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Club Level Feature – Citrin Cooperman

Citrin Cooperman’s International Tax Services Practice Navigates the Complex Environment Affecting Transatlantic Business

With an unpredictable political and economic landscape, strategic planning today for businesses and individuals alike is a great challenge.  Between Brexit uncertainties and possible looming trade war, the global marketplace is on the edge of their seats, trying to predict the future, and, of course, hedge their bets as to making sound business decisions. Without a doubt, the effects of these events will change the economic environment for years to come, with major implications for international businesses.  Are you prepared?

With increasing complexities in regulations and compliance, Citrin Cooperman has invested heavily in resources to plan and assist our current and future international clients.  In the past few years, we have expanded our International Tax Services Practice, launched a dedicated Transfer Pricing Practice, and added an office in London, England to better serve the global market.  Our team, led by Partner and Practice Leader Leon Dutkiewicz, Jr., speaks over 25 languages and provides our clients with consulting and compliance services including advisement on transfer pricing, structuring and restructuring, cross-border transactions, international tax planning, and more.

For high net worth clientele, Citrin Cooperman takes a holistic, multi-faceted approach focused on multi-generational tax planning and compliance, financial services advisory, insurance and risk management, tax controversy, and audit representation, as well as family office and back office services.

Contact a Citrin Cooperman International Tax Services team member today to learn more about how we can help you and your businesses achieve your goals all the while planning and preparing for the changes to come.  Visit our website at www.citrincooperman.com for more information on our services.

About Citrin Cooperman: Citrin Cooperman is among the largest, full-service assurance, tax, and business advisory firms in the United States, having steadily built its business serving a diverse and loyal clientele since 1979. Our daily mission is to help our clients “focus on what counts.” Rooted in our core values, we provide a comprehensive, integrated business approach to traditional services, which includes proactive insights throughout the lifecycle of our clients wherever they do business, across the globe.  Citrin Cooperman is an independent firm associated with Moore Stephens International Limited. citrincooperman.com


Club Level Feature – McConnell Johnson Real Estate, LLC

BABC member, McConnell Johnson Real Estate, Earns Delaware’s first WiredScore Platinum Certifications

McConnell Johnson Real Estate and WiredScore, the pioneer behind Wired Certification, the international standard for cutting-edge internet connectivity in office buildings, recently announced the first certified properties in the state of Delaware.

The pair of office towers on Wilmington’s North Market Street joins the more than 1,700 Wired Certified buildings worldwide that offer top-notch tech capabilities. The designation was assigned upon review of the buildings’ best-in-class connectivity, technological infrastructure and readiness to adopt to emerging technologies. Both office towers, 1201 & 1313 North Market Street achieved the certification’s highest level, Wired Certified Platinum.

Platinum Wired Certification represents the best-in-class standard of in-building connectivity, infrastructure, and readiness. The Empire State Building, Willis Tower in Chicago, and the Shard in London are some of the world-class properties that have achieved this recognition. Collectively encompassing nearly 1 million rentable square feet, these properties offer a range of amenities to tenants including generous floorplates, on-site conference and fitness amenities, abundant parking and walkable access to nearby retail amenities.

These properties benefit from an extensive investment in fiber-optic expansion in the State of Delaware fueled by private investment and grants provided by DEDO and DTI to help accelerate deployment of key fiber-optic routes. This combined investment has created a dense fiber-optic network in Delaware with 1201 & 1313 North Market Street acting as a key HUB site with strategic access to domestic US routes and trans-Atlantic cable landing point on the east coast.

The establishment of a hub for carrier routes at 1201 North Market Street allows for fiber-optic connectivity to a broad range of key markets as well as significant local and regional connectivity. In addition to over 250+ fiber miles in the State of Delaware and extensive reach in New Castle, Kent and Sussex counties. 1201 N Market also acts as a regional HUB for connectivity to 2000+ miles of fiber in bordering PA and NJ with critical low latency routes south to key data centers in N Virginia, north to Philadelphia, NYC and Boston, west to Pittsburgh, Chicago and the west coast.

“The WiredScore Platinum independent certifications for 1201 and 1313 creates better transparency for those tenants that are dependent on the digital economy for future growth,” said Scott Johnson, Partner of McConnell Johnson Real Estate.

“We’ve now clearly entered a time in which an uninterrupted digital experience has become non-negotiable for office tenants to feel empowered and productive,” said Arie Barendrecht, CEO and founder of WiredScore. “As the first properties in the state of Delaware to pursue and earn Wired Certification, 1201 and 1313 North Market Street stand out as forward-thinking properties in the region and can clearly demonstrate a commitment to digital connectivity.”

In pursuing Wired Certification, the properties underwent a comprehensive certification process that evaluated the aspects of digital infrastructure that enable a seamless connectivity experience in which office tenants are able to stay online and maintain productivity levels.

Upon review of the project’s technical elements including: internet service providers available to tenants, infrastructure redundancy, connection access points, and readiness to meet future tenant needs, a Wired Certification level is assigned based on the official standards developed by WiredScore and its connectivity advisory board with representatives from Google Fiber, Rudin Management, Arup, WSP / Parsons Brinckerhoff, and Zayo Group.

ABOUT MCCONNELL JOHNSON REAL ESTATE

McConnell Johnson Real Estate is a leading acquisition, development, and management company with commercial and industrial properties throughout the Mid-Atlantic region. The company’s unwavering commitment to service excellence has attracted and retained first-class tenants, and McConnell Johnson prides itself on a strong dedication to fostering respect and stewardship for business, economic, and community leadership.  In 2018, McConnell Johnson Real Estate’s 1201 N. Market Street and 1313 N. Market Street properties received the area’s first platinum ratings from WiredScore, recognizing its dedication to next-generation connectivity needs. For more information about McConnell Johnson Real Estate, please visit McConnellco.com or call (302) 421-2000.

ABOUT WIREDSCORE

WiredScore is the organization behind Wired Certification, the internationally recognized digital connectivity rating system for commercial real estate that helps landlords design and promote buildings with powerful digital connectivity.

Wired Certification champions cutting-edge technology in commercial real estate by providing the only certification for rating the infrastructure, connectivity and technological capacity of commercial buildings. WiredScore launched Wired Certification in 2013 in partnership with Mayor Bloomberg and the City of New York; in October of 2017, an investment group led by Bessemer Venture Partners and Fifth Wall acquired the company’s majority share.

In an increasingly tech-driven economy, connectivity is fast becoming the most critical factor for tenants when selecting office space. The widely recognized Wired Certification seal is a trusted symbol that identifies buildings that have been independently certified to provide the best-in-class connectivity infrastructure that businesses require to thrive. For more information on Wired Certification or to find Wired Certified buildings, visit: http://wiredscore.com/

 

 

 


Club Level Feature- Johnson, Kendall & Johnson

JKJ: Let’s Make the World a Smaller Place

For global organizations, the management of risk is constantly evolving. Assessing risk cannot be compartmentalized to the standards and norms of the parent company’s country laws, regulations, operations, and litigious environment. JKJ’s risk assessment factors in many entities, countries, governing bodies, and exposures. We work with global organizations around the world on the avoidance, prevention, retention, and transfer of risk when the business is managing risk in conjunction with their US domiciled entity through commercial insurance programs and risk prevention practices.

JKJ’s model to service client locations across the country from a centralized location is an important attribute of our international business model. We have the licenses required in all 50 states for admitted and non-admitted placements, but also, our team is able to be at client locations regardless of where the location may be. This model allows us the flexibility to service subsidiary locations anywhere in the country and focus on developing a high level of competency with a centrally located team. We travel frequently outside the US to meet with executive management teams, risk managers, or ownership of foreign parent companies as part of the global interaction. A primary factor to perpetuate this model is our commitment to remaining independent. By remaining private and independently owned, we can focus on driving resources back to the benefit of our clients rather than outside stakeholders.

