Shearman & Sterling LLP | Financial Regulatory Developments Focus
Financial Regulatory Developments Focus
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The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • UK Conduct Regulator Consults on Enforcement Powers under the Securitization Regulation
    10/12/2018

    The U.K. Financial Conduct Authority has published a further consultation on implementation of the EU Securitization Regulation. The Securitization Regulation (also known as the STS Regulation) and a related amendment to the Capital Requirements Regulation came into effect on January 17, 2018. The majority of the provisions of the Securitization Regulation and the related amendment to the CRR will apply directly across the EU from January 1, 2019. While the Securitization Regulation is directly applicable, HM Treasury must make certain legislative amendments to align provisions of U.K. law with the Regulation. The FCA must also align its Handbook and launched a first consultation in August 2018 on its proposals for Handbook amendments.

    In this further consultation, the FCA is consulting on proposed amendments to its Decision Procedure and Penalties manual (DEPP) and to its Enforcement Guide, to reflect the expected provisions of a Statutory Instrument which is expected to be laid before Parliament by HM Treasury in December 2018.

    Read more.
    TOPIC: Securities
  • UK Government's Guidance on Approach to Sanctions in a 'Hard Brexit' Scenario
    10/12/2018

    The U.K. Foreign and Commonwealth Office has published guidance on the U.K. government's approach to implementing sanctions in the event that no deal is agreed between the EU and the U.K. on the U.K.'s exit from the EU. If there is no deal, the U.K. will leave the EU on March 29, 2019.

    The U.K. currently implements sanctions agreed by the UN Security Council, according to international law requirements, and the EU, as provided for in EU legislation and U.K. implementing legislation. In the event of a "hard Brexit," the U.K. would continue to implement sanctions agreed by the UN Security Council and would have the power to adopt other sanctions under the Sanctions and Anti-Money Laundering Act 2018. The FCO would publish the names of individuals and organizations subject to U.K. sanctions.

    Read more.
  • UK Prudential Regulator Proposes Period of Overlap for Transition to New Pillar 2 Reporting Template
    10/12/2018

    The U.K. Prudential Regulation Authority has published a consultation proposing a six-month overlap period following the introduction of the new Pillar 2 Liquidity reporting template (PRA110) from July 1, 2019. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements, to capture those liquidity risks that are either not captured or not fully captured under the Pillar 1 framework. The final element - Pillar 3 - involves public reporting of capital. The PRA published its final Policy Statement on the introduction of its Pillar 2 framework in February 2018. The PRA110 template was scheduled to replace the existing "daily flows" and "enhanced mismatch" liquidity reports (FSA047 and FSA048) from July 1, 2019.

    Since its Policy Statement, the PRA has reassessed the risks from transitioning to the PRA110 template and considers it prudent to delay the termination of FSA047 and FSA048, to ensure data quality and continuity. The PRA proposes that the PRA110 is introduced on July 1, 2019 as planned. However, between then and January 1, 2020, firms should additionally continue to submit liquidity reports using FSA047 and FSA048. The overlap will allow the PRA and firms alike to assess the quality of PRA110 reporting.

    The PRA is inviting comments on the proposal by November 12, 2018. The PRA considers that the short consultation period is justified due to the fact that firms are already reporting using FSA047 and FSA048.

    View the consultation paper (PRA CP22/18).

    View details of the PRA's Pillar 2 Policy Statement.
  • US Securities and Exchange Commission Halts Fraudulent Initial Coin Offering
    10/11/2018

    The Securities and Exchange Commission announced that it halted a planned initial coin offering and related pre-ICO sales by Blockvest LLC and its founder, Reginald Buddy Ringgold, III. In seeking an emergency court order, the SEC alleged that Blockvest had falsely claimed that it and its affiliates received regulatory approval from various agencies, including the SEC and a fake agency called the "Blockchain Exchange Commission." Blockvest and Ringgold also allegedly used the National Futures Association seal in making false claims about their regulated status, even after the NFA sent them a cease-and-desist letter for doing so.

    The SEC also charged that Blockvest and Ringgold violated the antifraud and securities registration provisions of the federal securities law. The SEC sought injunctions, return of ill-gotten gains plus interest and penalties, and a bar against Ringgold participating in any future offering of securities.

    The Chief of the SEC Enforcement Division's Cyber Unit, Robert A. Cohen, said that "the SEC does not endorse investment products and investors should be highly skeptical of any claims suggesting otherwise." In addition, the SEC's Office of Investor Education and Advocacy and the U.S. Commodity Futures Trading Commission's Office of Customer Education and Outreach jointly issued an investor alert on the use of false claims regarding SEC and CFTC endorsements.

    View the SEC's announcement.
    TOPICS: EnforcementFinTech
  • Securities and Exchange Commission Reopens Comment Period on Capital, Margin and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants
    10/11/2018

    The U.S. Securities and Exchange Commission has voted to reopen the comment period and request additional comments on proposals for capital, margin and segregation requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) and capital requirements for broker-dealers. The Commission approved the measure by a 4-1 vote, with only Commissioner Robert Jackson Jr. dissenting.

