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.

  • Draft EU-UK Withdrawal Agreement Published
    11/14/2018

    The European Commission and the U.K. government published a draft Withdrawal Agreement and an Outline Political Declaration on the framework for the future relationship between the EU and the U.K. The draft Withdrawal Agreement has been agreed between the negotiators and must still be ratified by the U.K. and EU27 leaders. The full Political Declaration on the future relationship is expected by the end of November 2018, provided the draft Withdrawal Agreement is ratified.

    The draft Withdrawal Agreement outlines how the U.K. will leave the EU and provides for the previously agreed transition period that would run from March 30, 2019 until December 31, 2020. It also provides for the agreements concerning the future relationship to be negotiated expeditiously with the objective of ensuring that the agreements apply from the end of the transition period. This timeframe is reiterated in the Outline Political Declaration. The negotiators have committed to report regularly on progress made on concluding the agreements governing the future relationship between the EU and the U.K.

    The Outline Political Declaration briefly sets out the principles agreed by the negotiators for the future relationship. The Outline confirms that the basis of the future relationship in financial services will be decision-making autonomy and equivalence. The EU and the U.K. are to strive to conclude equivalence assessments before the end of June 2020. The documentation is silent on whether there will be any changes to the processes around equivalency or any expansion to the categories of equivalences under U.K. or EU laws.

    Read more
  • European Commission Publishes Aspects of Contingency Plans For No Deal Brexit
    11/13/2018

    The European Commission has published a Communication establishing certain contingency action plans in preparation for a "no deal" Brexit. The Communication sets out certain actions that the EU is or is proposing to take in the event of a "hard" Brexit. In relation to financial services, the Commission states that it will adopt temporary and conditional equivalence decisions to avoid disruption to derivatives clearing and depositaries services. The decisions would "complement" recognition of U.K. financial market infrastructures. The Commission has also urged these entities to apply in advance for recognition from the European Securities and Markets Authority.

    The Commission reiterates that uncleared OTC derivatives contracts should remain valid and executable until maturity although, where one counterparty is based in the U.K., certain life-cycle events may trigger the need for an authorization or exemption.

    In the Communication, the European Commission further notes that the risks presented to financial services by a "no deal" Brexit have decreased significantly over time because of the action taken by firms to establish new entities or relocate entities and to transfer contracts. In particular, the Commission observes that insurance firms have taken steps to ensure that they can continue to provide services to their clients, including transferring contracts, setting up branches or subsidiaries and merging with firms established in the EU27.

    The Commission also encourages the European Supervisory Authorities to begin preparing cooperation arrangements with the U.K. financial regulators to provide for the exchange of information and supervisory cooperation.

    View the Communication.
  • Eurozone's Single Resolution Board Publishes 2019 Work Programme
    11/12/2018

    The EU Single Resolution Board has published its 2019 Work Programme, setting out its priorities and principal tasks for the next year. The SRB is the resolution authority for all banking groups and entities as well as cross-border groups that are subject to direct prudential supervision by the European Central Bank (i.e., for banks within the Eurozone Banking Union).

    The SRB's work in 2019 will include, among other things, the following:
    • increasing the scope of banks with developed resolution plans and enhancing existing resolution plans to reflect the development of new or updated SRB policies;
    • the adoption of more than 100 group-level decisions on minimum requirement for own funds and eligible liabilities (MREL) and the determination of over 530 MREL targets for individual entities;
    • enhancing the analysis of potential impediments to resolvability of banks;
    • the development of better ICT solutions for crisis management, including establishing a dedicated team to assist individual Crisis Management Teams in implementing the improvements; and
    • the adoption of several new and updated SRB policies covering, for example, MREL decisions, resolvability assessments and operational continuity.

    The SRB expects a significant increase of the number of resolution plans for less significant institutions, the development of which falls within the remit of the Eurozone national regulators.

    View the SRB's 2019 Work Programme.
  • Financial Stability Board Publishes Cyber Lexicon
    11/12/2018

    The Financial Stability Board has published the final Cyber Lexicon of terms related to cyber security and cyber resilience. The Lexicon is intended to assist the FSB, other international standard setting bodies (such as the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions), authorities and the private sector to address threats to cyber security and adopt cyber resilience measures. The FSB has also published an overview of responses to the public consultation, summarizing the main issues that emerged during the FSB's consultation on a draft lexicon and the changes adopted to address them.

    Read more.
  • EU Countering Money Laundering By Criminal Law Directive Will Apply From December 2020
    11/12/2018

    The EU Countering Money Laundering by Criminal Law Directive has been published in the Official Journal of the European Union. The Directive will complement the Fifth Money Laundering Directive, which was adopted in May 2018.

    The U.K., Ireland and Denmark have not adopted the new Directive. In the U.K., this mirrors the approach taken by the U.K. in relation to EU criminal sanctions for market manipulation where it has implemented its own national regime.

    The new Directive will enter into force on December 3, 2018. EU member states that have adopted the Directive must transpose the new provisions into national law by that date.

    Read more.
  • EU Legislation Published to Update Supervisory Reporting Requirements
    11/09/2018

    A Commission Implementing Regulation supplementing the Capital Requirements Regulation has been published in the Official Journal of the European Union. The Implementing Regulation amends the existing Implementing Regulation ((EU) No 680/2014) to reflect the gradual supplementation and amendment of elements of the CRR reporting requirements by the adoption of further Regulatory Technical Standards. The Amending Regulation was adopted by the European Commission on October 9, 2018. It amends the existing Implementing Regulation to set out:
    • additional requirements relating to prudent valuation adjustments of fair-valued positions;
    • additional requirements to accommodate the reporting on securitization positions subject to the revised securitization framework; and
    • minor changes to the reporting requirements on the geographical distribution of exposures.

    The Amending Regulation will enter into force on November 29, 2018 and will apply directly across the EU from December 1, 2018.

