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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.

  • Consultation and Draft Direction on Confirmation of Payee System Issued by UK's Payment Systems Regulator
    05/09/2019

    The Payment Systems Regulator, the regulatory body responsible for monitoring the payment systems industry in the U.K., has published a second consultation paper requesting feedback on its proposals for a mandatory "Confirmation of Payee" service, together with a draft direction setting out deadlines by which the six largest payment services providers should provide such services. The Confirmation of Payee service is being developed to assist in the PSR's fight against "Authorised Push Payment" scams - involving theft of money via fraudulent payment requests made to individuals and businesses - and accidental misdirected payments, which together cause millions of pounds in losses to individuals and businesses annually. Certain payment service providers have committed to introducing a Confirmation of Payee process. However, the PSR considers that progress on doing so has been too slow. The consultation closes on June 05, 2019.

    Read more.
  • Guidance on Post-Brexit Counter-Terrorism Regulations Issued by UK Government
    05/03/2019

    The Foreign and Commonwealth Office has issued guidance on the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019, the proposed U.K. regulations that will govern the U.K.'s application of international sanctions following the U.K.'s withdrawal from the EU. The Regulations will apply within the U.K. and relate to the conduct of U.K. persons (i.e. British nationals and legal entities incorporated in the U.K.), wherever those persons may be situated in the world (including branches of U.K. companies operating overseas).

    Read more.
  • José Manuel Campa Takes on New Role as European Banking Authority Chairperson
    05/03/2019

    José Manuel Campa, the former Global Head of Regulatory Affairs at Santander, commenced his new role as Chairperson of the European Banking Authority. He will retain the role for a renewable term of five years.

    Mr Campa has confirmed he is "committed to continuing the work started by my predecessor Andrea Enria to build a single supervisory and regulatory framework for the entire banking sector in the EU, and to ensure a stable and safe Single Market that benefits and protects consumers, businesses and the wider community."

    View the EBA's announcement.
    TOPIC: People
  • EU Technical Advice on Incorporating Sustainability Factors Into EU Regulation
    05/03/2019

    The European Securities and Markets Authority has published its final report and technical advice to the European Commission on incorporating sustainability risks and factors into European regulation. The European Commission sought advice from ESMA and the European Insurance and Occupational Pensions Authority in July 2018 on the introduction of environmental, social and governance considerations into the Markets in Financial Instruments Directive II, the Insurance Distribution Directive, the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Solvency II Directive. The introduction of sustainability considerations into European regulation sits against the backdrop of the European Commission's Sustainability Action Plan, which aims to encourage sustainable investment and mitigate climate change risk in line with the 2016 Paris Agreement and UN 2030 Agenda for Sustainable Development. In response, ESMA opened consultations seeking input from stakeholders, which closed on February 19, 2019.

    Read more.
  • European Banking Authority Launches Consultation on Technical Standards for Counterparty Credit Risk
    05/02/2019
    The European Banking Authority has launched a consultation on the Regulatory Technical Standards that it is developing to govern certain aspects of counterparty credit risk in derivatives transactions. The EBA has been mandated to produce the RTS under the current draft of the Capital Requirements Regulation 2. The consultation runs until August 2, 2019. A public hearing will also take place at the EBA premises in Paris on June 17, 2019 from 15:00 - 17:00 CET. Parties interested in attending should register by May 28, 2019.

    Read more.
  • EU Equivalence Decision for Japan for Uncleared Derivatives
    05/02/2019

    A Commission Implementing Decision declaring equivalence of the Japanese legal, supervisory and enforcement arrangements for risk mitigation techniques and exchange of collateral has been published in the Official Journal of the European Union. The European Market Infrastructure Regulation requires counterparties to uncleared derivatives to comply with requirements on timely confirmation, portfolio compression, procedures for reconciliation of disputes and the exchange of collateral, collectively known as the risk mitigation techniques. The European Commission is empowered to adopt an equivalence decision declaring that the requirements of a third country are equivalent to the EMIR requirements on risk mitigation. The USA has also benefited from such a decision in respect of its risk mitigation arrangements.

    Read more.
  • New EU Requirements On Minimum Loan Loss Coverage For Newly Originated Loans
    04/25/2019

    An EU Regulation amending the Capital Requirements Regulation introducing a statutory prudential backstop, and requiring banks to have minimum loan loss coverage for newly originated loans, has been published in the Official Journal of the European Union. The Amending Regulation is part of the package of legislative and non-legislative measures proposed by the European Commission in March 2018 to address remaining and future non-performing loans in the EU.