We focus on four primary areas for our international clients which are: Communication, Culture, Coordination, and Compliance.

Through our prior experiences in international transactions we find there is a significant opportunity of creating value to parent and subsidiary companies by beginning with the understanding of the differences in culture and customs of transacting business in each country. Addressing these differences with an integrated solution can be cost effective and coverage efficient for our clients.

Communication

We focus on transparency for all parties including local management, foreign brokers, executive headquartered management teams, etc. This enables us to properly understand all elements of a risk profile and equipping the global group to make sound business decisions. Transparency is key; ambiguity and vague interpretations lead to miscommunication and ill-informed business decisions.

Managing risk globally must be a collaborative effort and requires answering tough questions which often go unasked. This lends to our philosophy that in person meetings are vital. This leads our team to traveling the world for meetings with company headquarter and subsidiary locations.

Traditional solutions for multi-jurisdictional locations have been to find a broker in each respective country who can countersign the local policies and provide very basic insurance services, but generally, international networks still focus on “dots on the map” rather than a rigorous analysis of organizational attributes of the broker partners.

Culture

We have committed time and resources to better understanding other cultures which attribute to our clients’ perspectives and needs. Through our experience we understand and respect how people from other cultural backgrounds relate to issues in unique ways. Not only is there an intentional internal study to cultural disconnect, but through decades of frequent international travel we better understand differing cultural norms compared to most American service providers.

Understanding the impact of cultural disconnects can be disastrous in structuring international insurance programs if not considered properly. We recognize that Americans do not think, behave, or process information the same as people in different countries and adapt as best as we can to those varying perspectives.

Coordination

The result of poor communication creates misunderstanding relative to coordinating respective risk management programs in each country. The effective outcome is often gaps in coverage, and the mistaken assumption the terms and conditions provided are “best local standards” automatically provided in all countries. This is aggravated by the fact insurance companies at times refuse to provide translations of local policies in both languages, leading to confusion on the intent of coverage a client was looking to obtain.

Respective regulations and legal requirements are often misunderstood, and they continue to become more complicated in this period of government oversight.

In addition, there can be disconnects as a result of currency exchange rates relative to coordinating retentions and limits of coverage and insurance premium taxes are rarely coordinated appropriately with each subsidiary’s country.

Coordinating insurance programs in and of itself is complex, and to most appropriately leverage the scale of the global organization must be completed with professionals who have a global enterprise risk management approach which optimizes scope of coverage and cost efficiencies.

Compliance

Compliance is quickly becoming a major issue in cross border transactions. Issues are centered on tax obligations, revenue recognition, data protection, and appropriate allocation of expenses. Several cases in the EU and in the USA underscore new compliance standards for both insurers and policyholders relative to allocation of premiums and payment of the current VAT or premium taxes. There are also the accounting issues relative to payment of a claim in one country for a loss that occurred in another country.

Furthermore, evolving data breach laws, regulation, and litigation is forcing a proactive approach on prevention and transferring this risk through insurance.

Duplicate insurance coverage in each country with operations can be a significant problem in the event of a claim with coverage provided by the insurance program in another country. This creates problems in arranging defense and determining which insurance program is the primary insurer. Duplicate coverage is problematic for effective protection against risk for the international organization.

Industry Focus

Although there is a broad scope of industries served within JKJ’s international practice, below are some of the higher concentration areas in which our clients’ businesses are classified. At JKJ we are most effective when our clients are fully engaged with all divisions of our JKJ team, including claims management experts, risk engineers, internal account managers, representatives, and JKJ’s online portals.

    • Manufacturers
    • Advanced Manufacturing
    • Food
    • Distribution & Wholesale
    • Retail
    • Technology
    • Professional Sports
    • Life Sciences

JKJ Service Approach

Some elements of risk management and insurance are specific to US operations and entities. JKJ works hard to best integrate solutions into a global approach for multinational client organizations. The client has an important role including employee retention, reducing operational risk, premium cost mitigation, and the business perpetuation.

As an independent, employee owned company we are focused on driving value back to our clients. JKJ’s international team, although specialized in handling multinational organizations, integrates directly with the staff and services of our successful JKJ model.

  • Risk Engineering – JKJ’s risk engineers interface with our clients’ safety initiatives for our clients to reduce independent consultant costs by navigating the complexities of OSHA regulations, and implementing preventative programs to control the total cost of occupational injury risks.
  • Claims Management – JKJ’s claims consultants act as a client advocate to insurers who are going through claims. We help with coverage analysis, open reserve analysis, and the management throughout the life of a claim with our insurer partners.
  • Contractual Risk Transfer – a primary form of risk management in the US is through contracts. We actively participate with clients’ internal and outside legal teams to transfer and limit risk by way of contracts.

 

Bruce F. White, CPCU
Vice President Insurance Services
Johnson, Kendall and Johnson, Inc.
109 Pheasant Run
Newtown, Pa 18940
Phone: 215-968-4741


Club Level Feature- Cigna

Cigna Global Health Benefits® Business-to-Government: Caring for Foreign Government Personnel around the World
In a rapidly changing world, foreign governments need an experienced partner to keep their citizens well.  

The Air War College in Montgomery, Alabama is the senior US Air Force professional military school. Its instructors educate American military and agency personnel, as well as thousands of non-US residents from 41 nations around the globe. It was at a global military college such as this that a young Afghanistan solider was studying when he took a motorcycle ride that would change his life – and demonstrate the value of having comprehensive health and well-being coverage provided by his home country’s government.

When medics arrived on the accident scene, it was clear that the young solider was paralyzed from the waist down and that there was a language barrier. Fortunately, when hospital staff contacted Cigna Global Health Benefits (GHB), the injured man’s insurance provider, they were able to quickly connect with Arabic-speaking team members who translated, explained the US healthcare system process to our client, coordinated his care and reassured him at a frightening time.

Foreign Government Responsibility for Citizenry

Foreign governments, embassies, and consulates regularly send their employees and citizens abroad for a variety of reasons, including regular employment and mission work, to receive medical care and to further their education. In these instances, the foreign government has a responsibility to ensure the safety and welfare of its citizens abroad.

Assigning foreign government personnel and their families abroad is one of the most critical decisions a country has to make, and selecting appropriate healthcare coverage is an integral part of this decision.

Cigna GHB’s Business-to-Government Team

Cigna, a Fortune 100 global health insurance company providing superior quality healthcare, clinical management, and wellness solutions to more than 95 million customers across 200 countries around the globe, works with customers to help them lead a healthy life with personalized health and wellness services and solutions. Our global reach guarantees our clients with 24/7 customer support, multilingual call centers located in nine global locations, specialized clinical services, and access to 1.5 million medical and healthcare professionals and facilities worldwide.

With more than 25 years of experience in providing health care solutions to foreign governments, Cigna’s Business-to-Government segment includes customized, locally compliant health coverage solutions that cater to travelers and globally mobile assignees who require coverage for health issues ranging from routine care to life-threatening medical emergencies while outside of their country of residence. Trained to be culturally sensitive and to service the whole client, Cigna’s Business-to-Government team is the healthcare solution of choice for foreign governments around the world.