    View Commission Implementing Regulation (EU) 2018/1627.
  • Statement by EU Supervisory Authority Confirms No EU Transitional Measures For UK Credit Rating Agencies and Trade Repositories on a Hard Brexit
    11/09/2018

    The European Securities and Markets Authority has issued a public statement urging customers of credit rating agencies and trade repositories to prepare for a "no deal" Brexit. The European Market Infrastructure Regulation requires derivatives subject to the reporting obligation to be reported to either a registered trade repository established in the EU or a recognized third-country trade repository. 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; or (ii) a third-country CRA under the endorsement regime or the equivalence/certification regime. Without the EU putting in place a temporary regime (as the U.K. is doing), U.K. CRAs and trade repositories will lose their EU registration when the U.K. leaves the EU on a "hard Brexit." ESMA reiterates that all market participants must ensure that they continue to comply with their obligations under EMIR, the CRA Regulation and other EU legislation and should monitor the Brexit-related public statements issued by CRAs and trade repositories.

    Read more.
  • UK Financial Conduct Authority Issues Direction For Post-Brexit Temporary Permissions Regime
    11/09/2018

    The U.K. Financial Conduct Authority has issued a Direction detailing how an EEA firm currently passporting into the U.K. should notify it of the firm's intention to benefit from the Temporary Permissions Regime in the event of a "no deal" Brexit. The Direction was made under the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (made on November 6, 2018). The Regulations provide for a Temporary Permissions Regime for firms that are currently authorized to carry on a regulated activity in the U.K. under an EEA passporting right that have either applied for U.K. authorization prior to the U.K. withdrawal date or have notified the relevant U.K. regulator of their intention to continue carrying on passported activities. Temporary permissions would deem firms within the regime as authorized for their current activities for a maximum of three years, subject to a power for HM Treasury to extend the regime's duration by increments of 12 months.

    As with the PRA's Direction (issued on November 7, 2018), the FCA requires firms to submit the Temporary Permission Notification Form using Connect between January 7, 2019 and March 28, 2019.

    View the FCA's Direction.

    View details of the PRA's Direction.
  • EU Supervisory Authority Issues Call for Evidence on Periodic Auctions for Equity Instruments
    11/09/2018

    The European Securities and Markets Authority has published a call for evidence on periodic auctions for equity instruments. ESMA wishes to gather more information on the functioning of so-called frequent batch auction trading systems. Frequent batch auctions for equities have rapidly gained market share since the introduction of the Double Volume Cap mechanism under the revised Markets in Financial Instruments package. This has given rise to concerns that this trading may be used as alternative to trading under the DVC waivers and/or as a way to avoid the pre-trade transparency requirements of systematic internalisers. ESMA has conducted a stock-take, assessing seven frequent batch auction systems operating in the EU and sets out its findings in the call for evidence.

    In the call for evidence, ESMA distinguishes conventional periodic auctions from frequent batch auctions and outlines the key characteristics of frequent batch auction systems operating in the EU. ESMA sets out its observation of a rising market share for equity trading on frequent batch auctions and considers developments in equity trading since the application of MiFID II. It seeks input on a range of questions focused on these issues.

    Responses to the call for evidence are invited by January 11, 2019. The call for evidence will be of particular interest to trading venues and investment firms trading in equity instruments, but ESMA also welcomes responses from any other market participants including trade associations and industry bodies, institutional and retail investors.

    ESMA will use the feedback to the call for evidence to assess whether and to what extent frequent batch auction systems can be used to circumvent the MiFID II transparency requirements and will develop appropriate policy measures if necessary.

    View the call for evidence.
    TOPIC: MiFID II
  • EU Supervisory Authority Will Extend Binary Options Ban Into 2019
    11/09/2018

    The European Securities and Markets Authority has announced that it proposes to renew the prohibition on the marketing, distribution or sale of binary options to retail clients for a further three months from January 2, 2019. ESMA's product intervention powers under the Markets in Financial Instruments Regulation allow it to impose temporary prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern in the EU. ESMA is renewing the prohibition on binary options because it considers that a significant investor protection concern remains. The measure will be renewed on the same terms as the previous renewal decision that has applied from October 2, 2018 and that will expire on January 1, 2019.

    ESMA's Board of Supervisors agreed on the renewal of intervention measures on November 7, 2018. ESMA will publish an official notice on its website in the coming weeks. The new Decision will then be published in the Official Journal of the European Union and will start to apply from January 2, 2019 for a period of three months.

    View ESMA's announcement.

    View details of the prohibition expiring on January 1, 2019.
  • EU Proposals Aim to Avoid Duplicative Information Requirements on Investment Managers
    11/08/2018

    The Joint Committee of the European Supervisory Authorities have launched a consultation on amendments to the Key Information Document for Packaged Retail and Insurance-based Investment Products.

    Since January 1, 2018, the EU PRIIPs Regulation has required manufacturers of PRIIPs to prepare and publish a stand-alone, standardized Key Information Document for each of their PRIIPs. Those advising retail investors on PRIIPs, or selling PRIIPs to retail investors, must provide retail investors with a KID in good time before the transaction is concluded. The PRIIPs Regulation exempts until December 31, 2019 management and investment companies and persons advising on or selling Undertakings for Collective Investment in Transferable Securities from the obligation to produce and provide a PRIIPs KID. The UCITS Directive requires these entities to provide investors with a Key Investor Information Document. As a result, if there were no changes made to the EU legislation, UCITS would be subject to duplicative information requirements from January 1, 2020. To address this situation, the ESAs are proposing to amend the Regulatory Technical Standards under the PRIIPs Regulation by moving the UCITS KIID requirements to the PRIIPs RTS.