    The Amending Regulation builds on existing CRR provisions, requiring a deduction from own funds where non-performing exposures are not sufficiently covered. The Amending Regulation establishes a set of conditions for the classification of NPLs, which builds on the existing framework in the existing Implementing Technical Standards on Supervisory Reporting. It also makes provision for different levels of stringency depending on whether an exposure is collateralized or not and on the reason for the classification of an exposure as non-performing. National regulators will be able to use their supervisory powers under the Capital Requirements Directive to address situations in which a bank's NPLs are insufficiently covered by the backstop.

    Read more.
  • UK Regulator Publishes Final Mission Approach Documents for Supervision and Enforcement
    04/24/2019

    The U.K. Financial Conduct Authority has published its finalized Approach to Supervision and Approach to Enforcement, following feedback to its consultation between March 21 and June 21, 2018 on drafts of the two approach documents. The documents should be read alongside the FCA's Mission document which was first published in October 2016 and most recently updated in November 2017. The documents form part of a series of formal approach documents explaining the FCA's approach to regulation in more depth.

    Read more.
  • Evaluation of Bank of England's Stress Testing Program
    04/24/2019

    The Independent Evaluation Office (the Bank of England's independent review body) has published its evaluation of the BoE's approach to concurrent stress testing of the U.K. banking system. It concluded that overall the BoE has delivered on its stated approach and that the tests are valued highly by policymakers. The IEO has, however, outlined opportunities for refinement in three key areas, which the BoE has confirmed it is committed to implementing.

    In the wake of the global financial crisis, the BoE reviewed its stress testing policy for the U.K. banking system and in 2015 published its approach to "concurrent" stress testing (the practice of simultaneously testing the entire balance sheets of several banks) up to 2018. The BoE's approach includes two scenarios: the annual cyclical scenario, a countercyclical scenario in which the severity of the scenario increases as risks build, and the biennial exploratory scenario, probing risks not linked to the financial cycle.

    Read more.
  • EU FOREX Broker Faces Proceedings in Czech Courts Brought by "Consumer" Client Following EU Opinion
    04/24/2019

    Individuals who act outside their trade or profession when instructing brokers to execute FOREX contracts on their behalf must be regarded as "consumers" for the purposes of the Recast Brussels Regulation, according to a recent opinion issued by the Advocate General of the Court of Justice of the European Union. This applies regardless of the expertise of the individual or their active involvement in placing orders. Under the Recast Brussels Regulation (which governs jurisdiction between EU member states), "consumers" are entitled to bring proceedings before the court of the Member State in which they are domiciled, as opposed to being obliged to rely on the courts of the respondent counterparty's Member State.

    In this case, the claimant, a student domiciled in the Czech Republic, had entered into an agreement for the execution of contracts for difference in the FOREX market via Cypriot brokerage company FIBO Group Holdings Ltd. The agreement was expressly subject to the jurisdiction of the Cypriot courts. The claimant brought a claim in the Czech court, alleging that FIBO had been unjustly enriched when the claimant's instructions to close out a position in U.S. dollars were not acted on promptly. The time delay meant exchange rates had changed before the trade was executed, significantly reducing her profit.

    Read more.
  • UK Regulator Sets Out Strategy to Manage Risk of Harm from Wholesale Brokers
    04/18/2019

    The Financial Conduct Authority has published a "Dear CEO" letter addressed to wholesale market broking firms highlighting its view of the key risks of harm that such brokerage firms pose for their clients and markets and the FCA's strategy for mitigating those risks. Firms are expected to consider the issues raised and take steps to mitigate risks where applicable.

    The key drivers of harm have been identified as commission-based compensation packages (the "eat what you kill" model), inadequate governance arrangements, potential conflict of interest or compliance issues arising from the variety of workflows performed by such brokerages and risks of market abuse and financial crime, all of which may be linked to cultural issues. In the FCA's view, certain brokers in wholesale markets have failed to keep pace with legislative and regulatory developments and lag behind other sectors in embedding a culture of good conduct.