    The Commission initially published in 2012 a proposal on capital and margin requirements for non-bank SBSDs and MSBSPs, and segregation requirements for all SBSDs. The Commission published proposed provisions to establish the cross-border treatment of these rules in 2013 and an additional capital requirement for nonbank SBSDs in 2014. By reopening the comment period, the Commission stated that it is looking to provide market participants with an opportunity to provide comments that account for regulatory and market developments since the initial publication of the proposals, as well as the potential economic effects of the proposals in light of such developments. The Commission has previously indicated that it intends to finalize these rules prior to commencing registration of SBSDs and MSBSPs.

    Read more.
    TOPIC: Derivatives
  • UK Financial Conduct Authority Consults on Guidance Under the Extended Senior Managers Regime
    10/11/2018

    The Financial Conduct Authority has published a consultation paper on proposed guidance on the Statement of Responsibilities (SoR) and Responsibilities Maps required under the Senior Managers and Certification regimes. The extended SM&CR will apply to all firms authorized under the Financial Services and Markets Act 2000 and regulated by the FCA, as well as EEA and third-country (non-EEA) branches. SM&CR will be extended to FCA solo-regulated firms from December 9, 2019.

    Read more.
  • Draft UK Post-Brexit Legislation to Onshore the EU Markets in Financial Instruments Package
    10/11/2018

    HM Treasury has published a draft of the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations are primarily relevant for MiFID II-authorized firms including investment banks, stock and futures exchanges, broker-dealers, investment advisers and investment managers.

    The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The changes set out in the draft Regulations will not take effect if the U.K. enters a transition period.

    Read more.
  • Financial Stability Board Recommends Vigilant Ongoing Monitoring of Crypto-Assets
    10/10/2018

    The Financial Stability Board has published a report entitled "Crypto-asset markets: Potential Channels for future financial stability," in which it outlines its findings following its assessment of the crypto-asset markets in 2018.

    The FSB has considered the primary risks present in crypto-assets markets as low liquidity, volatility, leverage risks, as well as technological and operational risks (including cyber security risks). The FSB considers that crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value or a mainstream unit of account. Based on the available information, the FSB considers that crypto-assets do not pose a material risk to global financial stability at this time. However, the FSB's report highlights that there could be financial stability implications from these primary risks through a variety of transmission channels including: (i) confidence effects; (ii) financial institutions' exposures to crypto-assets, related financial products and entities that are financially impacted by crypto-assets; (iii) the level of market capitalisation of crypto-assets; and (iv) the extent of their use for payments and settlements.

    Read more.
    TOPICS: FinTechSecurities
  • UK Regulator Provides Information on Brexit Process for Credit Rating Agencies, Trade Repositories and Data Reporting Services Providers
    10/10/2018

    The Financial Conduct Authority has published three press releases announcing how entities can register with it as a credit rating agency, a trade repository or apply for temporary authorization as a data reporting services provider in preparation for the U.K. leaving the EU without a deal. The press releases follow the draft legislation and explanatory guidance recently published by HM Treasury and the FCA's first consultation on onshoring the EU technical standards through changes to its rulebook.

    For credit rating agencies, the U.K. intends to establish a conversion regime (for U.K. CRAs and third-country CRAs currently registered or certified by the European Securities and Markets Authority) and a temporary registration regime (for newly established U.K. entities that are part of a group of CRAs with an existing ESMA registration before exit day). The FCA's CRA press release informs CRAs of how they can notify the FCA of their intention to use one of these regimes and provides an indicative timeline for the legislation and regime to be put into place.

    Read more.
  • UK Conduct Regulator Consults on Brexit-Related Changes to Its Rulebook and Binding Technical Standards
    10/10/2018

    The U.K. Financial Conduct Authority has published its first consultation on proposed changes to the FCA Handbook to ensure a functioning legal and regulatory framework for financial services in the event of a "no-deal" scenario whereby the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement in place and there is consequently no transitional period for firms. The proposed amendments will not take effect if the U.K. enters into a transitional period after exit day.

    The consultation includes the FCA's proposals in relation to the Binding Technical Standards it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterward. These are the retained EU "Level 2" delegated and implementing regulations that set out regulatory technical standards and implementing technical standards. The consultation also sets out the FCA's proposed approach to non-legislative "Level 3" materials such as guidelines, recommendations and opinions that will also be onshored.

    The FCA states in the consultation that the majority of the proposed changes are consequential in nature and follow the amendments to retained EU law that HM Treasury is proposing, as set out in the series of financial services-related statutory instruments being made under the European Union (Withdrawal) Act 2018.

    Read more.
  • UK Conduct Regulator Consults on Post-Brexit Temporary Permissions Regime for EEA Firms and Funds
    10/10/2018

    The U.K. Financial Conduct Authority has published a consultation on its proposed approach to a Temporary Permissions Regime for EEA firms and investment funds that currently provide services in the U.K. - either via a branch or cross-border - pursuant to a single market passport. The proposed TPR is designed to minimize the potential harm caused by an abrupt loss of the passport in a "no-deal" scenario, in which the U.K. exits the EU without a ratified Withdrawal Agreement, which would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The TPR will enable EEA firms and investment funds to continue to provide services in the U.K. for a limited period following exit day.

    The proposed TPR will take effect on March 29, 2019 in the event of no deal. Should the U.K. and EU negotiations lead to ratification of the Withdrawal Agreement, the TPR will not enter into force. Instead, during the transitional period, firms and investment funds would continue to have access to the same passporting arrangements as they do now.