    Read more.
  • Draft EU Guidelines on Supervisory Cooperation on Anti-Money Laundering and Countering the Financing of Terrorism
    11/08/2018

    The Joint Committee of the European Supervisory Authorities have launched a consultation on draft joint guidelines on the cooperation and information exchange between national regulators supervising banks and other financial institutions for compliance with Anti-Money Laundering and Countering the Financing of Terrorism rules. The Fourth Money Laundering Directive requires that EU member states allow, without undue restriction, the exchange of information and provision of assistance between national regulators. The ESA's proposed guidelines aim to set out how that can be achieved in practice. The ESAs are proposing that a college of supervisors should be established where a financial institution is supervised in three or more EU member states. The draft guidelines set out rules on the establishment and operation of the colleges. For firms that do not require a college but which operate in two member states, the ESAs propose a process for the bilateral exchange of information between national regulators.

    The consultation closes on February 8, 2019.

    View the consultation paper.
  • Proposed Exemption From the EU Clearing Obligation for OTC Derivatives Novated to EU Counterparties in Preparation For a "No Deal" Brexit
    11/08/2018

    The European Securities and Markets Authority has proposed the introduction of a 12-month exemption from the clearing obligation 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 imposes a clearing obligation on EU firms that are counterparties to certain OTC derivatives contracts. The clearing obligation applies to Interest Rate Swaps denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of credit default swap indices (iTraxx Europe Main and iTraxx Europe Crossover). The obligation to clear OTC IRS denominated in all seven currencies is in force for clearing members of EU CCPs as well as large financial counterparties and alternative investment funds. The IRS clearing obligation for IRS denominated in the G4 currencies will apply to small financial counterparties and AIFs from June 21, 2019 and to non-financial counterparties from December 21, 2018, and for IRS denominated in CZK, DKK, HUF, NOK, SEK and PLN, from August 9, 2018. The CDS clearing obligation is in force only for clearing members of EU CCPs. The CDS clearing obligation for large financial counterparties, AIFs and NFCs will apply from August 9, 2019. It will apply to small financial counterparties and AIFs from June 21, 2019.

    Read more.
  • US Securities and Exchange Commission Charges Digital Asset Trading Platform Founder for Operating Unregistered Exchange
    11/08/2018

    The Securities and Exchange Commission has accused the founder of a digital asset trading platform of failing to register as a national securities exchange. Without admitting or denying the charges, the founder agreed to pay $300,000 in disgorgement and a $75,000 penalty, and to cease and desist from future violations of Section 5 of the Securities Exchange Act of 1934.

    The SEC said that the trading platform facilitated secondary market trading of ERC20 tokens, which are a type of digital asset issued and distributed on the Ethereum blockchain. The platform provided a marketplace that matched buyers and sellers of digital assets through the use of its order book, using smart contracts to validate, confirm and execute orders.

    Read more.
    TOPICS: EnforcementFinTech
  • UK Legislation Published for Brexit on Bank of England's Functions
    11/07/2018

    HM Treasury has laid before Parliament the draft Bank of England (Amendment) (EU Exit) Regulations 2018, together with a draft explanatory memorandum.

    The draft Regulations make amendments to the Bank of England Act 1998, the Financial Services Act 2012 and related secondary legislation to ensure that the constitution, responsibilities and functions of the Bank of England continue to be clearly defined after exit day, including in a "no-deal" scenario. In the explanatory memorandum accompanying the draft Regulations, HM Treasury confirms that the draft Regulations make only technical changes to existing legislation to ensure that it continues to operate effectively once the U.K. leaves the EU. This includes amendments to information sharing and notification requirements and amendments to certain definitions so that they work in the U.K. after exit day. Amendments to secondary legislation include necessary adjustments to provisions on capital buffers and amounts of cash ratio deposits that certain financial services firms must hold with the BoE.

    Read more.
  • EU Legislation to Update Technical Standards for Resolution Reporting
    11/07/2018

    A Commission Implementing Regulation supplementing the EU Bank Recovery and Resolution Directive has been published in the Official Journal of the European Union. The Implementing Regulation sets out Implementing Technical Standards on the information to be provided to resolution authorities to enable them to draw up and implement resolution plans for credit institutions or investment firms. Reflecting experience gained by resolution authorities in resolution planning, the Implementing Regulation repeals and replaces the existing Implementing Technical Standards set out in Regulation (EU) 2016/1066, which specifies the procedure and introduced a minimum set of templates for the provision of information to resolution authorities.

    The Implementing Regulation introduces a single data point model, as is the practice in supervisory reporting, and introduces common validation rules to safeguard the quality, consistency and accuracy of the data items reported by institutions. Detailed common validation rules will be published electronically by the European Banking Authority on its website.

    Read more.
  • UK Prudential Regulation Authority Issues Direction for Temporary Permissions Regime
    11/07/2018

    The Prudential Regulation Authority has issued a Direction setting out how an EEA firm currently passporting into the U.K. should notify the PRA if the firm wants to benefit from the Temporary Permissions Regime in the event of a "no deal" Brexit. The Direction was made under the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (made on November 6, 2018). The Regulations provide for a Temporary Permissions Regime for firms that are currently authorized to carry on a regulated activity in the U.K. under an EEA passporting right that have either applied for U.K. authorization prior to the U.K. withdrawal date or have notified the relevant U.K. regulator of their intention to continue carrying on passported activities. Temporary permission would deem firms within the regime as authorized for their current activities for a maximum of three years, subject to a power for HM Treasury to extend the regime's duration by increments of 12 months.

    The PRA Direction requires firms to submit the Temporary Permission Notification Form using Connect between January 7, 2019 and March 28, 2019.

    View the PRA's Direction.