    Read more.
  • US Commodity Futures Trading Commission Issues No-Action Letters to Ensure Continued Relief and Substituted Compliance for U.K. Firms Post-Brexit
    04/05/2019

    The Commodity Futures Trading Commission has issued two no-action letters to ensure that existing regulatory relief and substituted compliance measures for EU firms will continue to apply to U.K. firms following the U.K.’s departure from the EU.  The CFTC said that the no-action letters will bring greater clarity to the market in light of Brexit and reflect the CFTC’s commitment to ensuring that Brexit will not create regulatory uncertainty in global derivatives markets.  The relief is intended to cover both “no-deal” and “soft” Brexit scenarios.  The relief would apply upon the departure of the U.K. (and would thus take effect at the end of the most recent extension of the departure date to October 31, 2019).

    CFTC Letter 19-08 extends to U.K. entities substituted compliance measures originally issued for EU entities.  These measures include comparability determinations for certain entity-level, transaction-level and uncleared margin requirements (the EU Comparability Determinations), along with an exemption for EU-authorized multilateral trading facilities and organised trading facilities from the CFTC’s swap execution facility registration requirements.

    Read more.
  • Final EU Guidelines on Disclosure of Risk Factors in Prospectuses
    03/29/2019

    The European Securities and Markets Authority has published final guidelines on how national regulators should review risk factors as required by the new Prospectus Regulation. The guidelines aim to encourage more appropriate, focused and streamlined risk factor disclosures for securities. The purpose of including risk factors in a prospectus is to ensure that investors can assess the risks related to their investment, therefore allowing them to make informed investment decisions. 

    Read more.
    TOPIC: Securities
  • US Regulators Offer Margin Relief for Legacy Swaps No Deal Brexit Scenario
    03/25/2019

    The Commodity Futures Trading Commission has unanimously approved an interim final rule that will allow swap dealers and major swap participants to, in the event of a no-deal Brexit scenario, transfer legacy swaps entered into before the compliance date of the CFTC's margin requirements for uncleared swaps to an affiliate without triggering such requirements. The CFTC's interim final rule is substantively identical to an interim final rule adopted by the U.S. Prudential Regulators, which provides the same relief for legacy swaps entered into before the compliance date of their margin requirements for uncleared swaps.

    Both interim final rules apply only to legacy swaps that are transferred solely for relocation purposes. They do not cover economic changes to legacy swaps, such as amendments that modify payment amount calculation methods, maturity date or notional amount of the uncleared swap.

    The interim final rules are each effective immediately upon their respective publication in the Federal Register, and the transfer relief will apply for a period of one year following the U.K.'s withdrawal from the EU in the event of a no deal Brexit.

    Read more.
  • ‚ÄčNo-Deal Brexit Changes to UK Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules
    03/22/2019

    The Financial Conduct Authority has published a market bulletin that advises issuers and stakeholders of key changes to the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules that will apply in the event of a no-deal Brexit.

    In the event of a no-deal Brexit, the U.K.’s primary market regime will apply to all issuers that have securities admitted to trading, or have applied for admission to trading, on a U.K.-regulated market or admitted to listing in the U.K., or that are making a public offer in the U.K. The rules will apply regardless of the country an issuer is incorporated in.

    Read more.
  • European Commission Communication on Progress on Building the Capital Markets Union
    03/15/2019

    The European Commission has published its latest progress report on building of the Capital Markets Union. The CMU is an EU initiative which aims to deepen and further integrate the capital markets of Member States, further safeguard financial stability, strengthen the international role of the euro and diversify sources of finances for small and medium enterprises. The CMU aims to allow consumers to buy cheaper and better investment products, and enable financial services providers to scale up by offering services in other Member States.

    The progress report notes that the CMU is an important Single Market project that will give increased access to capital for both companies and citizens, especially in smaller countries. A well-developed CMU increases the EU’s attractiveness to foreign investment and complements the EU’s agenda of free and fair trade. Broadly, the Commission has delivered measures that it had committed to take forwards at the beginning of the mandate and put in place certain "building blocks" of the CMU. However, the report notes that it may take time for the impact of the Commission’s actions to be realized.

    Read more.
  • European Commission Adopts New Technical Standards under the Prospectus Regulation
    03/14/2019

    The European Commission has adopted a draft Delegated Regulation containing Regulatory Technical Standards on requirements for:
    • key financial information to be set out in the summary of a prospectus;
    • the publication of a prospectus;
    • the classification of prospectuses and practical arrangements to ensure machine readability of the classifications;
    • advertisements and their dissemination;
    • situations where the publication of a supplement to the prospectus is required; and
    • technical arrangements necessary for the functioning of the notification portal.

