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.

  • No Revision Needed to International Liquidity Risk Management Principles

    The Basel Committee on Banking Supervision has completed the review of its 2008 Principles for sound liquidity risk management and supervision. The Basel Committee has concluded that the Principles do not require revision. The Committee expects both supervisors and banks to remain attentive to liquidity risks in the financial markets. Banks should take into account developments since 2008 that may impact their liquidity risk management considerations. These developments include, for example, increasing digitisation of finance and payment systems, an increased use of central clearing of derivatives and margining and the increasing significance of cyber-attacks.

    View the announcement.

    View the 2008 Principles.
  • UK to Adopt EU Equivalence Decisions for Exchanges and Bank Exposures in No Deal Brexit

    HM Treasury has laid before Parliament a draft of the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019. The draft Regulations grant HM Treasury temporary powers to make equivalence determinations in relation to any EEA state for EU legislation that is being onshored. The retained EU law includes the Benchmark Regulation, the Capital Requirements Regulation, the European Market Infrastructure Regulation, the Markets in Financial Instruments Regulation, the Credit Rating Agencies Regulation, the Prospectus Directive, the Transparency Directive, the Securities Financing Transaction Regulation, the Short Selling Regulation and Solvency 2. The powers will enable HM Treasury to make equivalence decisions before Brexit that come into force on exit day in a no deal scenario. These powers are distinct from the powers granted to HM Treasury to make equivalence decisions post-Brexit under the specific sectoral onshored legislation and apply in parallel to relevant temporary permissions or registration regimes. The temporary powers would expire 12 months after exit day.

    Read more.
  • European Securities and Markets Authority Publishes Recommendations on Crypto-Assets and Initial Coin Offerings

    The European Securities and Markets Authority has published a report on the application and suitability of the EU securities regulatory framework to crypto-assets, including Initial Coin Offerings. The report is in response to the European Commission's request in its FinTech Action Plan 2018. Like the European Banking Authority, which published a report on the same day in relation to banking sector issues, ESMA found that EU activities related to crypto-assets are fairly low and do not present any financial stability risks.

    ESMA's report focuses on the legal qualification of crypto-assets under EU financial securities laws and highlights that this may differ across EU member states because it will be subject to the national laws implementing EU legislation. ESMA notes that there is currently no legal definition of crypto-assets and that a key consideration is whether a crypto-asset qualifies as a financial instrument under the revised Markets in Financial Instruments package. Where a crypto-asset qualifies as a MiFID financial instrument, the full requirements under various securities legislation may apply, subject to any applicable exemptions.  According to ESMA, the rules in the Prospectus Directive would apply to an issue of crypto-assets offered to the public, including through an ICO, where the instruments are transferable securities. 

    Read more.
  • European Banking Authority Reports on EU Regulatory Perimeter for Crypto-Assets

    The European Banking Authority has published a report on the application and suitability of the EU bank regulatory framework for crypto-assets. The report is in response to the European Commission's request in its FinTech Action Plan 2018. The report confirms that EU activities related to crypto-assets are fairly low and do not present any financial stability risks. The European Securities and Markets Authority also published a similar report covering Initial Coin Offerings issues within its remit on the same day.

    The EBA's report sets out the EBA's findings, the issues arising from the results, the EBA's advice to the Commission and the steps that the EBA intends to take in 2019. The EBA mapped the applicability to crypto-assets and crypto-asset activities of the EU Anti-Money Laundering Directive, the Capital Requirements Directive and Regulation, the second Electronic Money Directive and the second Payment Services Directive.

    Read more.
  • UK Conduct Regulator Warns Firms About Misleading Financial Promotions

    The Financial Conduct Authority has published a "Dear CEO" letter addressed to the Chief Executive Officers of all FCA-regulated firms. In the letter, the FCA highlights its concerns over the practice engaged in by some firms of issuing financial promotions which suggest or imply that all of the activities or investments undertaken by the firm are regulated by the FCA and/or Prudential Regulation Authority, when they are not.

    Some regulated firms undertake both regulated and unregulated business. The FCA has identified that some of these firms are issuing financial promotions which do not make clear which aspects of its business are not regulated by the FCA and/or PRA. This breaches the requirement that all financial promotions are fair, clear and not misleading and that a firm cannot indicate or imply that it is regulated or otherwise supervised by the FCA for its unregulated business. The FCA encourages all firms to reflect on the letter and ensure that their actions comply with the FCA's rules relating to financial promotions.

    View the letter
  • EU Report on Regulatory Sandboxes and Innovation Hubs

    Fulfilling the mandate in the European Commission's March 2018 FinTech Action Plan, the Joint Committee of the European Supervisory Authorities has published a report on regulatory sandboxes and innovation hubs, together referred to as innovation facilitators. Innovation hubs are a dedicated point of contact for firms raising queries with national regulators on FinTech-related issues. Regulatory sandboxes enable firms to test innovative financial products, services or business models under the supervision of a national regulator.