    View the EEA Passport Rights Regulations 2018.
  • UK Prudential Regulator Fines Senior Managers For Failing to be Open and Cooperative
    11/07/2018

    The Prudential Regulation Authority has announced that it has imposed financial penalties on two senior managers for failing to be open and cooperative about an enforcement action into the U.K. subsidiary of a Japanese bank by the New York Department of Financial Services in 2014. The PRA's enforcement action follows the financial penalties that it imposed in 2017 on this entity and an affiliate for breaching Fundamental Rules 6 and 7 of the PRA Rulebook in that the firms had (i) failed to communicate relevant information about the settlement with the DFS; and (ii) failed to inform the PRA of the potential implications of the DFS matter for certain senior managers.

    The latest fines have been imposed on the former Chair and a former Non-Executive Director for failing to inform the PRA that a senior manager might be restricted from conducting U.S. banking activities as a result of the action by the DFS. The PRA only learnt about the issue after publication of the DFS consent order. This meant that the PRA could not assess the implications or supervise any contingency planning.

    Read more.
  • Bank of England Provides Further Guidance on Settlement Finality Designation Post-Brexit
    11/06/2018

    The Bank of England has published the "Dear CEO" letter that it has sent to the Chief Executive Officers of EU CCPs, central securities depositaries and payment systems that are currently designated under the EU Settlement Finality Directive. The designation of these systems is automatically recognized in the U.K. under the SFD framework for automatic recognition, but the U.K. will fall outside the EU framework upon Brexit.

    The "Dear CEO" letter follows an earlier letter issued by the BoE in July 2018 and the publication, by HM Treasury, of a draft of the Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2018 on October 31, 2018. The draft Regulations will, once in force, empower the BoE to grant permanent designation to non-U.K. (including EU) systems that are not governed by U.K. law. They also establish a temporary designation regime for EU systems that are currently designated under the SFD.

    In the letter, the BoE sets out further details of the permanent designation of non-U.K. systems post-Brexit. It also sets out how EU systems can go about applying to enter the temporary designation regime in a "no deal" scenario (where the U.K. exits the EU without a ratified Withdrawal Agreement) in order to continue to benefit from U.K. SFD protection until the permanent designation process is complete.

    Read more.
  • EU National Regulators To Confirm If They Intend to Comply With MiFID II Suitability Guidelines
    11/06/2018

    The European Securities and Markets Authority has published on its website the official translations of its revised Guidelines on aspects of the suitability requirements under the revised Markets in Financial Instruments Directive.

    ESMA published the finalized Guidelines in May 2018, following a consultation between July and December 2017. The finalized Guidelines largely confirm ESMA's previous 2012 Guidelines on MiFID I, but have a broader scope and ESMA has added clarifications and refinements where necessary.

    Now that the Guidelines have been translated into the official EU languages and published on ESMA's website, national regulators will have a two-month period (expiring on January 6, 2019) in which to notify ESMA whether they comply or intend to comply with the guidelines. National regulators should state their reasons for non-compliance where they do not comply or do not intend to comply.

    Read more.
    TOPIC: MiFID II
  • Brexit Legislation Published Establishing a Temporary Permissions Regime for EEA Firms Passporting into the UK
    11/06/2018

    The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 were made on November 6, 2018. The Regulations provide, among other things, for a Temporary Permissions Regime for firms that are currently authorized to carry on a regulated activity in the U.K. under an EEA passporting right that have either applied for U.K. authorization prior to the U.K. withdrawal date or have notified the relevant U.K. regulator of their intention to continue carrying on passported activities. The Regulations come into force on November 7, 2018 except for the following provisions, which come into force on exit day:
    • Regulation 2 (Repeal of passport rights, etc);
    • Regulation 3 (Consequential amendments);
    • Regulation 4 (Saving provision: tax); and
    • Regulation 24 (Financial Services Compensation Scheme - modifications of Part 15 of the Financial Services and Markets Act 2000).

    View the EEA Passport Rights Regulations 2018.

    View details of the draft regulations.
  • Technical Standards Under the EU Benchmarks Regulation to Apply From January 2019
    11/05/2018

    A series of ten Commission Delegated Regulations, comprising all of the Regulatory Technical Standards to supplement the EU Benchmarks Regulation, has been published in the Official Journal of the European Union.

    The Benchmarks Regulation, which took effect directly across the EU in January 2018, sets out the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks. The RTS outline the behaviors and standards expected of administrators of and contributors to benchmarks. Draft Commission Delegated Regulations setting out the RTS were adopted by the European Commission in July 2018.

    All of the Commission Delegated Regulations will enter into force on November 25, 2018 and they will apply directly across the EU from January 25, 2019.

    Read more.
    TOPIC: Securities
  • UK Competition and Markets Authority Consults on Draft Definitions in Investment Consultants Market Investigation
    11/02/2018

    The U.K. Competition and Markets Authority has published a consultation entitled "Draft definitions of Investment Consultancy services and Fiduciary Management for the purposes of potential remedies," under its Market Investigation into these sectors. The CMA is in the process of reviewing the submissions made in response to the Provisional Decision Report it published in July 2018.

    The consultation paper contains working draft definitions of "investment consultancy services" and "fiduciary management services" for the purposes of the remedies that the CMA may impose in any Order following the publication of its final report. The CMA seeks only high-level comments on the draft decisions. It proposes to consult separately in due course on any draft Order it may make.

    Comments on the consultation are invited by November 9, 2018.

    The CMA's final report on its Market Investigation is currently scheduled for publication in December 2018.

    View the consultation paper.