    Read more.
  • Post-Brexit UK Law to Exclude EU Laws on the European Supervisory Authorities
    10/09/2018

    HM Treasury has published guidance stating that the laws establishing the three European Supervisory Authorities and the European Systemic Risk Board will be revoked in their entirety once the U.K. has left the EU. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. These ESAs and the ESRB are part of the EU framework for supervision and regulation of the EU financial services sector. The European Union (Withdrawal) Act 2018 automatically incorporates such EU legislation into U.K. laws when the U.K. leaves the EU.

    At the point of Brexit, the ESAs and the ESRB will no longer perform functions in relation to the U.K. and the EU legislation that established them will be inoperable in U.K. laws. HM Treasury intends to use a statutory instrument to revoke those laws in their entirety so that they do not become applicable on Brexit. Where other EU legislation automatically incorporated into U.K. law refers to the ESAs or ESRB, statutory instruments will either amend the law or revoke it, as appropriate.

    View the guidance.
  • European Supervisors Announce 2019 Work Priorities
    10/09/2018

    The Joint Committee of the European Supervisory Authorities (that is, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) has published its 2019 Work Programme. EIOPA will Chair the Joint Committee in 2019. The Work Programme provides details of the Joint Committee's key workstreams for 2019.

    Read more.
  • UK Financial Policy Committee Publishes Outcome of its October Meeting
    10/09/2018

    The Financial Policy Committee has published a statement from its meeting held on October 3, 2018 where it reviewed developments since June 19, 2018. The FPC continues to consider that the U.K. banking system is sufficiently robust to withstand the disruption of a "hard Brexit" and that there is no need for additional capital buffers for banks as a result. The FPC is of the view that the banking system would be able to absorb, in addition to a disorderly Brexit, further costs that might arise from trade tensions. However, the FPC is concerned about the lack of action taken by EU authorities to address the risks of disruption in the event of the U.K. leaving the EU without a deal on March 29, 2019. In particular, the FPC would like mitigating action to be taken to address the risks associated with derivatives contracts and the transfer of personal data.

    Aside from the risks presented by Brexit, the FPC considers that domestic risks are still at a standard level overall. However, the FPC is concerned about the swift growth of leveraged lending and intends to: (i) assess the implications for banks in the 2018 stress test; and (ii) review the impact of the increasing role of non-bank lenders and changes in the distribution of corporate debt. The FPC has decided to maintain the U.K. countercyclical capital buffer rate at 1% and will review the rate again at its meeting on November 28, 2018.

    Read more.
  • Draft UK Post-Brexit Legislation to Onshore EU UCITS Directive Published
    10/08/2018

    HM Treasury has published a draft of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will onshore the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive for Brexit.

    The draft Regulations are primarily relevant for EEA fund managers operating UCITS authorized in the U.K., fund managers marketing EEA UCITS into the U.K. and depositaries that provide services to U.K. authorized funds. HM Treasury has also published separately the draft U.K. legislation to onshore EU legislation for Alternative Investment Funds for Brexit.

    The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario would mean that there would be no transitional period following Brexit and that the U.K. would be treated as a third-country after exit day. The changes set out in the draft Regulations will not take effect if the U.K. enters a transition period.

    Read more
  • UK Conduct Regulator Consults on Illiquid Assets and Open-Ended Funds
    10/08/2018

    The U.K. Financial Conduct Authority has launched a consultation on illiquid assets and open-ended funds, following responses from stakeholders to a discussion paper it issued early in 2017. After observing the impact of certain temporary fund suspensions following the U.K.'s 2016 referendum on exiting the EU, the FCA considers that open ended funds investing in illiquid assets have a potential structural liquidity mismatch which, under stress, can create a "first mover" advantage that may lead to runs on funds and sales of fund assets at reduced prices.

    The FCA is consulting on a number of proposals to alleviate the risk of poor outcomes to retail investors in open ended funds, specifically non-UCITS retail schemes (NURSs), that invest in illiquid assets. The consultation includes a proposed approach to defining "inherently illiquid assets," examples of which include property or infrastructure investments.

    In addition to the responses received to its discussion paper, the FCA's consultation proposals are also informed by its supervisory work and by the revised version of the Recommendations on Liquidity Risk Management for Collective Investment Schemes published in February 2018 by the International Organization of Securities Commissions.

    Read more.
    TOPIC: Funds
  • UK Government Proposes Temporary Transitional Powers for UK Financial Regulators to Ease Brexit Adjustments
    10/08/2018

    HM Treasury has published an Approach Paper setting out its proposal for a temporary transitional power to be given to the U.K. financial regulators to assist firms to adapt to the post-Brexit regulatory framework in an orderly manner in the event of a "no deal" scenario.

    It is proposed that the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority are granted a temporary power to award transitional relief from regulatory requirements where the requirements have been introduced or have changed as a result of onshoring financial services legislation. The power would relate to regulatory requirements in the PRA and FCA rules, onshored EU technical standards, onshored EU financial services regulations or delegated regulations and relevant U.K. primary or secondary legislation. The regulators would be able to grant transitional relief by issuing a "direction" setting out the terms of the relief, including whether the relief would apply to particular firms, classes of firms or to all firms. The power would not be available where a specific transitional arrangement has already been put in place for firms through regulations made under the European Union (Withdrawal) Act because HM Treasury believes that additional relief would not be necessary.