Dedicated Care – Anywhere

The Cigna Business-to-Government team is comprised of an integrated, multi-lingual, dedicated sales and service delivery model to interface with foreign government personnel and staff in person and virtually, ensuring that the right mix of healthcare solutions are implemented and aligned to meet their employees’ needs. Cigna Global Health Benefit’s expansive network of leading healthcare professionals around the globe, with direct provider payment arrangements, uniquely positions us to provide dedicated care from 30 global offices.

Specialized Solutions & Commitment to Service

Designed to meet the needs of clients on long- or short-term global assignments, Cigna’s Business-to-Government offering is unique in the industry. We offer the following benefits to qualified Business-to-Government clients and their family members:

  • Medical, dental and vision coverage
  • Pharmacy coverage
  • Life/accidental death and dismemberment/long-term disability coverage
  • Global TeleHealth – A mobile app that provides 365/24/7 a week secure access to board-certified doctors with private online, and live appointments via video or phone.
  • Pre-assignment assistance – Early assessment, planning, ongoing support and expert coaching to keep globally mobile clients healthy and productive.
  • International Employee Assistance Program – Free 365/24/7 a week confidential assistance with any work, personal or family issues.
  • Medical evacuation (provided through a partnership with ISOS) – Emergency evacuation and transportation when there is an immediate threat to life or limb.
  • Medical Benefits Abroad (MBA) for International business travelersCoverage for injuries and illness incurred while traveling on government-sponsored trips away from home.

Real Life Care – for the Journey

Whether you’re looking for healthcare solutions in the United States or expanding your country’s interest around the world, the Business-to-Government team at Cigna GHB has the products, services and dedicated professionals to ensure your peace of mind.

To learn more, please visit CignaGlobalHealth.com or contact:

Amir Aziz

Senior Client Manager, Cigna Global Health Benefits

111 S. Calvert St.

Baltimore, MD  21202

Email:   amir.aziz@cigna.com
Mobile:  410-952-6409

Fax:     860-730-3929


Club Level Feature – American Airlines

The Year of PHL for American Airlines

We started 2018 by sharing memorable moments with our partners at the airport and with our city leaders. As we sent fans to Minneapolis in style to cheer on our World Champion Eagles, we also engaged City Council in the fun with our rally towels that were waived in excitement while councilmembers sang “Fly Eagles Fly.”  Additionally, we experienced a humbling moment at the start of the year by reaching a milestone with our PHL cargo team.  By January, they had carried more than two million pounds of critical supplies to Puerto Rico for hurricane relief efforts – the most throughout our American network in the northeast corridor.

These early achievements and impactful benchmarks reinforce why 2018 is the year of PHL for American Airlines. We have so many exciting initiatives that will continue to reaffirm our status as both American’s transatlantic gateway and Philly’s Hometown Airline.

Starting this spring and summer, we will have 11 new routes—three international and eight domestic — that will connect people to the Philadelphia region and beyond. Our new international routes include: Budapest, Hungary; Prague, Czech Republic; and Mexico City, Mexico. Our new domestic routes include: San Antonio, TX; New York, NY; Des Moines, IA; Madison, WI; Omaha, NE; Fort Wayne, IN; Oklahoma City, OK; and Pensacola, FL.  Additionally, we resumed our service to Zürich, Switzerland on March 25.

As we continue to add more nonstop destinations to strengthen our position as American’s transatlantic gateway, we will broaden our regional economic impact and help make the Greater Philadelphia region an even more vibrant place to visit, live and work.

Whether it is above or below the wing, one of our top priorities is to identify ways to improve work environments for our 8,000-plus hardworking PHL team members. This year, we are making culture a competitive advantage. We are refreshing workspaces and meeting rooms and providing the tools and training our work groups require. More importantly, we are supporting team members on their initiatives that strengthen our diversity inclusion and cultural awareness.  In January, our newly formed Latin Diversity Network (LDN), one of American’s many Employee Resource Groups, flew to Puerto Rico to distribute over 200 toys which they collected from PHL team members.  The PHL LDN is also providing Spanish lessons to our team members to help them learn the airport lingo and better assist travelers.

We aim to give our team members everything they need to succeed, as they are our most important assets. As such, we look forward to continuing to work with our public and private partners to make PHL and the Greater Philadelphia Region an attractive place for residents and visitors alike.

We welcomed Folasade (Sade) A. Olanipekun-Lewis in February to our PHL team as the new Regional Director for Government and Airport Affairs. Sade joins us from the Philadelphia Division of Aviation, where she served as Chief Administrative Officer.  Before that, Sade worked as the Deputy Commerce Director for Finance and Administration for the City of Philadelphia, and as the Chief Financial Officer for City Council.

In her new role, Sade will help advance American Airlines’ regional legislative issues. She will also be responsible for real estate matters at the Hub and station levels that support operational activities.

We’re excited to have Sade with us, and her experience in aviation and the public sector will be paramount as we continue to forge the necessary relationships to position PHL as the premier airport in the northeast corridor.

Sincerely,

Olympia Colasante, Vice President – PHL

CLICK THE BELOW LINKS FOR A SNAPSHOT OF AMERICAN IN PHILADELPHIA AND AMERICA IN LONDON HEATHROW


Club Level Feature

TD Securities
Libor: An Inconvenient Truth

In recent months the future of Libor has been the subject of intense debate. While the topic has been intermittently discussed since the financial crisis, when it became clear that Libor fixings were not in line with bank funding conditions, the debate has sharply intensified in recent months. July remarks by Andrew Bailey of the Financial Conduct Authority (FCA) — the regulator of Libor — jolted the market and spurred many participants into taking the transition away from Libor more seriously.

Libor is a public good…until 2021
The FCA has regulated Libor since 2013 and has made significant improvements to the rate through its administrator, ICE Benchmark Administration (IBA). IBA and the twenty panel banks that submit contributions have introduced changes in the quality of governance around submissions, aiming to anchor submissions to transactions. However the underlying market that Libor seeks to measure — the market for unsecured wholesale term lending to banks — is no longer active. According to ICE, fewer than 30% of USD 3m Libor submissions are based on transactions.
Meanwhile, many banks reportedly wished to withdraw from being a Libor submitter. Such a move would severely weaken the representativeness and robustness of the rate, potentially creating a domino effect that leads more banks to leave the panel. UK and European legislation only gives regulators limited power to compel banks to continue submitting to Libor. In the case of the European Benchmark Regulation, the “compelling power” is only one to two years. However, FCA’s Bailey and Fed’s Powell have suggested that banks have volunteered to stay on as submitters until 2021, giving the industry time to transition to a new benchmark.

What happens after 2021?
Part of the reason that the 2021 deadline was set is that the FCA believes work on a transition is unlikely to begin in earnest if market participants assume that Libor will last indefinitely. The fate of Libor after the end of 2021 is up to the IBA and the panel banks. They could continue to produce the rate, but because the FCA cannot oblige panel banks to stay, the robustness of Libor could deteriorate.
Global regulators have meanwhile blessed a number of alternative benchmark rates. All of the rates chosen globally to replace Libor have the benefit of being anchored in much more active markets than term Libor, involving little expert judgement. Additionally, in order to resolve the issue of which members to put on a rate-setting panel, these alternative rates use data from all relevant market participants.

SOFR So Good
The NY Fed is expected to release the SOFR rate in Q2 2018 along with two other rates based upon trade-level data from various segments of the repo market. Fed Chair Nominee Powell blessed SOFR in a recent conference, noting that, “The alternative reference rate needs to be able to stand the weight of having trillions of dollars written on it, and the ARRC has definitely met this standard in choosing SOFR.” The transactions underlying SOFR total nearly $700bn/day — much larger than the volumes in overnight unsecured markets and even larger than Treasury bill trading volumes. Powell’s endorsement of SOFR is the first time that a US regulator has been so explicit about the move away from the current Libor benchmark. Note that an estimated $160tn of contracts are linked to Libor and 90% of the that is linked to USD Libor. In August the Fed Board invited public comment about the plan for producing these rates.