    View details of the July 2018 Provisional Decision Report.
    TOPIC: Competition
  • UK Regulator Highlights Role of Remuneration Committee Chair As a Senior Manager
    11/01/2018

    The U.K. Financial Conduct Authority has published a letter (dated August 20, 2018) addressed to the Chair of the Remuneration Committee of banks and large investment firms (investment firms with total assets over £50 billion). The letter informs the Chair of how the FCA intends to assess the remuneration policies and practices of firms in 2018/19. Moreover, it sets out the impact of that approach for the Chair of the Remuneration Committee as a Senior Manager under the Senior Managers and Certification Regimes. The Chair of the Remuneration Committee of in-scope firms holds FCA Senior Manager Function 12. The FCA notes that its supervisors will be interacting with the Chair of the Remuneration Committee to ascertain how the Chair has determined that their firm's policies and practices promote the right behavior. The discussions will include an assessment of how any issues from the 2017/18 remuneration round have been addressed. The FCA also highlights that a Chair of the Remuneration Committee should be satisfied that the level of ex post adjustments are appropriate and be capable of providing reasons for these adjustments. In addition, the FCA is adopting the same approach as the Prudential Regulation Authority and will no longer provide a non-objection statement to the proposed communication or distribution of variable remuneration awards by banks and large investment firms.

    View the letter.

    View details of the PRA's approach to the latest remuneration round.
  • UK Conduct Regulator Bans Former LIBOR Submitter From Performing Any Regulated Activity
    11/01/2018

    The U.K. Financial Conduct Authority has published the Final Notice (dated October 30, 2018) that it issued to a former employee of a major international bank, prohibiting him from performing any function relating to any regulated activity carried on by any authorized or exempt person, or exempt professional firm. The individual was convicted in June 2016 of conspiracy to defraud for manipulation of the U.S. Dollar LIBOR and sentenced to four years' imprisonment. The conviction related to misconduct between 2005 and 2007.

    The FCA has concluded that the individual's criminal conviction for an offense of dishonesty, involving financial crime and market manipulation, demonstrates that he is not fit and proper to perform functions related to regulated activities. It considers that, while the misconduct occurred over ten years ago, its seriousness and the severity of the risk which the individual poses to consumers and to confidence in the financial system are such that it is appropriate to impose a prohibition order.

    View the Final Notice.
    TOPIC: Enforcement
  • UK Legislation Published to Preserve Settlement Finality Designation Post-Brexit
    10/31/2018

    HM Treasury has published a draft of the Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2018. These draft Regulations introduce changes across various pieces of legislation relevant to financial market infrastructure to implement Brexit, namely the Settlement Finality Regulations, the Companies Act 1989, the Financial Collateral Arrangements (No.2) Regulations and the Banking Act 2009, so that U.K. domestic law concerning financial market infrastructure insolvency can continue to operate effectively after the U.K. leaves the EU.

    The draft Regulations are designed to maintain legal certainty for EU systems that conduct business with U.K. participants, by providing for the continuation of U.K. settlement finality protections currently provided under the Settlement Finality Directive.

    Read more.
  • EU Authority Calls for Non-Enforcement of Impending Clearing Obligation for Intragroup Transactions and Non-Financial Counterparties
    10/31/2018

    The European Securities and Markets Authority has issued a statement on the impending clearing obligation under the European Market Infrastructure Regulation. The statement is also relevant to the trading obligation under the Markets in Financial Instruments Regulation which is triggered by the EMIR clearing obligation.

    EMIR provides an exemption from the clearing obligation for intragroup transactions with a third-country group entity where one of the counterparties is a third-country group entity and there is an 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 for these purposes.

    Read more.
    TOPICS: DerivativesMiFID II
  • UK Prudential Regulator Publishes Information Pack on Ring-fencing Reporting Requirements
    10/31/2018

    The U.K. Prudential Regulation Authority has published an information document entitled "Ring-fencing: Summary of regulatory reporting requirements." The document summarizes the regulatory reporting and reporting system requirements for ring-fencing that will apply to U.K. banking groups within the scope of the U.K.'s structural reform requirements coming into force on January 1, 2019. The information document is designed to assist firms that must submit ring-fencing regulatory returns.

    The PRA states that the information document is not intended to supersede the PRA Rulebook, the regulatory reporting and the structural reform sections of the Bank of England website and relevant and applicable published PRA policy. Affected firms should also continue to refer to these sources to determine their regulatory obligations.

    View the information document.
  • UK Post-Brexit Legislation Published to Onshore the EU Payment Accounts Directive for Brexit
    10/31/2018

    HM Treasury has published a draft of the Payment Accounts (Amendment) (EU Exit) Regulations 2018, along with explanatory information.

    The draft Regulations will amend the U.K. Payment Accounts Regulations 2015, which implemented the EU Payment Accounts Directive in the U.K., to remove references to EU institutions and to remove requirements which were intended to improve the functioning of the EU's internal market.

    The draft Regulations will affect all Payments Service Providers that offer payment accounts, and, in particular, the U.K.'s nine designated providers of basic bank accounts. Consumers of payment accounts will also be affected, in particular those who hold basic bank accounts. HM Treasury states that it expects the changes for payment account providers and consumers to be minimal.

    Read more.
  • UK Legislation Published to Onshore the EU Venture Capital Funds and Social Entrepreneurship Funds Regulations for Brexit
    10/31/2018

    HM Treasury has published the draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 and the draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018, along with explanatory information. HM Treasury is also preparing draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2018 and will publish these in due course.

    These draft "onshoring" statutory instruments will amend deficiencies in the retained versions of the following directly applicable EU Regulations:
    • the European Venture Capital Funds (EuVECA) Regulation, which governs funds that invest into small and medium-sized enterprises;
    • the European Social Entrepreneurship Funds (EuSEF) Regulation, which governs funds that invest into social investments; and
    • the European Long-term Investment Funds (ELTIF) Regulation, which governs funds that invest into infrastructure and other long-term projects.
    Read more.
  • European Banking Authority Final Guidelines on Managing Non-Performing and Forborne Exposures
    10/31/2018

    The European Banking Authority has published a final report setting out finalized Guidelines on management of non-performing exposures (NPEs) and forborne exposures (FBEs). The EBA consulted on a draft of the Guidelines in March 2018. The aim of the Guidelines is to help to reduce NPEs on banks' balance sheets by providing supervisory guidance to ensure that credit institutions effectively manage NPEs and forborne exposures (FBEs) on their balance sheets.