    Read more.
  • Draft UK Post-Brexit Regulations to Onshore the EU Bank Recovery and Resolution Directive Published
    10/08/2018

    HM Treasury has published draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 to onshore the EU Bank Recovery and Resolution Directive in preparation for the U.K.'s exit from the EU. An explanatory guide to the draft Regulations has also been published. The draft Regulations will make changes to the existing U.K. legislation which transposed the BRRD into U.K. law, which is mainly the Banking Act 2009 and the Bank Recovery and Resolution (No 2) Order 2014, and to certain Delegated Regulations adopted by the European Commission under the BRRD. The aim of the draft Regulations is to ensure that the U.K. Special Resolution Regime is "legally and practically workable on a standalone basis" when the U.K. leaves the EU.

    Read more.
  • UK Plans Transitional Regime for Credit Ratings for Potential "No Deal" Brexit
    10/08/2018

    HM Treasury has published explanatory guidance on a proposed U.K. regulation to onshore EU legislation on credit rating agencies in the event of a "no deal" scenario resulting from the EU-U.K. Brexit negotiations. If no deal is reached, the U.K. exits the EU on March 29, 2019. The draft statutory instrument is still being prepared and the approach as set out in the guidance may change as a result. It is expected that the draft SI will be published and also laid before Parliament before the end of the year.

    Read more
  • Draft UK Post-Brexit Legislation to Onshore Alternative Investment Fund Managers Directive Published
    10/08/2018

    HM Treasury has published a draft of the Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will onshore the Alternative Investment Fund Managers Directive for Brexit.

    The draft Regulations are primarily relevant for Alternative Investment Fund Managers that are already regulated in the U.K. under the Alternative Investment Fund Managers Regulations 2013 and AIFMs currently marketing EEA AIFs in the U.K. They are also relevant for fund managers that market EEA Undertakings for Collective Investment in Transferable Securities (UCITS) into the U.K. HM Treasury has published separately the draft U.K. legislation to onshore EU legislation for UCITS funds for Brexit.

    The draft Regulations have been prepared in preparation for a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement. The no-deal scenario addressed in the draft Regulations involves no transitional period following Brexit and the U.K. being treated as a third-country under EU law after exit day. The changes set out in the draft Regulations will not take effect if the U.K. enters a transition period.

    Read more.
  • European Supervisory Authority Issues Opinion on Position Limits for UK Natural Gas Derivatives
    10/05/2018

    The European Securities and Markets Authority has published an Opinion (dated September 24, 2018) on position limits for U.K. Natural Gas Contracts, for the purposes of the position limit regime established by the revised Markets in Financial Instruments Directive. MiFID II and its secondary legislation establish the position limits regime for commodity derivatives. For illiquid contracts, the position limits are set in the legislation. However, where contracts are liquid, position limits are set by the relevant national regulator and notified to ESMA. Secondary legislation under MiFID II sets out Regulatory Technical Standards for the methodology national regulators should use and the factors they should consider when setting position limits.

    The U.K. Financial Conduct Authority notified ESMA in February 2018 of the position limits the FCA intends to set for U.K. Natural Gas commodity futures and options contracts. In its Opinion, ESMA confirms that the spot month position limit and the other months' position limit are consistent with the objectives of MiFID II and compliant with the methodology established by the relevant RTS.

    Read more.
    TOPICS: DerivativesMiFID II
  • UK Office of Financial Sanctions Implementation Publishes First Annual Review
    10/05/2018

    The U.K. Office of Financial Sanctions Implementation has published its Annual Review for the period from April 2017 to March 2018. OFSI was established in March 2016 with the objective of raising awareness of financial sanctions, assessing and addressing suspected sanctions breaches and providing a professional service to the public and industry. The Annual Review provides an overview of:
    • U.N. and EU financial sanction regimes implemented by OFSI;
    • OFSI's work on asset freezing and a breakdown of funds frozen;
    • action taken by OFSI following reports of suspected breaches of financial sanctions;
    • licenses issued by OFSI during the period; and
    • awareness-raising activities.
    The Annual Review also outlines OFSI's forward plans in the above areas. This includes: (i) a plan to improve searchability of OFSI's Consolidated List of financial sanctions targets; (ii) potentially imposing monetary penalties in 2018-19; (iii) further activities to raise awareness, including the publication of more targeted guidance on financial sanctions compliance and on changes to the legal framework for sanctions; and (iv) Brexit preparations.

    View the Annual Report.
  • Draft UK Post-Brexit Legislation to Onshore Trade Repositories' Obligations and Establish Temporary Recognition Regime
    10/05/2018

    HM Treasury has published a draft of the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations are primarily relevant for Trade Repositories in both the U.K. and the EU that are currently registered with and supervised by the European Securities and Markets Authority and that are planning to continue servicing the U.K. market after the U.K.'s exit from the EU on March 29, 2019.

    The draft Regulations have been prepared to ensure that the U.K.'s legal framework for reporting of derivatives trades to TRs will continue to operate effectively after exit day. The draft Regulations amend the version of the European Markets Infrastructure Regulation that will be retained on Brexit. The draft Regulations transfer to the Financial Conduct Authority the functions carried out by ESMA for the registration of TRs. They also establish: (i) a temporary registration regime that will enable U.K. and EU TRs that wish to establish a new U.K. legal entity to benefit - on complying with certain requirements - from temporary registration while the FCA considers their application; and (ii) a conversion regime that will allow U.K. TRs that are currently registered with ESMA to be registered as authorized U.K. TRs by the FCA from exit day.