    The ESAs' report states that most EU member states have one or both forms of these innovation facilitators. The facilitators operate at national level and the ESAs identify this as a potential challenge to the EU objective of scaling-up FinTech. For example, national regulators are likely to adopt different approaches to the same innovation which can hinder opportunities for extending an innovation across the EU as well as present regulatory arbitrage risks. The potential absence of passporting innovative products throughout the EU can raise issues for their users.

    Read more.
    TOPIC: FinTech
  • UK Draft Directions for EEA Funds and Fund Managers Wanting to Continue to Market in the UK Post-Brexit

    The U.K. Financial Conduct Authority has published two draft Directives relating to Brexit under the: (1) draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019; and (2) Alternative Investment Fund Managers Regulations 2013, as amended by the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019. These draft regulations will establish a Temporary Permissions Regime enabling EEA funds that currently market in the U.K. under an EEA passport to continue to do so for three years after the U.K. exits the EU.

    Read more.
  • New UK Financial Policy Committee Appointments

    The U.K. Chancellor of the Exchequer announced the appointment of two external members to the Bank of England's Financial Policy Committee, namely Dame Colette Bowe and Dame Jayne-Anne Gadhia. They will replace Richard Sharp and Martin Taylor, who are stepping down at the end of Q1 2019 and Q2 2019, respectively.

    The FPC, established in 2013, seeks to identify, monitor and take action to remove or reduce systemic risk in the U.K. financial system, while simultaneously protecting and enhancing its resilience. The FPC consists of six BoE staff and five external members selected for their experience and expertise in financial services.

    Dame Jayne-Anne and Dame Colette will start their three years of service before the FPC's Q2 and Q3 meetings, respectively.

    View the announcement.
    TOPIC: People
  • European Commission Adopts Measures in Preparation for a No Deal Brexit

    The European Commission has published a Communication on Implementing the Commission's Contingency Action Plan for a no deal Brexit and has adopted all the legislative proposals and delegated acts announced in its November 2018 Contingency Plan. The actions relevant to the derivatives industry are the adoption by the Commission of:
    1. A temporary and conditional equivalence decision for CCPs already established and authorized in the U.K. CCPs established in third countries (which the U.K. will become on exit day) whose supervisory and legal regimes have been deemed to be equivalent to the EU regime may provide clearing services to clearing members or trading venues established in the EU. Such a CCP must be recognized by the European Securities and Markets Authority in accordance with the processes outlined in the European Market Infrastructure Regulation. The adopted decision would grant equivalence to the regulatory and legal regimes of the U.K. and Northern Ireland in relation to CCPs. The Commission's equivalence decision would apply for 12 months from exit day. ESMA remains to designate various U.K. CCPs.

    Read more.
  • US Consumer Financial Protection Bureau Proposes Regulatory Sandbox and Revisions to No-Action Letter Policy

    The Consumer Financial Protection Bureau has proposed revisions to the agency’s No-Action Letter policy and floated the idea of a federal regulatory sandbox. The proposed NAL policy would simplify and clarify the agency’s existing procedures for obtaining a NAL, while the sandbox would streamline the process for firms that seek regulatory relief when they roll out innovative products or services.

    The CFPB’s proposed NAL policy would supplant the agency’s existing policy, which was implemented in 2016. Under the current policy, the CFPB has only provided one NAL. To encourage more applications for NALs, the CFPB is proposing to streamline the NAL application and review processes by eliminating several redundant or overly burdensome requirements, such as data-sharing requirements. The updated NAL policy would also eliminate assumed time-period limitations on NALs and place an emphasis on coordination with other regulators that offer NALs or similar forms of relief.

    Read more.
    TOPIC: FinTech
  • Final EU Guidelines on Simple, Transparent and Standardized Criteria for Securitizations

    The European Banking Authority has published two sets of finalized guidelines under the Securitization Regulation which, along with targeted amendments to the Capital Requirements Regulation, forms part of the new EU Securitization Framework for simple, transparent and standardized securitizations from January 2019. Originators and sponsors will be required to notify the European Securities and Markets Authority of any securitization that meets the STS criteria to be able to use the "STS" designation. ESMA will maintain a list of all such securitizations on its website.

    Read more.
  • UK Financial Conduct Authority Publishes Its Final Approach to Authorization

    The Financial Conduct Authority has published its final document, entitled "FCA Mission: Approach to Authorisation," explaining the purpose of authorization and the FCA's approach to it. The paper sets out details of the FCA's approach to: (i) evaluating whether firms meet the requisite Threshold Conditions and assessing whether individuals are "fit and proper"; (ii) how the FCA uses authorization to promote competition; and (iii) revoking authorization.

