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Following the result in the United Kingdom's EU referendum, Walkers has created a Brexit page dedicated to providing our clients relevant information about the jurisdictions in which we practise.

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Walkers Announces 2019 Promotions

Walkers is pleased to announce that 18 attorneys across its global offices have been invited to join the partnership. In addition, 13 associates have been promoted to senior counsel.

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Bermuda Economic Substance and Investment Funds Amendment Legislation Tabled

Bermuda has tabled amendment legislation in the House of Assembly in the form of the Economic Substance Amendment (No 2) Act 2019 (the “Economic Substance Amendment Act”) and the Investment Funds Amendment (No 2) Act 2019 (the “IFA Amendment Act”). The amendments follow extensive consultation by the Bermuda Government with the OECD and the EU Code of Conduct Group and are in furtherance of the implementation by Bermuda of legislation that embraces a global initiative to combat base erosion and profit shifting (“BEPs”).

Executive Summary

  • The Economic Substance Amendment Act introduces changes to the definitions of the relevant activities of “holding entity” and “financing and leasing”, as well as to the definition relating to local entities.
  • The IFA Amendment Act implements changes to the Investment Funds Act, 2006 and related rules to provide enhanced supervisory and regulatory requirements relating to registered or authorised investment funds that operate segregated accounts and “closed-ended investment funds”; to provide for designation and classification requirements for certain “overseas investment funds” and “Professional Closed Funds”; and to provide for the enhancement of fit and proper requirements.
  • Assuming approval by Parliament, the amendments are expected to come into force on or around 20 December 2019 and will be followed by further anticipated

 

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Bermuda Incorporated Segregated Accounts Companies Act Comes Into Force

The highly anticipated Incorporated Segregated Accounts Companies Act 2019 (the "ISAC Act") came into force on 26 November 2019. The ISAC Act introduces a new corporate vehicle, the Incorporated Segregated Accounts Company ("ISAC"), combining the flexibility of the traditional segregated accounts company ("SAC") available under the existing Segregated Accounts Companies Act 2000 (the "SAC Act") with the advantages of separate legal personality enjoyed by an incorporated company. The ISAC Act has been introduced as a standalone piece of legislation, with the goal of complementing rather than replacing the existing SAC Act, and thereby offering greater optionality and flexibility to participants within Bermuda's captive and (re)insurance market and asset management industry, who have historically utilised and embraced the segregated account structure.

Registered ISACs will have the capacity and rights of a natural person with separate legal personality, meaning each incorporated segregated account ("ISA") will be able to enter into contracts with other ISAs within the same ISAC family or third parties as well as with the ISAC company itself, providing enhanced diversification and segregation of policyholder or fund assets and liabilities. ISACs will have the option to appoint a separate board for each proposed ISA. Additionally, the limited liability of ISAs provides a robust legal means of protection from creditors and may therefore appeal to more conservative, risk-averse market participants, such as pension trustees in longevity swaps or investors in ILS funds. ISACs will also continue to appeal to managers looking to set up a mini master-feeder fund within the same vehicle. Finally, ISACs may allow corporate groups to be created with lower formation and management costs than stand-alone captive insurers and fund structures.

Notwithstanding the above, we expect the popularity of traditional SACs available under the SAC Act to continue, both for pre-existing users of those vehicles and for new entrants. Despite their unincorporated status, traditional SACs have been tested in the Bermuda Courts before (BNY AIS Nominees v New Stream Capital Fund Ltd [2009] S.C. (Bda) 178 Civ and 374 Civ (27 May 2010)) and have proven to be resilient structures for the segregation of assets and liabilities and protection from creditors while being simple to use and cost effective. We therefore expect ISACs and SACs to be used very much according to client choice and welcome the further flexibility these structures offer clients in Bermuda.

 

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Ireland - Beneficial Ownership Reporting – 22 November Deadline Approaching

The Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies (the “Central Register”) launched on 29 July 2019.

Irish incorporated companies and certain other legal entities (the “Relevant Entities”) are obliged by Part 3 of the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (S.I. 110 of 2019) (the “2019 Regulations”) to file details of their beneficial ownership with the Central Register.

The 2019 Regulations imposed a deadline of 22 November 2019 for Relevant Entities in existence prior to the introduction of the 2019 Regulations to comply with their beneficial ownership reporting obligations.

All affected Relevant Entities must take steps now to ensure that the necessary beneficial ownership information is filed in time via the Central Register’s online registration portal - https://rbo.gov.ie/. Paper submissions are not accepted and no fees are charged.

Relevant Entities incorporated on or after 22 June 2019 must file their beneficial ownership information with the Central Register within five months of the date of their incorporation.

Under the 2019 Regulations, it is a criminal offence for a Relevant Entity to fail to provide information on its beneficial ownership to the Central Register.