    Read more.
  • Global Foreign Exchange Committee Update and Survey on Adoption of the FX Global Code
    10/04/2018

    The Global Foreign Exchange Committee has published an update on the ongoing work of its four priority working groups: (i) the cover and deal working group; (ii) the disclosures working group; (iii) the buy-side outreach working group; and (iv) the working group on embedding the FX Global Code. The GFXC was established in 2017 as a forum for participants in the wholesale foreign exchange markets and its terms of reference include addressing misconduct in FX markets by facilitating adoption of the global principles of good practice enshrined in the FX Global Code.

    The update refers to the recent launch (on September 28, 2018) of a survey by the working group on embedding the FX Global Code. Completed surveys are requested by October 19, 2018. The aims of the survey are to measure awareness and adoption of the FX Global Code among market participants and to inform the GFXC's further work on embedding and integrating the code into the global FX markets. The survey results will be considered at the GFXC's next meeting, which will be held in November.

    View the survey.

    View the press release.
  • US and Australian Regulators Agree FinTech Information Sharing Arrangement
    10/04/2018

    The Commodity Futures Trading Commission and the Australian Securities and Investments Commission have signed an arrangement designed to support cross-border FinTech innovation through their respective FinTech initiatives, LabCFTC and the ASIC Innovation Hub. The arrangement will facilitate information sharing between the two regulators in respect of emerging trends and developments, regulatory issues pertaining to FinTech innovations and best practices, among other things. It also includes a referral mechanism that will allow the CFTC and ASIC to refer to one another innovators that wish to operate or have questions about operating in the other's jurisdiction. The arrangement further calls for joint proofs of concept, trials and innovation competitions, where permitted, as well as periodic meetings to update each other on FinTech and RegTech trends and developments of common interest.

    Read more.
    TOPIC: FinTech
  • European Supervisory Authority Withdraws Guidelines for Algorithmic Trading Controls
    10/03/2018

    The European Securities and Markets Authority has published a decision (dated September 26, 2018) of its Board of Supervisors to withdraw its existing Guidelines for trading platforms, investment firms and national regulators on systems and controls in an automated trading environment.

    The Guidelines were published by ESMA in 2011 to provide important clarifications to ensure a common, uniform and consistent application of the original Markets in Financial Instruments Directive and its secondary legislation (MiFID I). The content of the Guidelines has now been incorporated within, and consequently superseded by, detailed provisions in the revised Markets in Financial Instruments Directive and its secondary legislation (MiFID II) and the Market Abuse Regulation.

    The Guidelines have been withdrawn effective from September 26, 2018.

    View the ESMA decision.
    TOPIC: MiFID II
  • UK Regulator Finds E-Money Firms Have Effective Anti-Money Laundering Controls
    10/03/2018

    The Financial Conduct Authority has published a report on the outcome of its thematic review into money laundering and terrorist financing risks in the e-money sector. The report focuses on e-money products, including prepaid cards and digital wallets. The FCA assessed the anti-money laundering and counter-terrorist financing controls of 13 authorized Electronic Money Institutions and registered small Electronic Money Institutions. The review included consideration of business models that involve distributing e-money through agents and distributors.

    The FCA's review did not cover activities that are not regulated by the FCA (for instance, gift cards that can be used only within a limited network or prepaid products denominated in a cryptocurrency) or money remittance services provided by the EMIs.

    Read more.
  • European Parliament Adopts Resolution on Distributed Ledger Technologies
    10/03/2018

    The European Parliament has adopted a non-legislative resolution entitled "distributed ledger technologies and blockchains: building trust with disintermediation." Of particular relevance to the financial services sector, the European Parliament is requesting that the European Commission and other EU authorities take various steps to maximize the potential of this technology in the EU.

    Read more.
  • EU Opinion Attempts to Clarify the Market Size Calculation for Ancillary Activity Exemption under MiFID II
    10/02/2018

    The European Securities and Markets Authority has issued an opinion addressed to EU national regulators on the market size calculation for the ancillary activity exemption under the revised Markets in Financial Instruments Directive.

    MiFID II provides an exemption from the requirement for authorization as an investment firm when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business at group level and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive. Delegated Regulation (EU 2017/592) sets out the criteria for establishing when an activity should be considered as ancillary to the main business at group level, including the rules for calculating the overall market trading activity of a firm.

    ESMA's opinion provides guidance to market participants and national regulators on determining market size figures, since there is no centralized, publicly available record of transactions for commodity derivatives and emission allowances. ESMA acknowledges that the data it has used for the guidance may have limitations in terms of accuracy and completeness and states that national regulators may use alternative data provided by market participants for the calculation.

    View the opinion.
    TOPIC: MiFID II
  • European Supervisory Authorities and European Commission Disagree on Retail Fund Investor Disclosures
    10/01/2018

    The Joint Committee of the European Supervisory Authorities (i.e., the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) has published a letter it has sent to the European Commission, in response to a request from the European Commission on August 10, 2018 for the ESAs to develop guidance on facilitating the production and distribution of information on investment funds.

    Read more.
    TOPIC: Funds
  • UK Prudential Regulator Consults on Changes to Forms for Regulatory Transactions
    10/01/2018

    The U.K. Prudential Regulation Authority has launched a consultation entitled "Regulatory transactions: Changes to notification and application forms." The proposals in the consultation are for the amendment of various PRA forms that are used for applications and notifications for regulatory transactions. The PRA has chosen to combine the proposals into one substantial consultation paper to avoid having to issue multiple separate consultations on the same forms. The affected forms are located in the Passporting, Change in Control, Insurance Special Purpose Vehicles (ISPVs) and Notifications Parts of the PRA Rulebook.