    Read more.
  • US Commodity Futures Trading Commission Consults on Ether and the Potential Introduction of Ether Derivatives Contracts

    To further its understanding of Ether and its use on the Ethereum Network, the Commodity Futures Trading Commission has issued a request for input on several topics related to the virtual currency. The RFI poses a number of questions on Ether, including, among other things, its functionality, underlying technology, governance, markets, cybersecurity and custody. In addition, the CFTC asks several questions regarding Ether's susceptibility to market manipulation and the potential introduction of Ether derivatives contracts.

    The CFTC stated that the requested feedback will inform the work of the CFTC and its LabCFTC initiative to enhance the agency's oversight of virtual currency markets and develop regulatory policy. The CFTC also noted that it hopes to gain a greater understanding of the similarities and differences between Ether and bitcoin, along with potential risks and opportunities uniquely posed by Ether.

    Read more.
    TOPICS: DerivativesFinTech
  • EU Court Rules That the UK Can Unilaterally Revoke its Brexit Notice

    The Court of Justice of the European Union has ruled that the U.K. is able to unilaterally revoke its notice of intention to withdraw from the EU. Any such revocation could only be made before the draft Withdrawal Agreement entered into force or, if there is no agreement, expiration of the two-year period since the withdrawal notification was made or any extension of that two-year period in accordance with Article 50 of the Treaty on the European Union. The revocation could also only be made after a revocation decision was made by the U.K. according to its constitutional requirements.

    The CJEU decision means that the U.K. Parliament has three options to consider on Brexit: remain in the EU, accept the draft withdrawal agreement negotiated by the U.K. Government or leave the EU on March 29, 2019, without an agreement (known as a "hard Brexit").

    Read more.
  • UK Conduct Authority Consults on Permanent Product Intervention Measures

    The U.K. Financial Conduct Authority has launched two consultations proposing to prohibit the sale, marketing and distribution of binary options to retail consumers and to restrict the sale, marketing and distribution of contracts for difference and similar products to retail customers. Both CFDs and binary options are considered to have given rise to significant investor protection concerns, due to their complexity, the lack of transparent information at the point of sale, the risk of significant loss for investors and the deployment of aggressive marketing techniques by providers and distributors of the products. The FCA's product intervention powers under the Markets in Financial Instrument Regulation and, where the FCA has gone beyond those powers, the Financial Services and Markets Act 2000, allow it to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern. The proposed rules would be permanent and would replace the temporary measures introduced, and subsequently renewed, by the European Securities and Markets Authority earlier this year.

    Read more.
  • ​Further UK Legislation in Preparation for Brexit Comes Into Force

    Three pieces of U.K. legislation to onshore EU laws in preparation for Brexit have been made. These are:
    1. The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 (SI 2018/1318).

    A number of technical changes have been made as a result of the consultation process, but these do not affect the fundamental intention and scope of the legislation. The Regulations come into force on December 7, 2018, except for the provisions amending the European Market Infrastructure Regulation, which will come in force on exit day. Advance applications for registration of a trade repository must be submitted to the Financial Conduct Authority between December 7, 2018 and immediately before exit day, instead of on exit day.

    These Regulations establish: (i) a temporary registration regime to enable U.K. and EU trade repositories 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. trade repositories that are currently registered with the European Securities and Markets Authority to be registered as authorized U.K. trade repositories by the FCA from exit day.

    Read more.
  • UK Ring-Fencing Order Brings Full Regime Into Force From January 2019

    The U.K. Financial Services (Banking Reform) Act 2013 (Commencement No. 12) Order 2018 has been made. The Order brings into force, from January 1, 2019, those provisions of the Financial Services (Banking Reform) Act 2013 on ring-fencing that are not already in force, including the prohibition on ring-fenced bodies to carry on excluded activities and provisions on group restructuring. The U.K. ring-fencing laws require U.K. banks which hold more than £25 billion in core deposits and banking groups whose members hold an average core deposit of more than £25 billion to separate their core retail banking business from their investment banking business. Restrictions will limit the products that a ring-fenced bank can offer and where it can conduct business. In particular, a ring-fenced bank will not be able to own a banking subsidiary or branch which is established outside of the EEA.

    View the Order
  • UK Regulations Implementing the EU Securitization Regulation Made

    The U.K. Securitization Regulations 2018 have been laid before Parliament and will come into force on January 1, 2019. The Regulations implement the EU Securitization Regulation (also known as the STS Regulation) into U.K. law.

    The EU Securitization Regulation provides the criteria for identifying which securitizations will be designated as simple, transparent and standardized securitizations, a system to monitor the application of those criteria and common requirements on risk retention, due diligence and disclosure. It also allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator. Originators, sponsors or original lenders of a securitization will be required to retain on an ongoing basis a material net economic interest in the securitization of at least 5%. Related amendments to the Capital Requirements Regulation set out preferential regulatory treatment for investors, in particular, for bank investors, of their exposures to securitizations that are deemed to be STS securitizations.

    Read more.
  • UK Draft Regulations on Credit Ratings in Preparation for Brexit

    HM Treasury has laid before Parliament the draft Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019 to onshore the EU Credit Rating Agencies Regulation for Brexit. This follows the publication of related explanatory information on October 8, 2018.