    The adopted RTS will repeal Commission Delegated Regulation (EU) No 382/2014 on the publication of supplements to a prospectus and Commission Delegated Regulation (EU) 2016/301 on the approval and publication of the prospectus and dissemination of advertisements.

    The adopted RTS will enter into force 20 days after they are published in the Official Journal of the European Union, which will take place once it is approved by the European Parliament and the Council of the European Union. The adopted RTS will apply directly across the EU from July 21, 2019, which is when the remainder of the Prospectus Regulation applies.

    View the adopted RTS.

    View the annexes to the adopted RTS.
    TOPIC: Securities
  • European Commission Adopts Draft Regulation on the Format, Content, Scrutiny and Approval of a Prospectus
    03/14/2019

    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
  • Commodity Futures Trading Commission Chairman Maps Agency's Approach to FinTech Regulation
    03/13/2019

    While speaking before the D.C. Blockchain Summit, Commodity Futures Trading Commission Chairman J. Christopher Giancarlo discussed the relationship between technology, regulation and markets, and described the steps the CFTC has taken to stay in step with innovations that have posed regulatory challenges.

    Chairman Giancarlo touted the potential for such technological innovations, including blockchain and digital ledger technology, to transform the way that regulators gather information and lower operational costs for financial institutions. Interestingly, Chairman Giancarlo argued that blockchain and DLT could have helped regulators gather real-time trading data during the 2008 financial crisis, which he believes at a minimum could have prompted "better-informed" and "more calibrated regulatory intervention."

    Read more.
    TOPIC: FinTech
  • UK Regulators Host the First Meeting of the New Climate Financial Risk Forum
    03/13/2019

    The Financial Conduct Authority and the Prudential Regulation Authority have published press releases following the first meeting of the Climate Financial Risk Forum on March 8, 2019. The CFRF is a joint forum established by the PRA and FCA in late 2018. The CFRF aims to encourage financial sector approaches towards managing the financial risks from climate change as well as supporting green finance. The CFRF will develop practical tools and approaches to reduce the barriers for firms looking to adopt a strategy for minimizing financial risks from climate change. The regulators are concerned with both the impact of climate change itself and the transition to supporting a low carbon economy. Both the FCA and the PRA consulted in late 2018 on the impact of climate change. The PRA consulted on a draft Supervisory Statement on managing the financial risks from climate change and the FCA consulted on climate change and green finance and the potential changes to its regulatory approach to these issues. The FCA consultation set out specific actions that the FCA intends to take in the short term in four areas - capital markets disclosures, public reporting requirements, green finance and pensions.

    Read more.
  • UK Regulator Wants Stronger Wind-Down Plans for Loan-Based Crowdfunding Platforms
    03/07/2019

    The Financial Conduct Authority has published a "Dear CEO" letter addressed to loan-based peer-to-peer crowdfunding platforms requesting the platforms to review their wind-down arrangements. The FCA implemented rules regulating FCA-authorized firms operating investment-based and loan-based crowdfunding platforms on April 1, 2014. Investment-based crowdfunding is governed by the Markets in Financial Instruments package and the Alternative Investment Fund Managers Directive, as transposed into U.K. law. The regime for P2P lending is a national one and is less detailed and prescriptive.

    Read more.
  • Further EU Clarification For Financial Services Firms in a No Deal Brexit
    03/07/2019

    The European Securities and Markets Authority has published a statement on its approach to certain provisions of the Markets in Financial Instruments package and the Benchmarks Regulation in the event of a no-deal Brexit.

    Read more.
  • Report of the Technical Expert Group Subgroup of the European Commission on Green Bond Standard: Proposal for an EU Green Bond Standard
    03/06/2019

    In its Interim Report on green bonds, the Technical Expert Group has made a proposal for an EU Green Bond Standard. Green bonds are bonds specifically earmarked to be used for climate-related and environmental projects. The aim of the consultation was, in light of the European Commission’s Action Plan on Financing Sustainable Growth published in March 2018, to create a standard that would further improve the credibility of green bonds and help the EU market mature.

    Read more.
    TOPIC: Securities
  • International Bodies Issue Statement on Margin Requirements for Uncleared Derivatives
    03/05/2019

    The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have published a joint statement on the final implementation of the margin requirements for derivatives not cleared through a CCP. In March 2015, the Basel Committee and IOSCO published a revised version of their policy framework for the exchange of margin for uncleared derivatives. The main revisions were to delay the phase-in period for the obligations relating to both initial margin and variation margin and were aimed at harmonizing the key principles across jurisdictions.