    The consultation proposals are relevant for PRA-authorized firms and any firms that have, or intend to acquire, a qualifying holding in a PRA-authorized firm.

    Comments on the consultation are invited by November 1, 2018. The PRA expects that the proposals will take effect immediately after the publication of its planned Policy Statement.

    View the consultation paper (PRA CP 21/18).
  • European Securities and Markets Authority Recommends Tightening of Third-Country Requirements
    10/01/2018

    The European Securities and Markets Authority has published a letter (dated September 26, 2018) from ESMA Chair Steven Maijoor addressed to Valdis Dombrovskis, the Vice President of the European Commission. The purpose of the letter is to contribute to any further work the Commission may undertake on the investor protection and intermediaries-related requirements under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation.

    Read more.
  • UK Conduct Regulator Fines Retail Bank for Failures During a Cyber Attack
    10/01/2018

    The U.K. Financial Conduct Authority has published a final notice issued to a U.K. Retail Bank for breaches of Principle 2 of the FCA's Principles for Businesses. Principle 2 requires authorized firms to conduct their business with due skill, care and diligence. The Bank was subjected to a cyber-attack in November 2016, when attackers deployed an algorithm to generate authentic debit card numbers that were then used to make unauthorized transactions. While the attack did not involve loss or theft of customers' personal data, the FCA found that the attack left the Bank's personal current account holders vulnerable to a largely avoidable incident that occurred over 48 hours.

    Read more
  • EU Ban Relating to Binary Options Extended
    10/01/2018

    Following its announcement in August 2018, the European Securities and Markets Authority has published notice of the extension of the prohibition on the marketing, distribution and sale of binary options to retail investors for a further three-month period from October 2, 2018. ESMA is extending the ban because the threat to investor protection has not been addressed yet through a change in EU legislation and national regulators have either taken no action or have taken insufficient action to address the potential harm.

    Read more.
  • European Securities and Markets Authority Publishes Its 2019 Priorities
    10/01/2018

    The European Securities and Markets Authority has published its Annual Work Programme for 2019, dated September 26, 2018. ESMA sets out its focus areas for 2019 and provides details of expected outputs within each of the areas. ESMA also indicates that a number of pieces of EU legislation may be reviewed. These include the Market Abuse Regulation and the clearing obligation under the European Market Infrastructure Regulation, in addition to the reviews that have already been announced.

    Read more.
  • Proposed Revisions to EU Guidelines on Stress Testing of Money Market Funds
    09/28/2018

    The European Securities and Markets Authority has opened a consultation on proposed updates to the Guidelines on stress test scenarios for Money Market Funds under the Money Market Fund Regulation. The MMF Regulation has applied directly across the EU since July 21, 2018. MMFs are fund vehicles that invest in highly liquid short-term debt instruments, such as government bonds and often regarded as a short-term cash management function alternative to bank deposits.

    The MMF Regulation tasks ESMA with developing Guidelines on common reference parameters of the stress test scenarios to be included in the stress tests that managers of MMFs are required to conduct. ESMA's original Guidelines, published in March 2018, include specifications for the stress tests, including common parameters and scenarios which take into account certain hypothetical risk factors. The Guidelines must be reviewed at least annually and updated for any market developments.

    The consultation paper proposes updating the section in the Guidelines on the establishment of common reference stress test scenarios, the results of which should be included in the reporting template that managers of MMFs are required to use. ESMA is seeking feedback on the methodology, risk factors, data and the calculation of the impact. The calibration of stress test scenarios is not within scope of the consultation. However, feedback on how to calibrate the scenarios would be welcomed by ESMA.

    Responses to the consultation should be submitted by December 1, 2018. ESMA intends to finalize the revised Guidelines in Q1 2019.

    View the consultation paper.
    TOPIC: Funds
  • EU Contracts for Difference Product Intervention Measures to be Extended
    09/28/2018

    The European Securities and Markets Authority has announced that its various restrictions on the sale, distribution and marketing of Contracts for Difference to retail investors will be extended from November 1, 2018 for a further three months.

    ESMA adopted two temporary product intervention Decisions under the Markets in Financial Instruments Regulation in June this year, one relating to binary options and another to CFDs. ESMA has powers under MiFIR to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern in the Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire and it would then fall to member states to impose similar restrictions at a national level, if they so wish. The U.K. Financial Conduct Authority is expected to consult before the end of the year on whether to make permanent the EU's temporary prohibition on marketing, distribution and sale of binary options to retail investors. The International Organization of Securities Commissions recently published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options.

    Read more.
  • UK Brokerage Firm Fined for Inadequate Controls Against Potential Market Abuse
    09/27/2018

    The U.K. Financial Conduct Authority has published a Decision Notice (dated June 7, 2018) imposing a fine of £409,300 on a U.K. brokerage firm for failure to take reasonable care to organize and control its affairs responsibly and effectively with adequate risk management systems in relation to the detection and reporting of potential instances of market abuse. 

