preferences became the overwhelming default financing term. That has shifted a bit in all financings and even more so for late stage companies and down round financings.

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I have written previously about the attractiveness of third-party portfolio funding for the private credit market. Essentially, if you have a well-structured, diversified portfolio (which is not always a straightforward process), you are moving the investor's risk away from binary risk to a much lower risk profile which still has attractive returns. There are good insights in this Private Debt Investor article from Zachary Krug of NorthWall Capital and Brandon Baer of Contingency Capital LLC. Please contact me about how best to put together portfolios which are attractive to these and other investors. #thirdpartyfunding #litigationfunding #litigationfinance #lawfirm #litigation #arbitration https://lnkd.in/gE6uF-Wk

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An interesting article by MLex on the impending implementation of 𝐓𝐡𝐞 𝐔𝐊'𝐬 𝐃𝐢𝐠𝐢𝐭𝐚𝐥 𝐌𝐚𝐫𝐤𝐞𝐭𝐬, 𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐀𝐜𝐭, which establishes a formal regime for digital market competition. Key points: As the new framework rolls out, major tech firms will need to reassess their market activities to ensure compliance and determine potential areas for resistance. Set to take effect this autumn, the law targets major tech companies like Amazon, Google, and Meta, designating those with significant market power as having “strategic market status” (SMS). Once designated, these companies will face specific conduct requirements and tailored enforcement actions from the Competition and Markets Authority (CMA). The CMA is swiftly moving forward with the regime, having opened a public consultation regarding its guidance shortly after the law was passed. The final guidance is expected to be published soon, setting the rules for how the CMA will enforce the new regulations. The SMS designation process will begin this autumn, with investigations into companies expected to occur next year. These designated companies will be held to higher standards regarding fair dealings, open choices, and transparency. The CMA anticipates starting several investigations within the first year, aiming for an adaptive enforcement approach that can respond to evolving competition challenges, such as those posed by generative AI.

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An opinion piece in the FT today titled "How to resolve the debanking debate" ends with a tentative proposal that the UK should move towards a "utility provision" model as in France, where a citizen who is unable to open a bank account can ask the central bank to nominate a commercial bank to take the account. The present reforms to address the debanking issue amount to slightly lengthening the notice period for account closure and adding an obligation to give reasons. I doubt this will do much to satisfy the grievances of affected customers. My own view is that neither the "longer notice" nor the "French model" solutions quite get to the root of the problem. The root cause is the shape of the AML regime itself. This essentially requires financial services firms to capture KYC material and then report suspicious account activity, all under continual threat of criminal penalties if they get anything wrong. The incentives are all towards compliance and risk-minimization, without an effective check on how this impacts customers. Applying another rule on top to require firms to pay more attention to the needs of customers is not a good solution, because the competing requirements are often in conflict. An alternative would be to allow financial services firms a safe-harbor to retain customers after a suspicion arises, coupled with enhanced data sharing with the authorities. That would at least remove the risk aversion driver for account closure.

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📣 Important Update from the SCA: Introducing Broker Contracts Now Limited to Licensed Companies 📣 In a move to enhance regulatory oversight and safeguard market integrity, the Securities and Commodities Authority (SCA) has announced a significant update impacting Introducing Broker (IB) contracts. Effective immediately, all IB contracts can only be entered into with companies that are officially licensed by the SCA to engage in introducing activities. 🔍 Why This Matters: This new directive is set to bring several key benefits to the UAE's financial markets: 1. Enhanced Regulation: Ensures that only authorized and regulated entities are involved in introducing activities, reducing the risk of non-compliance and unethical practices. 2. Increased Transparency: Promotes clearer and more transparent market interactions by aligning IB activities with established regulatory standards. 3. Greater Investor Protection: Provides an added layer of security for investors by ensuring that IBs are operating within a framework of oversight and accountability. 💡 What This Means for You: For Companies: If you're currently engaging with IBs, it’s crucial to verify their licensing status with the SCA to ensure compliance with the new regulations. For Investors: This change enhances your protection, as all IB activities will now be conducted by firms meeting SCA’s stringent requirements. Stay informed and ensure that your business practices align with the latest regulatory updates to maintain compliance and uphold market integrity. For more details on this directive, refer to the latest SCA Circular No (1/2024). #SCA #Regulation #FinancialMarkets #InvestorProtection #Compliance #MarketIntegrity #UAEFinance #FinancialRegulation #IntroducingBrokers #SecuritiesAndCommoditiesAuthority #UAElawyer #Iran #Lawyer #Legal📈🛡️

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💡 In this article, London Senior Associates Archit Dhir and Alex McCue discuss the recent UK Supreme Court decision in Sharp Corp Ltd v Viterra BV on the measure of damages under the GAFTA default clause.    Read their insights here: https://lnkd.in/eMy5EKhA   If you have any questions around this decision, please don't hesitate to reach to Archit or Alex.    #WFW #DisputeResolution #SupremeCourt 

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🎤 Musings from Day 1 of British Private Equity & Venture Capital Association (BVCA) #Accelerate conference: 🌩 Exit strategies in turbulent times 🌩 👀 The market has evolved and secondaries (at both portfolio company level and in terms of LP stakes) are much more prevalent. ➗ There has been an increase in discounts at secondary stage in the last 12-18 months; usually hovering around the 20-25% mark, but as high as 50%. At the other end of the scale, if it's a high performing asset with substantial interest, then even ordinary shares can be transferred at a 0% discount… 🎶 Funds are typically keen to hang on to their best performing assets, but are focussed on exit strategies for their "middling" portfolio companies. 💡 General consensus that it is best for funds to get founders/management/Board on side for a secondary, and ideally wrap the secondary in alongside a primary and alongside a partial secondary for founders. 🤷‍♀️ Mixed views on the various platforms for secondary trading (e.g. PISCES); but probably too early for a strong view. *** ⭐ Fundraising market at fund level (because founders are not alone in their fundraising struggles…!) ⭐ 🔥 The market has turned since the Covid boom era, and it has become harder to fundraise, due in part to the niche asset class and the need for long term investors who are willing to weather multiple drawdowns and cede control for portfolio curation. ☎ Catch 22 for fund managers; often sovereign affiliated investors (including the BBB) want to see private capital at the table before they will commit. In general though, a number of compliments for the BBB on their co-operative and collaborative approach, and their ability to size-up and be an anchor investor. 🌍 Often sovereign affiliated investors have strict limitations on where capital can be deployed (particularly jurisdiction-based, understandably). This limits emerging managers with a global remit and can impact their ability to attract institutional LPs who do not want jurisdictional limits to impact their potential ROI. 👂 More support needed for first time managers in what is generally seen as an opaque process; a collective action problem that needs a consortium to lead the way in providing tools to entry for emerging fund managers.

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Thank you, AIBC World, SiGMA World - for inviting me to speak on front of such a massive crowd of the Gaming industry CEOs, and C-level and senior industry players!! Immensely enjoyed the smart (attendees of my speech - you get it, right?😄) questions and challenges!! . 🐆JAGuar Reg&Comp 🐆 #AI_CPA #AI_Lawyer #CryptoCPA #CryptoLawyer #CryptoTax #CryptoBanking #בלוקציין #ביטקוין #קריפטו #מטבעות #דיגיטליים #וירטואליים #רגולציה #מיסוי #הלבנת #הון #ציות ‏#Blockchain #Decentralized #Virtual #Digital #Crypto #Currency #Regulation #AML #Compliance #Speaker

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