    The final Guidelines cover: (i) key elements for developing and implementing an NPE strategy; (ii) the key elements of governance and operations in relation to an NPE workout framework; (iii) governance and operations in relation to FBEs; (iv) governance and operations for NPE recognition; (v) NPE impairment measurement and write-offs; (vi) collateral valuation of immovable and movable property; and (vii) supervisory evaluation of management of NPEs and FBEs.

    The Guidelines will apply from June 30, 2019. Credit institutions should calculate their NPL ratios using the reference date of December 31, 2018.

    View the final report.

    View details of the EBA's consultation on the Guidelines.
  • UK Prudential Regulator Updates Approach Document on Banking Supervision
    10/31/2018

    The U.K. Prudential Regulation Authority has published an updated version of its document entitled "The Prudential Regulatory Authority's approach to banking supervision." The document replaces the previous version that was dated March 2016.

    In the latest update, the PRA has removed duplicative information and replaced some text with links to information contained in legislation or other material on the PRA's or Bank of England's website. The update includes a new foreword by the PRA's Chief Executive Officer, Sam Woods.

    The update includes two new chapters, on identifying the risks to the PRA's objectives and on how the PRA tailors its supervisory approach. A number of new sections to existing chapters have also been added, covering safety and soundness and the stability of the financial system, the PRA's regulatory principles and operational resilience. Further detail in areas such as capital and resolvability is also added.

    View the Updated Approach Document.
  • EU Contracts for Differences Product Intervention Measures Extended
    10/31/2018

    The European Securities and Markets Authority Decision renewing and amending the temporary restriction on the marketing, distribution or sale of contracts for differences to retail clients has been published in the Official Journal of the European Union. ESMA announced on September 28, 2018 that the existing restriction would be extended and would include an additional reduced character risk warning because CFD providers have experienced technical difficulties in using the risk warnings due to the character limitations imposed by third-party marketing providers. The CFD Decision applies directly across the EU from November 1, 2018 for three months.

    ESMA extended the temporary product intervention prohibiting the marketing, distribution and sale of binary options to retail investors for a further three months from October 2, 2018, although certain types of binary options were excluded from the scope of the prohibition because ESMA considers that those binary options are less likely to present a significant investor protection concern. Both of ESMA's product intervention measures are made using powers under the Markets in Financial Instruments Regulation.

    View the Decision.

    View details of the extension of the ban relating to binary options.
  • UK Crypto-Assets Task Force Outlines the Path to Crypto-Asset Regulation
    10/30/2018

    The U.K. Crypto-Assets Task Force has published its Final Report. Established in March 2018 by the U.K. Chancellor of the Exchequer as part of the U.K. government's FinTech Sector Strategy, the Task Force comprises representatives from HM Treasury, the U.K. Financial Conduct Authority and the Bank of England.

    The Task Force engaged with over 60 firms and other stakeholders to seek their views on topics including: the trajectory of the industry, the risks, benefits and underlying economic value of crypto-assets and the U.K.'s future regulatory approach. Stakeholders were of the view that there is a lack of regulatory clarity in the U.K. and that regulation should be introduced to support the legitimate players in the crypto-assets market. It is also crucial in mitigating risks. There were also calls for regulatory and tax frameworks to be aligned.

    Read more.
    TOPIC: FinTech
  • EU Amending Legislation Published for Liquidity Coverage Requirement
    10/30/2018

    An Amending Regulation supplementing the Capital Requirements Regulation has been published in the Official Journal of the European Union, following its adoption in July 2018 by the European Commission. The Amending Regulation, which relates to the Liquidity Coverage Requirement for credit institutions, makes changes to the existing Delegated Regulation on the LCR with the objective of improving its practical application. The existing Delegated Regulation sets out detailed requirements on the LCR and specifies which assets are to be considered as liquid (so-called high quality liquid assets) and how the expected cash outflows and inflows over a 30-day stressed period are to be calculated.

    The Amending Regulation makes the following changes:
    • full alignment of the calculation of the expected liquidity outflows and inflows on repurchase agreements, reverse repurchase agreements and collateral swaps transactions with the international liquidity standard developed by the Basel Committee on Banking Supervision;
    • treatment of certain reserves held with third-country central banks;
    • waiver of the minimum issue size for certain non-EU liquid assets;
    • the application of the unwind mechanism for the calculation of the liquidity buffer; and
    • integration in the existing Delegated Regulation of the new criteria for simple, transparent and standardized securitizations.

    The Amending Regulation will enter into force on November 19, 2018 and will apply directly across the EU from April 30, 2020.

    View the Amending Regulation.
  • EU Amending Legislation Published on Duties of Third-Party Custodians Safe-Keeping Fund Assets
    10/30/2018

    Amending Delegated Regulations on the safe-keeping duties of depositaries, supplementing the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities Directive, have been published in the Official Journal of the European Union.

    The amending Delegated Regulations were adopted by the European Commission in July 2018. They amend existing delegated regulations under AIFMD and UCITS relating to the safekeeping of AIF and UCITS clients' assets respectively, to ensure a more uniform approach is adopted across the EU. The amendments clarify that where a depositary for an AIF or UCITS delegates safe-keeping functions to a third party custodian, the clients' assets must be segregated at the level of the delegate (i.e. from the delegate's own assets but not from those of its other clients). This should prevent interpretation of the segregation obligations as requiring separate accounts per depositary and per type of fund at each level of the custody chain. The respective Delegated Regulations set out how that obligation should be fulfilled to ensure a clear identification of assets belonging to a particular AIF or UCITS and the protection of assets in the event of the depositary or custodian entering insolvency.

    The amending Delegated Regulations enter into force on November 19, 2018 and will apply directly across the EU from April 1, 2020.

    View the amending Delegated Regulation under AIFMD ((EU) 2018/1618).