    Read more.
    TOPIC: Derivatives
  • Final EU Technical Standards For Eligibility For Simplified Obligations Under The Bank Recovery And Resolution Directive
    03/04/2019

    An EU Delegated Regulation under the Bank Recovery and Resolution Directive has been published in the Official Journal of the European Union. The Delegated Regulation sets out Regulatory Technical Standards specifying the criteria for assessing the impact of a bank or investment firm'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 a bank or investment firm, it must assess the impact that the failure of the institution could have by reference to a number of factors specified in the BRRD. The Delegated Regulation sets out a two-stage test based on quantitative and qualitative criteria to determine whether an institution is eligible for simplified obligations. Different criteria apply depending on whether the institution is a bank or an investment firm. Institutions meeting quantitative criteria at stage one must then meet qualitative criteria at stage two to be assessed as eligible.
    Only institutions that meet the quantitative criteria (i.e., the impact of their failure is not assessed as requiring the full obligations to apply) will proceed to the second stage.

    The Delegated Regulation will be directly applicable across the EU from March 24, 2019.

    View the Delegated Regulation.
  • Basel Committee on Banking Supervision Announces Forthcoming Statements on Various Issues of Concern
    02/28/2019

    On February 27-28th, the Basel Committee on Banking Supervision met to discuss policy and supervisory issues, and the extent to which members had implemented post-financial crisis reforms.

    The Committee noted the implementation status of margin requirements for uncleared derivatives and it will publish in March a joint statement with the International Organization of Securities Commissions on certain implementation aspects of margin requirements.

    Read more.
  • European Banking Authority Publishes Revised Guidelines on Outsourcing Arrangements
    02/25/2019

    The European Banking Authority has published revised Guidelines on outsourcing arrangements. The guidelines are intended to update and replace outsourcing guidelines issued in 2006 (by the EBA's predecessor, the Committee of European Banking Supervisors) on outsourcing by credit institutions. The EBA Guidelines have a wider scope, applying to all financial institutions that are within the scope of the EBA's mandate, namely credit institutions and investment firms subject to the Capital Requirements Directive, as well as payment institutions and electronic money institutions. The investment firms within scope, provided that the new Investment Firm Regulation and Directive and related changes to CRD and the Capital Requirements Regulation have entered into force, will only be the largest investment firms (Class 1 Investment Firms). The Guidelines also integrate the recommendation on outsourcing to cloud service providers that was published by the EBA in December 2017. Both the 2006 guidelines and the December 2017 recommendations will be repealed when these new Guidelines enter into force.

    Read more.
  • EU Handbook on Valuation for Purposes of Resolution
    02/22/2019

    Following a consultation process in November 2018, the European Banking Authority has published a Handbook on valuation for purposes of resolution. The Handbook, which is addressed to national and EU resolution authorities, aims at fostering the convergence and consistency of valuation practices as well as the interaction with independent valuers across the EU.

    The Handbook is the result of close cooperation with national resolution authorities and the Single Resolution Board. It is intended to bridge the resolution regulatory approach with valuation practices, by: (i) providing concrete guidance on the practical steps of the valuation process and the specific valuation criteria applicable to the various resolution tools; and (ii) with a view to facilitating the adoption of an informed decision by the resolution authority, indicating the content that is expected to be included in the valuation report. The Handbook focuses on valuations before resolution and as such supports resolution decisions, which immediately impact shareholders and creditors. However, it also covers valuations after resolution, aimed to determine the "no creditor worse off" principle, which provides that no creditor or shareholder shall incur greater losses than they would have incurred if the institution had been wound up under normal insolvency proceedings.

    View the Handbook on valuation for resolution.
  • UK Financial Conduct Authority on Onshoring the EU Temporary Product Intervention Measures
    02/22/2019

    The U.K. Financial Conduct Authority has published a statement on onshoring of the European Securities and Markets Authority's temporary product intervention measures on retail contracts for difference and binary options products.