    The EU CRA Regulation regulates CRAs established in the EU. The European Securities and Markets Authority directly supervises EU CRAs registered with it under the CRA Regulation. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with ESMA; (ii) a third-country CRA under the endorsement regime; or (iii) a third-country CRA under the equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA to be used for regulatory purposes in the EU, provided that the rating has been endorsed by an EU CRA. The equivalence/certification regime allows credit ratings issued by a third-country CRA in relation to a third-country entity or financial instrument to be used in the EU for regulatory purposes. It does not cover ratings issued by a third-country CRA for an EU entity or a financial instrument issued in the EU.

    Read more.
  • European Supervisory Authorities Advocate Proportional Approach to Compliance With Certain Aspects of the Securitization Regulation

    The European Supervisory Authorities have issued a joint statement addressing two issues arising from the Securitization Regulation. The Securitization Regulation will apply directly across the EU from January 1, 2019 to securities issued under securitizations on or after January 1, 2019. Securitizations issued before that date may be referred to as STS securitizations, provided that they meet certain conditions.

    The first issue addressed in the joint statement relates to disclosure requirements for EU securitizations. The Securitization Regulation requires originators and sponsors to notify ESMA of any securitization that meets the "Simple, Transparent and Standardized" criteria. ESMA will maintain a list of all such securitizations on its website. Securitization special purpose entities, originators and sponsors of a securitization will be required to make certain information available via a securitization repository to holders of a securitization position, to the national regulators and, upon request, to potential investors. The European Securities and Markets Authority and the European Commission still have to address a number of market concerns on the proposed ESMA disclosure templates (that will be introduced as Technical Standards under the Regulation) as part of these transparency requirements. This is a process that will not be concluded by January 1, 2019.

    Read more.
  • Draft UK Legislation to Onshore the EU Reorganization and Winding Up Directives Published in Preparation for Brexit

    HM Treasury has published a draft statutory instrument to onshore further EU financial services legislation in preparation for Brexit - the draft Credit Institutions and Insurance Undertakings Reorganization and Winding Up (Amendment) (EU Exit) Regulations 2018. An explanatory memorandum has also been published. HM Treasury has prepared the draft SI using powers granted to it under the EU Withdrawal Act 2018 to address failures of retained EU law to operate effectively or other deficiencies arising from the U.K. leaving the EU.

    The draft SI will onshore the EU Credit Institutions (Reorganisation and Winding Up) Directive and certain aspects of Solvency II. These Directives establish EEA frameworks for the reorganization and winding up of EEA banks, building societies, credit unions and insurers. They were transposed into U.K. law in the Insurers (Reorganization and Winding Up) Regulations 2004 (S.I. 2004/353), the Credit Institutions (Reorganization and Winding Up) Regulations 2004 (S.I. 2004/1045), and the Insurers (Reorganization and Winding Up) (Lloyd's) Regulations 2005 (S.I. 2005/1998).

    Read more.
  • UK Draft Regulations Governing Financial Market Infrastructure in Preparation for Brexit

    HM Treasury has published a new draft statutory instrument, the draft Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2018. The draft instrument is part of its work to ensure that the U.K.'s financial services laws are operative on exit day. The related explanatory information was published on November 22, 2018.  The draft Regulations amend relevant parts of the Financial Services and Markets Act 2000 and the Recognition Requirements for Investment Exchanges, Clearing Houses and Central Securities Depositories Regulations 2001/995.

    Read more.
  • Proposed Exemption From EU Margin Obligations for OTC Derivatives Novated to EU Counterparties in Preparation for a "No Deal" Brexit

    The Joint Committee of the European Supervisory Authorities has published a final report and final draft Regulatory Technical Standards to amend the existing RTS on margin requirements for uncleared OTC derivative contracts. The ESAs are proposing the introduction of a 12-month exemption from the margin exchange obligations to facilitate the novation of uncleared OTC derivative contracts to EU counterparties in the event of a "no deal" Brexit. The European Market Infrastructure Regulation requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The RTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. The variation margin requirements have applied to all counterparties since March 1, 2017.

    Read more.
  • European Commission Publishes Commission Delegated Regulation on the Electronic Central Register Under Payment Services Directive

    The European Commission has adopted Regulatory Technical Standards on the development, operation and maintenance of the electronic central register and access to the information it contains under the Payment Services Directive 2015, known as PSD2. The register will contain details of authorized payment institutions, certain exempt persons and their agents and it will identify the payment services for which each payment institution is authorized or exempt person is registered. PSD2 took effect on January 13, 2018. The electronic central register established by these RTS will be the responsibility of the European Banking Authority. It is intended that these RTS, once published in the Official Journal of the European Union, will be binding and directly applicable in all Member States from twenty days after publication.