These rates will improve transparency into the repo market by increasing the amount and quality of information available about the market for overnight Treasury repo. The rates will be volatile by construction, but given how many transactions these rates incorporate, it will be difficult for any one market participant to influence the rate. The tri-party rate will effectively be the offer side of the market and will be less volatile.

How is SOFR calculated?
The NY Fed proposes using a volume-weighted median as the central tendency measure for SOFR, which would be consistent with the methodology used for the Effective Federal Funds Rate (EFFR) and Overnight Bank Funding Rate (OBFR). In the event of an even number of transactions in the data set, the median would be considered to be the higher of the two numbers (i.e., it would be rounded up). There is a case to be made for a volume-weighted average (geometric or arithmetic mean) rather than a median since SOFR might have a bimodal distribution. One peak would represent relatively low tri-party rates and a second peak would reflect GCF and DVP GC transactions. The median of a bimodal distribution could be more volatile from day-to-day than a traditional volume-weighted arithmetic average if the valley between the two peaks is flat and low. Depending on the shape of the distribution, small changes in the relative volumes of the two peaks can result in significant shifts in the median rate.

All repo transactions that are initiated by a collateral borrower that requires a specific issue tend to trade below the GC repo rate. However, some form of filtering needs to be applied to the SOFR rate to remove transactions that are “special”. Simply removing transactions based on recent issues keeps other issues that may be trading special in the calculation. It would also exclude those on-the-run issues that may not be trading special. It is difficult to know the exact level of filtering required.

How does SOFR compare with other rates?
There are a few key features that distinguish SOFR from other rates:
Overnight: SOFR and EFFR are overnight rates, while Libor has term rates.

Secured: SOFR is a secured rate and therefore incorporates the cost of balance sheet while EFFR and Libor are unsecured.

Risk free: SOFR and EFFR are measures of the risk free rate, while Libor has some credit component since it measures bank funding costs.

Arrears: SOFR and EFFR are rates where payment occurs in arrears versus Libor, where you can settle in advance.

The similarity between SOFR and EFFR makes it useful to compare the new rate to EFFR. The Fed has released SOFR data going back to August 2014 and since then, the 3-month geometric means of SOFR and EFFR have generally tracked closely. Over this period SOFR has averaged about 4bp below EFFR, which is sensible since SOFR is a secured rate and may incorporate some special transactions. The rate is more volatile during month- and quarter-ends, where balance sheet pressures tend to move SOFR above EFFR.

A brave new world with SOFR

Below we discuss the ARRC transition plan. However, we believe that ultimately it is the liquidity in SOFR-linked contracts that will drive the pace of transition. Since SOFR is an overnight rate, many market participants may need to build out the infrastructure of compounding a daily rate. SOFR-based swaps are also likely to be uncleared initially, while Libor-linked swaps are cleared. Regulators may need to incentivize investors to switch to SOFR for new swaps entered into before 2021.

Another key issue as the market transitions to SOFR is the inclusion of the new rate in the FASB hedge accounting standards. Current standards include the SIFMA Municipal Swap Rate, the US Treasury Rate, the Libor Swap Rate, and the Fed Funds Effective Swap Rate. Inclusion of the SOFR will help build liquidity in contracts referencing SOFR and ease the transition for many derivative counterparties.
The paced transition plan:

  •      H2 2018: Infrastructure for futures and/or OIS trading in the new rate is put in place.
  • By end 2018: Trading begins in futures and/or bilateral uncleared OIS that reference SOFR.
  • Q1 2019: Trading begins in cleared OIS that reference SOFR in the current (EFFR) PAI and discounting environment.
  • Q1 2020: CCPs begin allowing market participants a choice between clearing new or modified swap contracts (swaps paying floating legs benchmarked to EFFR, Libor, and SOFR) into the current PAI/discounting environment or one that uses SOFR for PAI and discounting.
  • Q2 2021: CCPs no longer accept new swap contracts for clearing with EFFR as PAI and discounting except for the purpose of closing out or reducing outstanding risk in legacy contracts that use EFFR as PAI and the discount rate. Existing contracts using EFFR as PAI and the discount rate continue to exist in the same pool, but would roll off over time as they mature or are closed out.
  • By end 2021: Creation of a term reference rate based on SOFR-derivatives markets once liquidity has developed sufficiently to produce a robust rate.

The legacy problem
The FSB’s Market Participants Group (MPG) estimates the notional volume of outstanding financial products referencing USD Libor at more than $160tn. USD-denominated interest rate swaps represent approximately 90% of this outstanding gross notional volume. In terms of other USD-denominated products, the MPG estimates that USD Libor is used as the reference rate in 97% of syndicated loans, 84% of floating/variable rate notes and 71% of collateralized loan obligations. A transition for all of these contracts and products will be a complicated task to say the least. The key question for the transition is whether the industry needs to:

  •  Amend contracts to reference an alternative rate, or
  •  Amend the definition of Libor through the fallback protocol to replace the current methodology with alternative reference rates. This could be done by developing a spread, which could be added to the base of the risk free rates.

By March 2018 the International Swaps and Derivatives Association (ISDA) plans to draft a report that includes a survey for the users of Libor (derivatives, securities, loans, MBS), identifying issues with the transition in existing and new contracts, and recommendations.

ISDA Triggers: What determines that Libor doesn’t exist?
The first question is what determines that an investor has to find a replacement for Libor in an existing contract. If all panel banks stop submitting Libor, it would be an obvious trigger. But it becomes more difficult if a few banks drop from the panel. What determines that the panel may have “degraded” is a very subjective issue. Currently, the ISDA trigger is a public statement by the supervisor (in this case the FCA) about an insolvency of the relevant administrator (in this case ICE) or that Libor has been permanently or indefinitely discontinued or that it may no longer be used. Another ISDA trigger is a public statement by the administrator that it will cease publishing Libor.

ISDA fallback: What should replace Libor in a contract?
Current ISDA fallback protocol is meant for a temporary disruption for Libor. Many contracts allow the counterparty to call up 3 banks in London and obtain an average quote. However, in a situation when banks have stopped submitted Libor, this does not seem like a feasible alternative. Thus more work needs to be done on a permanent solution for a time when Libor may not exist. ISDA has already confirmed it is willing to develop a protocol that would allow market participants to update existing documents to insert a fallback rate should Libor cease to be published after 2021, or possibly sooner in the case of Euribor.
Under the ARRC transition plan, counterparties to Libor-linked swaps would amend their documentation to reference an alternative rate well before Libor might cease. Moving from Libor to SOFR would create a valuation change given that SOFR is lower than the Libor rate. The aim is to find the amount of compensation that each side will be willing to pay and receive to make the switch. That amount could be thought of as a spread which could be added to SOFR, which would replace Libor in an existing spread.

How do you compute and administer the spread?
There are two approaches are currently being discussed to compute the spread: a historical approach and an auction approach. A historical approach would freeze the Libor-SOFR basis on the day the benchmark is ceased while the latter would involve determining the Libor-SOFR basis each day via an auction process.

The cash problem
So far we have discussed the issues for the transition away from Libor for derivatives. However, there are many cash products that are linked to Libor, with a many of these products possessing terms past 2021. The ARRC has expanded its work to incorporate the cash transition plan, resulting in discussions about creating a term reference rate. That term reference rate would have to be built by first developing futures and OIS markets that reference SOFR. It will likely not be as robust as SOFR itself, and so derivatives transactions will almost certainly need to be based on the overnight rate. However, a term reference rate could conceivably be used in some loan or other contracts that currently reference Libor.
Below we discuss some of the current fallback issues across different products. We would expect new products that mature beyond 2021 to have a more robust fallback as a world without Libor looks much more likely now.