    In June 2018, ESMA issued decision notices prohibiting the marketing, distribution or sale of binary options to retail clients and restricting the marketing, distribution or sale of CFDs to retail clients. These decisions have been renewed by ESMA and are currently due to expire on April 1, 2019 for binary options and April 30, 2019 for CFDs. Under the European Union (Withdrawal) Act 2018, the decisions will become part of U.K. domestic law on March 29, 2019, if the U.K. leaves the EU on that date without a ratified Withdrawal Agreement.

    Read more.
  • Financial Action Task Force Publishes Outcomes Of Its February 2019 Plenary Meeting
    02/22/2019

    The Financial Action Task Force has published the outcomes from its Plenary meeting that took place in Paris on February 20-22, 2019. The FATF considered key issues such as the operations and streamlining of the FATF, major and other strategic initiatives and mutual evaluations.

    One of the major strategic initiatives covered by the Plenary was the FATF's work on mitigating money laundering and terrorist financing risks associated with virtual asset activities. The FATF published an amended Recommendation 15 in October 2018, clarifying that its standards apply to exchanges, wallet providers and providers of financial services for Initial Coin Offerings. The FATF has now published a draft Interpretative Note to Recommendation 15 to further clarify how the FATF Standards apply to activities involving virtual assets. The Interpretative Note has been finalized except for one section, which will be the subject of a public consultation in May this year. That section concerns the duty of virtual asset service providers to obtain and hold originator and beneficiary information on virtual asset transfers and submit such information to beneficiary service providers and counterparts (if any) as well as provide it on request to appropriate authorities. Following the consultation, the FATF intends to fully finalize the Interpretative Note and adopt it in June 2019.

    Read more.
  • US Conference of State Bank Supervisors Endorses FinTech Recommendations
    02/21/2019

    The U.S. Conference of State Bank Supervisors (CSBS), the nationwide organization of financial regulators from all fifty U.S. states, the District of Columbia, Guam, Puerto Rico, American Samoa, and the U.S. Virgin Islands, has released a series of action items to implement recommendations received from the CSBS Fintech Industry Advisory Panel. The panel was established in 2017 to help streamline multistate regulation of FinTech businesses and other nonbanks, and comprises thirty-three companies, including FinTech firms like SoFi, Ripple, and Circle. The panel also contains two subgroups: one focused on the lending industry; and the other focused on the payments industry.

    Read more.
    TOPIC: FinTech
  • HM Treasury Publishes Guidance On Pension Scheme Arrangements and the EMIR Clearing Obligation In A No Deal Brexit Scenario
    02/21/2019

    HM Treasury has published guidance on the availability of the exemption from the clearing obligation for Pension Scheme Arrangements under the European Market Infrastructure Regulation in a post-Brexit no deal scenario. The U.K. government has been publishing statutory instruments (U.K. secondary legislation) onshoring and amending EU regulations for Brexit. This is being done under the European Union (Withdrawal) Act 2018, so as to ensure a workable U.K. statute book after Brexit. The U.K.'s onshoring legislation has been drafted so as to come into operation on exit day if there is a "no deal" scenario where the U.K. leaves the EU without a ratified withdrawal agreement. The onshoring legislation includes various statutory instruments to onshore the EU EMIR.

    Read more.
  • European Banking Authority Board Nominates New Chair
    02/19/2019

    The Board of Supervisors of the European Banking Authority has nominated José Manuel Campa (Global Head of Regulatory Affairs at Santander) as the new Chair of the EBA. Subject to any objection by the European Parliament within one month, José Manuel Campa will succeed Andrea Enria as the new Chair of EBA for a renewable term of five years.

    View the EBA announcement.
    TOPIC: People
  • Financial Stability Board Outlines Potential Effects of FinTech on Financial Stability
    02/14/2019

    The Financial Stability Board has issued a report assessing the potential impacts of certain FinTech market developments on financial stability. Specifically, the report examines the potential implications of: (i) FinTech firms competing with traditional financial services providers; (ii) the provision of financial services by some of the world's largest technology companies (referred to as "BigTech" firms); and (iii) reliance on third-party providers for cloud services.

    Although the report finds that the relationship between FinTech firms and financial institutions has been mostly complementary to this point, it also shows that FinTech firms have started to chip away at financial institutions' market share in certain industries, such as credit provision and payments. Further, the report posits that the entry of BigTech firms into the financial services space could also have significant competitive impacts, as such firms often have large, established customer bases, brand recognition, strong financial positions and access to low-cost capital, which could allow them to quickly achieve scale in the space. While this could lead to greater competition in the short-term, the FSB hypothesizes that cross-subsidization could allow BigTech firms to operate with lower margins and gain greater market share, which could in the long run lead to a less competitive market (e.g. China, where two firms account for 94% of the mobile payments market). Additionally, according to the report, increased competition over time could also press incumbent financial institutions to take on additional risk in order to maintain margins and profitability, which could have subsequent effects on financial stability.