    View the Commission Delegated Regulation.
  • UK Payment Systems Regulator Consults on Brexit-Related Changes to Onshore Regulatory Technical Standards Under the Interchange Fees Regulation

    The U.K. Payment Systems Regulator has launched a consultation on its proposals to onshore the Regulatory Technical Standards supplementing the EU Interchange Fee Regulation to ensure the RTS can still operate effectively once the U.K. has left the EU. The consultation will primarily be relevant for card schemes subject to the IFR, parties contracting with card schemes and/or processing entities (e.g. issuers, acquirers) and third-party card payment processors.
    The PSR is empowered by HM Treasury, under the Financial Regulators’ Powers (Technical Standards) (Amendment etc.) (EU Exit) Regulations 2018, to correct deficiencies in the RTS and to maintain them after exit day. The RTS set out detailed requirements for payment card schemes and processing entities, to ensure there is the requisite level of independence in accounting, organization and decision-making processes. The PSR proposes to amend the RTS in line with the draft Interchange Fee (Amendment) (EU Exit) Regulations 2018, published by HM Treasury on November 16, 2018 to onshore the IFR. The PSR's consultation paper includes a draft of the Technical Standards (Interchange Fee Regulation) (EU Exit) instrument 2019.
    Comments on the consultation are invited by December 17, 2018. The PSR intends that the finalized version of the EU Exit instrument will take effect on exit day in the event of a no deal scenario.
    View the consultation paper (PSR CP 18/3).
    View details of the draft Interchange Fee (Amendment) (EU Exit) Regulations 2018.
  • Basel Committee on Banking Supervision Agrees Next Steps for Basel Standards

    Central bankers and banking supervisors from over eighty jurisdictions met this week in Abu Dhabi, United Arab Emirates to discuss a range of policy and supervisory topics.

    On November 26-27, 2018 there was a meeting of the Basel Committee on Banking Supervision at which it was agreed that a consultation would take place next year to discuss a framework to consolidate the Committee's standards into a single integrated structure. Moreover, a number of items were agreed:
    • A set of targeted revisions to the market risk framework which is due to be implemented by January 1, 2022.
    • A consultation on potential enhanced disclosures to reduce bank window-dressing behaviour related to leverage ratio will be pursued. The Basel Committee issued a statement in October declaring unacceptable the alleged tendency in banks to engage in so-called window-dressing by temporarily reducing transaction volumes around key reference dates, which has supposedly the effect of allowing banks to report and publicly disclose better leverage ratios.
    • A set of revisions to the Pillar 3 disclosure framework will be published in December.
    • A report will be published in December setting out the range of bank, regulatory and supervisory cyber-resilience practices across jurisdictions.

    View the press release.

    View details of the Basel Committee's consultation on the revised market risk framework.
  • European Commission Adopts Draft Regulation on the Format, Content, Scrutiny and Approval of a Prospectus

    The European Commission has adopted a draft Delegated Regulation on the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The draft Delegated Regulation is based on the technical advice provided to the Commission by the European Securities and Markets Authority in April 2018. The draft Regulation will repeal the existing Implementing Regulation under the existing Prospectus Directive (which will be finally repealed in July 2019) on the form and content of prospectuses.

    Read more.
    TOPIC: Securities
  • UK Treasury Policy on "In Flight" EU Legislation in Preparation for a "No Deal" Brexit

    Following the introduction to Parliament on November 22, 2018 of the Financial Services (Implementation of Legislation) Bill, HM Treasury has published a Policy Note on the Bill. The Bill gives HM Treasury, in a Brexit no deal scenario, powers to implement and make amendments to a specified list of "in flight" financial services legislation. The Bill covers EU financial services legislation which is proposed or published but that is out of scope of the European Union (Withdrawal) Act 2018 because it will not be operative on or before exit day. Only legislation with an implementation date falling in the two years after exit is covered. The Bill sets out a list of the legislation that is covered, namely:
    • the settlement discipline regime under the Central Securities Depositories Regulation (Articles 6 and 7);
    • the Delegated Cash Penalties Regulation;
    Read more.
  • UK Financial Conduct Authority Reports on Cyber Security Resilience in Financial Services

    The Financial Conduct Authority has published a report entitled "Cyber and Technology Resilience: Themes from cross-sector survey 2017-2018." The FCA compiled the report by requesting 296 firms during 2017 and 2018 to provide a self-assessment of their cyber and technological capabilities, focusing on governance, delivery of change management, managing third-party risks and the effectiveness of cyber defenses. The FCA analyzed the responses and considered data from firm's responses to recent operational incidents to produce the report.

    Read more.
  • UK Conduct Regulator Publishes Second Consultation on Brexit-Related Changes to Its Rulebook and Binding Technical Standards

    The U.K. Financial Conduct Authority has published a second consultation on proposed changes to the FCA Handbook and guidance 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 on exit day if the U.K. enters into a transitional period.