Current fallback language in Libor-linked cash products
 Mortgages and other consumer products: Typically the contract language in mortgages gives the noteholder the ultimate authority to name a successor rate if Libor was permanently discontinued. Other consumer loans may be more varied, but generally seem to have similar flexibility.

  • Floating rate notes: There are an estimated $1.5tn in outstanding Floating Rate Notes referencing USD Libor. However, 84% of these FRNs will mature by the end of 2021, and 92% by the end of 2023. Typical contract language would direct the calculation agent to first poll a sample of banks (similar to the ISDA fallback language) and then convert to fixed-rate at the last published value of Libor if quotes are not received. It would typically require unanimous consent of the noteholders to adjust these terms.
  • Securitizations: Approximately $1.8tn in outstanding securitizations reference USD Libor. Agency MBS allow Fannie Mae and Freddie Mac to name a successor rate if Libor was permanently discontinued, but typical contract language in other securitizations would require a poll of banks and then convert to fixed-rate at the last published value of Libor if quotes are not received. CLOs are typically called after an initial 1-2yr period, at which point fallback language could be amended.
  • Corporate Loans: Flow of Funds data estimate the level of nonfinancial corporate loans at $2.7tn (does not include committed but undrawn lines). A large share — $2.1tn — are syndicated loans (according to SNC data). Roughly 85% percent are floating rate, and a large share of those appear to reference Libor. The typical contract language appears to name the Prime Rate or the Effective Fed Funds Rate plus a spread as the fallback if Libor was discontinued. Note that bilateral loans can be renegotiated by the borrower and lender to amend this, while syndicated loans currently tend to require unanimous lender consent to amend these terms. However, syndicated loans are amended fairly frequently, so it is very likely that most or all of the outstanding stock of loans would be amended before the end of 2021. We expect that lenders will make sure that new and existing loan documents make sense in a world without Libor. Where possible, lenders and borrowers may look to adjust their credit agreement voting provisions so that any change to the rate benchmark will not require a 100% vote. In syndicated loan documentation, borrowers may want the selection of a replacement rate to require the approval of a majority of lenders, rather than requiring unanimous approval.
    Priya Misra, Gennadiy Goldberg

Club Level Feature: Ernst & Young

EY collaborates with Microsoft on a new analytics solution to help organizations enhance workforce productivity and well-being

London, 12 July 2017

EY announced this summer that it is collaborating with Microsoft to provide a new analytics solution called Workplace Insights, which can help organizations enhance their productivity and the well-being of their work forces by uncovering data patterns in digital communication and employee collaboration in today’s complex, digitally-driven business environment.

Workplace Insights combines the Microsoft Workplace Analytics platform with EY services consulting and data analytics experience to help organizations reach informed business decisions that can improve performance. The platform analyzes an organization’s existing communication and collaboration patterns – such as email and calendar metadata – and incorporates data from other enterprise systems to show how teams spend their time, collaborate and engage, both internally and externally, such as with suppliers or clients. EY interprets the outputs to help develop actionable insights and recommendations that organizations can use to support the execution of their strategic and operational priorities. The capability can be applied across business scenarios that include organizational transformation, mergers and acquisitions and real estate planning. Workplace Insights helps organizations use data to make informed decisions in these example areas:

  • Organizational transformations: Helps targeted and efficient change management and transformation efforts by measuring and monitoring the real-time effectiveness of change programs and engagement.
  • Mergers and acquisitions: Supports integration, benefits realization and retention of critical talent by identifying degree of group collaboration and communication patterns across formerly disparate teams or organizations. This analysis can be used as forward-looking indicators of success or flag potential risks.
  • Organization design: Helps to provide organizations with a quantitative look at collaboration and communication habits, new activity patterns and make more informed decisions around changes in roles and responsibilities based on these new data sets.
  • Workspace and real estate planning: Allows planners to improve productivity and enhance employee engagement and collaboration by understanding where, when and how groups work. Work location and commute time information can be loaded into the platform, which supports EY in providing insights around capacity, design transformations and broader real estate planning activities.

Mike Bertolino, EY Global People Advisory Services (PAS) leader, says:

“In today’s fast-paced and highly competitive environment, employers continue to face increasing operational pressures, especially as the global workforce evolves. This collaboration with Microsoft combines data science with a focus on the value that people bring to their work. Workplace Insights helps companies to better understand the effectiveness of their people, so they can identify opportunities for change and help support their people to be the most productive and collaborative as possible.”

Ryan Fuller, General Manager, Microsoft MyAnalytics & Workplace Analytics, Microsoft, says:

“Working with EY to leverage the organization’s in-depth experience in workforce transformation and change management across multiple industries, we anticipate that we will increase our engagement with organizations around the world. In today’s disruptive and highly competitive environment, it is more important than ever that companies take full advantage of the data they have at their disposal and understand what drives value, so they can make better-informed decisions.”

Together, EY member firms and Microsoft deployed Workplace Insights to help a global professional services firm’s IT organization in redesigning process and structure to increase customer centricity and decrease cost. The company leveraged the data to improve collaboration between groups and identify optimal reporting relationships and organizational structures, which helped measurably improve product development, margin and speed-to-market.

Greg Cudahy, EY Global Lead, Technology, Media & Entertainment, and Telecommunications, says:

“Particularly for large transformations that can drive hundreds of millions of dollars in value, organizations need to be sure they can pinpoint their most collaborative and productive teams and facilities. Workplace Insights provides near-real-time, quantifiable feedback on what’s working and what is not, so organizations can quickly identify and leverage workforce opportunities. In addition, EY and Microsoft are committed to protecting clients’ and employees’ data privacy and confidentiality by aggregating and anonymizing data, while complying with increasingly varied and stringent data privacy regulations.”

The Workplace Insights solution is supported by more than 10,000 EY People Advisory Services practitioners globally. The solution can be integrated with the EY Organization Talent Hub (OTH), a tool built on the Microsoft Azure platform. OTH pulls an organization’s data into a secure environment, providing access to crucial statistics before and after the restructuring occurs. It offers the granularity necessary for planning the new organization design and selecting and retaining talent, while tracking workforce movements needed for day-to-day operations.


Club Level Feature: Morgan Lewis & Bockius LLP

‘BREALITY CHECK’—BREXIT UPDATEs AND THIRD COUNTRY PASSPORTING IMPLICATIONS

By: Morgan Lewis Partners Simon Currie and William Yonge

Recent April 2017 Update

On 24 January 2017, the UK Supreme Court by a majority of 8-3 found that the UK government could not decide to trigger withdrawal from the EU under the relevant Treaty without the prior approval of Parliament. In early March, the UK Parliament confirmed the result of the referendum on 23 June 2016 by voting in both Houses in favour of the European Union (Notification of Withdrawal) Bill which received the Royal Assent on 16 March. On 29 March, just over 44 years since the UK joined what was then called the European Economic Community on 1 January 1973, Prime Minister May notified the European Council in accordance with Article 50(2) of the Treaty on European Union of the UK’s intention to withdraw from the EU. The UK government’s Department for Exiting the European Union then published a White Paper entitled “Legislating for the United Kingdom’s withdrawal from the European Union” in which it published its plans to bring to Parliament a Great Repeal Bill which will repeal the European Communities Act 1972, the statute that gives effect to EU law under UK law and renders EU law supreme over UK law; that repeal will take place on the day the UK leaves the EU and the Great Repeal Bill will also convert EU law as it applies in the UK into UK domestic law to facilitate an orderly transition and confer powers on the UK Government to correct or remove the laws that would otherwise not function properly once the UK has left the EU on a case by case basis from time to time.

