Structured Products Europe Awards 2016
"Pounding the pavement": that is the expression Simmons & Simmons partner Penny Miller uses to describe her team's constant face-to-face liaison with dealers, buy-side firms, trade associations and regulators. It may also be what has given it the edge over other law firms in dealing with the multiple legal and regulatory challenges facing Europe's structured products industry.
As London-based partner in the law firm's financial services regulation practice, Miller has earned an enviable reputation as one of Europe's leading structured products lawyers, with deep knowledge and a broad network of industry and regulatory contacts. Her team was widely recognised by the judges to be the best in the City when it comes to helping market participants understand and implement regulations.
"We have worked with Simmons & Simmons extensively during the past few years on several structured products-related projects. Their commitment to helping the industry find workable solutions to difficult regulatory issues is most notably evidenced by frequent and timely roundtables, and their advisory work is always technically excellent, commercial and practical," says a senior equities official at one top-tier bank.
Simmons & Simmons has worked proactively with the industry on the full gamut of European regulations since the financial crisis, but it is on the Packaged Retail and Insurance-based Investment Products (Priips) regulation that it has distinguished itself over the past two years.
As well as providing technical advisory services to many large banks on Priips implementation and the drafting of key information documents (Kids), the law firm has lobbied the European Commission and European Supervisory Authorities in partnership with industry bodies to resolve ambiguities in the regulatory texts.
We have liaised directly with the European Commission on behalf of the trade associations to clarify key points, particularly around grandfathering and territorial scope
Penny Miller, Simmon & Simmons
"We have liaised directly with the European Commission on behalf of the trade associations to clarify key points, particularly around grandfathering and territorial scope, and have also held our own industry roundtables on Priips to discuss the key requirements, which have been very well-attended," says Miller.
Priips has been dogged by disagreements and delays since the regulation was first published in November 2014. Most recently, the European Parliament's rejection of the regulatory technical standards (RTS) in September 2016 created widespread concern that the end-of-2016 deadline would be impossible without agreed RTS in place.
A decision by the European Commission on November 9 to grant a one-year delay, giving issuers and distributors until January 1, 2018 to implement Priips, gives the industry some relief and will align the regulation directly with the implementation of the recast Markets in Financial Instruments Directive (Mifid II), but time is still in short supply.
"The extension to 2018 is welcome news but firms still need to continue with implementation. This is an extensive exercise that requires the distillation of complex product descriptions and performance scenarios into a short document. Firms are rising to that challenge and we are still working with them on drafting every day," says Miller.
Of particular concern, she adds, are the sanctions that may be applied to firms that don't have accurate Kids in place by the time Priips comes into force. While the RTS still need to be agreed with the European Parliament in the coming months, the text of the regulation grants national competent authorities the power to impose fines of up to 3% of the total annual turnover of the legal entity, which could amount to substantial sums.
"The potential for a 3% total annual turnover fine if a Kid is in breach of the regulation is fairly unprecedented. We don't see anything like that in Mifid II or the Prospectus Directive. It creates regulatory risk, reputational risk and additional pressure to get this right first time," says Miller.
Among the string of outstanding issues on which practitioners are still seeking clarity is the scope of applicability of Priips, and whether a Kid must be drafted for all secondary market products. In the absence of clear regulatory guidance, Simmons & Simmons believes a conservative approach should be adopted, but that doesn't necessarily mean every single product will require a Kid.
"We've had a lot of discussions on this. Our view – and, we understand, the view taken at the Priips workshop in Brussels in July 2016 – is that if all you are doing is offering a bid price for redemption, so that the investor can only sell back the notes to the issuer, then the product is not within scope as it is not being ‘made available' to retail investors," says Miller.