    The consultation includes the FCA's further proposals in relation to those Binding Technical Standards that it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterwards. Since the FCA's first consultation on Brexit-related Handbook changes in October 2018, HM Treasury has published further policy notes and/or financial services "onshoring" statutory instruments with proposed amendments to retained EU law. Many of the FCA's proposals on the BTS are consequential in nature and follow the amendments proposed in the statutory instruments.

    Read more.
  • Financial Stability Board Appoints new Chair and Vice Chair

    The Financial Stability Board has announced the appointment of Randal K. Quarles (Governor and Vice Chairman for Supervision at the U.S. Federal Reserve System) as its new Chair and Klaas Knot (President of De Nederlandsche Bank) as its Vice Chair for a three-year term starting on December 2, 2018.  Klass Knot will succeed Randal K. Quarles as Chair on December 2, 2021 for the next three-year term.

    The current FSB Chair, Mark Carney, will step down on December 1, 2018 after seven years of leadership. 

    View the press release
    TOPIC: People
  • UK Parliamentary Committee Launches Inquiry Into Operational Resilience in the Financial Services Sector

    The U.K. Treasury Committee has announced the launch of a new Inquiry into IT failures in the financial services sector. The Inquiry has been launched in response to recent IT failures at a number of financial institutions that have led to consumers being unable to access their bank accounts or becoming subject to fraud.

    The Committee will assess the causes and consequences of these recent IT failures. Among other things, the Committee will consider the extent to which such incidents are becoming more frequent, sources of concentration risk in the financial sector, the impact of legacy IT systems, the effect of outsourcing on operational resilience, best practices in responding to operational incidents and whether the U.K. regulators are able to regulate firms' capabilities for responding to such incidents.

    Written submissions can be made to the Committee by January 18, 2019. The Committee will also appoint a special advisor to provide policy advice to the Committee on the issues. Individuals interested in the role should respond to the call for Expressions of Interest.

    View the announcement.
  • European Supervisory Authority Public Statement on Post-Brexit Temporary Recognition for UK CCPs if No UK-EU Deal

    The European Securities and Markets Authority has issued a public statement entitled "Managing risks of a no-deal Brexit in the area of central clearing."  In the statement, ESMA confirms that its Board of Supervisors supports continued access to U.K. CCPs by EU market participants, to limit the risk of disruption in central clearing and to avoid negatively impacting EU financial market stability following the U.K.'s exit from the EU. This would appear likely to take effect pursuant to a temporary or interim equivalence and/or Qualifying CCP determination under European Market Infrastructure Regulation and the Capital Requirements Directive in respect of the U.K. and its CCPs, effective on Brexit.

    Read more.
  • UK Draft Legislation to Onshore EU Packaged Retail and Insurance-Based Investment Products for Brexit

    HM Treasury has published a draft version of the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019. The EU PRIIPS Regulation requires a standardized disclosure document (called a Key Information Document or KID) to be provided when packaged investment or insurance-based investment products are sold to retail investors.

    The draft Regulations correct deficiencies in the U.K. Packaged Retail and Insurance-based Investment Products Regulations 2017 and in the directly applicable EU PRIIPS Regulation (and its secondary legislation) to be retained on Brexit. The draft Regulations will primarily be relevant for firms that manufacture, sell or advise on retail investment products that fall within the scope of the PRIIPs Regulation. This includes, but is not limited to, asset managers, insurers and investment advisors.

    Read more.
  • UK Prudential Regulator Proposes Minor Policy Change for Systemic Risk Buffer

    The U.K. Prudential Regulation Authority has published a consultation paper entitled "The systemic risk buffer: Updates to the Statement of Policy," proposing minor updates to its Statement of Policy, "The PRA’s approach to the systemic risk buffer." The consultation is relevant to "SRB institutions," which are: (i) ring-fenced bodies within the meaning in the Financial Services and Markets Act 2000; or (ii) large building societies that hold more than £25 billion in deposits (where one or more of the account holders is a small business) and shares (excluding deferred shares).
    The PRA proposes to amend the Statement of Policy to:
    • remove the statement that the PRA’s approach to reviewing the SoP every two years is mandated by the SRB regulations;
    • replace references to the PRA's April 2018 consultation, "The PRA’s methodologies for setting Pillar 2 capital," with references to the finalized Statement of Policy that was subsequently published; and
    • include references to the PRA's Supervisory Statement, "UK leverage ratio framework," that was recently updated to apply an additional leverage ratio buffer rate to SRB institutions.
    As the proposals are of only a minor nature, the consultation period is short and comments on the consultation paper are invited by December 6, 2018.
    View the consultation paper (PRA CP 29/18).
    Return to main website.
  • First EU Blockchain Industry Roundtable

    The European Commission has published a press release on the outcome of the first EU Blockchain Industry Roundtable, which took place on November 20, 2018. The press release notes the establishment of the "International Association for Trusted Blockchain Applications" that will be open to any firm that wishes to contribute to the use of blockchain and distributed ledger technologies in the EU. This new Association will work with the European Commission and EEA states that are part of the European Blockchain Partnership to support interoperability, develop specifications and promote standards and regulatory convergence in this area. The European Blockchain Partnership was established earlier this year and has been signed up to by Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the U.K.