There are three stages of Brexit, the first being the period that occurred prior to the UK submitting notice of its intention to withdraw. Stage two began when the government gave notice to the EU of its intention to exit the EU and began the process of exiting. Stage two will be by far the most significant stage embodying the UK-EU negotiations for Brexit, which will shape UK-EU relations and Britain’s post-Brexit future for decades to come. The timetable for that process is initially set at two years, but with power to extend. Strictly in terms of EU legality, stage three is when the exit process is complete and the UK is able to “go it alone” in negotiating its post-Brexit future with the rest of the world; however, the UK is understandably reluctant to wait for the actual exit before embarking on stage three, which will last for years, so will begin stage three early (or, at least, early in the eyes of the EU) once it has given notice to quit. The reality is that, overall, although an exit from the EU will be on a two year time frame, the entire process could last five to ten years.

Any Brexit deal will encompass a wide range of workstreams covering Britain’s legal separation from the EU; a withdrawal agreement under which existing assets and liabilities will be allocated; a free trade agreement covering the UK’s future relationship with the EU (EU-UK FTA); a transitional phase between Brexit and commencement of the EU-UK FTA; accession to full membership of the World Trade Organisation; new free trade agreements to replace those between the EU and 53 other countries; and cooperation in the realms of defence, foreign policy, and security. Negotiation of fair and mutual transitional arrangements will be key for the economies of the UK and the EU to avoid adverse results of the “cliff edge” variety upon the UK’s exit.

There is a spectrum of possible outcomes of any Brexit deal, bookended by “hard Brexit” and “soft Brexit”. However, neither of those terms can clearly be defined. Some define “hard Brexit” as rejecting privileged access to the EU single market in return for submitting to some EU laws and institutions, While the swirl of day-by-day posturing, partisan commentary, and reluctance of the UK and EU authorities to reveal their negotiating hands make it challenging to discern probable routes forward and plan accordingly, there is no reason why even a “hard Brexit” cannot encompass access to the single market for financial services companies.

 

In this article, we explore how the established EU concept of third country passporting for financial services firms could mitigate the adverse effects of any exit from the EU single market for London as a leading world financial centre.

Passporting

The City of London is one of the world’s leading financial centres, vying only with New York City for the top spot. As such, many financial services firms choose the UK to headquarter their businesses, anchoring themselves in a convenient time zone and location from which to access the European and global markets. Post-referendum, the primary concern of financial services professionals is whether they will be able to continue to access the European single market for financial services. This begs the question of whether the UK, in its Brexit trade deal negotiations, will accept the fundamental European principle of the free movement of people in order to gain such access.

The importance of the EU passport and access to the single market should not be underestimated. According to the European Banking Authority, there are more than 2,000 UK investment firms carrying on Markets in Financial Instruments Directive (MiFID) business which benefit from an outbound MiFID passport:

  • Nearly 75% of all MiFID outbound passporting by firms across the EU is undertaken by UK firms into the EEA;
  • 2,079 UK firms use the MiFID passport to access markets in other EU countries; and
  • more than 50% of all investment firms authorised under MiFID are based in the UK.

 

In addition, the European Securities and Markets Authority’s (ESMA’s) opinion of 30 July 2015 on the functioning of the Alternative Investment Fund Managers Directive (AIFMD) passport noted that out of 7,868 AIFs notified for marketing in other EU member states, including sub-funds of umbrella AIFs, 63.8% of those (5,027 AIFs) were from the UK.

In addition, out of the 1,777 non-EU AIFMs marketing AIFs in EU member states, 1,013 (57%) were marketing AIFs in the UK. The figures are clear—the UK generates a significant proportion of the EU’s MiFID and AIFMD passporting business. Conversely, the UK financial services sector benefits hugely from the EU passport and access to the single market. For completeness, passporting rights also exist under the Insurance Mediation Directive, Mortgage Credit Directive, Electronic Money Directive, Capital Requirements Directive and Solvency II. However, those directives are outside the scope of this article.

In a recent wider analysis by the UK Financial Conduct Authority (FCA) which took into account all the passporting directives, FCA found the following:

 

Total Inbound from

EU27 into UK

Outbound from

UK into EU27

Number of passports in total 359,953 23,532 336,421
Number of firms using passporting 13,484 8,008 5,476

 

Many firms hold more than one passport; hence, there are significantly more passports than firms.

The optimal outcome for UK financial services firms that wish to retain their current access to the single market in financial services would be a bespoke deal, but if not achievable, the third country passport can mitigate the issues arising from withdrawal of passporting rights.

Upon the UK’s withdrawal from the EU, the passporting regime will, broadly, cease to apply to UK-authorised firms. In other words, the following will be the case:

  • Investment firms, banks, and fund managers will no longer be able to passport into, or establish branches in, the remaining EU member states.
  • Firms will not be able to market Undertakings for Collective Investment in Transferable Securities (UCITS) and AIFs EU-wide on a passported basis.
  • Firms will only be able to market AIFs EU-wide using local private placement regimes.
  • Investment managers will need to acquire local authorizations to conduct investment activities in each EU member state in which they operate.
  • Many investment firms, banks, and fund managers would need to consider whether to relocate their base of operations in an EU country while retaining a substantial UK foothold in order to retain the passport.

Options if the UK Does Not Negotiate Continuing Access to the Single Market

The EU has already recognised the concept of non-EU or third country access to the passport, provided that stringent (but, in our opinion, entirely achievable) conditions are met. The best current examples of that are the AIFMD, the European Market Infrastructure Regulation (EMIR), and to some extent, the Prospectus Directive. In addition, MiFID II—due to come into force in January 2018—provides for such access, albeit in the non-retail sector only. However, the UCITS regime does not envisage the extension of its regime to non-EU countries, as by definition UCITS and their managers must be domiciled in the EU.

AIFMD Third Country Passport

AIFMD contemplates that non-EU AIFMs in eligible third countries may benefit from the right to manage AIFs and/or market units or shares of AIFs throughout the EU with a passport. At present, no such passports have been granted. However, the process for doing so is well underway. Canada, Guernsey, Japan, Jersey, and Switzerland have recently been given a “favourable opinion” by the ESMA in its advice to the European Commission on the extension of the AIFMD passport. In addition, ESMA has given favourable but qualified opinions regarding the same in respect of Australia, Hong Kong, Singapore, and the United States, but has not yet been able to provide definitive advice in relation to Bermuda, the Cayman Islands, and the Isle of Man. The Commission is deliberating on the timing, and it is not clear when the third country passport will become available to AIFs and AIFMs based in a third country that has already been given a favourable opinion by ESMA.

If the UK was to leave its current AIFMD-compliant regime in place, it ought to be technically straightforward, following Brexit, for the AIFMD passport to be extended to the UK. If so, UK AIFMs managing EU AIFs and/or non-EU AIFs could become authorised under AIFMD by achieving authorised status in an EU country and could continue to use marketing and management passports subject to a positive opinion from ESMA and a decision by the Commission that the UK qualifies for such treatment under the applicable criteria. However, political considerations would be inherent within any such decision and would likely complicate it.

MiFID II Third Country Passport

The Markets in Financial Instruments Regulation (MiFIR), which is due to come into force in January 2018 (and forms part of the MiFID II regime), entitles “third country” investment firms to provide investment services only to professional clients across the EU upon registration with ESMA. Registration will be contingent upon a range of conditions, including a decision made by the Commission that the relevant third country’s prudential and business conduct framework is equivalent to EU standards.