    Read more.
    TOPIC: FinTech
  • New EU Prospectus Regulation: List of Thresholds Below Which Prospectus is Not Required
    02/08/2019

    The European Securities and Markets Authority has published a revised list of thresholds below which an offer of securities to the public will not need a prospectus in EU member states. The Prospectus Regulation introduced a new threshold of €1 million, below which an offer does not require a prospectus. A Member State may decide to raise the threshold to a maximum of €8 million, provided that the offer cannot be passported to another Member State. ESMA has drawn up this list to create transparency across the various regimes adopted in the EU.

    Read more.
    TOPIC: Securities
  • EU-Wide Listing Thresholds Report
    02/08/2019

    The European Securities and Markets Authority published a document listing the thresholds below which an offer of securities to the public does not need a prospectus in the various Member States of the EU. The document contains information, provided by national regulators, setting out: (i) a short description of the national thresholds below which no prospectus is required; (ii) a summary of any national rules that apply to offers below that threshold; and (iii) hyperlinks to the relevant national legislation and rules. 

    View the report.
    TOPIC: Securities
  • European Commission Requests Report on Potential Undue Short-Term Pressure by Financial Service Participants on Corporations
    02/06/2019

    The European Commission issued a call for advice to each of the European Supervisory Authorities requesting evidence and possible advice on potential undue short-term pressure by financial service participants on corporations. The call for advice relates to Action 10 of the EU's Sustainable Finance Action Plan, which aims to foster transparency and long-termism in financial and economic activity by exploring possible drivers of undue short-termism. The Commission wants the ESA's report to: (i) provide evidence of any short-termism and, if any, the consequences thereof; (ii) assess the drivers of such short-termism, including the effects of regulation on financial market participants, for example, the guidance on remuneration practices; (iii) identify existing regulations that either mitigate or exacerbate short-term pressures; and (iv) evaluate the need for regulatory or policy action and propose specific areas where action is needed.

    The Commission considers that pressure of this kind could lead corporations to overlook long-term risks and opportunities, such as those related to climate change and other factors related to sustainability. Companies facing short-term pressure could, as a result, forgo investment in areas important for a successful transition towards a sustainable economy. The ESAs are due to publish their report in December 2019.

    View the call for advice.
  • EU Agrees Final EMIR Refit
    02/05/2019

    On February 5, 2019, the Council of the European Union and the European Parliament reached a preliminary agreement on the draft Regulation amending the European Market Infrastructure Regulation, known as EMIR Refit or EMIR 2.1. The final text is likely to be published in the Official Journal of the European Union in April or May this year. Subject to a few exceptions, the changes will apply directly in all EU member states 20 days from that publication date. There may be minor drafting changes as the text is vetted by technicians and translated prior to its publication, but the legal position should be unaffected by this.

    Read more.
  • US Securities and Exchange Commission Grants and Extends Certain Exemptions for Security-Based Swaps
    01/31/2019

    The Securities and Exchange Commission has extended certain exemptions under the Securities Exchange Act of 1934 (Exchange Act) for security-based swap transactions. The relief, which is intended to facilitate the implementation of the security-based swaps regulatory regime under the Dodd-Frank Act, was originally offered by the SEC in 2011 and has been extended four times prior, most recently in 2018.

    Through this order, the Commission granted an extension of certain temporary relief provided by the SEC to address the fact that the Dodd-Frank Act revised the definition of “security” in the Exchange Act to include security-based swaps.  The relief, which was previously set to expire on February 5, 2019, will be extended until February 5, 2020.