    View the press release.

    View details of the European Blockchain Partnership.
    TOPIC: FinTech
  • UK Sanctions and Anti-Money Laundering Act 2018 Sanctions Provisions Brought Into Force

    The Sanctions and Anti-Money Laundering Act 2018 (Commencement No.1) Regulations 2018  were made on November 21, 2018, bringing into force the majority of the sanctions provisions of the Act with effect from November 22, 2018.

    The Act's provisions empower the U.K. Government to make sanctions regulations to be imposed, where appropriate, to comply with United Nations obligations or other international obligations, to further the prevention of terrorism, for the purposes of national security or international peace and security, or to further foreign policy objectives. The Act also empowers the U.K. Government to create, amend and update regulations for the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system.

    The Act received Royal Assent and came partly into force on May 23, 2018. Provisions in force from November 22, 2018 are:
    • sections 1 to 31;  
    • sections 33 to 48;  
    • sections 57 and 58;
    • section 59(4) (to the extent that it relates to Schedule 3, paragraphs 1 to 7 and sub-paragraphs 8(1) to 8(3)); and
    • Schedule 1.

    The remaining Provisions of the Act that will be brought into force at a later date include the provisions related to anti-money laundering.

    View the Commencement Regulations (SI 2018/1213).

    View the Sanctions and Anti-Money Laundering Act 2018.
  • UK Government Publishes Guidance on Proposals to Onshore Primary Markets Legislation for Brexit

    HM Treasury has published explanatory guidance on a draft statutory instrument, the Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019. The statutory instrument is still under development and a draft will be published in due course. The draft Regulations will amend Brexit-related onshoring deficiencies in the U.K. legislation that implemented the EU Prospectus Directive, the Transparency Directive and the Consolidated Admissions and Reporting Directive, which together make up the EU legal framework for primary markets. No deficiencies have been identified for the CARD. 

    Read more.
  • UK Government Publishes Guidance on Proposals to Onshore EU Market Abuse Regulation for Brexit

    HM Treasury has published explanatory information on a draft statutory instrument, the Market Abuse (Amendment) (EU Exit) Regulations 2018. The statutory instrument is still under development and a draft will be published in due course. The draft Regulations will affect the Financial Conduct Authority and all natural and legal persons which issue or trade in financial instruments admitted to trading or traded on an U.K. or an EU trading venue, including legal firms, professional service firms and any legal person that obtains access to the inside information of an issuer.

    Read more.
  • UK Government Refused Challenge of Ability of Court of Justice of the European Union to Rule on Whether Brexit Notification Can Be Revoked

    The U.K. Supreme Court has announced that it has refused the permission to appeal application of the Secretary of State for Exiting the European Union. The application had been made to stop the reference by the Inner House of the Court of Session in Scotland to the European Court of Justice for a preliminary ruling on whether the U.K. can unilaterally revoke its notice of withdrawal from the EU. The court's referral to the CJEU was discussed in our previous post. The Court of Session opined on September 21, 2018 that a reference should be made to the CJEU - Wightman v Secretary of State for Exiting the European Union [2018] CSIH 62.

    The U.K. Department for Exiting the EU has also published a statement on the reference to the CJEU confirming that it has submitted written observations to the CJEU. The Government's position is that the reference to the CJEU is inadmissible on the basis that the CJEU does not answer hypothetical questions or provide advisory opinions.

    An oral hearing before the CJEU is scheduled for November 27, 2018.

    View the Supreme Court's announcement.

    View the DxEU statement.

    View details of the Court of Session Opinion.
  • Final Report on Incentives to Clear OTC Derivatives Published by Global Standard Setting Bodies

    A final joint report on the incentives to clear OTC derivatives has been published by the Financial Stability Board, the International Organization of Securities Commissions, the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures. The report is part of the FSB's post-implementation evaluation of the effects of the G20 financial regulatory reforms.

    The report sets out the results of an evaluation of the reforms that have been implemented to incentivize central clearing of OTC derivatives and outlines areas for further consideration by the global standard setting bodies. The reforms considered include mandatory clearing requirements, capital, liquidity and margin requirements, as well as the reforms to CCP resilience, recovery and resolution.

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  • Bank of England Guidance to Firms on Valuation Capabilities to Support Resolvability

    The Bank of England has published the "Dear CFO" letter sent by its Resolution Directorate to the Chief Financial Officers of relevant entities in financial groups within the remit of the BoE's principles-based "Statement of Policy on Valuation Capabilities to Support Resolvability." The SoP was published in June 2018 and sets out the BoE's expectations on the minimum standard of valuation capabilities that firms should have in place to ensure that their valuations are sufficiently timely and robust to support the effective resolution of the firm. Firms within the remit of the SoP will need to ensure that suitable capabilities are in place by January 1, 2021.