Would the UK pass the third country test?

In our opinion, yes. On 24 June, the FCA made it clear that firms are to continue down the road to implementation and are to comply with all EU legislation until further notice. As such, if the UK implements in full the provisions of MiFID II, it ought to be a relatively simple process, following Brexit, for the MiFID II passport to be extended to the UK, thus providing firms with non-retail single market access. However, political considerations could trump that.

EMIR Third Country Passport

EMIR is the product of an international initiative of the G20 developed in the wake of the Great Recession. With this in mind, the UK is unlikely to want to unravel EMIR post-Brexit. Since in a post-Brexit world a UK undertaking would no longer be established in the EU, under EMIR, UK undertakings that are currently financial counterparties or non-financial counterparties would become third country entities (TCEs) for EMIR purposes and no longer directly subject to EMIR. However, EMIR does impact TCEs when they trade with EU counterparties, and to that extent EMIR will continue to impact the same post-Brexit.

The City of London boasts some of the world’s largest clearing houses, and at least three of them are currently permitted under EMIR to provide clearing services to clearing members and trading venues throughout the EU in their capacity as ESMA-authorised central counterparties (CCPs). Post-Brexit, however, a UK CCP would become a third country CCP. Under EMIR, a third country CCP can only provide clearing services to clearing members or trading venues established in the EU where that CCP is specifically recognised by ESMA. This would require, among other things, clearing houses operating out of London to apply to ESMA for recognition, the Commission to pass an implementing act on the equivalence of the UK’s regime to EMIR, and relevant cooperation arrangements to be put in place between the EU and the UK—a lengthy process overall and one thrown into doubt by Brexit.

Encouragingly for the UK, since 27 April 2015, 19 third country CCPs have been recognised by ESMA emanating from Australia, Canada, Japan, Hong Kong, Mexico, Singapore, South Africa, South Korea, Switzerland, and most recently the United States. Clearly, there is an appetite within ESMA and the EU for third country CCPs to provide services within the EU, and post-Brexit, we believe that financial institutions based in the EU will certainly want to continue to access UK regulated markets and CCPs.

Prospectus Directive Third Country Passport

As an EU member state, the UK is currently a participant in the Prospectus Directive’s passporting regime for prospectuses. Any failure by the UK to secure continued access to the single market would bring challenges. Notably, prospectuses approved in an EU member state in connection with a listing on a regulated market in that member state would need to be recognised by the FCA in order to be approved for UK listing purposes. Conversely, prospectuses approved in the UK would need to be approved afresh by the regulatory authority in an EU member state under applicable Prospectus Directive standards for the prospectus to be used for a listing on a regulated market in that state.

However, under the Prospectus Directive, an EU member state regulator is able to approve a prospectus approved in a “third country” if the Commission is satisfied that the prospectus was drawn up in accordance with international standards, and that the relevant third country’s prospectus content requirements were equivalent to those in the Prospectus Directive. Provided the UK’s prospectus requirements do not change dramatically from what are currently in place, we believe that the UK’s requirements should be considered equivalent to the Prospectus Directive requirements for the purposes of listing in the EU.

UCITS

UCITS funds and their managers (but not necessarily the delegates of their managers), by definition, must be domiciled in the EU. Unlike AIFMD, EMIR, MiFID II and the Prospectus Directive, the UCITS regime does not envisage the extension of its regime to non-EU countries. In other words, UK UCITS funds would no longer qualify as UCITS. Instead, UCITS would become AIFs. This means that UK-based UCITS funds would no longer be automatically marketable to the public in the EU and would therefore become subject to local private placement regimes. Conversely, a UCITS fund established, say, in Ireland or Luxembourg, would no longer be marketable in the UK to the general public, and a management company based in Ireland or Dublin would no longer be entitled to provide management services to a UK-based UCITS fund.

During any Brexit negotiations, insertion of a “third country” equivalence test into the UCITS regime may be used as leverage by the EU negotiating team in exchange for concessions by the UK. Any third country equivalence regime that is substantially similar to that under AIFMD and MiFID II would be well received in the City of London and would provide the necessary reassurance for financial services firms operating in the UCITS space.

What Should You Be Doing Now?

There are a number of actions we recommend that firms consider taking in order to prepare for the eventuality of Brexit:

  1. Monitor Brexit developments and consult your legal services providers to help you understand these developments as they unfold.
  2. Develop a contingency plan for a “hard Brexit” and how to respond to withdrawal of passporting rights and the absence of a third country equivalent mitigant.
  3. Consider a review of your existing contracts:
  • The jurisdictional scope of your contracts may be limited. The definition of “EEA” may need to be redefined to continue to cover the UK in the event of Brexit.
  • Current investment strategies may require updating. In particular, investment strategies that permit investments in the EEA may need to be amended in order for investments in the UK to continue to be permitted.
  • There may be force majeure implications. Uncertainty may drive parties to look for an exit from contracts that are no longer profitable or are underperforming. EU law provisions may render contracts incapable of being performed as originally anticipated. Parties looking for flexibility in such circumstances should consider including Brexit in their force majeure provisions.
  • Termination rights. Those wishing for the option to withdraw from potentially loss-making contracts should consider drafting termination rights which will apply in the event of a Brexit (i.e., consider drafting and quantifying withdrawal rights in the event of a “material adverse financial event/downturn” in the markets).
  1. Lobby the UK government:
  • We recommend lobbying the UK government, either directly or through your relevant trade association, to ensure that your voice is heard and that key financial services sector considerations will be on the agenda when a Brexit deal is negotiated.
  • In addition to the range of sectoral trade associations, there are various lobby groups in existence, such as TheCityUK, whose aim is to preserve access to the European markets; the European Financial Services Chairmen’s Advisory Committee which is chaired by Shriti Vadera, former Labour business minister, and the Financial Services Negotiation Forum.

Resources

For further information on the implications of Brexit, please visit Morgan Lewis’s Brexit Resource Centre.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
US

Michael Pedrick

London

Simon Currie

William Yonge

 

About Morgan Lewis

Morgan Lewis offers more than 2,200 lawyers, patent agents, benefits advisers, regulatory scientists, and other specialists in 30 offices* across North America, Asia, Europe, and the Middle East. The firm provides comprehensive litigation, corporate, transactional, regulatory, intellectual property, and labor and employment legal services to clients of all sizes—from globally established industry leaders to just-conceived start-ups.

 

 


Club Level Feature: Bartlett & Company Inc.

Bartlett & Company Inc. – Over 75 Years of Global Service

In a globe-straddling twist on the family-owned regional agency, UK-owned Bartlett & Co. Inc., operated by second- and third-generation insurance professionals, combines a unique international footprint and a focus on niche markets to create a formidable and fast-growing business that’s more than equal to the task of competing with big brokers for business.

The firm was started in 1940 by Fred Bartlett in the English city of Bradford. Unable to join the Royal Air Force due to poor eyesight, he worked in a coal pit to help keep British industry going during the war, and later joined the Auxiliary Fire Service— all while running the business. The brokerage is now led by Michael Bartlett (Fred’s son) and his two sons, Richard and Andrew, from group headquarters in Leeds, England. Under Michael’s leadership the business has grown from a regional insurance broker in the UK to a much larger player, with over 120 employees that manage insurance programs in more than 40 countries from offices in Philadelphia, Leeds, London, Paris, Amsterdam, Hamburg, Hong Kong, Sydney and Kampala, Uganda.