For further information relating to the requirements of the 2019 Regulations and the functioning of the Central Register, please consult our previous briefings on the topic (available here).

 

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Eyes Wide Open: Singularis v. Daiwa - UKSC Upholds US$150m Quincecare Bank Negligence Judgment

An important ruling regarding the liability of financial institutions who are found to have been negligent in their dealings with their customers was handed down by the UK Supreme Court on 30 October 2019 in the case of Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50. The Supreme Court upheld the decisions of both the High Court and Court of Appeal that Daiwa, the former investment bank and broker of Singularis, had breached the Quincecare duty of care, which establishes that a bank owes a duty to use reasonable skill and care in executing its customer's orders.

Singularis had originally lacked sufficient funds to meet the costs of bringing this claim against Daiwa; its only substantial assets being those it was pursuing by way of litigation. Without third party funding, therefore, the claim for $204 million plus interest would never have gone ahead. Walkers, who have acted as Cayman Islands Counsel for Singularis and the Grant Thornton Joint Official Liquidators throughout the liquidation, advised on and successfully obtained sanction from the Grand Court of the Cayman Islands to enter into the litigation funding agreements which made this litigation possible.

The English courts found that Singularis successfully established that Mr Al Sanea, who was the company's chairman, director, president, treasurer and sole shareholder with dominating influence over the company's affairs, fraudulently deprived the company of approximately US$204 million of its money by directing Daiwa to pay those monies in eight separate transactions to two separate companies associated with Mr Al Sanea. Daiwa had breached its Quincecare duty of care to Singularis, and was therefore liable for Singularis' losses arising from these transactions, albeit with a deduction of 25% for Singularis' contributory negligence.

Daiwa's appeal to the Supreme Court was based on the issue of attribution; Mr Al Sanea was Singularis' duly authorised instruction giver and "controlling mind" and, accordingly, should his actions/behaviour be treated as one and the same as Singularis.

The Supreme Court took the view that the case "bristled with simplicity", confirming that Mr Al Sanea and Singularis were not to be treated as one and the same. Daiwa should have suspended payment until it had made reasonable enquires to satisfy itself that the payments were properly made. Its failure to do so was negligent. In coming to these findings, the Supreme Court developed two areas of law:

  1. it provided clarity on the nature and scope of the Quincecare duty of care owed by financial institutions to their customers, particularly in circumstances where fraud is, or ought to be, suspected; and
  2. it set out the approach to be taken by the courts when determining whether the (dishonest) actions of a company's "controlling mind" should be attributed to the company, in particular when considering defences to breaches of the Quincecare duty of care.

This case is an important decision in the insolvency of Singularis and will return significant assets to the liquidation estate.

Ireland - Update – CBI Issues Prohibition Notice for Breach of the Fitness & Probity Regime

Executive Summary
On 27 September 2019, the Central Bank of Ireland (“CBI”) published details of a prohibition notice issued to an individual pursuant to the Fitness and Probity regime (the “Prohibition”). The CBI issued the Prohibition following its determination that the individual provided false or misleading information to the CBI during their pre-approval control function (“PCF”) application. The Prohibition restricts the individual from performing any control function within an Irish regulated financial services provider (“RFSP”) for a period of two years.

Background
The Fitness and Probity regime requires individuals performing control functions in RFSPs to meet the CBI’s Fitness and Probity Standards. Applicants for PCF roles (e.g. directors and other senior roles) must submit an individual questionnaire (“IQ”) and receive CBI approval before commencing their position.

Prohibition Notice
The individual obtained PCF authorisation from the CBI. However, in their IQ and subsequent responses to CBI queries, the individual provided inaccurate information and ultimately the CBI determined, per the Prohibition notice, that the individual:

“provided information which he knew or ought to have known was false and misleading”.

The Prohibition notice further states:

“Honesty and integrity are explicit requirements for those seeking regulatory approval. This encompasses the fundamental requirement of truthfulness in an application for approval. The Central Bank is entitled to expect and insist on absolute candour and honesty and otherwise will not be in a position to fulfil the crucial gatekeeping function which is expected of it in its role of protecting both consumers and the financial system. An applicant for approval, seeking both the advantages and responsibilities for approval, must be taken to understand the unambiguous requirement for truthfulness, and candid and accurate information.”

The CBI states the rationale for the Prohibition as being twofold. Firstly to demonstrate to the individual the seriousness of the infraction and to deter them from future similar behaviour; and secondly to demonstrate the gravity of providing false and/or misleading information to the CBI to other RFSPs, individuals performing and applicants for PCF roles, and the financial services industry as a whole.

It is also useful to note the CBI’s determination of certain proposed mitigating factors put forward on behalf of the individual. Amongst other points, the CBI rejected the argument that the individual’s cooperation with the CBI’s investigation constituted a mitigating factor, noting that cooperation with the CBI is an expectation of a PCF.

 

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