    Read more.
  • UK Legislation Made for Onshoring the EU SEPA Regulation

    The Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018 were made on November 19, 2018 and will enter into force on the day the U.K. exits the EU. The Regulations are relevant for all Payment Service Providers – banks, payment institutions, e-money institutions and registered Account Information Service Providers.

    Read more.
  • UK Legislation Published to Onshore the European Long-Term Investment Funds Regulation For Brexit

    HM Treasury has published a draft version of the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018. The draft Regulations correct deficiencies in the directly applicable European Long-term Investment Funds Regulation to be retained on Brexit, which governs funds that invest into infrastructure and other long-term projects. The draft Regulations will primarily affect fund managers operating ELTIFs registered in the UK.

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  • UK Competition Authority Opens Investigation Into Possible Anti-Competitive Practices

    The U.K. Competition and Markets Authority has announced that it opened an investigation into suspected anti-competitive practices in the financial services sector on November 13, 2018. The investigation is at a very early phase, and the CMA does not consider that at this stage a statement of objections can be issued to any of the parties under investigation. Between now and August 2019 the CMA will be gathering information on the suspected infringement of the Competition Act 1998.

    View the announcement.
    TOPIC: Competition
  • 2018 List of Globally Systemically Important Banks Published

    The Financial Stability Board has published the 2018 list of global systemically important banks. Alongside the 2018 G-SIB list, the Basel Committee on Banking Supervision has published further information relating to its 2018 assessment of G-SIBs, including:
    • a list of all the banks in the assessment sample;
    • the denominators of each of the 12 high-level indicators used to calculate the banks' scores;
    • the 12 high-level indicators for each bank in the sample used to calculate these denominators;
    • the cut-off score used to identify G-SIBs in the updated list and the thresholds used to allocate G-SIBs to buckets for the purpose of calculating the specific higher loss absorbency requirements; and
    • links to disclosures of all banks in the assessment sample.

    The Basel Committee assessment was based on its 2013 methodology for identifying G-SIBs. The revised 2018 assessment methodology will apply from 2021, based on end-2020 data and the corresponding higher loss absorbency requirements will apply from January 1, 2023.

    View the 2018 G-SIB list.

    View details of the revised assessment framework for G-SIBs.
  • Draft UK Legislation Published to Onshore the EU Interchange Fee Regulation for Brexit

    HM Treasury has published a draft version of the Interchange Fee (Amendment) (EU Exit) Regulations 2018, along with explanatory information. The draft Regulations will primarily affect payment system operators, payment service providers (including banks and building societies) and the businesses and individuals who rely on card payment systems. The Payment Systems Regulator will consult separately on consequential changes to its guidance on the IFR once the draft Regulations are made. The PSR will also be responsible for correcting deficiencies in the Binding Technical Standards made under the IFR.

    The draft Regulations amend the EU Interchange Fee Regulation that will be retained on Brexit and the Payment Card Interchange Fee Regulations 2015. The changes are designed to ensure that current laws on interchange fees continues to operate effectively in the U.K. once the U.K. has left the EU.

    Read more.
  • EU Final Draft Technical Standards on Estimating and Identifying an Economic Downturn in IRB Modelling

    The European Banking Authority has published final draft Regulatory Technical Standards on the specification of the nature, severity and duration of an economic downturn in accordance with the Capital Requirements Regulation. The aim of the RTS is to ensure that institutions using the Internal Ratings-Based approach to calculating capital requirements can use a well-defined and common specification of the nature, duration and severity of an economic downturn for portfolios relating to comparable types of exposure.

    The nature of the economic downturn is defined as a set of relevant economic factors and its severity is specified via the most severe values observed on the relevant economic factors over a given historical period. The duration of an economic downturn is specified using the concept of a "downturn period," namely the period of time where the peaks or troughs, which relate to the most severe values of one or several economic factors, are observed.

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  • Financial Stability Board Progress Report on Addressing Correspondent Banking Decline

    The Financial Stability Board has published a progress report addressed to the G20 Finance Ministers and Central Bank Governors on the FSB's four-point action plan to assess and address the decline in correspondent banking relationships. The progress report is accompanied by an update to the Correspondent Banking Data Report published by the FSB March 2018. The updated data report includes additional data from July - December 2017 derived from information provided by SWIFT to the FSB, through the intermediation of the National Bank of Belgium. The data report shows a further decline in active correspondent banking relationships in 2017.

    Read more.
  • EU Legislation Published for Relocation of the European Banking Authority Post-Brexit

    A Regulation amending the founding Regulation of the European Banking Authority has been published in the Official Journal of the European Union. The Amending Regulation amends the EBA Regulation to change the seat of the EBA from London to Paris.

    The Amending Regulation enters into force on November 16, 2018 and will take effect on March 30, 2019.

    View the Amending Regulation (EU) 2018/1717.
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