    View the amending Delegated Regulation under UCITS ((EU) 2018/1619).
    TOPIC: Funds
  • European Commission Adopts Revised Implementing Standards for Resolution Reporting
    10/29/2018

    The European Banking Authority announced on October 29, 2018 that it acknowledged the European Commission's adoption of a draft Commission Implementing Regulation setting out revised Implementing Technical Standards on the procedures and standard forms and templates to be used to provide information for the resolution plans of credit institutions and investment firms. The Implementing Regulation supplements the Bank Recovery and Resolution Directive and will repeal the existing ITS, reflecting the evolution in the policy and practices applied by authorities in the development of resolution plans for financial institutions. The EBA submitted its final report with final revised draft ITS to the European Commission in April 2018.

    Read more.
  • UK Legislation in Force Empowering Regulators to Amend EU Binding Technical Standards For Brexit
    10/26/2018

    The Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 were made on October 25, 2018 and entered into force on October 26, 2018.

    The Regulations delegate power under the EU (Withdrawal) Act 2018 to the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator to fix deficiencies in EU Binding Technical Standards and regulators’ rules in advance of exit day, so that the BTS and regulators' rules function effectively after Brexit. The Regulations also establish the statutory basis on which those regulators will continue to maintain the relevant BTS after exit. The Schedule to the Regulations lists all the BTS that will be "onshored" and, for each, allocates joint or individual responsibility among the regulators.

    The version of the Regulations that has entered into force contains only minor changes from the draft version that was published in July 2018.

    View the Regulations (S.I. 2018/1115).

    View the explanatory memorandum.
  • EU Supervisory Authorities Propose Revisions to Implementing Technical Standards for Mapping of External Credit Ratings
    10/26/2018

    The Joint Committee of the European Securities Authorities (that is, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) has published a consultation paper setting out proposed revisions to Implementing Technical Standards on the mapping of External Credit Assessment Institutions' credit assessments under the Capital Requirements Regulation.

    The proposed revisions will amend the existing Implementing Regulation ((EU) 2016/1799), which sets out how ECAIs' credit assessments should be "mapped" to credit quality steps for the purposes of calculating capital requirements. The proposed amendments reflect the result of a monitoring exercise on the adequacy of mappings, which necessitates amendments related to: (i) the re-allocation of the credit quality steps for two ECAIs; and (ii) changes in credit rating scales/types for ten ECAIs. The consultation webpage also contains mapping reports for each of the 11 ECAIs concerned.

    Comments on the consultation are invited by December 31, 2018. Respondents are asked to provide comments via the "Send your comments" button on the EBA's consultation webpage.

    View the consultation paper.

    View the EBA's consultation webpage.
  • Bank of England and UK Prudential Regulator Consult on Approach to Onshoring EU Financial Services Legislation for Brexit
    10/25/2018

    The Bank of England and the U.K. Prudential Regulation Authority have launched a joint consultation paper entitled "The Bank of England’s approach to amending financial services legislation under the European Union (Withdrawal) Act 2018." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

    Read more.
  • "Dear CEO" Letter From UK Prudential Regulator Updates PRA-Regulated Firms on Brexit
    10/25/2018

    The U.K. Prudential Regulation Authority has published a "Dear CEO" letter that it has sent to the Chief Executive Officers of all firms authorized and regulated by the PRA, as well as EEA firms undertaking cross-border activities into the U.K. from the rest of the European Union by means of a single market passport.

    The letter refers to the publication, on October 25, 2018, of a package of consultations and other communications by the Bank of England that provide more detail on the planned Brexit-related changes to PRA rules and to the onshored Binding Technical Standards within the remit of the PRA and the BOE in their various capacities. The letter builds on the communications released by the government and U.K. regulators in June 2018 on their overall approach to onshoring financial services legislation under the EU (Withdrawal) Act 2018.

    Read more.
  • Financial Action Task Force Publishes Final Guidance on a Risk-Based Approach for the Securities Sector
    10/25/2018

    The Financial Action Task Force has published the finalized version of its Guidance on a Risk-Based Approach for the Securities Sector. The finalized Guidance was adopted at the FATF's plenary meeting held on October 17—19, 2018. The FATF has developed the Guidance in conjunction with the private sector, to assist governments, regulators, Financial Intelligence Units and participants in the securities sector to adopt a risk-based approach to anti-money laundering and countering the financing of terrorism.

    The final Guidance sets out the key principles involved in applying a risk-based approach to AML and CTF. Separate sections provide specific guidance to securities providers and intermediaries and to securities supervisors on the effective implementation of a risk-based approach. Annexes provide examples of supervisory practices that have been adopted and examples of suspicious activity indicators relevant to securities.

    The Guidance is non-binding. It should be read in conjunction with the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation and the 2009 Report on Money Laundering and Terrorist Financing.

    View the final Guidance.

    View details of the consultation on draft Guidance.

    View details of further outcomes of the FATF's October 2018 plenary.
  • European Commission Adopts Technical Standards for Eligibility for Simplified Obligations under the Bank Recovery and Resolution Directive
    10/25/2018

    The European Commission has adopted a draft Delegated Regulation under the Bank Recovery and Resolution Directive, setting out Regulatory Technical Standards specifying the criteria for assessing the impact of an institution's failure on financial markets, on other institutions and on funding conditions.

    Under the BRRD, where a national regulator or resolution authority is determining whether to grant simplified obligations to an institution, it must assess the impact that the failure of the institution could have due to a number of factors specified in the BRRD. The European Banking Authority submitted final draft RTS to the European Commission in December 2017. The RTS adopted by the Commission set out a two-stage test based on quantitative and qualitative criteria to determine whether an institution is eligible for simplified obligations. Institutions meeting quantitative criteria at stage one must then meet qualitative criteria at stage two to be assessed as eligible.