    Read more.
    TOPIC: Derivatives
  • EU Authority Calls For Non-Enforcement of Impending Clearing Obligation for Small Financial Counterparties and of the Backloading Requirement
    01/31/2019

    The European Securities and Markets Authority has published a statement on the impending clearing and trading obligations for small financial counterparties and the reporting backloading requirement. Under the European Market Infrastructure Regulation, small FCs in Category 3 – FCs with less than €8 billion in aggregate month-end average of outstanding gross notional amount of uncleared derivatives at group level – are due to start clearing interest rate and credit derivatives subject to the clearing obligation on June 21, 2019. Once the clearing obligation is triggered, the related trading obligation under the Markets in Financial Instruments Regulation may also be triggered. In addition, the reporting backloading requirement is due to come into effect on February 12, 2019. However, it is foreseen that, under the EU's proposals to make technical changes to EMIR, known as EMIR Refit or EMIR 2.1, Category 3 FCs below the clearing threshold will be exempt from the clearing obligation and the backloading requirement will be deleted. The final text of EMIR Refit is now available, although it remains to be translated and published in the Official Journal.  Whilst EMIR Refit remains not in force, these obligations would technically arise, only to be eliminated shortly afterwards with the passage of this new legislation. In its statement, ESMA confirms that it does not expect national regulators to focus on any non-compliance by small FCs with the clearing obligation or by market participants with the backloading requirements.

    View ESMA's statement.
    TOPIC: Derivatives
  • UK Regulator Consults on Proposed Changes to Handbook to Implement EU Shareholder Rights Directive II
    01/30/2019

    The Financial Conduct Authority has launched a consultation on proposed revisions to the Handbook to implement changes made to the EU Revised Shareholder Rights Directive. The Directive aims to promote shareholder engagement, effective stewardship and long-term investment decision-making through enhancing the transparency of engagement policies and investment strategies across the institutional investment community.

    Read more.
  • UK Regulators Discussion Paper on Building a Framework for Effective Stewardship
    01/30/2019

    The Financial Conduct Authority and the Financial Reporting Council have published a discussion paper which calls for input on how best to encourage the capital markets community to engage more actively in stewardship of the assets in which they invest. The aim of the paper is to advance debate about what is meant by effective stewardship, what minimum expectations investors have of the financial services firms which invest on their behalf and what higher standards the U.K. should aspire to.

    Read more.
  • UK Financial Conduct Authority Consults on Proposed Changes to Handbook for Implementing the EU Prospectus Regulation
    01/28/2019

    The Financial Conduct Authority has published for consultation proposed changes to the Handbook. The changes are to align the Prospectus Rules sourcebook within the Handbook to ensure it is consistent with the new EU Prospectus Regulation that came into force on July 20, 2017.

    The EU Prospectus Regulation sets out information that companies need to disclose to investors and potential investors in a prospectus when raising capital. Even though certain provisions of the EU Prospectus Regulation were anticipated to come into effect after the U.K.’s anticipated exit from the EU on March 29, 2019, the EU Prospectus Regulation will still be applicable during any Brexit transition or implementation period.

    Read more.
  • International Body Issues Statement on Disclosure of Environmental, Social and Governance Matters
    01/18/2019

    The International Organization of Securities Commissions has issued a statement on the importance of issuers including environmental, social and governance matters when disclosing information material to investors’ decisions.

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    TOPIC: Securities
  • No Revision Needed to International Liquidity Risk Management Principles
    01/17/2019

    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
    01/17/2019

    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.

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  • EU Report on Accepted Market Practices in Accordance with the Market Abuse Regulation
    01/16/2019

    The European Securities and Markets Authority has published its annual report to the European Commission on the application of accepted market practices under the EU Market Abuse Regulation. The Market Abuse Regulation provides certain prohibitions against market manipulation. Accepted market practices, which are established by national regulators and notified to ESMA, provide a defense against any allegations of market manipulation. In particular, a dealing on a financial market which was carried out for legitimate reasons and in line with an established AMP, will not be found to constitute market manipulation. In the report, ESMA identifies AMPs which were established before the Market Abuse Regulation came into force, or which became effective after that date. 

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  • New UK Economic Crime Strategic Board
    01/14/2019

    The U.K. Government has announced the establishment of a new government taskforce to fight against financial crime. The new taskforce, the Economic Crime Strategic Board, is part of the Government's Serious and Organised Crime Strategy. It will set priorities, direct resources and scrutinise performance against the economic crime threat. The Board includes chief executives from Barclays, Lloyds and Santander and senior representatives from UK Finance, the National Crime Agency and the Solicitors Regulation Authority, Accountants Affinity Group and National Association of Estate Agents.

    View the announcement.
  • European Securities and Markets Authority Publishes Recommendations on Crypto-Assets and Initial Coin Offerings
    01/09/2019

    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
    01/09/2019

    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.

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