    Read more.
  • UK Serious Fraud Office to Recruit New Senior Staff to Management Team
    09/27/2018

    The U.K.'s Serious Fraud Office has announced that it will be restructuring and expanding its management team with two new senior appointments:
     
    1. A new Head of Intelligence to enable the SFO to move to a more proactive approach to sourcing new cases. This appointment will enable the Head of Investigations to focus on advising on investigative strategy and leading the professional development of investigators.
    2. A new Head of Corporate Services to manage the finance, human resources, procurement and facilities management functions. This new appointment will enable the General Counsel to focus on legal matters.

    The recruitment process for the new roles will run concurrently with recruitment of an appropriate replacement for the SFO's current General Counsel, who will be leaving the SFO later in the year after six years.

    View the SFO press release.
    TOPIC: People
  • New Data Completeness Indicators to be Published for EU Trading Venues
    09/27/2018

    The European Securities and Markets Authority has announced that it will publish two new data completeness indicators for trading venues, detailing how venues are performing on the delivery of Double Volume Cap and bond liquidity data in compliance with their obligations under the Markets in Financial Instruments Regulation. ESMA has been working with national regulators to improve the timeliness and completeness of the data underpinning the monthly DVC and quarterly bond liquidity assessment publications. ESMA believes that the new indicators will incentivize trading venues to provide timely and complete data. For both DVC and bond liquidity data, ESMA will introduce the following completeness indicators:
     
    1. The Completeness Ratio, to provide information on the completeness of each particular venue, irrespective of the performance of other venues.
    2. The Completeness Shortfall, which will give an indication of a venue’s performance in terms of completeness compared to other trading venues and reflect the percentage of missing data for which a particular venue is responsible.
    ESMA will publish the DVC completeness indicators on October 8, 2018 with the next DVC update and then on a monthly basis. It will publish bond liquidity completeness indicators from the next bond liquidity quarterly assessment publication by November 1, 2018 and then on a quarterly basis.

    View the ESMA press release.
    TOPIC: MiFID II
  • EU Final Report to Extend Exemption From the Clearing Obligation for Certain Intragroup Derivatives Transactions
    09/27/2018

    The European Securities and Markets Authority has published a final report on the exemption from the clearing obligation for intragroup transactions with a third country group entity. There are currently three sets of Regulatory Technical Standards made under the European Market Infrastructure Regulation that impose the clearing obligation of certain interest rate derivatives and credit derivatives. Each of these three RTS exempts from the clearing obligation certain intragroup derivatives transactions where one of the counterparties is a third-country group entity and there is no relevant equivalence decision in respect of the third country in which it is situated. An equivalence decision would enable parties that are subject to both the EU and a third country's clearing obligation to comply only with one jurisdiction's requirements, but no equivalence decisions have been made to date. Each of the three RTS sets a different expiry date for the intra-group exemption. These dates fall between December 21, 2018 and July 9, 2019.

    Following a consultation launched in July 2018, ESMA's final report contains final draft amending RTS setting out ESMA's proposal to extend the exemption period by amending each of the RTS to have one unified expiry date of December 21, 2020. The final draft amending RTS have been submitted to the European Commission for endorsement.

    View the Final Report.
    TOPIC: Derivatives
  • International Task Force Report Shows Momentum Building for Climate-Related Financial Disclosures
    09/26/2018

    The Task Force on Climate-related Financial Disclosures has issued a status report outlining progress on adoption of the TCFD disclosure recommendations issued in June 2017. The TCFD was established by the Financial Stability Board in 2015 and its 2017 recommendations provide a voluntary framework for companies to develop more effective climate-related financial disclosures through their existing reporting processes. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

    Read more.
  • Prudential Regulator Reports on Climate-Related Financial Risks for the UK Banking Sector
    09/26/2018

    The U.K. Prudential Regulation Authority has published a report entitled "Transition in thinking: The impact of climate change on the U.K. banking sector".

    The purpose of the report is to: (i) examine the financial risks from climate change that impact PRA regulated banks, building societies and designated investment firms; (ii) assess how those entities are responding to and managing the financial risks from climate change; and (iii) assist those entities in understanding the PRA's supervisory approach to the financial risks from climate change. The report will also be used to inform the Bank of England's wider work to assess the system-wide financial risks from climate change.

    Read more.
  • US Federal Judge Affirms Commodity Futures Trading Commission's Authority to Police Virtual Currency Fraud
    09/26/2018

    The U.S. District Court for the District of Massachusetts issued an order confirming that the Commodity Futures Trading Commission maintains the authority to police virtual currency fraud. The order was issued in response to a motion to dismiss charges against My Big Coin Pay, Inc. and several individuals for operating a fraudulent virtual currency scheme through which they solicited customers to purchase a virtual currency known as My Big Coin (MBC).

    The CFTC's initial enforcement order, filed in January 2018, accused the defendants of operating a fraudulent virtual currency scheme through which they solicited more than $6 million from customers throughout the U.S. by making false and misleading claims that MBC was actively being traded, was backed by gold and could be used anywhere MasterCard credit cards were accepted. The defendants also were alleged to have misrepresented MBC's daily trading price in reports on its website, when no daily trading price existed because MBC was not actively being traded.