Bartlett opened its Philadelphia office in 1997, originally to service the American business interests of its European clients. Since then, Bartlett has developed a large and expanding roster of US clients. Currently, about 50 percent of Bartlett’s Philadelphia-branch business is generated from overseas; the other half is US-based, much of which has an overseas exposure. Bartlett’s sprawling global reach affords the brokerage access to all major insurance carriers around the world.  In addition to standard market access, Bartlett Ltd is also a registered broker at Lloyd’s of London.  This status at Lloyd’s serves as a distinct advantage for Bartlett and their clients, by increasing the options available for complex risks and providing additional capacity when the market cycle causes upward pressure on premiums.

In addition to its ability to offer global service to its clients, Bartlett sees two other factors as critical to the firm’s solid performance: its approach to pricing and a laser-sharp focus on niche markets. “In a country with 38,000 independent brokers, it’s important not to fall into a ‘race to the bottom’ and compete solely on price when it comes to placing insurance and advising business executives,” says Richard Bartlett. “While price has been a driver in securing new business during the global recession, identifying niche markets which play to our strengths—with higher barriers to entry and where the expertise of our staff and high service standards will be valued—has enabled us to compete on other differentiators and ensure our steady organic growth through demonstrating and delivering value to our clients and prospects,” Bartlett adds.

The firm’s industry specializations have been developed first through the knowledge and expertise of its account executives and then by being institutionalized into the business, having the effect of combining a spirit of entrepreneurialism with the structures and resources of a larger business. Bartlett’s sweet spot is middle-market corporate business, specifically in the specialty areas of manufacturing, technology, real estate, credit insurance and due-diligence reporting in mergers and acquisitions. Bartlett’s strong international network makes specializing in middle-market global business a natural fit. “Unlike many of our regional competitors, our primary day-to-day focus is on structuring and servicing international insurance programs. Our international footprint enables us to maintain high service standards across the globe instead of relying on broker partner groups to assist us in servicing our clients in countries outside of the US.  At the same time, we are able to offer a more personalized family-business approach than the larger brokers,” says Pat Riley, President of Bartlett & Company Inc. in Philadelphia. “Like other privately owned businesses, we aren’t burdened by quarterly earnings or share price, so we are able to focus all of our attention on providing the best long-term insurance and risk management advice to all of our clients.”

Customer retention, of course, is an important aspect of continued growth, and at Bartlett, much of this hinges on acting as the clients’ outsourced risk manager and trusted advisor. The brokerage provides clients with beyond-the-basics services, such as:

  1. Risk management and loss control advice, including claims and loss analysis, business continuity planning, contract reviews, motor-fleet risk management and workplace safety reviews;
  2. An experienced major-loss advisor who can deploy to clients’ sites anywhere in the world to support claims settlement;
  3. An online client-feedback survey ensuring early identification of potential problems;
  4. Aggressive marketing and benchmarking services to ensure premiums are competitive;
  5. Regular contact between the client and the Bartlett team at all levels, including stewardship meetings midway through the policy period to review pre-defined risk management and claims goals, future business plans, the state of the market, and renewal strategies.

Click here to learn more about Bartlett and for a complete listing of services.


Club Level Feature: Drinker Biddle and the World’s Oldest Insurance Market

Annual insurance premiums in the United States exceed $1.2 trillion for life, health, and property and casualty insurance alone, representing approximately seven percent of gross domestic product. Nearly five million people in the U.S. earn their living in the insurance industry.  From billboards to radio and television ads, we are reminded every day just how broad and pervasive today’s insurance market is.  Yet, very few of us have ever pondered how the modern insurance market has evolved from its much more humble beginnings.

In 1688, Edward Lloyd’s coffee house was one of about 80 such coffee houses in London, each serving as a center for merchants and entrepreneurs, and each offering its own specialist interest. Lloyd’s served as the center of information on shipping.  To obtain insurance for a ship or its cargo in the late seventeenth century, a ship owner would engage a broker to present the risk to wealthy merchants who would agree to insure a portion of the risk.  The broker’s task was to ensure that policies were underwritten by individuals with sufficient wealth to cover potential losses.  Lloyd’s soon became a gathering place for those seeking or offering marine insurance.

Throughout the late 1600s and early 1700s, Lloyd’s continued to develop its reputation as the go-to source of information on shipping. In 1734, the first edition of “Lloyd’s List” – a weekly shipping news publication – was published.  Author Thomas Jemson used the Lloyd’s name for its instant recognition in the shipping community.  Also in the early 1700s, Lloyd’s moved its location to the center of London’s business district and emerged as the primary location for marine insurance underwriting by individuals.

The Lloyd’s market continued to grow in the nineteenth century. In 1859, a journalist commented on the underwriting room at Lloyd’s as follows: “Not a breeze can blow in any latitude, not a storm can bust, not a fog can rise, in any part of the world, without recording its history here.”

Lloyd’s is the world’s oldest continuously active insurance market place and remains as vibrant as ever. Lloyd’s operates using a syndicate system, where Lloyd’s members are formed into more than 90 different syndicates which are represented by underwriting agents at Lloyd’s.  Insurance underwritten at Lloyd’s covers all lines of business from more than 200 countries and territories worldwide.  Lloyd’s is known for being the first to insure new, unusual or complex risks.  Lloyd’s issued the first insurance for a space satellite and the first ever aviation insurance.  Lloyd’s is also known to insure certain celebrity body parts, such as America Ferrera’s smile and Troy Polamalu’s hair.

The United States is Lloyd’s’ single largest market today. Drinker Biddle & Reath proudly serves Lloyd’s as its U.S. regulatory counsel. Headquartered in Philadelphia, and founded in 1849, Drinker Biddle has 620 lawyers in 12 offices nationwide.  Drinker Biddle’s London office is located at 50 Mark Lane, in London’s financial district – a stone’s throw away from the Lloyd’s building.  The Drinker Biddle insurance department consists of more than eighty lawyers working for the insurance industry.

The Drinker Biddle lawyers who serve Lloyd’s and the wider London market have thirty years of experience advising non-U.S. re/insurers on accessing and operating in all U.S. local markets. The firm’s Lloyd’s practice serves as the market’s principal outside lawyer on all U.S. state and NAIC regulatory matters. The team of lawyers has worked on many significant matters for the Lloyd’s market including the market’s Reconstruction and Renewal in the 1990s. Drinker Biddle represents a number of Lloyd’s managing agents on complex U.S. regulatory and transactional matters and helps maintain their trading rights in the United States. The matters range from high-stakes, multi-state and multi-layered regulatory and advocacy/lobbying projects, such as those involving the Lloyd’s market’s multi-billion dollar U.S. based surplus lines and reinsurance trust funds, to advice on a single issue in a single state.

In March, Drinker Biddle will be hosting a mini-symposium in London for the benefit of claims and compliance professionals throughout the London market. The purpose of the symposium is to help London-based insurance professionals better understand the U.S. legal system and effectively manage U.S. claim disputes.  Attorneys based in Drinker Biddle’s Philadelphia and New York offices, will team up with their London-based colleagues to present on avoiding litigation, forum selection, managing concurrent litigation and regulatory inquiries.

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The BABCPHL recognizes our Club Level Members:

  • Almac
  • American Airlines
  • Baker Tilly
  • Cigna
  • Cigna
  • Duane Morris
  • EisnerAmper LLP
  • Faegre Drinker Biddle & Reath LLP
  • Forensic Resolutions
  • Johnson, Kendall & Johnson, Inc.
  • Morgan Lewis
  • Penn Medicine
  • https://www.santanderus.com/
  • Welsh Government