    The draft Delegated Regulation will now be subject to a three-month scrutiny period by the European Parliament and the Council of the European Union. Assuming no objections have been raised by the co-legislators during that period, the Delegated Regulation will then be published in the Official Journal of the European Union and enter into force 20 days later. Once in force, the delegated regulation will have direct effect across the EU and will replace existing EBA Guidelines on simplified obligations.

    View the draft Delegated Regulation and Annexes.

    View details of the EBA's final draft RTS.
  • UK Competition and Markets Authority Consults on Further Working Paper in Investment Consultants Market Investigation
    10/25/2018

    The U.K. Competition and Markets Authority has published an updated working paper on its "market outcomes" analysis, following responses to its July 2018 consultation on its Provisional Decision Report on its Market Investigation into the supply and acquisition of investment consultancy services and fiduciary management services.

    The updated analysis covers: (a) gains from engagement—the impact of engagement on the fees paid by fiduciary management and investment consultancy customers; and (b) the relationship between quality and market success—the relationship between quality of service and market shares for a sample of investment consultancy firms. The CMA has also published a final notice of its intention to operate a confidentiality ring in respect of specified data submitted by respondents to the Provisional Decision Report. Access to the confidentiality ring will be granted to a limited number of approved external legal and/or economic advisers of certain parties. The confidentiality ring will operate from 9:30am on October 29, 2018 until 5:00pm on November 5, 2018.

    Read more.
    TOPIC: Competition
  • Bank of England Updates Non-UK CSDs on Approach to Recognition Post-Brexit
    10/25/2018

    The Bank of England has published a "Dear CEO" letter sent by Sir John Cunliffe, Deputy Governor, Financial Stability, to the Chief Executive Officers of non-U.K. Central Securities Depositories that have been identified as possibly requiring recognition to provide CSD services in the U.K. after Brexit. The Dear CEO letter provides more detail on the post-Brexit recognition of non-U.K. CSDs by the BoE and on the transitional regime that has been set out in the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.

    Read more.
  • Bank of England Consults on Changes to FMI Rules and Onshored Binding Technical Standards for Brexit
    10/25/2018

    The Bank of England has published a consultation paper entitled "UK withdrawal from the EU: Changes to FMI rules and onshored Binding Technical Standards." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

    The consultation proposals cover:
    • the BoE's proposed fixes to deficiencies in the onshored Binding Technical Standards for which the BoE, as FMI supervisor, has responsibility under the Financial Regulators’ Powers, (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018;
    • the BoE's proposals to amend its FMI rules; and
    • the BoE's proposed approach to non-binding BoE materials after Brexit.

    Read more.
  • Bank of England Launches Consultation Package on EU Withdrawal
    10/25/2018

    The Bank of England has issued a press release providing an update on its regulatory and supervisory approach to Brexit. The press release refers to a package of communications and new consultations published by the BoE on October 25, 2018. Building on previous communications with firms, this package of communications includes four consultation papers:

    1. A joint consultation on the BoE/Prudential Regulation Authority's general approach to making changes to PRA rules and to Binding Technical Standards to implement Brexit. This consultation is to be read in conjunction with the other three consultations.
    2. A PRA consultation on proposed changes to PRA rules and to the onshored BTS within the PRA's remit.
    3. A BoE consultation on changes to Financial Market Infrastructure rules and onshored BTS within the BoE's remit as FMI supervisor, along with a draft Supervisory Statement on the BoE's expectations of FMIs in relation to existing non-binding domestic material.
    4. A BoE consultation on the onshored BTS within the BoE's remit as the U.K. resolution authority.

    Read more.
  • US State Regulators Sue Office of the Comptroller of the Currency Over FinTech Charter
    10/25/2018

    The Conference of State Bank Supervisors has sued the U.S. Office of the Comptroller of the Currency to prevent it from granting charters for special purpose national banks to non-depository FinTech companies. The CSBS is the nationwide organization of state banking regulators in the United States.

    The CSBS filed the lawsuit upon the OCC’s announcement on July 31, 2018 that it would begin accepting these applications. The CSBS previously sued the OCC over its ability to provide SPNB charters in April 2017. The federal district court in D.C., however, dismissed the first suit for lack of subject matter jurisdiction and ripeness, stating that the OCC had not decided whether to grant SPNB charters to FinTech firms at that time.

    Read more.
  • Bank of England Consults on Approach to Resolution Statements of Policy and Onshored Binding Technical Standards for Brexit
    10/25/2018

    The Bank of England has published a consultation paper entitled "UK withdrawal from the EU: The Bank of England’s approach to resolution statements of policy and onshored Binding Technical Standards." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the Prudential Regulation Authority on October 25, 2018.

    The consultation covers:
    • the BoE’s proposals to fix deficiencies in the onshored Binding Technical Standards under the Bank Recovery and Resolution Directive, for which it is responsible in its capacity as U.K. resolution authority. The PRA has consulted separately on proposals for the BRRD BTS that are within its remit; and
    • the BoE's proposed guidance on how the existing Statements of Policy on resolution should be interpreted after Brexit. These SoPs cover the BoE's: (i) power to direct institutions to address impediments to resolvability; (ii) approach to setting a minimum requirement for own funds and eligible liabilities (MREL) within groups, and further issues; and (iii) policy on valuation capabilities to support resolvability. li >

    The proposals are relevant to all firms that are subject to the BoE's resolution powers, such as banks, larger investment firms and CCPs.

    Read more.
  • UK Prudential Regulator Consults on Rule Changes and Onshoring of Binding Technical Standards for Brexit
    10/25/2018

    The U.K. Prudential Regulation Authority has published a consultation paper entitled "UK withdrawal from the EU: Changes to PRA Rulebook and onshored Binding Technical Standards."  The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

    The consultation paper sets out a suite of proposed amendments by the PRA to ensure an operable legal and regulatory framework after the U.K. leaves the EU.

    Read more.
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