    Read more
  • UK Parliamentary Committee Calls For Urgent Regulation of Crypto-Assets
    09/21/2018

    The U.K. House of Commons Treasury Committee has published a report calling for crypto-assets to be regulated in the U.K. as a matter of urgency. The Treasury Committee considers that the current "ambiguity of the UK Government and regulators' position is clearly not sustainable" and is recommending that an amendment be made to the Regulated Activities Order to bring crypto-assets within the U.K. regulatory perimeter, supervised by the Financial Conduct Authority. The Committee does not specify in the report the activity related to crypto-assets that should go into the RAO, but recommends that it should at least include the issuance of crypto-assets through Initial Coin Offerings and the provision of crypto-exchange services. This will, according to the Committee's report, address anti-money laundering risks and consumer protection, aligning investor protections with those adopted in the U.S.

    The Committee is also seeking various actions by the Government and the U.K. regulators.

    Read more
    TOPICS: FinTechSecurities
  • European Central Bank Guide to On-site Inspections and Internal Model Investigations
    09/21/2018

    The European Central Bank has published its finalized Guide to on-site inspections and internal model investigations under the Single Supervisory Mechanism. The ECB is empowered under the SSM Regulation to conduct, with respect to Eurozone entities within its supervisory remit: (i) on-site inspections, which are in-depth investigations of risk, risk controls and governance; and (ii) internal model investigations, which involve in-depth assessments of internal models used for the calculation of own fund requirements.

    The ECB has developed the Guide as a reference document for supervised entities and other legal entities for which the ECB has decided to launch an on-site inspection. It consulted on a draft of the Guide in July 2017 and has published a separate feedback statement on the consultation responses that were received. The Guide applies to ECB inspections of significant institutions, less significant institutions and other legal entities referred to in the SSM Regulation, including third parties to whom credit institutions have outsourced functions.

    The Guide comprises three sections: (i) the general framework for inspections; (ii) the inspection process; and (iii) applicable principles for inspections. The Guide is not a legally binding document and does not replace the legal requirements laid down in the relevant applicable EU law.

    View the Guide.

    View the feedback statement.
  • US Prudential Regulators Amend Swap Margin Rule to Reflect QFC Stay Requirements
    09/21/2018

    The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency (together, the "Prudential Regulators") have approved amendments to their margin requirements for uncleared swaps and security-based swaps to align with regulations of the Board, FDIC and OCC relating to stays on default remedies for certain qualified financial contracts (QFC Rules). The final amendments conform the definition of "eligible master netting agreement" under the Swap Margin Rule with the "qualifying master netting agreement" definition in the QFC Rules. Therefore, master netting agreements that comply with the limitations on default remedies in the QFC Rules are not excluded from the definition of EMNA for purposes of the Swap Margin Rules. Additionally, any legacy uncleared swaps not subject to the Swap Margin Rule would not become subject to the Swap Margin Rule due solely to amendments to comply with the QFC Rules.

    The final amendments are effective 30 days following their publication in the Federal Register.

    View the final amendments.

    View the Prudential Regulators' joint press release.
    TOPIC: Derivatives
  • Scottish Court Says Court of Justice of the European Union Should Rule on Whether Brexit Notification Can Be Revoked
    09/21/2018

    The Court of Session has delivered an Opinion allowing a reference to be made to the Court of Justice of the European Union for a preliminary ruling on whether the U.K. can unilaterally revoke its notice of withdrawal from the EU - Wightman v Secretary of State for Exiting the European Union [2018] CSIH 62 (21 September 2018).

    Under Article 50 of the Treaty on European Union, the United Kingdom gave notice to the EU Council on March 29, 2017 that it would leave the EU. The notification means that unless an agreement is reached between the U.K. and the EU, and absent any agreement to extend the two-year period, the U.K. will exit the EU on March 29, 2019.

    Read more.
  • US Agencies Issue Multiple Digital Asset-Related Enforcement Orders
    09/20/2018

    The Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued three digital asset-related enforcement orders, and the SEC also suspended trading in two securities that track the value of digital assets. The orders mark an uptick in digital asset enforcement from previous months.

    Crypto Asset Management, LP

    On September 11, 2018, the SEC alleged that hedge fund manager Crypto Asset Management (CAM) had caused its Crypto Asset Fund (CAF) to fail to register as an investment company based on its digital asset investments, marking the first time the SEC has invoked the Investment Company Act of 1940 (the 1940 Act) in an enforcement proceeding against the managing member of a pooled investment vehicle that invests in digital assets.

    Read more.
    TOPICS: EnforcementFinTech
  • Basel Committee on Banking Supervision Provides Brief Update on Various Workstreams
    09/20/2018

    The Basel Committee on Banking Supervision has published a press release summarizing the outcome of its meeting on September 19-20, 2018. The Committee committed to consider Pillar 1 and Pillar 3 measures to prevent banks adjusting their balance sheets around regulatory reporting dates to manipulate reported leverage ratios. In addition, the Committee intends to further analyze banks' exposures to crypto-assets to reach a conclusion on whether action is needed to address the risks that these assets may present.

    The Basel Committee will publish the following before the end of the year:
    • an updated 2018 list of global systemically important banks, along with the high-level indicator values of all the banks that are within the G-SIB assessment exercise;
    • final revisions to the market risk framework (towards the end of the year);
    • a consultation paper (in October 2018) on whether the exposure measure should be revised to alleviate its impact on client clearing, including presenting options for revising this; and
    • the revised Principles on Stress Testing (in October 2018).

    The Basel Committee also published responses to Frequently Asked Questions on the treatment of settled-to-market derivatives under the Liquidity Coverage Ratio and Net Stable Funding Ratio.

    View the press release.

    View the FAQs.
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